AGREEMENT AND PLAN OF MERGER among NEXCEN BRANDS, INC., MM ACQUISITION SUB, LLC, MAGGIEMOO’S INTERNATIONAL, LLC STUART OLSTEN, JONATHAN JAMESON, AND THE SECURITYHOLDERS’ REPRESENTATIVE
AGREEMENT
AND PLAN OF MERGER
among
NEXCEN
BRANDS, INC., MM ACQUISITION SUB, LLC,
MAGGIEMOO’S
INTERNATIONAL, LLC
XXXXXX
XXXXXX, XXXXXXXX XXXXXXX, AND
THE
SECURITYHOLDERS’ REPRESENTATIVE
TABLE
OF CONTENTS
Page
AGREEMENT
AND PLAN OF MERGER
|
3
|
|
BACKGROUND
|
3
|
|
ARTICLE
I DEFINITIONS
|
3
|
|
1.1
|
DEFINITIONS
|
3
|
ARTICLE
II THE MERGER
|
14
|
|
2.1
|
THE
MERGER.
|
14
|
2.2
|
EFFECTIVE
TIME; CLOSING; ACTIONS AT CLOSING.
|
14
|
2.3
|
EFFECT
OF THE MERGER
|
15
|
2.4
|
CERTIFICATE
OF FORMATION AND OPERATING AGREEMENT
|
15
|
2.5
|
MANAGING
MEMBER AND OFFICERS
|
15
|
2.6
|
CALCULATION
AND PAYMENT OF MERGER CONSIDERATION
|
15
|
2.7
|
REPAYMENT
OF COMPANY DEBT
|
16
|
2.8
|
EFFECT
ON CAPITAL EQUITY
|
17
|
2.9
|
NO
FURTHER OWNERSHIP RIGHTS IN COMPANY CAPITAL EQUITY
|
17
|
2.10
|
TAX
WITHHOLDING RIGHTS
|
17
|
2.11
|
FURTHER
ACTION
|
18
|
2.12
|
MERGER
CONSIDERATION ADJUSTMENTS
|
18
|
2.13
|
HOLDBACK
|
19
|
2.14
|
EARN-OUT
|
20
|
ARTICLE
III REPRESENTATIONS AND WARRANTIES REGARDING THE MAJORITY
SECURITYHOLDERS
|
21
|
|
3.1
|
OWNERSHIP
OF CAPITAL EQUITY
|
21
|
3.2
|
AUTHORIZATION
AND VALIDITY OF AGREEMENT
|
21
|
3.3
|
CONSENTS
AND APPROVALS; NO VIOLATIONS
|
21
|
3.4
|
BROKER’S
OR FINDER’S FEES
|
22
|
3.5
|
ABSENCE
OF CLAIMS
|
22
|
3.6
|
INVESTMENT
|
22
|
ARTICLE
IV REPRESENTATIONS AND WARRANTIES REGARDING THE COMPANY
|
22
|
|
4.1
|
ORGANIZATION
|
22
|
4.2
|
AUTHORIZATION;
ENFORCEABILITY
|
23
|
-i-
TABLE
OF CONTENTS
Page
4.3
|
NO
VIOLATION OR CONFLICT
|
23
|
4.4
|
CAPITALIZATION
|
23
|
4.5
|
SUBSIDIARIES
OF THE COMPANY
|
24
|
4.6
|
FINANCIAL
STATEMENTS
|
24
|
4.7
|
REAL
PROPERTY
|
25
|
4.8
|
TITLE
TO ASSETS
|
26
|
4.9
|
ACCOUNTS
RECEIVABLE
|
26
|
4.10
|
TAXES
|
27
|
4.11
|
LABOR
RELATIONS; COMPLIANCE
|
28
|
4.12
|
EMPLOYEE
BENEFITS
|
29
|
4.13
|
LITIGATION;
ORDERS
|
31
|
4.14
|
COMPLIANCE
WITH LAWS; GOVERNMENT AUTHORIZATIONS
|
31
|
4.15
|
OPERATIONS
OF THE COMPANY
|
32
|
4.16
|
MATERIAL
CONTRACTS
|
33
|
4.17
|
INSURANCE
|
34
|
4.18
|
ENVIRONMENTAL
MATTERS
|
35
|
4.19
|
INTELLECTUAL
PROPERTY
|
35
|
4.20
|
AFFILIATE
TRANSACTIONS
|
38
|
4.21
|
BROKERS
OR FINDERS
|
38
|
4.22
|
SUPPLIERS
|
38
|
4.23
|
FRANCHISE
MATTERS
|
38
|
4.24
|
REPRESENTATIONS
COMPLETE
|
42
|
ARTICLE
V REPRESENTATIONS AND WARRANTIES OF BUYER PARTIES
|
43
|
|
5.1
|
ORGANIZATION
|
43
|
5.2
|
AUTHORIZATION;
ENFORCEABILITY
|
43
|
5.3
|
NO
VIOLATION OR CONFLICT
|
44
|
5.4
|
CONSENTS
AND APPROVALS
|
44
|
5.5
|
BROKERS
|
44
|
5.6
|
SEC
DOCUMENTS AND OTHER REPORTS
|
44
|
5.7
|
ABSENCE
OF CHANGES
|
45
|
5.8
|
BUYER
SHARES
|
45
|
-ii-
TABLE
OF CONTENTS
Page
5.9
|
INVESTMENT
REPRESENTATIONS
|
45
|
5.10
|
LITIGATION
|
45
|
ARTICLE
VI PRE-CLOSING COVENANTS
|
45
|
|
6.1
|
CONDUCT
OF BUSINESS OF THE COMPANY
|
45
|
6.2
|
ACCESS
TO PROPERTIES AND RECORDS
|
47
|
6.3
|
REASONABLE
BEST EFFORTS.
|
47
|
6.4
|
PUBLIC
DISCLOSURE
|
48
|
6.5
|
NOTICE
OF DEVELOPMENTS
|
48
|
6.6
|
EXCLUSIVITY
|
49
|
6.7
|
ADVISORY
SERVICES
|
49
|
6.8
|
CONTINUATION
OF BUSINESS
|
49
|
6.9
|
MAJORITY
SECURITYHOLDER CONSENT OR APPROVAL
|
50
|
6.10
|
OPTION
ACCELERATION.
|
50
|
6.11
|
WARRANT
AMENDMENTS.
|
50
|
ARTICLE
VII POST CLOSING COVENANTS
|
50
|
|
7.1
|
CONFIDENTIALITY
|
50
|
7.2
|
RESTRICTIONS
ON SALE OF BUYER SHARES
|
51
|
7.3
|
AGREEMENT
TO VOTE
|
51
|
7.4
|
REGISTRATION
|
51
|
7.5
|
COMPANY
STORES
|
52
|
7.6
|
D&O
INSURANCE
|
52
|
7.7
|
FRANCHISE
REQUIREMENTS
|
52
|
7.8
|
INDEMNIFICATION.
|
52
|
ARTICLE
VIII CONDITIONS PRECEDENT TO BUYER PARTIES’ OBLIGATIONS
|
53
|
|
8.1
|
TRUTH
OF REPRESENTATIONS AND WARRANTIES
|
53
|
8.2
|
PERFORMANCE
OF AGREEMENTS
|
53
|
8.3
|
CERTIFICATE
|
53
|
8.4
|
NO
LITIGATION, INJUNCTIONS OR RESTRAINTS
|
53
|
8.5
|
NO
MATERIAL ADVERSE CHANGE
|
53
|
8.6
|
GOVERNMENTAL
AND OTHER APPROVALS
|
54
|
8.7
|
EMPLOYMENT
AGREEMENTS
|
54
|
-iii-
TABLE
OF CONTENTS
Page
8.8
|
VOTING
AGREEMENT
|
54
|
8.9
|
REQUIRED
SECURITYHOLDERS’ CONSENT
|
54
|
8.10
|
SECURITYHOLDER
NOTICE
|
54
|
8.11
|
SECURITYHOLDER
CONSENTS
|
54
|
8.12
|
OPTIONS
|
54
|
8.13
|
WARRANT
AMENDMENTS
|
54
|
8.14
|
REGISTRATION
RIGHTS AGREEMENT
|
55
|
8.15
|
SECURITYHOLDERS’
QUESTIONNAIRES
|
55
|
8.16
|
OTHER
DELIVERIES
|
55
|
ARTICLE
IX CONDITIONS PRECEDENT TO MAJORITY SECURITYHOLDERS’ AND COMPANY’S
OBLIGATIONS
|
55
|
|
9.1
|
TRUTH
OF REPRESENTATIONS AND WARRANTIES
|
55
|
9.2
|
PERFORMANCE
OF AGREEMENTS
|
56
|
9.3
|
CERTIFICATE
|
56
|
9.4
|
NO
LITIGATION, INJUNCTIONS OR RESTRAINTS
|
56
|
9.5
|
GOVERNMENTAL
AND OTHER APPROVALS
|
56
|
9.6
|
REGISTRATION
RIGHTS AGREEMENT.
|
56
|
9.7
|
DELIVERIES
BY BUYER PARTIES
|
56
|
ARTICLE
X INDEMNIFICATION
|
57
|
|
10.1
|
SURVIVAL
|
57
|
10.2
|
INDEMNIFICATION
BY SECURITYHOLDERS
|
57
|
10.3
|
INDEMNIFICATION
BY BUYER
|
58
|
10.4
|
LIMITATIONS
ON LIABILITY
|
59
|
10.5
|
TAX
TREATMENT OF INDEMNIFICATION PAYMENTS
|
59
|
10.6
|
PROCEDURE
FOR INDEMNIFICATION
|
60
|
10.7
|
PROCEDURE
FOR INDEMNIFICATION - OTHER CLAIMS
|
61
|
ARTICLE
XI TERMINATION
|
61
|
|
11.1
|
RIGHT
TO TERMINATE
|
61
|
11.2
|
EFFECT
OF TERMINATION
|
62
|
ARTICLE
XII MISCELLANEOUS PROVISIONS
|
62
|
|
12.1
|
NOTICES
|
62
|
12.2
|
ENTIRE
AGREEMENT; NONASSIGNABILITY; PARTIES IN INTEREST
|
63
|
12.3
|
EXPENSES
|
64
|
12.4
|
WAIVER
AND AMENDMENT
|
64
|
12.5
|
SEVERABILITY
|
65
|
12.6
|
REMEDIES
CUMULATIVE
|
65
|
12.7
|
COUNTERPARTS
|
65
|
12.8
|
GOVERNING
LAW; JURISDICTION
|
65
|
12.9
|
RULES
OF CONSTRUCTION
|
66
|
12.10
|
FURTHER
ASSURANCES
|
66
|
12.11
|
REMEDIES
|
67
|
-iv-
Disclosure
Schedules
Schedule
1.1(a)
|
Real
Property Guarantees
|
Schedule
1.1(b)
|
Option
Claim
|
Schedule
3.1
|
Ownership
of Capital Equity
|
Schedule
4.3
|
Non-Contravention
|
Schedule
4.4
|
Capitalization
|
Schedule
4.5
|
Subsidiaries
|
Schedule
4.6(b)
|
Financial
Statements
|
Schedule
4.7
|
Real
Property Leases
|
Schedule
4.9
|
Accounts
Receivable
|
Schedule
4.10(a)
|
Tax
Return Extensions
|
Schedule
4.10(c)
|
Audits
|
Schedule
4.10(h)
|
Section
1445 Persons
|
Schedule
4.11(a)
|
Labor
relations; Compliance
|
Schedule
4.11(c)
|
Labor
Agreements
|
Schedule
4.12
|
Employee
Benefit Plans
|
Schedule
4.13(a)
|
Proceedings
|
Schedule
4.13(b)
|
Orders
|
Schedule
4.14(a)
|
Non-Compliance
with Legal Requirements
|
Schedule
4.14(b)
|
Non-Effective
Governmental Authorizations
|
Schedule
4.15
|
Absence
of Change
|
Schedule
4.16
|
Material
Contracts
|
Schedule
4.17
|
Insurance
|
Schedule
4.18
|
Environmental
Matters
|
Schedule
4.19(a)
|
Intellectual
Property
|
Schedule
4.19(b)
|
IT
Software
|
Schedule
4.19(c)
|
Company
Intellectual Property Rights
|
Schedule
4.19(d)
|
No
Third-Party Infringement
|
Schedule
4.19(e)
|
No
Loss
|
Schedule
4.19(f)
|
No
Infringement of Company Intellectual Property Rights
|
Schedule
4.19(g)
|
Intellectual
Property Development
|
Schedule
4.19(h)
|
Intellectual
Property Proceedings
|
Schedule
4.20
|
Affiliate
Transactions
|
Schedule
4.22
|
Suppliers
|
Schedule
4.23
|
Franchise
Matters
|
Schedule
8.7
|
Employment
Agreements
|
Schedule
9.5
|
Required
Consents
|
-1-
Exhibits
Exhibit
A
|
Accounts
Payable and Accounts Receivable
|
Exhibit
B
|
Trademark
Logo
|
Exhibit
C
|
Franchise
Disputes
|
Exhibit
D
|
Securityholders’
Pro Rata Percentages
|
Exhibit
E
|
Certificate
of Merger
|
-2-
AGREEMENT
AND PLAN OF MERGER
This
AGREEMENT AND PLAN OF MERGER is entered into as of February 14, 2007, by
and
among NexCen Brands, Inc., a Delaware corporation (“Buyer”),
MM
Acquisition Sub, LLC, a Delaware limited liability company (“Merger
Sub”),
MaggieMoo’s International, LLC, a Delaware limited liability company (the
“Company”),
Xxxxxx Xxxxxx (“Common
Member”),
Xxxxxxxx Xxxxxxx (“Class
B Member,”
and
with the Common Member, the “Majority
Securityholders”),
and
Xxxxxx Xxxxxx as the Securityholders’ Representative.
Background
WHEREAS,
the operating board of the Company (the “Operating
Board”)
has
determined that it is fair to and advisable and in the best interests of
the
Company and its Securityholders for Buyer to acquire all of the outstanding
Membership Interests (the “Acquired
Interests”)
of the
Company through the merger of Merger Sub with and into the Company (the
“Merger”)
in
accordance with the applicable provisions of the Delaware Limited Liability
Act
(the “Act”)
and
upon the terms and subject to the conditions set forth herein;
WHEREAS,
in furtherance of such Merger, the Board of Directors of the Buyer, the Managing
Member of Merger Sub, the Operating Board of the Company, and the Majority
Securityholders (who constitute the requisite vote of the Securityholders),
have
each adopted this Merger Agreement providing for the Merger;
WHEREAS,
each Majority Securityholder is an Accredited Investor (as defined in Article
I); and
WHEREAS,
Buyer, Merger Sub, the Majority Securityholders and the Company desire to
make
certain representations, warranties, covenants and agreements in connection
with
the transactions contemplated hereby and also to prescribe various conditions
to
the transactions contemplated hereby.
NOW,
THEREFORE, in consideration of the foregoing and the respective representations,
warranties, covenants and agreements set forth herein, and other valuable
consideration, the sufficiency and receipt of which is hereby acknowledged,
and
intending to be legally bound hereby, the parties hereto hereby agree as
follows:
ARTICLE
I
Definitions
1.1 Definitions.
In
addition to terms defined elsewhere in this Agreement, the following terms
when
used in this Merger Agreement shall have the meanings indicated
below:
“Accounts
Payable”
means
all payables on the books and records of the Company, including but not limited
to those payables set forth as accounts payables on Exhibit
A
hereto.
“Accounts
Receivable”
means
(a) all trade accounts receivable, franchise royalty fee accounts receivable
and
other rights to payment from franchisees and customers of the Company, (b)
all
advertising accounts receivable related to advertising or marketing funds
of the
Company, (c) all accounts receivable related to the Marketing Fund, (d) all
other accounts or notes receivable of the Company and the full benefit of
all
security for such accounts or notes, and (e) any claim, remedy or other right
related to any of the foregoing, including but not limited to those receivables
set forth as accounts receivable on Exhibit
A
hereto.
-3-
“Accredited
Investor” shall
have the meaning set forth in Regulation D promulgated under the Securities
Act.
“Accredited
Investor Percentage”
shall
have the meaning set forth in Section
2.6(a).
“Acquired
Interests”
shall
have the meaning set forth in the Background to this Merger
Agreement.
“Acquisition
Proposal”
shall
have the meaning set forth in Section
6.6.
“Act”
shall
have the meaning set forth in the Preamble.
“Adjusted
Holdback Amount”
means
the Holdback Amount, less amounts (if any) distributed to the Buyer prior
to the
Holdback Release Date in accordance with Section
2.12
and
Article
X
“Adjustment” shall
have the meaning set forth in Section
7.2.
“Adjustment
Amount” shall
have the meaning set forth in Section
2.12(e).
“Affiliate”
means,
with respect to any Person, any Person that directly or indirectly, through
one
or more intermediaries, controls, is controlled by, or is under common control
with, such Person. For these purposes, “control” means the possession, directly
or indirectly, of the power to direct or cause the direction of the management
of any Person, whether through the ownership of voting securities, by contract
or otherwise.
“Affiliated
Group”
means
any affiliated group within the meaning of Section 1504(a) of the Code or
any
affiliated, combined, consolidated, unitary or similar group under state,
local
or foreign tax law.
“Balance
Sheet”
shall
have the meaning set forth in Section
4.6.
“Basket
Amount”
shall
have the meaning set forth in Section
10.4(b).
“Brand”
means
“MaggieMoo’s Ice Cream and Treatery,” together with the logo as shown on
Exhibit
B
attached
hereto, which are the subject of certain trademark and service xxxx
registrations with the United States Patent and Trademark Office.
“Buyer”
shall
have the meaning set forth in the Preamble to this Merger
Agreement.
“Buyer
Indemnified Persons”
shall
have the meaning set forth in Section
10.2.
“Buyer
Parties”
shall
mean Buyer and Merger Sub, collectively.
-4-
“Buyer
Statement”
shall
have the meaning set forth in Section
2.12(b).
“Buyer
SEC Documents”
shall
have the meaning set forth in Section
5.6.
“Buyer
Shares”
means
shares of common stock, par value $0.01 per share, of Buyer.
“Capital
Equity”
means
(a) in the case of a corporation, its shares of capital stock, (b) in
the case of a partnership or limited liability company, its partnership or
membership interests or units (whether general or limited), and (c) any
other interest that confers on a Person the right to receive a share of the
profits and losses of, or distribution of assets of, the issuing
entity.
“Cash
Consideration”
shall
have the meaning set forth in Section
2.6(a).
“Certificate
of Merger”
shall
have the meaning set forth in Section
2.2.
“Class
B Interests”
means
the interests of the Company designated as “Class B Interests” in the Operating
Agreement.
“Closing”
and
“Closing
Date”
shall
have the meanings set forth in Section
2.2(b).
“Closing
Date Reference Price”
means
the average closing price of one Buyer Share on the Nasdaq Global Market
during
the fifteen (15) consecutive trading days ending on (and including) the trading
day prior to the Closing Date.
“Closing
Date Statement”
shall
have the meaning set forth in Section
2.12(b).
“Closing
Transaction Expenses Certificate”
shall
have the meaning set forth in Section
13.3.
“COBRA”
means
Section 4980B of the Code or any similar state law.
“Code”
means
the Internal Revenue Code of 1986, as amended from time to time, and any
successor statute thereto.
“Common
Interests”
means
the interests of the Company designated as “Common Interests” in the Operating
Agreement.
“Common
Member”
shall
have the meaning set forth in the Preamble.
“Company
Benefit Plan”
shall
have the meaning set forth in Section
4.12(a).
“Company
Debt”
means
(a) indebtedness of the Company for borrowed money or with respect to deposits
or advances of any kind (other than advances due from customers incurred
in the
ordinary course of business and consistent with past practice), (b) all
obligations of the Company evidenced by bonds, debentures, notes or similar
instruments, (c) all obligations of the Company upon which interest charges
are
paid, (d) all obligations of the Company in respect of capitalized leases
that,
individually, involve an aggregate future liability in excess of $5,000 and
obligations of the Company for the deferred purchase price of goods or services
(other than trade payables or accruals incurred in the ordinary course of
business and consistent with past practice), (e) all obligations in respect
of
banker’s acceptances or letters of credit issued or created for the account of
the Company, (f) all indebtedness or obligations of the types referred to
in the
preceding clauses (a) through (e) of any other Person secured by any Lien
on any
assets of the Company, even though the Company has not assumed or otherwise
become liable for the payment thereof, (g) all guarantees by the Company
of
obligations of the type described in clauses (a) through (f) above of any
other
Person, (h) payment obligations in respect of interest under any interest
rate
swap or other hedge agreement or arrangement entered into by the Company
with
respect to any indebtedness described in clauses (a) through (g) above, and
(i)
with respect to any indebtedness described in the preceding clauses, all
accrued
interest, applicable prepayment premiums, fees and expenses, and the unamortized
discount of any indebtedness; provided
that
Company Debt shall not include (i) the debt component of capitalized leases
as
determined in accordance with GAAP, consistently applied, that remain
outstanding following the Closing, (ii) real property guarantees set forth
on
Schedule
1.1(a) hereof,
and (iii) the Xxxxxxx Obligation as reflected on the books and records of
the
Company.
-5-
“Company
Debt Amount”
shall
have the meaning set forth in Section
2.7.
“Company
Financial Statements”
shall
have the meaning set forth in Section
4.6(a).
"Company
Intellectual Property Rights"
shall
have the meaning set forth in Section
4.19(c).
“Company
Interim Reports”
shall
have the meaning set forth in Section
4.6.
“Confidential
Information”
means
any information concerning the business and affairs of Buyer or any of its
Affiliates or the Company or any of their Affiliates that is not already
generally available to the public.
“Confidentiality
Agreement”
shall
have the meaning set forth in Section
6.2.
“Contract”
means
any contract, license, sublicense, franchise, permit, mortgage, purchase
orders,
indenture, loan agreement, note, lease, sublease, agreement, obligation,
commitment, understanding, instrument or other arrangement or any commitment
to
enter into any of the foregoing (in each case, whether written or
oral).
“Damages”
means
any loss, liability, claim, damage, or expense, including reasonable attorneys’
fees and costs, but excluding special, exemplary, consequential or punitive
damages (other than any and all special, exemplary, consequential or punitive
damages that are paid or payable to a third party pursuant to a third-party
claim).
“Disclosure
Schedule”
shall
have the meaning set forth in Article IV.
“Earn-Out
Payment”
shall
have the meaning set forth in Section
2.14.
“Effective
Time”
shall
have the meaning set forth in Section
2.2(a).
“Employees”
shall
have the meaning set forth in Section
4.11(a).
-6-
“Environmental
Laws”
shall
have the meaning set forth in Section
4.18.
“ERISA”
shall
have the meaning set forth in Section
4.12(a).
“ERISA
Affiliate”
means
any entity (whether or not incorporated) treated as a single employer with
the
Company or any of its Subsidiaries for the purposes of Section 414 of the
Code.
“Equity
Securities”
means
(a) Capital Equity and (b) options, warrants or other rights convertible
into,
or exercisable or exchangeable for, directly or indirectly, or otherwise
entitling any Person to acquire, directly or indirectly, Capital
Equity.
“Estimate
Statement”
shall
have the meaning set forth in Section
2.12(a).
“Exchange
Act”
means
the Securities Exchange Act of 1934, as amended, together with the rules
and
regulations promulgated thereunder.
“Franchise
Agreements”
means
any Contract, including any written amendment, addendum, or modification
thereto, between the Company and a Franchisee pertaining to and evidencing
the
grant of a Franchise.
“Franchise
Dispute”
means
any of those matters set forth on Exhibit
C
hereto.
“Franchisee”
means
a
Person who has entered into and as of the Closing Date is a party to a Franchise
Agreement with the Company.
“Franchisee
Organization”
means
any group of two or more Franchisees, acting in concert on behalf of themselves
and other Franchisees, if any, for the purpose of addressing with the Company
concerns or issues under the Franchise Agreements or in connection with the
operation of the Franchises.
“Franchises” means
the
grant by the Company to a Franchisee of the rights to establish and operate
a
store or outlet identified by the Brand, including subfranchise agreements,
master development agreements, area representative agreements, area development
agreements, master franchise agreements, development agreements and license
agreements, together with all amendments and ancillary agreements related
thereto.
“GAAP”
means
United States generally accepted accounting principles, applied on a consistent
basis with prior periods.
“Government
Authority”
means
any domestic or foreign national, state, multi-state or municipal or other
local
government, any subdivision, agency, commission or authority thereof, including
any quasi-governmental or private body exercising any regulatory or taxing
authority thereunder or any judicial authority (or any department, bureau
or
division thereof).
“Government
Authorization”
means
any approval, consent, license, permit, waiver, franchise, order, registration,
certificate, variance, approval or other authorization issued, granted, given
or
otherwise made available by or under the authority of any Government Authority
or pursuant to any Legal Requirement.
-7-
“Hazardous
Substances”
shall
have the meaning set forth in Section
4.18.
“Holdback
Account”
shall
have the meaning set forth in Section
2.13(a).
“Holdback
Amount”
means
(x) a number of Buyer Shares equal to $3,000,000 multiplied by the Accredited
Investor Percentage, divided
by
the
Closing Date Reference Price plus (y) an amount of cash equal to $3,000,000
multiplied by the Non-Accredited Investor Percentage.
“Holdback
Release Date” shall
have the meaning set forth in Section
2.13(c).
“Incremental
Continuing Royalties”
means
the positive amount, if any, by which the aggregate amount of continuing
franchise royalties as determined in accordance with GAAP that are received
by
the Company or its Affiliates pursuant to the terms of the Franchise Agreements
or any other franchise agreement regarding a quick service restaurant ice
cream
brand owned by the Company or its Affiliates for the twelve months ending
December 31, 2007 exceed the aggregate amount of continuing franchise royalties
as determined in accordance with GAAP that are received by the Company or
its
Affiliates pursuant to the terms of the Franchise Agreements for the twelve
months ending December 31, 2006.
“Incremental
Initial Royalties”
means
the positive amount, if any, by which the aggregate amount of initial franchise
fees together with any other nonrecurring royalty amounts as determined in
accordance with GAAP that are received by the Company or its Affiliates pursuant
to the terms of the Franchise Agreements or any other franchise agreement
regarding a quick service restaurant ice cream brand owned by the Company
or its
Affiliates for the twelve months ending December 31, 2007 exceed the aggregate
amount of initial franchise fees together with any other nonrecurring royalty
amounts as determined in accordance with GAAP that are received by the Company
or its Affiliates pursuant to the terms of the Franchise Agreements for the
twelve months ending December 31, 2006.
“Indemnification
Agreements”
means
(i) that certain Indemnification Agreement by and between the Company and
Xxxxx
Xxxxxxxx, dated February 28, 2005, (ii) that certain Indemnification Agreement
by and between the Company and Xxxxxx Xxxxxxxx, dated September 23, 2004,
(iii)
that certain Indemnification Agreement by and between the Company and the
Common
Member, dated May 11, 2004, (iv) that certain Indemnification Agreement by
and
between the Company and the Class B Member, dated May 11, 2004, (v) that
certain
Indemnification Agreement by and between the Company and Xx Xxxxxxxxxxxx,
dated
May 11, 2004, (vi) that certain Indemnification Agreement by and between
the
Company and Xxx Xxxxx, dated May 17, 2006, and (vii) that certain
Indemnification Agreement by and between the Company and Xxxxx Xxxxxx Xxxxxx,
dated August 17, 2006.
“Indemnified
Persons”
shall
have the meaning set forth in Section
10.3.
“Initial
Period”
shall
have the meaning set forth in Section
7.2.
-8-
“Initial
Merger Consideration”
shall
have the meaning set forth in Section
2.6(a).
“Interim
Tax Period”
means
any taxable year or period that begins before the Closing Date and ends after
the Closing Date.
“Insurance
Policy”
and
“Insurance
Policies”
shall
have the meaning set forth in Section 4.17.
“Intellectual
Property”
means
all of the following in any jurisdiction throughout the world: (i) patents,
patent applications and patent disclosures; (ii) trademarks, service marks,
trade dress, trade names, product configuration, corporate names, logos and
slogans (and all translations, adaptations, derivations and combinations
of the
foregoing) and Internet domain names, Internet websites, and URLs together
with
all goodwill associated with each of the foregoing; (iii) copyrights and
copyrightable works; (iv) registrations and applications for any of the
foregoing; (v) trade secrets and confidential information (including inventions,
ideas, formulae, recipes and proprietary food processes, compositions, know-how,
manufacturing and production processes and techniques, research and development
information, drawings, specifications, designs, plans, proposals, technical
data, financial, business and marketing plans, and customer and supplier
lists
and related information); (vi) computer software, computer source code and
software systems (including data, source code and object code, databases
and
related documentation); and (vii) all other intellectual
property.
“IRS”
shall
have the meaning set forth in Section
4.10(a).
“Knowledge” means
(a)
with respect to the Company, the actual knowledge, after due inquiry, of
Xxxxxx
Xxxxxx, Xxxxxxxx X. Xxxxxxx, Xxxxx Xxxxxxxx, and Xxxxxx Xxxxxxxx and (b)
with
respect to Buyer, the actual knowledge, after due inquiry, of Xxxxxx X’Xxxxx,
Xxxxx Xxxxx and Xxxxx Xxxxxxx. The
terms
“know” and “knows” and like terms will have correlative meanings.
“Leased
Real Property”
means
all real property leased, subleased, licensed or otherwise conveyed or used
pursuant to the Real Property Leases.
“Legal
Requirement”
means
any federal, state, local, municipal, foreign, international, multinational
or
other administrative order, constitution, law, ordinance, principle of common
law, regulation, rule, statute, treaty, ruling,
interpretation, order or requirement imposed by an agency of the state or
local
government, court or other administrative body.
“Liens”
means
any mortgages, liens, pledges, security interests, charges, claims,
restrictions, and encumbrances of any nature, including pledges, defect or
objection liens, easements, encroachments, or restrictions of any kind and
other
title or interest retention arrangements, reservations, or limitations of
any
nature whatsoever, whether voluntarily incurred or arising by operation of
law.
“Majority
Securityholders”
shall
have the meaning set forth in the Preamble.
“Marketing
Fund”
means
any marketing funds under accounts set up by the Company contributed
to by the Franchisees pursuant to their respective Franchises.
-9-
“Marketing
Fund Difference”
means,
as of the Closing Date, the amount by which the liabilities (as determined
in
accordance with GAAP and in accordance with past practice) of the Marketing
Fund
exceed the cash on hand thereof, as supported by a statement of the Marketing
Fund’s account delivered by the Company to the Buyer no later than three (3)
days prior to Closing.
“Material
Adverse Effect”
means
any change, effect, event, occurrence, state of facts or development that,
in
the individual or in the aggregate, is, has been or would reasonably be expected
to be materially adverse to the assets, business, liabilities, prospects,
results of operations or condition (financial or otherwise) of the Company
and
its Subsidiaries, taken as a whole, or that would prevent or materially delay
the consummation of the transactions contemplated by this Merger
Agreement.
“Material
Contracts”
shall
have the meaning set forth in Section
4.16.
“Membership
Interests”
shall
mean the Common Interests and the Class B Interests.
“Merger”
has
the
meaning set forth in the Background.
“Merger
Agreement”
means
this Agreement and Plan of Merger together with all exhibits and schedules
referred to herein.
“Merger
Consideration”
shall
have the meaning set forth in Section
2.6(a).
“Merger
Sub”
has
the
meaning set forth in the Preamble.
“Minority
Securityholders”
shall
have the meaning set forth in Section
6.9.
“Multiemployer
Plan”
has
the
meaning set forth in Section 3(37) of ERISA.
“NASAA”
means
the North American Securities Administrators Association.
“Non-Accredited
Holder Amount” shall
have the meaning set forth in Section
2.6(a).
“Non-Accredited
Investor Percentage”
shall
have the meaning set forth in Section
2.6(a).
“Notice
of Default”
means a
formal, written notice the Company provides or has provided to a Franchisee,
in
accordance with the terms of a Franchise Agreement, of a default committed
or
alleged to be committed by the Franchisee under, or occurring in connection
with
a Franchisee’s operation under, a Franchise Agreement.
“Operating
Agreement”
means
that certain Second and Amended Operating Agreement of the Company, dated
August
11, 2004.
“Operating
Board”
shall
have the meaning set forth in the Background.
“Option
Claim”
means
any
claim, formal or informal, that has been asserted or may be asserted with
respect to the matter set forth on Schedule
1.1(b).
-10-
“Options”
means
options to purchase Class B Interests issued pursuant to the Option
Plan.
“Option
Holders”
shall
have the meaning set forth in Section
6.10.
“Option
Plan”
means
that certain Employee Option Plan of the Company effective as of January
1,
2004.
“Order”
means
any award, decision, injunction, judgment, order, ruling, subpoena or verdict
entered, issued, made or rendered by any court, administrative agency or
other
Government Authority or by any arbitrator.
“Organizational
Documents”
means
with respect to any entity, the certificate of incorporation, bylaws or other
governing documents of such entity.
“Pay-off
Certificate”
shall
have the meaning set forth in Section
2.7.
“Permitted
Liens”
means
(i) mechanics’, materialmen’s or similar inchoate Liens arising or incurred in
the ordinary course of business relating to liabilities not yet due and payable;
(ii) Liens for current taxes not yet due and payable, or the validity of
which
is being contested in good faith by appropriate proceedings, which proceedings
have the effect of preventing foreclosure or enforcement of such Liens and
where
adequate reserves are established and maintained in accordance with generally
accepted accounting principles; and (iii) Liens or pledges in connection
with
workmen’s compensation, unemployment insurance or other social security
obligations.
“Person”
means
any natural person, corporation, unincorporated organization, partnership,
association, limited liability company, joint stock company, joint venture,
trust or government, or any agency or political subdivision of any government,
or any other entity.
“Pre-Closing
Tax Returns”
shall
have the meaning set forth in Section
11.1.
“Pro
Rata Percentage”
shall
mean the percentage set forth on Exhibit
D
hereto
opposite such Securityholder’s name, which indicates such Securityholder’s pro
rata ownership percentage of the Company.
“Proceeding”
means
any private or governmental suit, litigation, arbitration, investigation
or
proceeding, including any civil, criminal, administrative, investigative
or
appellate proceeding, or prosecution.
“Real
Property Leases”
shall
have the meaning set forth in Section
4.7(a).
“Reference
Date”
means
the nine (9)-month anniversary of Closing or such earlier date that the Company
has sold all Company-owned stores acquired pursuant to this Merger
Agreement.
“Registration
Rights Agreement”
shall
have the meaning set forth in Section
7.4.
-11-
“Required
Securityholder Consent”
shall
have the meaning set forth in Section
6.9.
“Reviewing
Accountants”
shall
have the meaning set forth in Section
2.12(c).
“SEC
Financial Statements”
shall
have the meaning set forth in Section
7.6.
“Securities
Act”
means
the Securities Act of 1933, as amended from time to time, and any successor
statute thereto.
“Securities”
shall
have the meaning set forth in Section
7.2.
“Securityholder
Indemnified Persons”
shall
have the meaning set forth in Section
10.3.
“Securityholders”
shall
have mean those Persons listed as members of the Company on Schedule
4.4,
which
for the avoidance of doubt includes all Option Holders and Warrant
Holders.
“Securityholders’
Representative”
shall
mean Xxxxxx Xxxxxx.
“Sold
Store”
shall
have the meaning set forth in Section
7.5.
“Statement
of Objection”
shall
have the meaning set forth in Section
2.12(b).
“Stock
Consideration”
shall
have the meaning set forth in Section
2.6(a).
“Store-Level
Net Proceeds”
means,
with respect to the Sold Stores, as of the Reference Date, an amount equal
to
the sum of (i) (x) net income of the Sold Stores for the period commencing
on
the first day after the Closing Date and ending on the Reference Date (or
such
earlier date that the Company ceases to own or operate a particular Sold
Store),
after restoring thereto (without duplication) amounts deducted in the
computation thereof for (a) depreciation, (b) amortization, and (c) other
non-cash expenses (excluding provisions for uncollectible accounts),
less
(y) $50,000, plus
(ii) net
proceeds (after deducting fees and expenses incurred in connection with or
related to the sale or other transfer of any Sold Store and Taxes) received
by
the Buyer or its Affiliates from any sale or other transfer of any Sold Store
to
a third party.
“Store
Loss”
shall
have the meaning set forth in Section
7.5.
“Subsidiary”
means,
with respect to any Person, any corporation, partnership, limited liability
company, joint venture or other legal entity of any kind of which such Person
(either alone or through or together with one or more of its other
Subsidiaries), owns, directly or indirectly, more than fifty percent (50%)
of
the Capital Equity or other equity interests the holders of which are (a)
generally entitled to vote for the election of the board of directors or
other
governing body of such legal entity or (b) generally entitled to share in
the
profits or capital of such legal entity.
“Subsidiary
Shares”
shall
have the meaning set forth in Section
4.5(b).
“Surviving
Company”
shall
have the meaning set forth in Section
1.1.
-12-
“Tax”
and
“Taxes”
means
(i) any federal, state, local or foreign income, gross receipts, capital,
franchise, import, goods and services, value added, estimated, alternative
minimum, add-on minimum, sales, use, transfer, registration, excise, natural
resources, severance, stamp, occupation, premium, windfall profit,
environmental, customs, duties, real property, personal property, capital
stock,
social security, unemployment, disability, payroll, license, employee
withholding, unclaimed property, escheat or other tax of any kind whatsoever,
including any interest, penalties or additions to tax or additional amounts
in
respect of the foregoing, (ii) any liability for the payment of any amounts
of
the type described in (i) as a result of being a member of an Affiliated
Group
for any Taxable period, and (iii) any liability for the payment of any amounts
of the type described in (i) or (ii) as a result of being a transferee or
successor to any person or as a result of any express or implied obligation
to
indemnify any other Person.
“Tax
Benefit”
shall
have the meaning set forth in Section
10.5.
"Tax
Claim"
shall
have the meaning set forth in Section
11.3.
“Tax
Returns”
means
returns, written declarations, written reports, claims for refund, information
returns or other documents (including any related or supporting schedules,
written statements or written information) filed or required to be filed
with
any Government Authority exercising taxing authority in connection with the
determination, assessment, administration, imposition or collection of any
Tax.
“Termination
Date”
shall
have the meaning set forth in Section
11.1(b).
“Territorial
Rights”
means
any of the following under a Franchise Agreement granted by the Company to
any
Franchisee: a protected territory or an exclusive territory in a geographical
area; a Company covenant not to compete with a Franchisee in a geographical
area; a Franchisee’s right of first refusal to franchise in a geographical area
or an option or other similar arrangement to franchise in a geographical
area.
“Threshold”
shall
have the meaning set forth in Section
10.4(b).
“Xxxxxxx
Obligation”
means
the obligation of the Company set forth in section I.B. of that certain
Agreement of Purchase and Sale, dated November 25, 1996, by and between
MaggieMoo’s Franchise Company, Inc. (“Xxxxxxx”),
and
the Company (the “Xxxxxxx
Agreement”),
to pay
to Xxxxxxx the Initial Contingency Payment and the Additional Contingency
Payments (each as defined in the Xxxxxxx Agreement) pursuant to the terms
thereof.
“Transaction
Amendments”
shall
have the meaning set forth in Section
6.8.
“Transfer”
shall
have the meaning set forth in Section
7.2.
“UFOC
Guidelines”
means
the Uniform Franchise Offering Circular Guidelines published by NASAA as
in
effect from time to time.
“UFOC”
or
UFOCs”
means
the uniform franchise offering circular(s) used by the Company since March
27,
2003 in its efforts to comply with the laws pertaining to the offer and sale
of
Franchises operating under the Brand.
-13-
“Voting
Agreement”
shall
have the meaning set forth in Section
7.3.
“Warrant
Amendments”
has the
meaning set forth in Section
6.11.
“Warrant
Holders”
has the
meaning set forth in Section
6.11.
“Warrants”
means
warrants issued by the Company that are exercisable for Common
Interests.
ARTICLE
II
The
Merger
2.1 The
Merger.Upon
the
terms and subject to the conditions set forth in this Merger Agreement, and
in
accordance with the Act, Merger Sub shall be merged with and into the Company
at
the Effective Time. Following the Merger, the separate corporate existence
of
Merger Sub shall cease, and the Company shall continue as the surviving
corporation (the “Surviving
Company”).
2.2 Effective
Time; Closing; Actions at Closing.
(a) Subject
to the provisions of this Merger Agreement, the parties hereto shall cause
the
Merger to be consummated by filing a Certificate of Merger in substantially
the
form attached hereto as Exhibit
E with
the
Secretary of State of the State of Delaware in accordance with the relevant
provisions of the Act (the “Certificate
of Merger”)
(the
time of such filing with the Secretary of State of the State of Delaware
(or
such later time as may be agreed in writing by the Company and Buyer and
specified in the Certificate of Merger) being the “Effective
Time”)
as
soon as practicable on the Closing Date (as defined below).
(b) The
closing of the Merger (the “Closing”)
shall
take place at the offices of Xxxxxxxx & Xxxxx LLP, located at 000 Xxxx 00xx
Xxxxxx, Xxx Xxxx, Xxx Xxxx 00000, which shall be no later than the second
Business Day after the satisfaction or waiver of the conditions set forth
in
Articles VIII and IX (other than those that by their terms are to be satisfied
or waived at the Closing), or at such other time, date and location as the
parties hereto agree in writing. The date on which the Closing occurs is
referred to herein as the “Closing
Date.”
(c) At
the
Closing, (i) the Company will deliver to the Buyer Parties the various
certificates, instruments and documents referred to in Article VIII; (ii)
the
Buyer Parties will deliver the various certificates, instruments and documents
referred to in Article IX; (iii) the Company and Merger Sub will file with
the
Secretary of State of the State of Delaware the Certificate of Merger; (iv)
Buyer will pay in full the Company Debt Amount, in accordance with the pay-off
instructions included with the Pay-off Certificate; (iv) Buyer will pay the
amounts set forth on the Closing Transaction Expenses Certificate; and (v)
Buyer
will reserve the Holdback Amount.
-14-
2.3 Effect
of the Merger At
the
Effective Time, the effect of the Merger shall be as provided in this Merger
Agreement and the applicable provisions of the Act. Without limiting the
generality of the foregoing, and subject thereto, at the Effective Time,
all the
property, rights, privileges, powers and franchises of the Company and Merger
Sub shall vest in the Surviving Company, and all debts, liabilities and duties
of the Company and Merger Sub shall become the debts, liabilities and duties
of
the Surviving Company.
2.4 Certificate
of Formation and Operating Agreement
At
the Effective Time, the Certificate of Formation of the Company shall be
amended
and restated in its entirety to be identical to the Certificate of Formation
of
Merger Sub as in effect immediately prior to the Effective Time, until
thereafter amended in accordance with the Act and as provided in such
Certificate of Formation; provided,
however,
that at
the Effective Time, Article First of the Certificate of Formation of the
Surviving Company shall be amended and restated in its entirety to read as
follows: “The name of the limited liability company is “MaggieMoo’s
International, LLC”. At the Effective Time, the Operating Agreement of the
Company shall be amended and restated in its entirety to be identical to
the
operating agreement of Merger Sub as in effect immediately prior to the
Effective Time, until thereafter amended in accordance with the Act and as
provided in such operating agreement.
2.5 Managing
Member and Officers
The managing member of the Surviving Company shall be the managing member
of
Merger Sub immediately prior to the Effective Time. The initial officers
of the
Surviving Company shall be the initial officers of Merger Sub immediately
prior
to the Effective Time.
2.6 Calculation
and Payment of Merger Consideration,
(a) The
consideration for all of the Acquired Interests shall be $16,100,000 (the
“Initial
Merger Consideration”),
which
shall be comprised of (1) the Cash Consideration (subject to adjustment in
accordance with Section
2.12)
and the
Stock Consideration, (2) the Non-Accredited Holder Amount and (3) the Holdback
Amount as and to the extent payable as set forth in Section
2.13.
The
Initial Merger Consideration, plus the Earn-Out Payment earned as and to
the
extent set forth in Section
2.14
is
referred to as the “Merger
Consideration”
and
shall be paid in accordance with Section
2.6(b), Section
2.6(c) and Section 2.6(d).
The
“Cash
Consideration”
shall
be equal to the remainder of (i) $10,600,000 (as adjusted pursuant to
Section
2.12(a)),
less
(ii) the Company Debt Amount, less (iii) the amount set forth on the Closing
Transaction Expenses Certificate, and less (iv) the Marketing Fund Difference.
The “Stock
Consideration”
shall
be a number of Buyer Shares equal to the quotient obtained by dividing (x)
$2,500,000 multiplied by the percentage of the Acquired Interests owned by
Accredited Investors (as determined based on the Securityholder Questionnaires)
(the “Accredited
Investor Percentage”),
by (y)
the Closing Date Reference Price. The
“Non-Accredited
Holder Amount”
shall
be cash equal to $2,500,000 multiplied by the percentage of the Acquired
Interests not owned by Accredited Investors (as determined based on the
Securityholder Questionnaires) (the “Non-Accredited
Investor Percentage”).
-15-
(b) At
least
three (3) days prior to the Closing Date, the Company shall deliver to Buyer
and
Merger Sub a schedule setting forth the Cash Consideration, Additional Cash
Consideration (as defined below) and Stock Consideration payable in respect
of
each Acquired Interest (the "Allocation
Schedule").
The
following provisions shall apply to the formulation of the Allocation
Schedule:
(i) the
portion of the Initial Merger Consideration payable in respect of each Acquired
Interest shall be determined as if the Initial Merger Consideration were
distributed to all of the holders (other than the Company, any of its
Subsidiaries, Merger Sub or Buyer) of Acquired Interests pursuant to the
terms
of the Operating Agreement; and
(ii) the
holders of Acquired Interests who are Accredited Investors (as defined under
Regulation D of the Securities Act) and have completed, signed and returned
the
shareholder questionnaire in the form mutually agreed (the “Securityholder
Questionnaire”)
demonstrating their qualifications as Accredited Investors, shall receive
Initial Merger Consideration consisting of a portion of the Cash Consideration
equal
to
the product of the Cash Consideration multiplied by the Accredited Investor
Percentage
and all
of the Stock Consideration; and
(iii)
the
holders of Acquired Interests who do not demonstrate their qualifications
as an
Accredited Investors in their returned Securityholder Questionnaires or who
otherwise are determined in good faith by the Company (after consultation
with
the Buyer) not to be Accredited Investors shall receive Initial
Merger Consideration consisting of the portion of the Cash Consideration
equal
to the product of the Cash Consideration multiplied by the Non-Accredited
Investor Percentage and the Non-Accredited Holder Amount.
(c) At
the
Effective Time, (i) payment of the Cash Consideration and the Non-Accredited
Holder Amount shall be made by wire transfer of immediately available funds
to
an account designated by the Company at least three (3) days prior to Closing
for the benefit of the Securityholders and (ii) the Buyer shall deliver the
certificates representing the Stock Consideration to the Company for the
benefit
of the Securityholders entitled to receive the same pursuant to Section
2.6(b)(ii). On the Holdback Release Date, the Adjusted Holdback Amount shall
be distributed to the Securityholders from the Holdback Account.
(d) On
March
31, 2008, each Securityholder shall be entitled to receive an amount of the
Earn-Out Payment, if any, equal to the aggregate amount of the Earn-Out Payment,
if any, multiplied by such Securityholder’s Pro Rata Percentage (but subject to
the form of consideration specified in Section 2.14). Payment of the cash
portion of the Earn-Out Payment, if any, shall be made by wire transfer of
immediately available funds to one account designated by the Securityholders’
Representative no later than March 28, 2008, for the benefit of the
Securityholders entitled to receive the same pursuant to Section
2.6(b)(ii). The Buyer shall issue the Buyer Shares issuable in respect of
such Earn-Out Payment, if any, in the names of the Securityholders and deliver
the certificates representing such shares to the Securityholders’ Representative
for the benefit of such Securityholders.
2.7 Repayment
of Company Debt
Not less than three (3) business days prior to the Closing, the Company shall
cause to be delivered to the Buyer a certificate (the “Pay-off
Certificate”)
setting forth the amount of Company Debt that will be outstanding immediately
prior to the Closing, together with pay-off letters specifying the pay-off
amount (including principal, interest, and any premiums, penalties or fees
payable in connection therewith), UCC-3 Termination Statements and the pay-off
instructions for all such Company Debt, if any (the aggregate of such amount,
the “Company
Debt Amount”).
-16-
2.8 Effect
on Capital Equity
At
the Effective Time, by virtue of the Merger and without any action on the
part
of Buyer Parties, the Company or the Securityholders the following will occur:
(a) Conversion
of Membership Interests.
Except
as otherwise provided herein, each Membership Interest issued and outstanding
immediately prior to the Effective Time shall be converted into the right
to
receive the consideration specified in Section 2.6 above.
(b) Cancellation
of Membership Interests.
As of
the Effective Time, all Membership Interests issued and outstanding immediately
prior to the Effective Time shall no longer be outstanding and shall
automatically be canceled and shall cease to exist, and each Securityholder
shall cease to have any rights with respect to thereto, except the right
to
receive the right to receive the consideration specified in Section 2.6,
payable
or issuable, as applicable, in the form set forth above in Section
2.6.
(c) Cancellation
of Options.
As of
the Effective Time, all Options issued and outstanding immediately prior
to the
Effective Time that have not been exercised shall no longer be outstanding
and
shall automatically be canceled and shall cease to exist, and each Option
Holder
shall cease to have any rights with respect to thereto.
(d) Cancellation
of Warrants.
As of
the Effective Time, all Warrants issued and outstanding immediately prior
to the
Effective Time that have not been exercised shall no longer be outstanding
and
shall automatically be canceled and shall cease to exist, and each Warrant
Holder shall cease to have any rights with respect to thereto.
(e) Capital
Equity of Merger Sub.
Each
limited liability company interest of Merger Sub issued and outstanding
immediately prior to the Effective Time shall, by virtue of the Merger, be
converted into one limited liability company interests of the Surviving
Company.
2.9 No
Further Ownership Rights in Company Capital Equity
All Merger Consideration issued in accordance with the terms hereof shall
be
deemed to have been issued in full satisfaction of all rights pertaining
to the
Membership Interests, and there shall be no further registration of transfers
on
the records of the Surviving Company of any Membership Interests which were
outstanding immediately prior to the Effective Time.
2.10 Tax
Withholding Rights
Buyer, Merger Sub or the Surviving Company shall be entitled to deduct and
withhold from the consideration otherwise payable to any Securityholder pursuant
to this Merger Agreement, such amounts only as may be required to be deducted
and withheld with respect to the making of such payment under the Code, or
under
any provision of state, local or foreign tax law. To the extent that amounts
are
so deducted and withheld by Buyer, Merger Sub or the Surviving Company and
paid
over to the appropriate taxing authority, such deducted and withheld amounts
shall be treated for all purposes of this Merger Agreement as having been
paid
to such Securityholder in respect of which such deduction and withholding
was
made by Buyer, Merger Sub or the Surviving Company.
-17-
2.11 Further
Action
At
and after the Effective Time, the officers and directors of Buyer and the
Surviving Company will be authorized to execute and deliver, in the name
and on
behalf of the Company and Merger Sub, any deeds, bills of sale, assignments
or
assurances and to take and do, in the name and on behalf of the Company and
Merger Sub, any other actions and things to vest, perfect or confirm of record
or otherwise in the Surviving Company any and all right, title and interest
in,
to and under any of the rights, properties or assets acquired or to be acquired
by the Surviving Company as a result of, or in connection with, the Merger.
2.12 Merger
Consideration Adjustments.
(a) At
least
five (5) business days prior to the Closing Date, the Company shall prepare
and
deliver to Buyer a good faith estimate, prepared in accordance with GAAP,
except
as noted thereon, applied in a manner consistent with the preparation of
the
Company Financial Statements, but including normal GAAP year-end adjustments,
and accompanied by a certificate of the Chief Financial Officer of the Company,
of the estimated Accounts Receivable and Accounts Payable as of the Closing
Date
(the “Estimate
Statement”),
which
Estimate Statement shall be reasonably acceptable to Buyer; provided
that
Buyer’s belief that the Estimate Statement is reasonable at that time shall not
foreclose, prevent, limit or preclude any rights or remedy of Buyer set forth
herein. In
the
event that the parties fail to resolve their disagreements over the disputed
items prior to the Closing, the Estimate Statement as originally provided
to
Buyer, or with those modifications, if any, to which the parties shall have
agreed shall be deemed to be the Estimate Statement. If the Accounts Payable
exceed the Accounts Receivable by more than $350,000, then the
Cash
Consideration paid at Closing shall be decreased to the extent of such excess.
(b) As
promptly as practicable after the Closing Date, but in no event more than
sixty
(60) days following the Closing Date, Buyer will prepare and deliver to the
Securityholders’ Representative a reasonably detailed statement (the
“Buyer
Statement”)
setting forth the Accounts Receivables and Accounts
Payable
as of
the Closing Date. If
the
Securityholders’ Representative has not received a Buyer Statement within sixty
(60) days following the Closing Date, the Estimate Statement shall be final
and
binding on the parties hereto without any further action. Buyer shall prepare
the Buyer Statement consistent with the basis of the preparation of the Estimate
Statement. Unless within thirty (30) days after its receipt of Buyer Statement
the Securityholders shall deliver to Buyer a reasonably detailed statement
describing their objections to Buyer Statement (a “Statement
of Objection”),
the
amount of Accounts Receivable and Accounts
Payable
at the
Closing Date as set forth on Buyer Statement shall be final and binding on
the
parties hereto and Buyer Statement shall be the final statement hereunder
(the
“Closing
Date Statement”).
(c) If
the
Securityholders’ Representative delivers to Buyer a timely Statement of
Objection, Buyer and the Securityholders’ Representative and their respective
independent accountants shall negotiate in good faith and use reasonable
best
efforts to resolve any dispute. If the parties resolve their disagreements
in
accordance with the foregoing sentence, the Closing Date Statement with those
modifications, if any, to which the parties shall have agreed shall be deemed
to
be the Closing Date Statement. If a final resolution is not reached within
thirty (30) days after Buyer or the Securityholders’ Representative have
submitted their Statement of Objection, any remaining disputes shall be resolved
by an independent accounting firm of national standing selected jointly by
the
parties (the “Reviewing
Accountants”).
The
Reviewing Accountants shall be instructed to limit its review to matters
specifically set forth in the Statement of Objections and to resolve any
matters
in dispute as promptly as practicable, but in no event more than thirty (30)
days after such matters have been submitted to them, and to set forth their
resolution in a statement (the “Accountant
Statement”)
setting forth the Accounts Receivable and Accounts Payable as of the Closing
Date. With respect to any disputed matter, the Reviewing Accountants may
select
Buyer’s figure, the Securityholders’ Representative’s figure or a figure between
the two. The Reviewing Accountant shall act as an arbitrator to determine,
based
solely on the terms of this Merger Agreement (including the definition of
Accounts Receivable and Accounts Payable set forth herein) and the presentations
by the parties and not by independent review of legal, accounting or factual
matters, only those issues in dispute. In no event may the Reviewing Accountant
consider any issues, amounts or matters not disputed in a Statement of Objection
delivered within the applicable 30-day period. The determination of the
Reviewing Accountants shall be final and binding on the parties
hereto.
-18-
(d) The
fees
and expenses of the Reviewing Accountants shall be borne by Buyer and the
Securityholders in inverse proportion as they may prevail on matters resolved
by
the Reviewing Accountants, and such proportionate allocation shall also be
determined by the Reviewing Accountants when their determination is rendered
on
the merits of the matter submitted. The Securityholders’ Representative and
Buyer shall cooperate with each other and any Reviewing Accountants in
connection with the matters contemplated by this Section
2.12,
including Buyer’s preparation of and the Securityholders’ Representative’s
review of Buyer Statement, in each case including by furnishing such information
and access to books, records (including accountants’ work papers), personnel and
properties as may be reasonably requested.
(e) Within
three (3) days after the final determination of the Closing Date Statement
in
accordance with this Section
2.12,
if the
Closing Date Statement reflects an increase in amount (if any) by which the
Accounts
Payable exceed the Accounts Receivables as compared to the Estimate Statement
(such difference, the “Adjustment
Payment”),
then
the Buyer shall be entitled to such Adjustment Payment and the Adjustment
Payment shall be satisfied solely from the Holdback Amount in accordance
with
Section
2.13.
(f) The
Securityholders’ portion of any fees and expenses due to the Reviewing
Accountants or any other third-party fees and expenses of the Securityholders’
and/or the Securityholders’ Representative incurred in connection with complying
with Section
2.12(b)
or
Section
2.12(c)
(the
“Securityholders’
Fees”)
shall
be satisfied out of the Holdback Amount, as adjusted from time to time;
provided,
that
the Securityholders’ Fees shall not exceed $25,000 in the
aggregate.
2.13 Holdback
(a) At
Closing, the Buyer shall reserve, in the aggregate, an amount of cash and a
number of Buyer Shares to satisfy the Holdback Amount and shall designate
such
Buyer Shares as so reserved on the books and records of the Buyer for the
benefit of the Securityholders.
-19-
(b) The
Holdback Amount shall be used to (i) satisfy any Adjustment Payment, (ii)
to pay
the Securityholders’ Fees, and (iii) satisfy Damages, if any, for which Buyer
Indemnified Parties are entitled to indemnification or reimbursement in
accordance with Article X hereof. For purposes of satisfying any claim
under this Merger Agreement or paying the Securityholders’ Fees, the value of
each Buyer Share included in the Holdback Amount shall be equal to the greater
of (i) the average closing price of one Buyer Share on the Nasdaq Global
Market (or any other primary exchange on which such shares then trade) during
the fifteen (15) consecutive trading days ending on (and including) the trading
day prior to any applicable draw down from the Holdback Account and
(ii) the Closing Date Reference Price. With respect to the Securityholder
Fees, upon receipt of a notice of such Securityholders’ Fees from the
Securityholders’ Representative, the Buyer shall pay to the Securityholders’
Representative the Securityholders’ Fee and reduce the Holdback Amount in
accordance with the immediately preceding sentence. The Buyer shall, from
time
to time, adjust its books and records to reflect deductions to the Holdback
Amount for satisfaction of any Adjustment Payment or indemnification payments
or
payment of the Securityholders’ Fees.
(c) Subject
to Section
7.4,
the
Buyer Parties shall release the Adjusted Holdback Amount to the Securityholders
based on their Pro Rata Percentage on the date which is 24 months and one
day
after the Closing Date (or, if such date is not a business day, the immediately
following business day) (the “Holdback
Release Date”);
provided
that if
on the Holdback Release Date any claim by a Buyer Indemnified Person has
been
made that could result in Damages and Buyer has notified the Securityholders
of
such in writing, then either (i) there shall be withheld from the distribution
to the Securityholders such amount of the Adjusted Holdback Amount necessary
to
cover all Damages potentially resulting from all such pending claims (and
the
Adjusted Holdback Amount shall continue with respect to such withheld amount)
and such withheld amount (or the applicable portion thereof) shall either
be
(A) paid to Buyer or (B) paid to the Securityholders, as determined
upon final resolution of each such claim in accordance with Article X hereof
or
(ii) the Securityholders shall post a bond in an amount reasonably and from
a
bank of national standing acceptable to Buyer for such amount necessary to
cover
all Damages potentially resulting from all such pending claims in accordance
with the terms of Article X hereof, and upon posting of such bond all of
the
remaining balance of the Holdback Amount shall be released to the
Securityholders in accordance with the terms of this Section
2.13
and
Article X hereof. Notwithstanding
the foregoing, any Securityholder that received the Non-Accredited Holder
Amount
shall receive his, her, or its Pro Rata Percentage of the Adjusted Holdback
Amount in cash.
2.14 Earn-Out
Following the Closing, the Securityholders shall be entitled to receive (subject
to the terms and conditions set forth in this Section
2.14)
an
amount of cash or additional Buyer Shares, at Buyer’s option (the “Earn-Out
Payment”),
equal
to the lesser of (x) $2,000,000 and (y) the product of (i) 0.4 multiplied
by (y)
the sum of (A) the Incremental Initial Royalties multiplied by 2.0 plus (B)
the
Incremental Continuing Royalties multiplied by 4.5, and such amount, if any,
shall be paid in accordance with Section
2.6(c);
provided
first
that if on March 31, 2008 the Buyer Shares are not listed on one or more
national securities exchanges, the Nasdaq Global Market or a similarly liquid
non-United States securities exchange, the Buyer shall satisfy the Earn-Out
Payment, if any, solely in cash; and provided
second
that, with respect to all Securityholders that received the Non-Accredited
Holder Amount, the Earn-Out Payment shall be made solely in cash. Any Buyer
Shares issued in satisfaction of the Earn-Out Payment, if any, shall equal
the
Earn-Out Payment payable to such Securityholder divided by the closing sale
price per share of the Buyer Shares on the Nasdaq Global Market (or any other
primary exchange on which such shares then trade) on March 31, 2008. As a
condition to the Earn-Out Payment in Buyer Shares, such Buyer Shares shall
be
covered by a registration statement filed with and declared effective by
the
Securities and Exchange Commissions under the Securities Act.
-20-
ARTICLE
III
Representations
and Warranties Regarding the Majority Securityholders
Each
Majority Securityholder hereby, severally and not jointly, represents and
warrants to the Buyer Parties that the statements contained in this Article
III
are correct and complete as of the date of this Merger Agreement and will
be
correct and complete as of the Closing Date (as though made then and as though
the Closing Date were substituted for the date of this Merger Agreement
throughout this Article III (except to the extent any representation or warranty
speaks as of a different date, which representations and warranties shall
be
true and correct only as of such date)) with respect to himself, except as
set
forth in the Disclosure Schedules (as defined below) attached
hereto:
3.1 Ownership
of Capital Equity
Such Majority Securityholder is the lawful, record and beneficial owner of
all
of the Equity Securities which are set forth opposite such Majority
Securityholder’s name on Schedule 3.1
hereto,
which Equity Securities shall be free and clear of all Liens as of the Closing,
other than Liens arising under applicable federal, state and local securities
laws. Other than this Merger Agreement and except as set forth on Schedule
3.1,
such
Equity Securities are not subject to any voting trust agreement or similar
agreement, including any agreement restricting or otherwise relating to the
voting, dividend rights or disposition of such Equity Securities.
3.2 Authorization
and Validity of Agreement
Such Majority Securityholder has full power and authority to execute and
deliver
this Merger Agreement, to perform its obligations under this Merger Agreement
and to consummate the transactions contemplated by this Merger Agreement.
This
Merger Agreement has been duly executed and delivered by such Majority
Securityholder and, assuming the due execution of this Merger Agreement by
the
Buyer, the Company and the other Majority Securityholder, this Merger Agreement
is a valid and binding obligation of such Majority Securityholder, enforceable
against such Majority Securityholder in accordance with its terms, subject
to
applicable bankruptcy, insolvency, reorganization, moratorium, receivership
and
similar laws affecting the enforcement of creditors’ rights generally, and
general equitable principles.
3.3 Consents
and Approvals; No Violations
The execution and delivery of this Merger Agreement by such Majority
Securityholder and the consummation of the transactions contemplated by this
Merger Agreement (a) will not violate any Legal Requirement or Order of any
court or Government Authority to which such Securityholder is subject, (b)
will
not require such Securityholder to obtain any permit, consent or approval
of, or
to give any notice to, or declare or file with, any Person (including any
Government Authority) on or prior to the Closing Date and (c) will not result
in
a violation or breach of, or constitute a default under, any note, bond,
mortgage, indenture, agreement or other instrument or obligation to which
such
Securityholder is subject.
-21-
3.4 Broker’s
or Finder’s Fees
No
agent, broker, firm or other Person acting on behalf of such Majority
Securityholder is, or will be, entitled to any investment banking, commission,
broker’s or finder’s fees from any of the parties hereto, or from any Affiliate
of any of the parties hereto, in connection with any of the transactions
contemplated by this Merger Agreement.
3.5 Absence
of Claims
Such Majority Securityholder has no claim of any kind against the Company
nor
has such Majority Securityholder assigned any such claims to a third
party.
3.6 Investment
Such
Majority
Securityholder (a) understands that the Buyer Shares have not been, and will
not
be, registered under the Securities Act, or under any state securities laws,
as
of the Closing Date, and are being offered and sold in reliance upon federal
and
state exemptions for transactions not involving any public offering, (b)
is
acquiring the Buyer Shares solely for his own account for investment purposes,
and not with a view to the distribution thereof, (c) is a sophisticated investor
with knowledge and experience in business and financial matters, (d) has
received certain information concerning the Buyer and has had the opportunity
to
obtain additional information as desired in order to evaluate the merits
and the
risks inherent in holding the Buyer Shares, (e) is able to bear the economic
risk and lack of liquidity inherent in holding the Buyer Shares, and (f)
is an
Accredited Investor.
ARTICLE
IV
Representations
and Warranties Regarding the Company
The
Company hereby represents and warrants to the Buyer Parties that the statements
contained in this Article IV are correct and complete as of the date of this
Merger Agreement and will be correct and complete as of the Closing Date
(as
though made then and as though the Closing Date were substituted for the
date of
this Merger Agreement throughout this Article IV and such representations
and
warranties shall be true and correct as of such date), except as set forth
in
the disclosure schedule delivered by the Company to the Buyer Parties on
the
date hereof and initialed by the Parties (the “Disclosure
Schedule”).
4.1 Organization
The Company is a duly organized limited liability company and validly exists
and
is in good standing under the laws of the State of Delaware. The Company
has all
requisite power and authority to own, lease and operate its assets and
properties and to carry on its business as currently conducted. The Company
is
duly qualified or licensed as a foreign limited liability company to conduct
its
business as currently conducted and, to the extent applicable, is in good
standing, in each jurisdiction in which the character or location of the
property owned, leased or operated by the Company or the nature of the business
conducted by the Company makes such qualification necessary and has obtained
all
Government Authorizations necessary to the ownership or operation of its
properties or the conduct of its business, except where the failure to be
so
qualified or licensed would not, individually or in the aggregate, reasonably
be
expected to have a Material Adverse Effect.
-22-
4.2 Authorization;
Enforceability
The Company has all requisite power and authority to execute and deliver
this
Merger Agreement, to perform its obligations hereunder and to consummate
the
transactions contemplated hereby. The execution, delivery and performance
of
this Merger Agreement, and the consummation by it of the transactions
contemplated hereby, have been duly authorized and approved by its Operating
Board and, if required, by its members, and no other action on the part of
the
Company, or its members is necessary to authorize the execution, delivery
and
performance of this Merger Agreement by the Company and the consummation
by the
Company of the transactions contemplated by this Merger Agreement. This Merger
Agreement has been duly executed and delivered by the Company and, assuming
the
due execution of this Merger Agreement by Buyer and the Securityholders,
constitutes a valid and binding obligation of the Company enforceable against
it
in accordance with its terms, subject to applicable bankruptcy, insolvency,
reorganization, moratorium, receivership and similar laws affecting the
enforcement of creditors’ rights generally, and general equitable
principles.
4.3 No
Violation or Conflict
Except as set forth in Schedule
4.3,
the
execution and delivery of this Merger Agreement and the consummation of the
transactions contemplated hereby do not and will not:
(a) violate
or conflict with the provisions of the Organizational Documents of the Company
or any Subsidiaries;
(b) violate
any Legal Requirement or Order to which the Company or any of its Subsidiaries
is subject or by which any of the material properties or assets of the Company
or its Subsidiaries are bound;
(c) require
any permit, consent or approval of, or the giving of any notice to, or filing
with any Government Authority or other Person; or
(d) result
in
the acceleration or modification of any obligations under, a violation or
breach
of, constitute (with or without due notice or lapse of time or both) a default
under, or result in the creation of any Lien upon any of the properties or
assets of the Company or its Subsidiaries under any of the terms, conditions
or
provisions of, any Indebtedness or Contract of the Company or its
Subsidiaries;
excluding
from the foregoing clauses (b), (c) and (d) permits, consents, approvals,
notices and filings the absence of which, and violations, breaches, defaults
and
Liens the existence of which, individually or in the aggregate, have not
had and
would not reasonably be expected to have a Material Adverse Effect.
4.4 Capitalization
Schedule 4.4
sets
forth the number of authorized and issued Equity Securities of the Company.
Except for the Acquired Interests, there are no Equity Securities of the
Company
issued, reserved for issuance or outstanding. All outstanding Equity Securities
of the Company have been duly authorized and validly issued and are fully-paid
and nonassessable, and are held of record and owned beneficially as set forth
on
Schedule
4.4.
Except
as set forth on Schedule 4.4,
all of
the issued and outstanding Equity Securities of the Company were issued in
compliance with all applicable federal and state securities laws. Except
as set
forth on Schedule 4.4,
there
are no outstanding or authorized options, warrants, subscriptions, rights,
calls, commitments, conversion rights, rights of exchange, plans or other
agreements of the Company providing for the purchase, issuance or sale of
any
Equity Securities of the Company, other than the transactions contemplated
by
this Merger Agreement. Except as set forth on Schedule 4.4,
there
are no outstanding stock appreciation, phantom stock or similar rights with
respect to the Company. The Company has no obligation of any kind to issue
any
additional shares of Capital Equity to any Person. There are no voting trusts,
proxies or other agreements, or understandings with respect to the voting
of the
Capital Equity of the Company.
-23-
4.5 Subsidiaries
of the Company
(a) Each
Subsidiary of the Company is validly existing and in good standing under
the
laws of the jurisdiction of its incorporation or formation, has all requisite
power to own, lease and operate its properties and to carry on its business
as
now being conducted, and is duly qualified to do business and is in good
standing in each jurisdiction in which it owns or leases property or conducts
any business so as to require such qualification, except where the failure
to be
so qualified would not reasonably be expected to have a Material Adverse
Effect.
(b) Schedule
4.5
contains
a true and complete list of the Subsidiaries of the Company and sets forth,
with
respect to each such Subsidiary, the jurisdiction of incorporation or formation,
and the authorized and outstanding Capital Equity of such Subsidiary. All
of the
outstanding shares of Capital Equity of the Subsidiaries of the Company
(collectively, the “Subsidiary
Shares”)
have
been duly authorized, are validly issued, fully paid and nonassessable. The
Company, directly or indirectly, owns beneficially all of the outstanding
Equity
Securities of each Subsidiary of the Company, free and clear of any Liens.
There
are no outstanding or authorized options, warrants, purchase rights,
subscription rights, conversion rights, exchange rights, or other contracts
or
commitments that could require the Company or any of its Subsidiaries to
sell,
transfer, or otherwise dispose of any Equity Securities of any of its
Subsidiaries or that could require any Subsidiary of the Company to issue,
sell,
or otherwise cause to become outstanding any of its own Equity Securities.
Other
than the Subsidiary Shares set forth in Schedule
4.5,
no
Subsidiary of the Company has outstanding any shares of Capital Equity or
any
other Equity Securities.
(c) Except
for the Subsidiary Shares, neither the Company nor any of its Subsidiaries
owns,
directly or indirectly, any Equity Securities in any Person, or has any
agreement or obligation to acquire any such Equity Securities.
4.6 Financial
Statements
-24-
(a) The
Company has delivered to the Buyer (i) audited balance sheets of the Company
as
of each of December 26, 2004 and December 25, 2005, and the related statements
of operations, stockholders’ equity and cash flows for the fiscal years then
ended, together with the report thereon of Peacock, Condron, Xxxxxxxx & Co.,
the Company’s independent certified public accountants (including the notes
thereto, the “Company
Financial Statements”),
and
(ii) an unaudited balance sheet of the Company as of September 3, 2006 (the
“Balance
Sheet”)
and
the related unaudited statements of operations, stockholders’ equity and cash
flows of the Company (together with the Balance Sheet, the “Company
Interim Reports”)
as at
and for the nine (9)-month period ended September 3, 2006. The Company Financial
Statements, the Company Interim Reports and each Other Interim Report delivered
pursuant to Section 6.2 fairly presents the financial position and the results
of operations, stockholders’ equity and cash flows of the Company as the
respective dates of, and for the periods referred to in, such Company Financial
Statements, Company Interim Reports and Other Interim Reports, all in accordance
with GAAP, applied consistently through the periods involved, subject, in
the
case of the Company Interim Reports and Other Interim Reports, to normal
year-end adjustments (which are not material in the aggregate) and the absence
of notes and are consistent with the books and records of the Company. No
financial statements of any other Person are required by GAAP to be included
in
the financial statements of the Company.
(b) Except
as
disclosed on Schedule 4.6(b),
the
Company has no material liabilities
or obligations (whether absolute, accrued, contingent or otherwise and whether
due or to become due), except for (i) those liabilities and obligations accrued
or disclosed on the face of the Balance Sheet and (ii) liabilities and
obligations incurred since the date of the Balance Sheet in the ordinary
course
of business consistent with past practice (none of which arise out of a breach
of any contract, tort, infringement, claim, lawsuit or breach of
warranty).
4.7 Real
Property
(a) Schedule
4.7
contains
a complete and correct list of all leases, subleases, licenses and other
use and
occupancy agreements (including all amendments extensions, renewals, guaranties
and modifications thereto) pursuant to which the Company or its Subsidiaries
holds any leasehold or subleasehold estate or other right to use or occupy
real
property (collectively, the “Real
Property Leases”).
Neither the Company nor any of its Subsidiaries own any fee interest in any
real
property. Subject to the terms of the respective Real Property Leases, the
Company has a valid and subsisting leasehold or subleasehold estate in each
Leased Real Property. Such Company’s occupation, possession and use of the
Leased Real Property has not been disturbed and no claim has been asserted
or
threatened adverse to the rights of the Company thereof to the continued
occupation, possession and use of any of the Leased Real Property. The Company
has delivered to Buyer or its advisers for inspection true and complete copies
of all such Real Property Leases and, in the case of any oral real property
lease a written summary of the material terms to such lease. Except as disclosed
on Schedule
4.7,
there
are no defaults (or events which, with notice or lapse of time or both, would
constitute a default) by the Company or any of its Subsidiaries under any
such
Real Property Leases, and the Company has not notified any other party to
any
such Real Property Lease that such party is in default. There are no pending
or
threatened or impending material disputes with any landlord under the Real
Property Leases.
-25-
(b) Neither
the Company nor any of its Subsidiaries has received notice of any condemnation,
fire, health, safety, building, zoning or other land use regulatory proceedings,
either instituted or planned to be instituted, with respect to the Leased
Real
Property.
(c) Neither
the Company nor any of its Subsidiaries has received notice of any condemnation,
fire, health, safety, building, environmental, Hazardous Substances, pollution
control, zoning or other land use regulatory proceedings, either instituted
or
planned to be instituted, which would have an adverse effect on the use and
operation of any portion of the Leased Real Property.
(d) Except
as
set forth on Schedule
4.7,
neither
the Company nor any of its Subsidiaries has assigned, transferred, conveyed,
leased subleased or otherwise transferred any of its interest in the Leased
Real
Property.
(e) All
Leased Real Property is (A) in commercially reasonable operating condition
and
repair and not in need of maintenance or repairs other than ordinary routine
maintenance and repairs, (B) usable in the ordinary course of the Company’s
business, and (C) suitable in all material respects for the uses to which
it is
currently being put or for which it is intended to be used.
4.8 Title
to Assets
Except for assets reflected on the Balance Sheet that have been sold or
otherwise disposed of by the Company in the ordinary course of business,
the
Company has good and marketable title to, or a valid leasehold interest in,
all
properties and assets used by the Company, including but not limited to the
Company Intellectual Property Rights, located on the premises of the Company
and
purported to be owned or leased by the Company, including, without limitation,
all the properties and assets reflected on the Balance Sheet or acquired
thereafter, free and clear of all Liens other than Permitted Liens (and as
set
forth on Schedule
4.8).
For
the
avoidance of doubt, the monies in the Marketing Fund are in a bank account
in
the Company's name, but the Company is contractually obligated to expend
such
monies for marketing and advertising matters in accordance with the terms
of its
Franchise Agreements. The
properties and assets of the Company, and the Company Intellectual Property
Rights are sufficient for the conduct of the business of the Company immediately
following the Closing in substantially the same manner as currently conducted
by
the Company.
4.9 Accounts
Receivable
Except as set forth on Schedule
4.9,
all
accounts receivable reflected on the Balance Sheet (net of allowances for
doubtful accounts as reflected thereon and as determined in accordance with
GAAP
consistently applied) and all Accounts Receivable arising subsequent to the
Balance Sheet date (net of payments received after the Balance Sheet Date
and
net of allowances for doubtful accounts and reserves that are reasonable
based
on the Company’s historical collection experience) are or shall be valid
receivables arising in the ordinary course of business and are or shall be
current and collectible at the aggregate recorded amount therefor as shown
on
the Balance Sheet (net of allowances for doubtful accounts as reflected thereon
and as determined in accordance with GAAP consistently applied). Except as
set
forth on Schedule
4.9,
no
Person has any Liens on such receivables or any part thereof, and no agreement
for deduction, free goods, discount or other deferred price or quantity
adjustment has been made with respect to any such receivables.
-26-
4.10 Taxes
(a) All
Tax
Returns required to be filed prior to the Closing Date by or on behalf of
the
Company have been or will be duly and timely filed with the appropriate taxing
authority (after giving effect to any valid extensions of time in which to
make
such filings) and at the time of such filing, all such Tax Returns were or
will
be true, correct and complete in all material respects and completed in all
material respects in accordance with Legal Requirement. Except as set forth
in
Schedule
4.10(a),
neither
the Company nor any of its Subsidiaries are the beneficiary of any extension
of
time within which to file any Tax Return that has not yet been filed. No
agreement, waiver or other document extending or having the effect of extending
the period for assessment or collection by a Government Authority of Taxes
(including, but not limited to, any applicable statute of limitation for
any
such assessment or collection) has been executed and filed with the Internal
Revenue Service (“IRS”)
or any
other taxing authority by or on behalf of the Company or any of its
Subsidiaries, other than an agreement, waiver or other document that is not
currently in effect or is with respect to a Tax period which has since been
closed and paid in full. No power of attorney with respect to any Tax matter
relating to the Company or any of its Subsidiaries is in force as of the
time of
Closing.
(b) All
Taxes
(whether or not shown or required to be shown on any Tax Return) required
to be
paid prior to the Closing Date by or on behalf of the Company and its
Subsidiaries have been or will be fully and timely paid. The unpaid Taxes
of the
Company and its Subsidiaries (A) did not as of September 30, 2006 exceed
the
reserve for Tax liability thereof on the balance sheet included in the Company
Financial Statements as of such date (other than any reserve for deferred
Taxes
established to reflect timing differences between book and Tax income) and
(B)
for all Tax periods (or portions thereof) ending on or prior to the Closing
Date, will not exceed such reserve as adjusted for operations and transactions
through the Closing Date, as determined in accordance with GAAP and the past
custom and practice of the Company in preparing and filing their Tax
Returns.
(c) Except
as
set forth on Schedule
4.10(c),
no
material Tax Return filed by or on behalf of any Company for any taxable
period
or portion thereof ending after December 31, 1999, has been audited or examined
by a government or taxing authority nor to the Company’s Knowledge is any such
audit or examination currently in process or pending, and neither the Company
nor any of its Subsidiaries has been notified by any taxing authority in
writing
of any request for any such audit or examination. All deficiencies asserted
in
writing or assessments made as a result of any examinations by the IRS or
any
other taxing authority of the Tax Returns filed by or on behalf of any Company
have been fully paid (other than any deficiency or assessment that has been
resolved or satisfied on or prior to September 3, 2006 and is properly reflected
on the Company Financial Statement as of such date), and to the Company’s
Knowledge, neither the Company nor any of its Subsidiaries is currently a
party
to any administrative or court proceeding for assessment or collection of
Taxes.
No issue has been raised by the IRS or any other taxing authority in any
prior
examination of any Tax Returns filed by or on behalf of any Company which,
by
application of the same or similar principles, would reasonably be expected
to
result in a proposed deficiency for any taxable period of such Company ending
after the Closing Date. To the Company’s Knowledge, no claim has been made by a
taxing authority in a jurisdiction where any Company does not file Tax Returns
that such Company is or may be subject to Tax by that jurisdiction.
-27-
(d) The
Company has made available to Buyer correct and complete copies of all Tax
Returns filed by or on behalf of such Company since 2003 and all written
audit
or examination reports and written statements of Tax deficiencies received
by a
Company since 2003.
(e) Neither
the Company nor any of its Subsidiaries is currently party to any Tax allocation
or sharing agreement. The Company has no liability for the Taxes of any other
Person as a transferee or successor, by contract, or otherwise.
(f) The
Company and each of its Subsidiaries has complied in all material respects
with
all applicable Legal Requirements relating to the withholding of Taxes and
has
duly and timely withheld from employee salaries, wages and other compensation
and has paid over to the appropriate taxing authorities all amounts required
to
be so withheld and paid over for all periods in accordance with all applicable
Legal Requirements.
(g) Neither
the Company nor any of its Subsidiaries has received any private letter ruling
from the IRS or any comparable ruling from other taxing authorities that
would
reasonably be expected to affect the federal income or other Taxes of the
Company or any of its Subsidiaries for any taxable period ending after the
Closing Date.
(h) Except
as
set forth in Schedule
4.10(h)
and to
the Company’s Knowledge, none of the Securityholders is a foreign person within
the meaning of Section 1445 of the Code or any other laws requiring withholding
of amounts paid pursuant to this Merger Agreement to foreign
persons.
(i) Except
for Permitted Liens, there are no liens as a result of any unpaid Taxes upon
any
of the assets of the Company or its Subsidiaries.
4.11 Labor
Relations; Compliance
(a) Set
forth
in Schedule
4.11
is a
list of each person currently employed by the Company and its Subsidiaries
other
than those employed at the store level (the “Employees”)
and
with respect to each such Employee the following information: (i) the
employer of such Employee, (ii) the amount of salary currently being paid
on a gross annualized basis, the hourly pay rate (if applicable) of such
Employee and the amount of compensation paid in 2006; (iii) the nature and
amount of any perquisites or personal benefits currently being provided to
or
for the account of such Employee, other than the employee benefit plans of
general application described in Schedule 4.12
below;
and (iv) the address of the Employee’s principal place of residence. Also set
forth in Schedule
4.11
is a
list of individuals who are (A) “leased employees” within the meaning of Section
414 of the Code or (B) “independent contractors” within the meaning of the Code
and the rules and regulations promulgated thereunder, and in each case, the
hourly pay rate or other compensatory arrangements with respect to each such
Person.
(b) To
the
Company’s Knowledge, no Employee is a party to any agreement that in any way
restricts the ability of such Employee to perform his or her duties for the
Company.
-28-
(c) Except
as
set forth in Schedule
4.11(d),
neither
the Company nor any of its Subsidiaries is a party to, or bound in any manner
by, any collective bargaining agreement, nor has either of them experienced
any
strike or material grievance, claim of unfair labor practices or other
collective bargaining dispute. To the Company’s Knowledge, no organizational
effort is presently being made or threatened by or on behalf of any labor
union
with respect to the employees of the Company or any of its Subsidiaries.
There
has not been over the last three years any labor strike, slowdown, work
stoppage, lockout or other material labor dispute between the Company or
its
Subsidiaries and any of their respective employees.
(d) Within
the past three years, neither the Company nor any of its Subsidiaries has
implemented any plant closing or layoff of employees that could implicate
the
Worker Adjustment and Retraining Notification Act of 1988, as amended, or
any
similar foreign, state or local law, regulation or ordinance, and no such
action
will be implemented without advance notification to Buyer.
(e) The
Company has provided each Employee with a copy of the Company’s Employee Policy
and Procedure Manual.
4.12 Employee
Benefits
(a) Schedule
4.12
lists
each “employee benefit plan” within the meaning of Section 3(3) of the Employee
Retirement Income Security Act of 1974 (“ERISA”),
whether or not subject to ERISA, and each other employment, severance,
incentive, retention, consulting, change-in-control, fringe benefit, collective
bargaining, deferred compensation, or other compensatory plan, policy, agreement
or arrangement which is made or maintained with or for the benefit of any
current
or former employee, director or other personnel of the Company or its
Subsidiaries or contributed to by the Company or its Subsidiaries or under
which
the Company or its Subsidiaries has or may have a direct or indirect liability
(each
a
“Company
Benefit Plan”).
(b) The
Company has delivered to Buyer true and complete copies of each Company Benefit
Plan document, and, as applicable, with respect to each Company Benefit Plan,
true and complete copies of (1) any related trust agreements, insurance
contracts or other funding agreements or arrangements, (2) the most recent
summary plan description and any summary of material modifications, if the
Company Benefit Plan is subject to ERISA, (3) the most recent determination
letter or opinion letter issued by the IRS and any pending application for
a
determination letter or opinion letter with respect to any Company Benefit
Plan
intended to qualify under Section 401(a) of the Code (“Qualified
Plan”),
and
(4) the last two Form 5500 filings if such filings are required by ERISA
or the
Code.
(c) Each
Company Benefit Plan has been maintained and administered in all material
respects in accordance with its terms and the provisions of applicable Legal
Requirements, including ERISA and the Code. No compensation paid or required
to
be paid under any Company Benefit Plan is or will be subject to additional
tax
under Section 409A(1)(B) of the Code.
-29-
(d) All
contributions, premium and benefit payments required to be made under or
in
connection with each Company Benefit Plan through the Closing Date have been
made or properly accrued, and all contributions, premium and benefit payments
not yet required to be made under or in connection with each Company Benefit
Plan through the Closing Date will have been made or properly
accrued.
(e) Each
Company Benefit Plan which is a Qualified Plan is a prototype or volume
submitter plan or has received from the IRS a favorable determination letter
as
to its qualification under the Code and, to the Company’s Knowledge, no event
has occurred that will or would reasonably be expected to give rise to
disqualification or loss of tax-exempt status of any Company Benefit Plan
or its
related trust.
(f) With
respect to each Company Benefit Plan, no Proceeding or investigation with
respect to the administration or the investment of plan assets (other than
routine claims for benefits) is pending or, to the Company’s Knowledge,
threatened.
(g) Except
as
set forth in Schedule
4.12:
(i) Neither
the Company nor any of its Subsidiaries or any ERISA Affiliate thereof
contributes to, ever has contributed to, or ever has been required to contribute
to any Multiemployer Plan or employee pension plan subject to Title IV of
ERISA
or Code Section 412 or has any liability, or indirect liability, including
any
liability on account of a “partial withdrawal” or complete withdrawal (as
defined in ERISA Sections 4203 and 4201 respectively), under any Multiemployer
Plan or under Title IV of ERISA. None of the Company, its Subsidiaries or
any
ERISA Affiliates are bound by any Contract that would result in any direct
or
indirect liability described in ERISA Section 4204. No Company Benefit Plan
is a
multiple employer plan subject to Section 413(c) of the Code.
(ii) None
of
the Company, its Subsidiaries nor any Company Benefit Plan has any obligation
to
provide post-employment medical, health or life insurance or other welfare-type
benefits for current or future retired or terminated employees, directors,
officers, or independent contractors or such persons’ spouses, dependents or
other beneficiaries (other than in accordance with COBRA or comparable state
law); each Company Benefit Plan which is a group health plan has at all times
been maintained in material compliance with COBRA, and each group health
plan
maintained by any ERISA Affiliate has been maintained in material compliance
with COBRA.
(iii) None
of
the Company, its Subsidiaries or their respective employees, or to the Company’s
Knowledge, any other Person has engaged in a non-exempt prohibited transaction
with respect to any Company Benefit Plan that has resulted or may result
in
liability to the Company or any of its Subsidiaries; neither the Company
nor any
of its Subsidiaries has incurred any liability for any penalty or tax, nor,
to
the Company’s Knowledge, does any fact exist which would subject the Company or
any of its Subsidiaries to any penalty or tax, under Chapter 43 of Subtitle
D of
the Code or Section 502 of ERISA; and that any fiduciary of any Company Benefit
Plan (as defined in Section 3(21) of ERISA) (where such fiduciary is an employee
of the Company or its Subsidiaries, or, to the Company’s Knowledge, any other
Person who is a fiduciary) has engaged in any conduct that would be expected
to
give rise to any liability for breach of fiduciary duty with respect to the
investment or administration of the assets of any Company Benefit Plan.
-30-
(h) No
event
has occurred or circumstance exists with respect to the Company or, to the
Company’s Knowledge, the participants and beneficiaries of any Company Benefit
Plan that would reasonably be expected to result in a material increase in
expenses (including premiums, notwithstanding ordinary course premium increases,
contributions and/or benefit payments).
(i) The
consummation of the transactions contemplated by this Merger Agreement will
not,
either alone or in combination with any other event, (1) entitle any
current or former employee, director or officer of the Company to severance
pay
or any other payment or benefit, (2) accelerate the time of payment or vesting,
or increase the amount of compensation due any such employee, director or
officer, or (3) require the Company to place in trust or otherwise set
aside any amounts in respect of severance pay or any other payment or benefit.
There are no agreements or arrangements pursuant to which the Company or
any of
its Subsidiaries or Buyer would be required to make a “parachute payment”
(within the meaning of Section 280G(b)(2) of the Code) as a result of the
consummation of the transactions contemplated by this Merger Agreement (whether
alone or in combination with a termination of employment or other
event).
4.13 Litigation;
Orders
(a) Except
as
set forth on Schedule
4.13(a),
there
is no material Proceeding at law or in equity by any Person or any Proceeding
by
or before any Government Authority pending or, to the Company’s Knowledge,
threatened, against the Company or any of its Subsidiaries.
(b) Except
as
set forth on Schedule 4.13(b),
(i) there is no Order to which the Company or any of its Subsidiaries is
subject, and (ii) the Company and each of its Subsidiaries is in compliance
in all material respects with each Order to which it or its properties or
assets
are subject.
4.14 Compliance
With Laws; Government Authorizations
(a) Except
as
set forth on Schedule
4.14,
the
Company and its Subsidiaries are in full compliance with each Legal Requirement
that is applicable to the conduct or operation of the Company and its
Subsidiaries, except for such non-compliance, individually or in the aggregate,
as has not had and would not reasonably be expected to have a Material Adverse
Effect. Neither the Company nor any of its Subsidiaries has received any
written
notice or other written communications from any Government Authority or any
other Person regarding any actual, alleged or possible violation of, or failure
to comply with, any material Legal Requirement that is applicable to the
conduct
or operation of the Company and its Subsidiaries.
(b) The
Company and its Subsidiaries possess all Government Authorizations necessary
for
the ownership of its properties and the conduct of its business as currently
conducted, except for such exceptions, as, individually or in the aggregate,
have not had and would not reasonably be expected to have a Material Adverse
Effect. Further, except as set forth on Schedule
4.14(b),
(i) all
such Government Authorizations are in full force and effect and (ii) neither
the
Company nor any of its Subsidiaries has received any written notice of any
event, inquiry, investigation or proceeding threatening the validity of such
Government Authorizations. To the Company’s Knowledge, except for any Government
Authorizations related to the Franchises, there is no reason to believe that
any
Government Authorization required to be renewed, replaced or obtained in
connection with the operation of the Brand by Buyer following the Closing
will
not be granted in accordance with the time lines or response times customarily
utilized by the agencies administering the Government Authorizations, free
from
any terms and conditions that would result in a Material Adverse Effect in
the
assets or the conduct of the business and operations of the Company.
-31-
4.15 Operations
of the Company
Except as set forth on Schedule 4.15,
since
September 3, 2006, there has not been any change, event or condition of any
character that has had or would reasonably be expected to have a Material
Adverse Effect. Without limiting the generality of the foregoing, since
September 3, 2006, except as set forth on Schedule
4.15,
the
Company and its Subsidiaries have operated its business in the ordinary course
of business consistent with past practice, and during such time period, neither
the Company nor any of its Subsidiaries has:
(a) sold,
leased, transferred, or assigned any of its material assets, other than for
a
fair consideration in the ordinary course of business;
(b) entered
into any Material Contract outside the ordinary course of business;
(c) accelerated,
terminated, made modifications to, or cancelled any Material Contract that
would, or would reasonably be expected to, have a Material Adverse
Effect;
(d) transferred,
assigned, or granted any license or sublicense of any rights under or with
respect to any Intellectual Property Right, other than in the ordinary course
of
business;
(e) made
any
capital expenditure (or series of related capital expenditures) either involving
more than $10,000, individually, or $20,000, in the aggregate, or outside
the
ordinary course of business;
(f) delayed
or postponed the payment of accounts payable and other liabilities outside
the
ordinary course of business;
(g) engaged
in any sales or promotional discount or other activity with customers
(including, without limitation, materially altering credit terms), delayed
or
postponed the payment of any accounts payable or other payables or expenses
(including marketing or promotional expenses), or accelerated the collection
of
or discount any accounts receivable or otherwise accelerated cash collections
of
any type outside the ordinary course of business;
(h) incurred
any Indebtedness, except current liabilities incurred in the ordinary course
of
business and liabilities under Contracts (other than liabilities for breach)
entered into in the ordinary course of business;
-32-
(i) suffered
any extraordinary losses or waived any rights of material value, whether
or not
in the ordinary course of business;
(j) experienced
any material damage, destruction, or loss (whether or not covered by insurance)
to its property;
(k) granted
any increase in the base compensation of any of its directors, officers,
and
employees outside the ordinary course of business;
(l) adopted,
amended, modified, or terminated any bonus, profit sharing, incentive,
severance, or other plan, contract, or commitment for the benefit of any
of its
directors, officers, and employees (or taken any such action with respect
to any
other Employee Benefit Plan) outside the ordinary course of
business;
(m) made
any
other material change in employment terms for any of its directors, officers,
and employees outside the ordinary course of business; or
(n) committed
to do any of the foregoing.
4.16 Material
Contracts
(a) Schedule 4.16
contains
a complete and correct list, as of the date of this Merger Agreement, of
the
following Contracts or to which the Company or its Subsidiaries is a party
or by
which the Company or its Subsidiaries is bound, provided that the definition
of
Material Contracts does not include
agreements, contracts or instruments which are terminable upon thirty (30)
days
notice or less
(collectively, the “Material
Contracts”):
(i) all
Contracts for the employment of any employee or providing severance or other
post-employment benefits;
(ii) any
agreement (or group of related agreements) for the lease of personal property
to
or from a Person providing for lease payments in excess of $15,000 per
year;
(iii) any
agreement (or group of related agreements) for the purchase or sale of raw
materials, commodities, supplies, products, or other personal property, or
for
the furnishing or receipt of services, the performance of which will extend
over
a period of more than one year, or which involves consideration in excess
of
$15,000;
(iv) each
Franchise Agreement;
(v) each
Real
Property Lease;
(vi) any
agreements relating to Company Intellectual Property Rights;
(vii) any
agreement imposing a continuing confidentiality obligation on the Company
that
would materially impair the Company’s development of its Brand;
-33-
(viii) all
executory contracts for capital expenditures with remaining obligations in
excess of $15,000 each;
(ix) all
contracts containing covenants that in any way purport to limit the freedom
of
the Company or its Subsidiaries to engage in any line of business or to compete
with any Person or in any geographical area;
(x) any
settlement, conciliation or similar agreements pursuant to which the Company
or
any of its Subsidiaries will have performance obligations after the execution
date of this Merger Agreement;
(xi) all
severance, change of control or similar agreements or contracts with any
employees; and
(xii) any
other
agreement the performance of which involves consideration in excess of
$15,000.
(b) The
Company has delivered to Buyer a correct and complete copy of each written
Material Contract (as amended to date). Each
of
the Material Contracts is, and after giving effect to the transactions
contemplated by this Merger Agreement (including but not limited to the giving
of notice or obtaining consent thereto), will be, in full force and effect
and
constitutes, and after giving effect to the transactions contemplated by
this
Merger Agreement, will constitute, a valid and binding obligation of the
Company, enforceable by the Company in accordance with its terms and, to
the
Company’s Knowledge, the other party thereto. The Company is not in breach or
default thereunder, and, to the Company’s Knowledge, no event has occurred and
no condition or state of facts exists which, with the passage of time or
the
giving of notice or both, would constitute such a default or breach by the
Company or by any other party thereto. The Company has not received any notice
of the intention of any third party to terminate a Material
Contract.
4.17 Insurance Schedule 4.17
sets
forth an accurate and complete summary of (a) each insurance policy providing
for liability exposure (including policies providing property, casualty,
liability and workers’ compensation coverage and bond and surety arrangements)
to which the Company and its Subsidiaries is currently a party, a named insured
or otherwise the beneficiary of coverage (“Insurance
Policies”)
and
(b) all insurance loss runs or workers’ compensation claims received for the
past five policy years. All such Insurance Policies are in full force and
effect. Since January 1, 2004, no Company insurance policy has been cancelled
for non-payment and as of the Closing Date the Company has no uncured notices
of
cancellation of coverage.
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4.18 Environmental
Matters
Except as set forth on Schedule 4.18:
(a) the properties, operations and activities of the Company and its
Subsidiaries have been and are in compliance in all material respects with
all
applicable Environmental Laws; (b) all material Government Authorizations
required under the Environmental Laws to be obtained by the Company and its
Subsidiaries in connection with its operations are valid and in full force
and
effect, and the Company and its Subsidiaries have complied and is in compliance
in all material respects with the terms and conditions of such permits and
licenses; (c) neither the Company nor any of its Subsidiaries is subject to
any suit, investigation, inquiry or proceeding by or before any court or
Government Authority under the Environmental Laws in connection with its
past or
current operations, properties or facilities; (d) the Company has not
caused a release of Hazardous Substances, and no condition of contamination
by
Hazardous Substances is present, at properties which the Company or its
Subsidiaries owns or operates and no facts, events or conditions relating
to
past or present facilities, properties or operations of the Company or any
of
its Affiliates will give rise to any investigatory, remedial, or corrective
obligations or other liabilities under Environmental Laws; (e) neither this
Merger Agreement nor the consummation of the transactions contemplated hereby
will result in any obligations for site investigation or cleanup, or
notification to or consent of any Government Authority or other Person pursuant
to any of the so-called “transaction-triggered” or “responsible property
transfer” Environmental Laws; (f) the Company has made available to the
Buyer copies of all documents within its possession (including all Phase
I and
Phase II reports) or concerning compliance with Environmental Law with respect
to, or liability under, its past or current operations, properties or
facilities; (g) neither the Company nor any of its Subsidiaries has received
written notice of any material violation of, or any currently outstanding
material liability or obligation under, any Environmental Law or that any
existing Government Authorization that was obtained under any Environmental
Law
is to be revoked or suspended by any Government Authority or is not currently
operating or required to be operating under, or subject to any outstanding
compliance order, decree or agreement, any consent decree, order or agreement,
or corrective action decree, order or agreement issued or entered into under,
or
pertaining to matters regulated by, any Environmental Law; (h) neither the
Company nor any of its Subsidiaries owns or operates any underground storage
tanks other than those disclosed on Schedule
4.18
and no
such underground tanks are in material violation of any Environmental Law;
(i)
no Person has treated, stored, disposed of, transported to, or released any
Hazardous Materials on, under or from any leased property governed by a Real
Property Lease, except in material compliance with Environmental Laws applicable
to such property and neither the Company nor any of its Subsidiaries has
treated, stored, disposed of, arranged for or permitted the disposal of,
transported, handled, or released any Hazardous Materials, or owned or operated
any property or facility (and no such property or facility is contaminated
by
any Hazardous Materials), so as to give rise to material liabilities or
obligations to the Company, its Subsidiaries or Buyer pursuant to Environmental
Laws; and (j) to the Company’s Knowledge, the Company has provided to Buyer
access to all material environmental audits and reports relating to the current
and former operations and facilities of the Company. “Environmental
Laws”
means
any Legal Requirements concerning public health and safety, worker health
and
safety, or pollution or protection of the environment, including without
limitation those relating to the presence, production, generation, handling,
distribution, labeling, testing, processing, discharge, control, cleanup,
use,
treatment, storage, disposal, release, threatened release or transportation
of
hazardous substances. “Hazardous
Substances”
means
any materials, substances or wastes as to which liabilities or standards
of
conduct may be imposed pursuant to Environmental Laws, including petroleum
or
any fraction or product, polychlorinated biphenyls and asbestos or asbestos
containing materials.
4.19 Intellectual
Property
(a) Schedule 4.19(a)
attached
hereto sets forth a complete and correct list of: (i) all patented or
registered Intellectual Property owned by the Company and its Subsidiaries;
(ii) all pending patent applications or other applications for registration
of Intellectual Property owned by the Company and its Subsidiaries;
(iii) all trade names, trademarks and unregistered marks owned or used by
the Company and its Subsidiaries; (iv) all
material
unregistered copyrights, mask works and computer software owned by the Company
and its Subsidiaries (e.g., internally developed back office software, etc.);
(v) to the Company’s Knowledge, all common law or unregistered Intellectual
Property not otherwise encompassed in subparts (i)-(iv); and (vi) all internet
domain names and URLs.
-35-
(b) Schedule
4.19(b)
attached
hereto sets forth a complete and correct list of: (i) all computer software
licenses or similar agreements or arrangements relating to information
technology used in the operations of the Company and its Subsidiaries
(“IT
Software”)
for
which the Company or its Subsidiaries paid more than $10,000 in the aggregate
in
license fees or pays more than $5,000 in annual support fees; (ii) all other
licenses or similar agreements or arrangements, in effect as of the date
hereof,
in which the Company or any of its Subsidiaries is a licensee of Intellectual
Property; (iii) all licenses or similar agreements or arrangements in which
the
Company or any of its Subsidiaries is a licensor of Intellectual Property,
including Franchise Agreements; and (iv) all other material agreements or
similar arrangements in effect as of the date of this Merger Agreement
relating
to the use of Intellectual Property by the Company or any of its Subsidiaries,
including settlement agreements, consent-to-use or standstill agreements
and
standalone indemnification agreements.
(c) Except
as
set forth on Schedule 4.19(c),
(i) the Company owns and possesses all right, title and interest in and to
the Intellectual Property set forth in Schedule
4.19(a),
has a
valid and enforceable right to use pursuant to the agreements set forth in
Schedule
4.19(b),
and
otherwise owns and possesses all right, title and interest in and to all
other
Intellectual Property necessary for the operation of the Company’s business as
currently conducted, free and clear of all Liens (collectively,
the "Company
Intellectual Property Rights")
and (ii)
the Company has not licensed any Company Intellectual Property Rights to
any
third party on an exclusive basis.
(d) Except
as
set forth on Schedule
4.19(d),
(i) to
the
Company's Knowledge, neither the Company nor any of its Subsidiaries has
infringed, diluted, misappropriated or otherwise conflicted with, and the
operation of the Company’s business as currently conducted does not infringe,
misappropriate or otherwise conflict with, any Intellectual Property of any
Person; (ii) to the Company's Knowledge, neither the Company nor any of its
Subsidiaries is aware of any facts which indicate a likelihood of any of
the
foregoing; (iii) neither the Company nor any of its Subsidiaries has received
any notices regarding any of the foregoing (including any demands or offers
to
license any Intellectual Property from any Person or any requests for
indemnification from customers) and (iv) neither the Company nor the
Subsidiaries has requested nor received any opinions of counsel related to
the
foregoing.
(e) Except
as
set forth on Schedule
4.19(e),
(i) no
loss or expiration of any of the Company Intellectual Property Rights is
pending, or to the Company's Knowledge, threatened or reasonably foreseeable,
except for patents expiring at the end of their maximum statutory terms (and
not
as a result of any act or omission by the Company or any of its Subsidiaries,
including a failure by the Company or any of its Subsidiaries to pay any
required maintenance fees); (ii) all of the Company Intellectual Property
Rights
are valid and enforceable; (iii) no claim by any third party contesting the
validity, enforceability, use or ownership of any of the Company Intellectual
Property Rights has been made, is currently outstanding or, to the Company's
Knowledge, is threatened, and the Company has no Knowledge of grounds for
the
same; (iv) the Company has taken all necessary action to keep registrations
current prior to the Closing so as not to adversely affect the validity or
enforceability thereof; and (v) to the Company’s Knowledge, neither the Company
nor any of its Subsidiaries intentionally has disclosed or allowed to be
disclosed any of its trade secrets or confidential information
to
any third party other than pursuant to a written confidentiality agreement,
and
(vi) the Company has entered into written confidentiality agreements with
all of
its Employees and the current independent contractors acknowledging the
confidentiality of the Company Intellectual Property Rights.
-36-
(f) Except
as
set forth on Schedule
4.19(f),
and to
the Company’s Knowledge, no Person has infringed, diluted, misappropriated or
otherwise conflicted with any of the Company Intellectual Property Rights
and
the Company is not aware of any facts that indicate a likelihood of any of
the
same.
(g) Except
as
set forth on Schedule
4.19(g),
all
Intellectual Property owned by the Company were: (i) developed by employees
of
the Company working within the scope of their employment; (ii) developed
by
officers, directors, agents, consultants, contractors, subcontractors or
others
who have executed appropriate instruments of assignment in favor of the Company
as assignee that have conveyed to the Company ownership of all of such Person’s
rights in the Intellectual Property relating to such developments; or (iii)
acquired in connection with acquisitions in which the Company obtained
appropriate representations, warranties and indemnities from the transferring
party relating to the title to such Intellectual Property.
(h) Except
as
set forth in Schedule
4.19(h),
none
of
the Company Intellectual Property Rights is subject to any proceeding or
outstanding decree, order, judgment, agreement or stipulation restricting
in any
manner the use, transfer or licensing thereof by the Company, or which may
affect the validity, use or enforceability of the Company Intellectual Property
Rights.
(i)
The
computer software, computer firmware, computer hardware (whether general
purpose
or special purpose), and other similar or related items of automated,
computerized and/or software system(s) that are used or relied on by the
Company
in the conduct of its business is sufficient in all material respects for
the
current needs of such business and does not infringe, misappropriate or
otherwise conflict with any Intellectual Property of any Person.
(j) The
Company has collected, used, imported, exported and protected all personally
identifiable information, and other information relating to individuals
protected by law, in accordance with the privacy policies of the Company
and in
accordance with applicable Legal Requirements, including by entering into
agreements, where applicable, governing the flow of such information across
national borders.
(k) Each
item
of the Company Intellectual Property Rights is valid and enforceable. All
necessary registration, maintenance and renewal fees currently due in connection
with the Company Intellectual Property Rights have been made and all necessary
documents, recordations and certifications in connection with Intellectual
Property have been filed with the relevant patent, copyright, trademark or
other
authorities in the United States or foreign jurisdictions, as the case may
be,
for the purpose of maintaining the Company Intellectual Property
Rights.
-37-
4.20 Affiliate
Transactions Except
as
set forth on Schedule
4.20,
(a) there are no Contracts between the Company or its Subsidiaries, on the
one hand, and any holder of Capital Equity or any family member or Affiliate
of
any such holder, on the other hand; (b) there are no Material Contracts
between the Company or its Subsidiaries, on the one hand, and any employee
or
director or any family member or Affiliate of any such Person, on the other
hand, other than employment agreements entered into in the ordinary course
of
business consistent with past practice; (c) there are no loans or other
Indebtedness owing by any holder of Capital Equity of the Company or employee
or
any family member or Affiliate of any such Person to the Company; and
(d) to the Company’s Knowledge, there is no agreement between or among one
or more holders of Capital Equity of the Company.
4.21 Brokers
or Finders
No
agent, broker, firm or other Person acting on behalf of the Company is, or
will
be, entitled to any investment banking, commission, broker’s or finder’s fees
from any of the parties hereto, or from any Affiliate of any of the parties
hereto, in connection with any of the transactions contemplated by this Merger
Agreement, except for Xxxx Xxxx & Company, whose fees and expenses will be
paid by the Company.
4.22 Suppliers
Except for the suppliers named in Schedule
4.22,
neither
the Company nor any Franchisee has purchased, from any single suppliers,
goods
or services for which the aggregate consideration exceeds 5% of the total
amount
of goods and services purchased by the Company during the fiscal year ended
December 25, 2006 (“5%
Supplier”).
Since
December 25, 2006, there has not been any termination, cancellation or
material curtailment of the business relationship of the Company or any
Franchisee with any 5% Supplier named in Schedule
4.22
or any
material and adverse (to the Company) change in any material term (including
credit terms) of the supply agreements or related arrangements with any such
Supplier. No 5% Supplier named in Schedule
4.22
has
advised the Company or any Franchisee that it intends, or has threatened,
to
cancel or otherwise terminate the business relationship of such supplier
with
the Company or any Franchisee or that it intends to modify materially and
adversely (to the Company) its business relationship with the Company or
any
Franchisee or to decrease materially or limit materially its supply to the
Company or any Franchisee.
4.23 Franchise
Matters
(a) Except
as
set forth on Schedule
4.23(a),
(i) the
Company does not have, and has not had, any Subsidiary or Affiliate offering
or
selling Franchises domestically or internationally, (ii) the Company is the
only
Person that has sold Franchises, and (iii) the Company has not sold Franchises
anywhere in the world outside of the United States of America.
(b) The
Company has provided Buyer with a true and complete copy of (i) the Company's
currently effective UFOCs, which are listed on Schedule
4.23(b),
and
(ii) every other UFOC utilized by the Company since March 27, 2003.
(c) Schedule
4.23(c)
is a
true and complete list of all currently effective Franchise Agreements to
which
the Company is a party, including for each Franchise Agreement (i) the name,
address and telephone number of each and every Franchisee, and (ii) the
effective dates and expiration dates. There are no other currently effective
Franchise Agreements relating to the Brand. The Company has made available
to
Buyer true, complete and correct copies of all Franchise Agreements listed
or
required to be listed on Schedule
4.23(c),
including all amendments and addenda thereto.
-38-
(d) The
Company has, at all relevant times, the corporate power and authority and
legal
right to enter into and carry out the terms of each Franchise Agreement.
(e) Schedule
4.23(e)
identifies each existing Franchisee that (i) is, to the Company's Knowledge,
currently in material default under any Franchise Agreement, whether or not
the
Company has notified the Franchisee about the default via a Notice of Default;
(ii) has received within the six (6) month period prior to the date of this
Merger Agreement a Notice of Default from the Company that such Franchisee
has
incurred a default under such Franchise Agreement; or (iii) has on three
or more
occasions within any twelve-month period received Notices of Default under
a
Franchise Agreement. Since March 27, 2003, the Company has not formally waived
in writing any default by a Franchisee which was, or would reasonably expected
to be, materially adverse to the Company.
(f) To
the
Company’s Knowledge, Schedule
4.23(f)
is a
true and complete list of all written agreements or arrangements with
independent sales representatives, contractors, brokers or consultants under
which the Company has authorized any person to sell or promote Franchises
on
behalf of the Company or has agreed to rebate or share amounts receivable
under
any Franchise Agreement in connection with the offer and sale of any such
Franchise Agreement and indicating which of such agreements are in default
and
may be terminated by the Company by notice to the other party. The Company
has
delivered to Buyer true, correct and complete copies of all written agreements
described in Schedule
4.23(f).
To the
Company’s Knowledge, the Company has no oral agreements or arrangements of the
type described above.
(g)
Except
as described in Schedule
4.23(g),
no
Franchisee's Territorial Rights conflict with the Territorial Rights of any
other Franchisee. Except as set forth on Schedule
4.23(g),
to the
extent the Company granted any such Territorial Rights (whether or not disclosed
or required to be disclosed herein), the Company has complied with such
Territorial Rights and in the course of offering or selling Franchises, the
Company has not violated the Territorial Rights of any Franchisee.
(h) Since
March 27, 2003, and except as set forth on Schedule
4.23(h),
the
Company has: (i) prepared and maintained each of the UFOCs in accordance
with
applicable Legal Requirements; (ii) filed and obtained registration of the
offer
and sale of the Franchises in all jurisdictions requiring such registration
prior to any offers or sales of Franchises in such states and has filed all
material changes, amendments, renewals thereto on a timely basis as required
by
Legal Requirements in such jurisdictions; (iii) filed all notice filings
(including the filing of the UFOC, as applicable) in all jurisdictions in
which
a notice filing is required to be filed prior to the offer and sale of
Franchises in such jurisdictions; (iv) filed all notices of exemption in
all
jurisdictions in which a notice filing is required in order to obtain an
exemption from regulation as a "business opportunity" or to otherwise be
subject
to regulation under Legal Requirements in such jurisdictions absent such
notice
filing; and (v) sold no Franchises during periods after the need for amendment
arose and before the prospective Franchisee had been in receipt of an amended
UFOC for the required period for re-disclosure in the jurisdiction. The UFOCs
were prepared in all material respects in compliance with the UFOC Guidelines
and/or other Legal Requirements and there were no material misrepresentations
or
misstatements of fact or omissions to state material information in any UFOC
necessary to make the statements made therein not misleading under the
circumstances at the time the Company was using such UFOC. Since March 27,
2003,
and except as set forth on Schedule
4.23(h),
the
Company has never withdrawn its application or registration to offer and
sell
Franchises from any jurisdiction.
-39-
(i) Except
as
disclosed in Schedule
4.23(i),
the
offer and sale of each Franchise Agreement complies and complied at the time
such offer and sale was made and at all times since such Franchise Agreement
became effective. Since March 27, 2003, the Company has complied with all
Legal
Requirements in connection with any non-renewal or termination of a Franchise.
(j) Except
as
listed or described in Schedule
4.23(j),
since
March 27, 2003, no Franchise Agreement has been subordinated and 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
Company.
(k) Except
as
set forth in Schedule
4.23(k),
no
Franchisee Organization exists among the Franchisees of the
Company.
(l) Except
as
set forth on Schedule
4.23(l),
no
orders, consents or decrees (other than routine comment letters from regulators,
orders approving registrations, renewals of registrations or registration
exemptions) have been issued by any foreign or domestic (federal or state)
administrative or regulatory agency to the Company nor have letters of inquiry,
investigation or the like been issued to the Company by such foreign or domestic
administrative or regulatory agencies relating, directly or indirectly, to
the
Company's offer and sale of Franchises.
(m) Except
as
set forth on Schedule
4.23(m),
in the
past 18 months, no Franchisee paid any consideration or signed any Franchise
Agreement before the expiration of all applicable waiting periods. Except
as set
forth in Schedule
4.23(m),
in the
past 18 months, the Company has not offered rescission as would be required
under any Legal Requirements arising from a possible violation of any Legal
Requirements and no Franchisee has asserted or exercised any statutory right
of
rescission arising from a violation of the Legal Requirements. Except as
set
forth on Schedule
4.23(m),
to the
Company’s Knowledge, no Franchisee has an immediate or inchoate right to
exercise any statutory right of rescission arising from the violation of
any
Legal Requirements relating to the offer and sale of Franchises. Except as
set
forth on Schedule
4.23(m),
with
the exception of routine comment letters from regulators, the Company has
never
received a stop order, revocation or withdrawal of approval or a license
or
exemption to offer and sell Franchises in any jurisdiction. Except as set
forth
on Schedule
4.23(m),
the
Company has never received an official notice, complaint, subpoena, request
for
information, or any form of formal inquiry from any Government Authority
regarding the offer or sale of Franchises. The Company has not participated
in
any remedial program directed towards its franchise selling practices
administered by the National Franchise Council, the International Franchise
Association, the Federal Trade Commission, any state or provincial authority,
or
any other public or private organization.
-40-
(n) The
Company has delivered or made available to Buyer correct and complete copies
of
all registrations (used by the Company subsequent to March 27, 2003) and
current
franchise sales advertising and brochures used by the Company subsequent
to
March 27, 2003), the UFOCs or agreements used by the Company or filed with
any
domestic administrative or regulatory agency or otherwise used by the Company
in
connection with the offer, sale and operation of Franchises in any jurisdiction
in the United States since March 27, 2003. To the Company’s knowledge, the
Company has not published any franchise recruitment advertising in violation
of
the Legal Requirements of any jurisdiction. The Company has not effected
late
filing of franchise recruitment advertising with the applicable Government
Authority before publication that would have a Material Adverse Effect on
the
Company or failed to obtain any approvals or clearances that would have a
Material Adverse Effect on the Company. The Company has received no comments
requiring changes to the advertising materials that were not incorporated
in the
final copy. The Company’s books and records include all written communications
with franchise regulatory authorities regarding all renewal applications,
amendments, comment letters, approvals, licenses, consents, exemption filings
and withdrawals since March 27, 2003.
(o) Schedule
4.23(o)
is a
true and complete list of all written or oral agreements or arrangements
with
third party vendors or suppliers who have received the approval of the Company
to act as providers of goods or services to the Franchisees. Except as set
forth
in Schedule
4.23(o),
and
excluding entertainment by vendors/suppliers or reimbursement for franchisee
conventions or meetings in the ordinary course of business, the Company does
not
receive rebates, commissions, discounts or other payments or remuneration
of any
kind under such agreements or arrangements from such vendors or suppliers
of
such goods or services other than amounts received for the benefits of the
Marketing Fund.
(p) No
consent or approval of any Franchisee is required in connection with the
consummation of the transactions contemplated by this Merger
Agreement.
(q) There
are
no material agreements with any Franchisee other than as set forth in the
Franchise Agreements and Company records.
(r) Since
March 27, 2003, the Company's use and administration of advertising
contributions and fees in the Marketing Fund made under the Franchise Agreements
has at all times complied with the provisions of all Franchise Agreements
in all
material respects or other agreements made by the Company in all material
respects with respect to its use of the advertising contributions and fees,
conforms with any descriptions of such activities contained in the Company
UFOCs
in all material respects and does not violate any Legal Requirements in any
material respect.
(s) Except
as
specified on Schedule
4.23(s),
there
is no Proceeding at law or equity by a Person or any Proceeding by or before
any
Government Authority pending or, to the Company's Knowledge, threatened against
or involving the Company with respect to any of its Franchises, and to the
Company's Knowledge, there is no basis for any such Proceeding except for
Proceedings that, in any individual case or in the aggregate, do not, or
would
not reasonably be expected to have, a Material Adverse Effect on the Company.
The Company is not subject to any judgment, order or decree entered in any
lawsuit or proceeding which has or may have a material adverse effect on
its
rights and interests in any Franchise Agreement. To the Company's Knowledge,
there are not currently, nor have there ever been any administrative actions,
cease and desist orders or other administrative actions by any federal or
state
agency which regulates Franchises.
-41-
(t) Since
March 27, 2003, except as specified on Schedule
4.23(t),
the
Company has not waived enforcement of any noncompete restriction under a
Franchise Agreement, and to the Company's Knowledge, no current or former
Franchisee is currently in violation of any noncompete covenant.
(u) Except
as
set forth on Schedule
4.23(u),
the
Company is not a party to any leases of business premises nor has it entered
into any guarantees in respect of leases held by Franchisees.
(v) Since
March 27, 2003, all persons acting as franchise salespersons and franchise
sales
brokers on behalf of the Company have been duly and timely registered and
qualified in all jurisdictions where such registration or qualification is
necessary. To the Company’s Knowledge, all information filed with such
registrations about all such persons is accurate, true and complete in all
respects. To the Company’s Knowledge, all of the UFOCs accurately disclose any
relevant information about franchise brokers required in Items, 2, 3 and
4.
(w) The
Company trained all officers, agents, employees, brokers, salespersons,
contractors and other representatives engaged in the offer and sale of
Franchises on behalf of the Company in the requirements of applicable Legal
Requirements before permitting such persons to engage with prospective
Franchisees.
(x) The
Company obtained, has filed with the applicable jurisdictions and has retained
in its records the consent of its accountants to publication of the financial
statements set forth in the UFOCs.
(y) The
Company instituted and maintained internal controls adequate to assure that
potential franchise sales violations are discovered and remedied and that
its
records demonstrate compliance with Legal Requirements or that appropriate
steps
are taken to remedy non-compliance when discovered.
4.24 Representations
Complete
None of the representations or warranties made by the Company herein, in
the
Disclosure Schedules, or in any other Schedule or Exhibit hereto, or certificate
furnished by any of them pursuant to this Merger Agreement or any written
statement furnished to the Buyer Parties pursuant hereto or in connection
with
the transactions contemplated hereby, when all such documents are read together
in their entirety, contains, or will contain at the Closing Date, any untrue
statement of a material fact, or omits, or will omit at the Closing Date,
to
state any material fact necessary in order to make the statements contained
herein or therein, in the light of the circumstances under which made, not
misleading. There is no fact (other than matters of a general economic or
political nature that does not affect the Company uniquely as compared to
the
industry in which it operates) known to the Company that have not been disclosed
to the Buyer Parties that might reasonably be expected to have or result
in a
Material Adverse Effect or adversely affect the ability of the Company to
conduct its business after the Closing as currently conducted and as currently
proposed to be conducted.
-42-
ARTICLE
V
Representations
and Warranties of Buyer Parties
Each
of
the Buyer Parties hereby represents and warrants to the Majority Securityholders
and the Company that the statements contained in this Article V are correct
and
complete as of the date of this Merger Agreement and will be correct and
complete as of the Closing Date (as though made then and as though the Closing
Date were substituted for the date of this Merger Agreement throughout this
Article V, which representations and warranties shall be true and correct
only
as of such date), except as set forth in the Disclosure Schedules attached
hereto.
5.1 Organization
(a) Each
of
the Buyer Parties is duly organized, validly existing and in good standing
under
the laws of its incorporation, organization or formation. Each of the Buyer
Parties has all requisite right, power and authority to (i) own or lease
and
operate its properties and assets, (ii) conduct its business as presently
conducted, and (iii) engage in and consummate the transactions contemplated
hereby.
(b) Each
of
the Buyer Parties is duly licensed or qualified to do business as a foreign
corporation or a limited liability company, as the case may be, and is in
good
standing in each jurisdiction in which such entity conducts its business
or the
leasing or operation of its properties makes such licensing or qualification
necessary. Buyer
has
heretofore delivered to the Company true and complete copies of the certificate
of incorporation and other organizational documents of the Buyer Parties
as
currently in effect.
5.2 Authorization;
Enforceability
Each of the Buyer Parties has the power and authority and has taken all
necessary action to execute, deliver and perform this Merger Agreement and
to
consummate the transactions contemplated hereby and thereby and to take all
other actions required to be taken by it pursuant to the provisions hereof
and
thereof. This Merger Agreement has been duly authorized and approved by the
Board of Directors (or similar governing body) of the Buyer Parties, and
no
other corporate or other action on the part of the Buyer Parties is necessary
to
authorize the execution, delivery and performance of this Merger Agreement
by
the Buyer Parties and the consummation by the Buyer Parties of the transactions
contemplated by this Merger Agreement. This Merger Agreement has been duly
executed and delivered by the Buyer Parties. This Merger Agreement is a legal,
valid and binding obligation of the Buyer Parties and enforceable against
such
party, in accordance with its respective terms, except as the enforceability
thereof may be limited by bankruptcy, insolvency or other similar laws affecting
creditors’ rights generally or by general equity principles.
-43-
5.3 No
Violation or Conflict
The execution, delivery and performance by the Buyer Parties of this Merger
Agreement and the consummation by the Buyer Parties of the transactions
contemplated hereby and thereby (i) will not violate, with or without the
giving
of notice or the lapse of time or both, any law, rule, regulation, court
order,
writ, judgment, injunction or decree applicable to any of the Buyer Parties
or
any of their respective properties or assets, (ii) will not violate or breach
the organizational documents of any of the Buyer Parties, (iii) will not,
with
or without the passage of time or the giving of notice, result in the breach
of,
or constitute a default under, or result in the acceleration of the performance
of the obligations of any of the Buyer Parties under any material contract
to
which such Buyer Party is a party or by which any of the Buyer Parties or
any of
its assets is bound or affected, and (iv) will not result in the creation
of any
Lien on any of the assets or properties of any of the Buyer Parties, and
excluding from the foregoing clauses (i), (iii) and (iv) permits, consents,
approvals, notices and filings the absence of which, and violations, breaches
and defaults the existence of which, would not prevent any of the Buyer Parties
from performing its obligations under this Merger Agreement.
5.4 Consents
and Approvals
No
consent, approval, waiver or authorization of, or registration, declaration,
qualification or filing with or notice to any Government Authority, or any
other
Person, is required to be made by any of the Buyer Parties in connection
with
the execution, delivery or performance by any of the Buyer Parties of this
Merger Agreement and the consummation by any of the Buyer Parties of the
transactions contemplated hereby and thereby.
5.5 Brokers.
None of
the Buyer Parties has employed any financial advisor, broker or finder and
has
incurred and will incur any broker’s, finder’s, investment banking or similar
fees, commissions or expenses, in connection with the origination, negotiation
or execution of this Merger Agreement.
5.6 SEC
Documents and Other Reports
Buyer
has
timely filed with the SEC all forms, reports and documents required to be
filed
by it since January 1, 2006 under the Securities Act or the Exchange Act
(the
"Buyer
SEC Documents").
As of
their respective filing dates, the Buyer SEC Documents complied in all material
respects with the requirements of the Securities Act or the Exchange Act,
as the
case may be, each as in effect on the date so filed, and at the time filed
with
the SEC none of the Buyer SEC Documents contained any untrue statement of
a
material fact or omitted 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. None
of
the Buyer’s Subsidiaries are required to file any forms, reports and/or
documents with the SEC.
The
financial statements of Buyer included in the Buyer SEC Documents complied
as of
their respective dates in all material respects with then applicable accounting
requirements and the published rules and regulations of the SEC with respect
thereto, were prepared in accordance with GAAP (except in the case of the
unaudited statements, as permitted by Form 10-Q under the Exchange Act) applied
on a consistent basis during the periods involved (except as may be indicated
therein or in the notes thereto) and fairly present in all material respects
the
condensed consolidated financial position of Buyer and its Subsidiaries as
at
the dates thereof and the condensed consolidated results of their operations
and
their condensed consolidated cash flows for the periods then ended (subject,
in
the case of unaudited statements, to normal year-end audit adjustments and
to
any other adjustments described therein, all of which are of a recurring
nature
and none of which individually or in the aggregate would have a material
adverse
effect on Buyer or and of its Subsidiaries).
-44-
5.7 Absence
of Changes
Except as disclosed in the Buyer SEC Documents, since September 30, 2006
there
has not been any change in the assets, liabilities, financial condition or
operating results of Buyer from that reflected in Buyer’s financial statements,
except changes in the ordinary course of business that have not created,
in the
aggregate, a material adverse change on Buyer or any of its Subsidiaries
excluding for this purpose, any adverse change arising out of or relating
to:
(i) changes in general business or economic conditions; (ii) changes in the
industries in which Buyer operates; and/or (iii) the announcement or
performance of the transactions and obligations contemplated hereby.
5.8 Buyer
Shares
All of the Buyer Shares issuable in accordance with this Merger Agreement
will
be, when so issued, duly authorized, validly issued, fully paid and
non-assessable and free and clear of any liens (other than those created
under
federal and state securities laws or the Voting Merger Agreement) and not
subject to preemptive or other similar rights of the stockholders of
Buyer.
5.9 Investment
Representations Buyer
represents that (a) all of the Acquired Interests will be acquired for its
account and not with a view towards distribution thereof; (b) it understands
that the Acquired Interests have not been registered under the Securities
Act or
any applicable state securities or “blue sky” laws and that the Acquired
Interests must be held indefinitely unless subsequently registered under
the
Securities Act and all applicable state securities and “blue sky” laws or unless
an exemption from such registration is available; (c) it is an Accredited
Investor; (d) it understands that the certificates representing the Acquired
Interests may bear legends to the effect that the Acquired Interests may
not be
transferred except upon compliance with the registration requirements of
the
Securities Act or any applicable state securities or “blue sky” laws or an
exemption therefrom; (e) it has sufficient knowledge and experience in financial
and business matters so as to be capable of evaluating the merits and risks
of
its investment in the Acquired Interests and is capable of bearing the economic
risks of such investment, and (f) it had reasonable time and opportunity
to ask
questions and receive answers concerning the terms and conditions of this
Merger
Agreement and the transactions contemplated hereby and to obtain additional
information from the Securityholders and the Company.
5.10 Litigation
There is no Proceeding pending, or to the Buyer’s Knowledge, threatened against
any of the Buyer Parties that questions the validity of this Merger Agreement
or
any action taken or to be taken hereunder, or that would have a material
adverse
effect on the ability of any of the Buyer Parties to perform its obligations
under this Merger Agreement.
ARTICLE
VI
PRE-CLOSING
COVENANTS
6.1 Conduct
of Business of the Company
During the period from the date hereof through the Closing Date, each of
the
Company and its Subsidiaries will conduct their operations in the ordinary
course of business consistent with past practice. Further, during such period,
the Company shall (and shall cause each of its Subsidiaries to) use reasonable
best efforts to preserve intact its business organization and personnel,
preserve in all material respects present business relationships with clients,
suppliers, distributors, licensors, licensees and others having business
dealings with it and goodwill and comply in all material respects with all
applicable Legal Requirements. Further, and without limiting the generality
of
the foregoing, during the period from the date hereof to the Closing Date,
except as may be first approved by Buyer in writing, or as is otherwise
expressly permitted or required by this Merger Agreement, the Company shall
not
(and shall cause each of its Subsidiaries not to):
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(a) amend
its
Organizational Documents;
(b) (i)
increase the compensation payable to, or to become payable to, any of its
directors, officers or employees, except for normal periodic increases in
the
ordinary course of business consistent with past practice or take any action
with respect to the grant of any severance or termination pay, or stay, bonus
or
other incentive arrangement that is related to the transactions contemplated
by
this Merger Agreement; or (ii) establish, adopt, extend (beyond the Closing
Date), enter into, renew or amend any collective bargaining agreement or
other
Contract with any labor organization, union or association or adopt or amend
in
any material respect an Company Benefit Plan;
(c) enter
into any Contract that would constitute a Material Contract other than in
the
ordinary course of business or violate, breach, amend or otherwise modify
or
waive in a manner adverse to the Company any of the terms of a Material Contract
or accelerate, terminate or cancel (or take or fail to take any action that
would give the other party the right to accelerate, terminate or cancel)
any
Material Contract other than in the ordinary course of business and according
to
its terms;
(d) sell,
transfer, assign, convey, lease or otherwise dispose of any material assets
or
properties or any other material right, or permit, allow or suffer any of
its
assets or properties to be subjected to any Liens, other than Permitted
Liens;
(e) issue,
sell, transfer, pledge, dispose of or encumber any Equity Securities, or
enter
into any Contract with respect to the issue and sale of, any Equity Securities,
or make any other changes in its capital structure;
(f) organize
any Subsidiary, acquire by merger or consolidation with, or by purchasing
any
portion of the Equity Securities or assets of, or by any other manner, any
business or any Person;
(g) make
or
incur any capital expenditures or commitments for capital additions or
improvements that (i) are not currently approved in writing or budgeted
(including but not limited to the opening or purchasing of any store to be
operated under the Brand), or (ii) under which payment or expenditure
obligations exceed $20,000 in the aggregate;
(h) declare
or pay any dividends or make any distributions in respect of any Capital
Equity
(other than cash dividends), or redeem, purchase or otherwise acquire for
value
any Capital Equity;
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(i) settle
or
compromise any material dispute involving or affecting the Company or any
Subsidiary for an amount in excess of $50,000;
(j) make
any
loans, advances or capital contributions to, or investments in, any other
Person
other than in the ordinary course of business in an aggregate amount not
greater
than $50,000;
(k) other
than in the ordinary course of the Company’s business, pay, discharge, waive or
satisfy any liability representing a payment by the Company in excess of
$50,000, whether individually or in the aggregate, after applying any applicable
insurance proceeds (whether fixed or contingent);
(l) cancel
any debts or affirmatively waive any claims or rights of substantial value,
except for cancellations made or waivers granted in the ordinary course of
business which, in the aggregate, are not material;
(m) authorize
any of, or commit or agree to take, whether in writing or otherwise, any
of, the
foregoing actions; or
(n) take
any
action or omit to take any action which act or omission would reasonably
be
anticipated to have a Material Adverse Effect.
6.2 Access
to Properties and Records
The Company will permit the Buyer and its representatives to have reasonable
access, prior to the Closing Date, to the properties and to the books and
records of the Company during normal working hours and upon reasonable notice,
to familiarize itself with the Company’s properties, business and operating and
financial conditions. Upon reasonable advance notice, the Company shall cause
to
be made available to the Buyer and its representatives, the franchisees,
suppliers and personnel of the Company. As promptly as practicable after
the end
of each period ended after the date of this Merger Agreement and prior to
the
Closing Date, the Company shall deliver to the Buyer unaudited financial
statements of the Company as at and for the year through the end of the most
recently completed fiscal period (each such report, an “Other
Interim Report”).
Buyer
hereby acknowledges that it has entered into a letter agreement, dated December
15, 2006, which sets forth certain obligations of Buyer regarding, among
other
things, confidential treatment of certain information of the Company (the
“Confidentiality
Agreement”),
and
Buyer hereby confirms that it has heretofore complied with, and will continue
to
comply with, the terms, conditions and restrictions thereunder, and that
any and
all information obtained during any review of the Company contemplated by
this
Section
6.2
or
otherwise performed by Buyer after the date hereof will be subject to the
terms
of the Confidentiality Agreement.
6.3 Reasonable
Best Efforts.
(a) On
the
terms and subject to the conditions in this Merger Agreement, each of the
Majority Securityholders and the Company agree to use his or its reasonable
best
efforts to take, or cause to be taken, and to cause the Securityholders to
take,
all reasonable actions to cause the conditions set forth in Article VIII
to be
satisfied, and the Buyer agrees to use its reasonable best efforts to take,
or
cause to be taken, all reasonable actions to cause the conditions set forth
in
Article IX to be satisfied. Notwithstanding the foregoing sentence, nothing
set
forth herein is intended or shall be construed to require any party to this
Merger Agreement to (A) incur any material liability or obligation of any
kind,
(B) make or commit to make any material expenditure or otherwise give material
value, (C) agree to any material sale, transfer, license, separate holding,
divestiture or other disposition of, or to any prohibition of, or any limitation
on, the acquisition, ownership, operation, effective control or exercise
of full
right, of ownership of, any asset or assets of the businesses of the Company,
the Buyer prior to or after the Closing, or (D) take or fail to take any
actions
that would result in a material adverse change in the benefits to any such
Person of this Merger Agreement or the other transactions contemplated
hereby.
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(b) Without
limiting the generality of the foregoing, the Company shall give or cause
to be
given any notices to third parties required to be given pursuant to any Contract
to which it is a party as a result of this Merger Agreement or any of the
transactions contemplated hereby. The Company shall use its commercially
reasonable efforts to obtain prior to the Closing, and deliver to Buyer at
or
prior to the Closing, all consents, waivers and approvals required to be
obtained (i) under each Contract to which it is a party or by which it is
bound
or (ii) from a Government Authority, in form and substance reasonably acceptable
to Buyer.
6.4 Public
Disclosure
Between the date of this Merger Agreement and the Closing Date, except to
the
extent required by applicable Legal Requirements (including, without limitation,
the rules of the Nasdaq Global Market), none of the Buyer Parties, the Company
or the Majority Securityholders and their representatives shall, and the
Company
and the Majority Securityholder shall use their reasonable best effort to
cause
the Securityholders not to (and to such end, promptly following the date
hereof
the Majority Securityholders shall cause the Securityholders to execute an
agreement (in form and substance reasonably acceptable to Buyer) agreeing
that
they will not), issue any press release or public announcement of any kind
concerning the transactions contemplated by this Merger Agreement without
the
prior written consent of Buyer and the Securityholders; and, in the event
any
such public announcement, release or disclosure is required by applicable
Legal
Requirements (including, without limitation, the rules of the Nasdaq Global
Market), Buyer will, to the extent practicable under the circumstances, provide
the Majority Securityholders reasonable opportunity to comment on any such
announcement, release or disclosure prior to the making thereof. The Company
and
the Majority Securityholders acknowledge and agree that Buyer shall be required
to file a Current Report on Form 8-K disclosing the transactions contemplated
by
this Merger Agreement and attaching as an exhibit thereto a copy of this
Merger
Agreement.
6.5 Notice
of Developments
The Company or the Majority Securityholders, as the case may be, shall promptly
advise Buyer, and Buyer shall promptly advise the Company,
in
writing of any (a) event, circumstance or development that results (or would
result on the Closing Date) in a breach of any representation or warranty
made
by it or him in this Merger Agreement and (b) any material failure of the
Company,
its Subsidiaries,
the
Majority Securityholders, or Buyer, as the case may be, to comply with or
satisfy any condition or agreement to be complied with or satisfied by it
hereunder; provided
that no
disclosure pursuant to this Section
6.5
shall be
deemed to amend or supplement any provision of this Merger Agreement or any
disclosure schedule hereto, or to prevent or cure any misrepresentation,
breach
of warranty or breach of covenant.
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6.6 Exclusivity
Each Majority Securityholder agrees that he will not (and will cause his
representatives not to), and the Company agrees that neither it nor any of
its
Subsidiaries nor any of their respective officers or directors shall, and
that
the Company shall use commercially reasonable best efforts to cause its and
its
Subsidiaries’ employees, agents and representatives (including any investment
banker, attorney or accountant retained by it) not to (and shall not authorize
any of them to), directly or indirectly: (i) solicit, initiate, knowingly
encourage or knowingly facilitate any inquiries with respect to, or the making,
submission or announcement of, any offer or proposal from any Person (other
than
Buyer) concerning
any proposal for a merger, sale of substantial assets (including the license
of
any assets), sale of shares of stock or securities, business combination,
or
other takeover or business combination transaction involving the Company
or any
of its Subsidiaries (an “Acquisition
Proposal”);
(ii)
participate in any discussions or negotiations regarding, or furnish to any
Person any nonpublic information with respect to, or otherwise cooperate
in any
respect with, any Acquisition Proposal; (iii) engage in discussions with
any
Person with respect to any Acquisition Proposal (except to inform such Person
that these restrictions exist); (iv) approve, endorse or recommend any
Acquisition Proposal; or (v) enter into any letter of intent or similar document
or any contract, agreement or commitment contemplating any Acquisition Proposal
or transaction contemplated thereby. The Company and the Securityholders
will
immediately cease any and all existing activities, discussions or negotiations
with any third parties conducted heretofore with respect to any Acquisition
Proposal.
6.7 Advisory
Services
Buyer agrees that as of the Closing, Xxxxxx Xxxxxx shall be offered the right
to
serve on Buyer’s board of advisors for a period of at least three (3) years
following Closing for a fee of $50,000 per year.
6.8 Continuation
of Business
As
of the Closing Date, the Majority Securityholders shall have caused the Company
to have taken all appropriate actions in accordance with all applicable Legal
Requirements with respect to the Franchises and the UFOCs, to ensure that
the
consummation of the transactions contemplated hereby will not alter or impair
any of the Franchises or the ability of the Company to continue to do business
in the same manner as such business has been conducted prior to the Closing,
subject
to Buyer's satisfactory provision of a guarantee/credit enhancement to comply
with all applicable Legal Requirements for the sale of Franchises for the
relevant Government Authorities, as required under Section 7.7
hereof.
Such
appropriate actions include, but are not limited to, filing all amendments
to
the UFOCs then on file with the relevant Government Authorities and presently
effective as necessary to comply with all applicable Legal Requirements as
a
result of the consummation of the transactions contemplated by this Merger
Agreement (collectively, the “Transaction
Amendments”),
and
ensuring that all such UFOCs and all of the amended portions of the UFOCs
included in the Transaction Amendments are in compliance with the UFOC
Guidelines at the time of filing. Except as a result of any actions taken
by
Buyer, each of the Franchises will remain valid, and in full force and effect,
following consummation of the transactions contemplated by this Merger
Agreement. Buyer shall promptly provide to the Company information requested
by
the Company for inclusion in the Transaction Amendments as necessary to comply
with applicable Legal Requirements. Buyer shall have the right to review
in
advance, and, the Company shall consult with the Buyer on, all correspondence
with the Franchisees related to this Merger Agreement and the transactions
contemplated hereby, and the information that appears in the Transaction
Amendments. The Company shall keep the Buyer reasonably apprised of the status
of matters relating to the Transaction Amendments and shall work cooperatively
with the Buyer in connection with obtaining all required registration orders
from any such Government Authority. Buyer agree to cooperate in all aspects
and
in good faith with the Company to timely file the Transaction Amendments
in
accordance with applicable Legal Requirements.
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6.9 Majority
Securityholder Consent or Approval
Promptly following the execution of this Merger Agreement, the Company shall
deliver to Buyer a stockholder consent executed by the Majority Securityholders
as to all Membership Interests held by such Majority Securityholders, approving
and adopting this Merger Agreement and the Merger (the “Required
Securityholder Consent”).
6.10 Option
Acceleration.
No
later
than ten (10) days following the date hereof, the Operating Board shall notify
in writing those Persons listed on Schedule
4.4
as
holding options (the “Option
Holders”)
that it
has determined, pursuant to Section 11(b) of the Option Plan, all Options
shall
become immediately vested and shall be exercisable for a period of five (5)
days
(the “Exercise
Period”),
and
that any such Options that are not exercised in such period shall be terminated
as of midnight on the last day of the Exercise Period. On the day following
the
last day of the Exercise Period, the Company shall deliver to the Buyer Parties
an updated Exhibit
D
that
reflects the exercise and termination of any Options.
6.11 Warrant
Amendments.
Promptly
following the execution of this Merger Agreement, the Company shall cause
each
of the Persons listed on Schedule
4.4
as
holding Warrants (the “Warrant
Holders”)
to
execute and deliver an amendment to such Person’s Warrant in form and substance
reasonably acceptable to the Buyer Parties (the “Warrant
Amendments”).
ARTICLE
VII
POST
CLOSING COVENANTS
7.1 Confidentiality
Each Securityholder recognizes and acknowledges that they have in the past,
currently have, and in the future may possibly have, access to certain
confidential information relating to the Company and its Subsidiaries. Each
Securityholder agrees it shall not (and shall cause its representatives and
Affiliates not to) use or disclose such confidential information with respect
to
the Company or any of its Subsidiaries to any Person for any purpose or reason
whatsoever, unless: (i) such information becomes known to the public generally
through no fault of such Securityholder (or its Affiliates or representatives);
(ii) there is a Legal Requirement to make such disclosure; or (iii) the
disclosing party reasonably believes that such disclosure is required in
connection with the defense of a lawsuit against the disclosing
party.
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7.2 Restrictions
on Sale of Buyer Shares
During the six (6) month period following the Closing Date (such period herein
referred to as the “Initial
Period”),
no
Securityholder shall, directly or indirectly, through an “affiliate” or
“associate” (as such terms are defined in the General Rules and Regulations
under the Securities Act), a family member or otherwise, offer, sell, pledge,
hypothecate, grant an option for sale, or otherwise dispose of, or transfer
or
grant any rights with respect thereto in any manner either privately or publicly
(each, a “Transfer”)
any of
the Buyer Shares or other Equity Securities of the Buyer acquired by any
Securityholder pursuant to a stock split, stock dividend, reverse stock split,
subdivision, combination, reclassification or similar change in the capital
structure of Buyer (each an “Adjustment”)
affecting Buyer Shares (together with the Buyer Shares, “Securities”),
or
enter into any agreement or any transaction that has the effect of transferring,
in whole or in part, directly or indirectly, the economic consequence of
ownership of the Securities, whether any such agreement or transaction is
to be
settled by delivery of the Securities. Following the Initial Period, the
restrictions on Transfer provided for in this Section
7.2
shall
lapse with respect to 25% of the total number of Buyer Shares, including
those
held in the Holdback Account, owned or when received in the case of the Buyer
Shares held in Holdback Account by the Securityholders in the aggregate (taking
into account and proportionally adjusting for any Adjustments occurring during
such period) and the Securityholders may Transfer such Buyer Shares in open
market transactions without restriction. On the first day of each of the
first
three consecutive three month periods following the first anniversary of
the
Closing Date, the restrictions on Transfer provided for in this Section
7.2
shall
lapse, on a cumulative basis, with respect to 25% of the number of Buyer
Shares
owned by the Securityholders in the aggregate (taking into account and
proportionally adjusting for any Adjustments occurring during such period)
and
the Securityholders may Transfer such Buyer Shares in open market transactions
without restriction. All Buyer Shares issued pursuant to Section
2.5
hereof
shall not be subject to this Section
7.2.
7.3 Agreement
to Vote
At
all times prior to a Transfer (as defined in Section
7.2
above)
of Buyer Shares, at every meeting of the stockholders of the Buyer called
with
respect to any of the following, and at every adjournment thereof, and on
every
action or approval by written consent of the stockholders of Buyer, the Majority
Securityholders shall appear at such meeting (in person or by proxy) and
shall
vote or consent the Buyer Shares (i) in favor of adoption of each proposal
recommended by the Board of Directors of Buyer for adoption by the stockholders
and (ii) against any proposal for which the Board of Directors of Buyer
does not support. Prior to the termination of this Merger Agreement, each
such
Majority Securityholder covenants and agrees not to enter into any agreement
or
understanding with any person to vote or give instructions in any manner
inconsistent with the terms of this Merger Agreement. Each Majority
Securityholder agrees to enter into a voting agreement at the Closing on
terms
reasonably acceptable to Buyer (the “Voting
Agreement”)
that
appoints a designee of Buyer its
proxy
and attorneys-in-fact, with full power of substitution and resubstitution,
to
vote or act by written consent with respect to the Buyer Shares held by such
Majority Securityholder.
7.4 Registration The
Buyer
Shares shall have registration rights in accordance with the terms of that
certain Registration Rights Agreement, dated as of the Closing, in form and
substance to be mutually agreed by the parties thereto (the “Registration
Rights Agreement”),
pursuant to which, among other things, Buyer shall agree to use its commercially
reasonable efforts to file a registration statement on Form S-3, if eligible,
or
other appropriate form, with the SEC no later than 120 days following the
Closing Date covering the Buyer Shares issued hereunder; provided
that if
the Buyer Shares are not listed on one or more national securities exchanges,
the Nasdaq Global Market or a similarly liquid non-United States securities
exchange on the Holdback Release Date, the Buyer shall pay the Adjusted Holdback
Amount in cash based on the fair market value of the Buyer Shares as determined
by the Buyer’s Board of Directors, in good faith and in accordance with past
practice (if any), in its sole discretion.
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7.5 Company
Stores
Buyer shall own and operate any Company-owned stores acquired pursuant to
the
terms of this Merger Agreement after the Closing in a manner consistent with
past practice; provided
that
Buyer shall use its reasonable best efforts to sell all such stores as soon
as
reasonably practicable; provided, further that if any such stores have not
been
sold by the date which is nine (9) months from the Closing Date (provided
that
this date shall be extended for an additional 60 days for any store that
may be
under a binding purchase and sale agreement prior to the date which is nine
(9)
months from the Closing Date), then Buyer shall have the option, in its sole
discretion, of closing and/or retaining (for no additional consideration)
any of
the stores acquired pursuant to the terms of this Merger Agreement (all
company-owed stores acquired pursuant to the terms of this Merger Agreement
are
referred to as the “Sold
Stores”
for
purposes of this Section
7.5).
No
later than 10 days following the Reference Date, the Buyer shall prepare
and
deliver to the Securityholders’ Representative a statement of Store-Level Net
Proceeds. If the Securityholders’ Representative disputes the calculation of the
Store-Level Net Proceeds, the Buyer and the Securityholders’ Representative
agree to follow the dispute mechanism set forth in Section
2.4.
If the
aggregate Store-Level Net Proceeds are greater than zero, Buyer shall remit
100%
of the Store-Level Net Proceeds to the Securityholders pro rata in accordance
with payment of the Initial Merger Consideration pursuant to Section
2.2(b)(i).
If the
aggregate Store-Level Net Proceeds are less than zero (such amount, the
“Store
Loss”),
the
Buyer shall be indemnified for such Store Loss in accordance with Article
X.
7.6 D&O
Insurance Buyer
shall maintain in effect for a period of three (3) years after the Closing
Date,
policies of directors’ and officers’ liability insurance covering the present
directors and officers of the Company and its Subsidiaries, and such policies
shall provide substantially similar coverage as is provided for the Persons
who
are covered by the Company’s and its Subsidiaries’ existing policies;
provided
that in
no event shall Buyer be required to obtain such a policy with an annual premium
equal to more than 125% of the annual premium the Company is paying for such
directors’ and officers’ liability insurance as of the Closing Date.
7.7 Franchise
Requirements
Buyer shall, where required by relevant Government Authorities, promptly
provide
any form of credit enhancement permitted by such Government Authority to
enable
the Company to maintain or obtain franchise registration. Where
a
guarantee of performance is the only form of credit enhancement permitted
under
the applicable Legal Requirements of any Government Authority, Buyer or an
appropriate affiliate will provide a guarantee of performance.
7.8 Indemnification.
Buyer
shall cause the Indemnification Agreements to remain in full force and effect,
until terminated in accordance with their terms.
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ARTICLE
VIII
Conditions
Precedent to Buyer Parties’ Obligations
All
obligations of the Buyer Parties under this Merger Agreement are subject
to the
fulfillment of each of the following conditions, any or all of which may
be
waived in whole or in part by the Buyer Parties, in their sole
discretion:
8.1 Truth
of Representations and Warranties
The representations and warranties of each of the Majority Securityholders
and
the Company contained in this Merger Agreement that are qualified as to
materiality shall be true and correct, and those not so qualified shall be
true
and correct in all material respects, as of the date of this Merger Agreement
and on and as of the Closing Date, except to the extent that any such
representation or warranty expressly relates to an earlier date, in which
case
such representation and warranty qualified as to materiality shall be true
and
correct, and such representation and warranty not so qualified shall be true
and
correct in all material respects, as of such earlier date.
8.2 Performance
of Agreements
Each of the covenants and agreements of the Majority Securityholders and
the
Company to be performed or complied with by them at or prior to the Closing
Date
pursuant to the terms hereof, shall have been performed or complied with
in all
material respects.
8.3 Certificate
The Majority Securityholders shall have delivered (and caused to be delivered)
to the Buyer a certificate, dated the Closing Date and executed by or on
behalf
of the Company and the Securityholders, certifying as to the satisfaction
of the
conditions set forth in Sections 8.1
and
8.2
of this
Merger Agreement.
8.4 No
Litigation, Injunctions or Restraints
There shall not be pending or threatened, by any Government Authority, any
Proceeding or Order (or by any other person any Proceeding that has a reasonable
likelihood of success) (i) challenging or seeking to restrain or prohibit
the
transactions contemplated by this Merger Agreement, (ii) seeking to prohibit
or
limit the ownership or operation by Buyer or any of its subsidiaries of any
material portion of the business or assets of the Company, (iii) seeking
to
impose limitations on the ability of Buyer to acquire or hold, or exercise
full
rights of ownership of, the Acquired Interests, or (iv) seeking to prohibit
Buyer or any of its subsidiaries from effectively controlling in any material
respect the business or operations of the Company.
8.5 No
Material Adverse Change
No
event, occurrence or development shall have occurred since the date of this
Merger Agreement and be continuing which has had or could reasonably be expected
to result in any change, effect, event, occurrence or state of facts (or
any
development that has had or would reasonably be expected to have any change
or
effect) that, individually or in the aggregate, has had or could reasonably
be
expected to have a Material Adverse Effect;
provided that the occurrence of any of the following shall not be deemed,
in and
of itself, to constitute a Material Adverse Effect or give rise alone to
a
Material Adverse Effect: (a) a change in the market price or trading volume
of
the Buyer’s Common Stock, (b) a change that results from general conditions
affecting the U.S. economy or the world economy, (c) a delay in customer
orders
or franchise sales arising primarily out of or resulting primarily from the
announcement of the transactions contemplated by this Merger Agreement, and
(d)
a change that results from the taking of any action expressly required by
this
Merger Agreement.
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8.6 Governmental
and Other Approvals
All of the governmental and third-party consents and approvals set forth
on
Schedule
9.5
shall
have been received and shall be in full force and effect. The Buyer shall
have
received copies of releases of all Liens (other than Permitted Liens) against
any asset, property or right of the Company.
8.7 Employment
Agreements
Each of the persons set forth in Schedule
8.7
(which
schedule shall be delivered to the Securityholders’ Representative no later than
three (3) days following the date hereof) shall have entered into an employment
agreement with Buyer or its Affiliate, which shall include non-solicitation
and
non-competition covenants, on terms reasonably satisfactory to Buyer and
such
agreements shall be in full force and effect as of the Closing. For avoidance
of
doubt, the agreement with Xxxxxx Xxxxxx will include a non-compete that
prohibits him from engaging in any aspect of the ice cream industry or the
franchising of specialty dessert products (other than with respect to that
certain Store he currently operates in Manhattan, New York) for a period
of
three (3) years after the Closing.
8.8 Voting
Agreement
Each Majority Securityholder shall have entered into a Voting Agreement,
which
shall be in form and substance reasonably acceptable to Buyer and be in full
force and effect.
8.9 Required
Securityholders’ Consent
The Company shall have delivered to the Buyer the Required Securityholder
Consent in accordance with Section
6.9
hereof.
8.10 Securityholder
Notice The
Company shall have delivered to the Securityholders (other than the Majority
Securityholders) a written notice stating that the Majority Securityholders
and
the Operating Board have both approved the transactions contemplated by this
Merger
Agreement,
the
consideration to be paid to the Securityholders, and a summary of the terms
of
the Merger.
8.11 Securityholder
Consents
No
later than three (3) days prior to the Closing, the Company shall have delivered
to the Buyer written consents of all of the Securityholders (other than the
Majority Securityholders who have delivered such consent on the date hereof)
that, among other things, consents to the Merger and the transactions
contemplated by this Agreement, and the allocation of the Merger Consideration
pursuant to the terms of Section 2.6 hereof, all in form and substance
reasonably acceptable to the Buyer.
8.12 Options.
The
Company shall have delivered evidence reasonable to the Buyer Parties that
the
Company sent the notice described in Section 6.10 to each of the Option Holders,
and the Option Plan shall have been terminated.
8.13 Warrant
Amendments.
The
Warrant Holders shall have entered into the Warrant Amendments, and the Company
shall have delivered copies of the same to the Buyer Parties.
-54-
8.14 Registration
Rights Agreement.
The
Securityholders shall have entered into the Registration Rights Agreement,
and
such agreement shall be in form and substance reasonably acceptable to Buyer
and
be in full force and effect as of the Closing.
8.15 Securityholders’
Questionnaires
.
No less
than three (3) days prior to Closing, the Company shall deliver to the Buyer
Parties completed and executed Securityholder Questionnaires; provided
that
this condition shall be deemed satisfied if the number of Securityholders
that
are not Accredited Investors is fewer than 35.
8.16 Other
Deliveries
(a) Resignations.
Written
resignations of all officers and directors of the Company and each of its
Subsidiaries;
(b) Secretary’s
Certificate.
A
certificate executed on behalf of the Company by the authorized Secretary
thereof dated the Closing Date certifying with respect to (i) a copy of each
Company’s Organizational Documents as in effect on the Closing Date, (ii) that
the Company is not in violation of or default under any provision of its
Organizational Documents as of and on such Closing Date, (iii) attached
resolutions of the Company, authorizing the execution and performance of
this
Merger
Agreement
and all
actions to be taken by the Company under this Merger
Agreement;
and
(iv) incumbency matters and such other proceedings relating to the
authorization, execution and delivery of this Merger
Agreement
as may
be reasonably requested by Buyer;
(c) FIRPTA.
An
affidavit under Section 1445(b)(2) or (3) of the Code properly executed by
the
Company that will exempt Buyer’s purchase of the Acquired Interests from
withholding under Section 1445 of the Code;
(d) Good
Standing Certificates.
Governmental certificates showing that each of the Company and its Subsidiaries
is duly formed or incorporated and in good standing in the state or jurisdiction
of its incorporation or formation, as applicable, certified as of a date
not
more than five days before the Closing Date; and
(e) Landlord
Estoppel Certificates.
Buyer
shall have received duly executed estoppels certificates, in form and content
reasonably acceptable to Buyer and the Majority Securityholders, from all
landlords, licensors and sublessors under the Real Property Leases.
ARTICLE
IX
Conditions
Precedent to Majority Securityholders’ and Company’s
Obligations
All
obligations of the Majority Securityholders and the Company under this
Merger
Agreement
are
subject to the fulfillment of each of the following conditions, any or all
of
which may be waived in whole or in part by the Majority Securityholders and
the
Company, in their sole discretion:
9.1 Truth
of Representations and Warranties
The representations and warranties of the Buyer Parties contained in this
Merger
Agreement
that are
qualified as to materiality shall be true and correct, and those not so
qualified shall be true and correct in all material respects, as of the date
of
this Merger
Agreement
and on
and as of the Closing Date, except to the extent that any such representation
or
warranty expressly relates to an earlier date, in which case such representation
or warranty that is qualified as to materiality shall be true and correct,
and
such representation and warranty not so qualified shall be true and correct
in
all material respects, as of such earlier date.
-55-
9.2 Performance
of Agreements
Each of the covenants and agreements of the Buyer Parties to be performed
or
complied with by the Buyer Parties at or prior to the Closing Date pursuant
to
the terms hereof, shall have been duly performed or complied with by each
of the
Buyer Parties in all material respects.
9.3 Certificate
Each of the Buyer Parties has delivered to the Company a certificate, dated
the
Closing Date and executed by a duly authorized officer thereof, certifying
as to
the satisfaction of the conditions set forth in Sections 9.1
and
9.2
of this
Merger
Agreement.
9.4 No
Litigation, Injunctions or Restraints
There shall not be pending or threatened, by any Government Authority, any
Proceeding or Order (or by any other person any Proceeding that has a reasonable
likelihood of success) challenging or seeking to restrain or prohibit the
transactions contemplated by this Merger
Agreement.
9.5 Governmental
and Other Approvals
All of the governmental consents and approvals set forth on Schedule
9.5
shall
have been received and shall be in full force and effect.
9.6 Registration
Rights Agreement.
Buyer
shall have entered into the Registration Rights Agreement, and such agreement
shall be in full force and effect as of the Closing.
9.7 Deliveries
by Buyer Parties
(a) Cash
Consideration.
Buyer
shall
have wire transferred to the Company for the benefit of Securityholders
immediately available funds in the amount of the Cash Consideration as provided
in Section 2.2,
to such
account as the Company specifies to Buyer at least two days prior to
Closing;
(b) Stock
Consideration.
Buyer
shall have delivered stock certificates to the Company evidencing the Stock
Consideration, registered in the names of the Securityholders as specified
by
the Securityholders at least two (2) days prior to Closing;
(c) Good
Standing Certificates.
The
Buyer Parties shall have delivered governmental certificates showing that
each
is duly incorporated or formed and in good standing in the state or jurisdiction
of its incorporation or formation, certified as of a date not more than five
(5)days before the Closing Date; and
(d) Certified
Resolutions.
Certified resolutions of the Board of Directors of the Buyer and the Managing
Member of Merger Sub approving the execution and delivery of this Merger
Agreement
and
authorizing the consummation of the transactions contemplated
hereby.
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ARTICLE
X
Indemnification
10.1 Survival
All representations and warranties made by, and the covenants and agreements
made or to be performed prior to the Closing by, the Company, Majority
Securityholders, or the Buyer Parties herein, or in any certificate, schedule
or
exhibit delivered pursuant hereto, shall survive the Closing and continue
in
full force and effect until the second anniversary of the Closing Date (the
“Survival
Date”),
except as to any matters with respect to which a bona fide written claim
shall
have been made or action at law or in equity shall have been commenced before
such date, in which event survival shall continue (but only with respect
to, and
to the extent of, such claim or action); provided,
however,
that the
representations and warranties (i) in Section
4.10
shall
survive and remain in full force and effect until 30 days after the expiration
of the applicable statutes of limitations for (including all periods of
extension, whether automatic or permissive), (ii) in Section
4.12
shall
survive and remain in full force and effect until the expiration of the
applicable statute of limitations, and (iii) in Sections
3.1, 3.2, 3.4, 4.1, 4.2, 4.4, 4.8, 4.19, 4.21, 5.1, 5.2 and 5.5
(the
“Core
Representations”)
shall
survive and remain in full force and effect indefinitely. The covenants in
this
Merger
Agreement
that are
to be performed after the Closing Date shall survive the Closing in accordance
with their terms. Following the Closing, the exclusive remedy pursuant to
this
Merger
Agreement
and the
transactions contemplated hereby (other than claims of or causes of action
arising from fraud) will be the rights to indemnification, payment of Damages
and other remedies provided by this Article X.
10.2 Indemnification
by Securityholders
(a) Subject
to the limitations in this Article X, each Majority Securityholder will,
severally and not jointly, indemnify, defend and hold harmless the Buyer
and its
Affiliates, and each of its and their respective officers, directors, employees,
stockholders, members, partners, agents, representatives, and controlling
persons (collectively, the “Buyer
Indemnified Persons”)
from
and against any Damages arising from or in connection with any breach of
or
inaccuracy in any representation or warranty made by such Majority
Securityholder in Article III hereof.
(b) Subject
to the limitations in this Article X, each Securityholder will, severally
according to such Securityholders’ Pro Rata Percentage, and not jointly,
indemnify, defend and hold harmless the Buyer Indemnified Parties from and
against any Damages arising from or in connection with any breach by such
Securityholder of any of its covenants or obligations under this Merger
Agreement.
(c) Subject
to the limitations set forth in this Article X, (i) each Securityholder will
severally according to such Securityholders’ Pro Rata Percentage, and (ii) the
Majority Securityholders will jointly and severally, indemnify, defend and
hold
harmless the Buyer Indemnified Persons from and against any and all Damages
incurred or sustained by Buyer Indemnified Parties as a result of:
-57-
(i) any
breach of or inaccuracy in any representation or warranty made by the Company
and the Securityholders in Article IV of this Merger
Agreement
(ii) any
breach by the Company of any covenant or other agreement contained herein
and
any certificate or other document delivered pursuant hereto;
(iii) any
fees
and expenses related to this Merger Agreement and other transactions
contemplated herein that are not included in the Closing Transaction Expenses
Certificate;
(iv) any
and
all Taxes of any of the Company and its Subsidiaries (A) for all taxable
periods
ending on or prior to the Closing Date; (B) for any Interim Tax Period which
Taxes are allocable to the portion of the Interim Tax Period ending on the
Closing Date (as determined pursuant to Section
11.1(c));
and
(C) for all Taxes of any member (other than the Company) of an Affiliated
Group
of which the Company is or was a member on or prior to the Closing Date by
reason of liability pursuant to Treas. Reg. §1.1502-6(a) or any analogous or
similar Legal Requirement but excluding any Taxes of any member of an Affiliated
Group of which the Company becomes a member (x) on the Closing Date at the
time
of or after the Closing or (y) any time after the Closing Date;
(v) any
Store
Loss;
(vi) the
Option Claim;
(vii) any
Franchise Dispute; and,
(viii) the
Xxxxxxx Obligation.
(d) Any
Securityholder who is an officer or director of the Company waives any right
of
contribution or other similar right against the Company arising out of claims
by
Buyer Parties for breaches of the representations, warranties and covenants
by
the Securityholder in his, her or its individual capacity.
10.3 Indemnification
by Buyer
Subject to the limitations set forth in this Article X, Buyer will indemnify,
defend and hold harmless the Securityholders and each of their respective
agents
and representatives (collectively, the “Securityholder
Indemnified Persons”
and,
together with the Buyer Indemnified Persons, the “Indemnified
Persons”)
from
and against any and all Damages arising from or in connection with:
(i) any
breach of or inaccuracy in any representation or warranty made by a Buyer
Party
pursuant to Article V of this Merger Agreement;
(ii) any
breach by a Buyer Party of any covenant or other agreement contained herein
or
under any other agreement executed and delivered by the parties in furtherance
of the transactions described herein; and
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(iii) any
and
all Taxes of any of the Company (or their respective successors) (A) for
all
taxable periods beginning and ending after the Closing Date, (B) for any
Interim
Tax Period which Taxes are allocable to the portion of the Interim Tax Period
that begins after the Closing Date (as determined in a manner consistent
with
Section
11.1(c)),
and
(C) for all Taxes of any member of an Affiliated Group of which the Company
is a
member at any time after the Closing Date pursuant to Treas. Reg. section
1.1502-6(a) or any analogous or similar Legal Requirement.
10.4 Limitations
on Liability
(a) The
aggregate liability of the Securityholders with respect to indemnification
claims under Sections
10.2(a)
and 10.2(c)(i)
(other
than arising from fraud) shall be limited to the Holdback Amount (other than
any
indemnification claims in respect of breaches of the representations and
warranties contained in the Core Representations, as to which the aggregate
liability shall be the Merger Consideration).
(b) The
liability under this Article X with respect to indemnification claims under
Section
10.2(a),
10.2(c)(i),
or
10.2(c)(vii)
shall be
subject to the following additional limitation: there shall be no liability
for
Damages with respect to indemnification claims under Section 10.2(a),
10.2(c)(i),
or
10.2(c)(vii)
until
the aggregate Damages with respect to such matters equals $200,000 (the
“Basket
Amount”),
and
then only to the extent such aggregate Damages exceed $200,000 (the
“Threshold”);
provided
that the
Basket Amount and the Threshold shall not apply to any Damages (and there
shall
be first-dollar liability) resulting from (i) any breach or misrepresentation
arising under any of the Core Representations, Section
4.6(b),
and
Section
4.10,
(ii)
the Option Claim, and (iii) the Xxxxxxx Obligation.
(c) Notwithstanding
anything to the contrary contained herein, the Holdback Amount shall constitute
the sole and exclusive source of payment or recovery for all claims for
indemnification by the Buyer Indemnified Persons pursuant to Section
10.2(a)
and
10.2(c)(i),
other
than with respect to the breach of any Core Representation or Section
4.10;
provided that the limitations set forth in this Section 10.4 shall not
apply in the case of fraud.
(d) In
determining the amount of Damages in respect of a claim under this Article
X,
there shall be deducted an amount equal to the amount of any third-party
insurance proceeds actually received by the Indemnified Person making such
claim
with respect to such Damages, less the cost of any increase in insurance
premiums over the projected period of such increase as a result of making
a
claim for such Damages, provided
that
there shall be no obligation to make a claim, and no offset against Damages
shall be made if a party reasonably believes that making a claim for such
Damages is reasonably likely to result in a non-renewal of the insurance
policy.
10.5 Tax
Treatment of Indemnification Payments
Indemnification payments under this Article X shall be paid by the indemnifying
party without reduction for any Tax Benefits available to the indemnified
party.
However, to the extent that the indemnified party (or, where the indemnified
party is a member of an Affiliated Group, “indemnified party” shall mean the
Affiliated Group of which the indemnified party is a member) recognizes Tax
Benefits as a result of any Damages, the indemnified party shall pay the
amount
of such Tax Benefits (but not in excess of the indemnification payment or
payments actually received from the indemnifying party with respect to such
Damages) to the indemnifying party as such Tax Benefits are actually recognized
by the indemnified party. For this purpose, the indemnified party shall be
deemed to recognize a tax benefit (“Tax
Benefit”)
with
respect to a taxable period if, and to the extent that, the indemnified party’s
cumulative liability for Taxes through the end of such taxable period,
calculated by excluding any Tax items attributable to the Damages from all
taxable periods, exceeds the indemnified party’s actual cumulative liability for
Taxes through the end of such taxable period, calculated by taking into account
any Tax items attributable to the Damages for all taxable years (to the extent
permitted by relevant Tax law and treating such Tax items as the last items
claimed for any taxable year). The Securityholders and Buyer agree to treat
any
payment made pursuant to this Article X as an adjustment to the Merger
Consideration for federal, state and local income Tax purposes.
-59-
10.6 Procedure
for Indemnification
(a) Any
Indemnified Person making a claim for indemnification under this Section
10.6
shall
notify the indemnifying party (an "Indemnitor")
of the
claim in writing promptly after receiving written notice of any action, lawsuit,
proceeding, investigation or other claim against it (if by a third party),
describing the claim, the amount thereof (if known and quantifiable), and
the
basis thereof; provided that
the
failure to so notify an Indemnitor shall not relieve the Indemnitor of its
obligations hereunder except to the extent that (and only to the extent that)
such failure shall have caused the Damages for which the Indemnitor becomes
obligated to be greater than such Damages would have been had the Indemnified
Person given the Indemnitor prompt notice hereunder. Any Indemnitor shall
be
entitled to participate in the defense of such action, lawsuit, proceeding,
investigation or other claim giving rise to an Indemnified Person's claim
for
indemnification at such Indemnitor's expense, and at its option (subject
to the
limitations set forth below) shall be entitled to assume the defense thereof
by
appointing counsel reasonably acceptable to the Indemnified Person to be
the
lead counsel in connection with such defense; provided further
that,
prior to the Indemnitor assuming control of such defense it shall first verify
to the Indemnified Person in writing that such Indemnitor shall be fully
responsible (with no reservation of any rights) for the entirety of all
liabilities and obligations relating to such claim for indemnification and
that
it will provide full indemnification (whether or not otherwise required
hereunder) to the Indemnified Person with respect to such action, lawsuit,
proceeding, investigation or other claim giving rise to such claim for
indemnification hereunder; and provided further,
that:
(i) the
Indemnified Person shall be entitled to participate in the defense of such
claim
and to employ counsel of its choice for such purpose; provided that
the fees
and expenses of such separate counsel shall be borne by the Indemnified Person,
except that the Indemnitor shall pay fees and expenses of separate counsel
to
the Indemnified Person that (x) are incurred prior to the date the Indemnitor
effectively assumes control of such defense or (y) are incurred by the
Indemnified Person because the Indemnified Person is also a party to such
action
and the Indemnified Person determines in good faith that joint representation
would be inappropriate;
(ii) the
Indemnitor shall not be entitled to assume control of such defense and shall
pay
the fees and expenses of counsel retained by the Indemnified Person if
(A) the claim for indemnification relates to or arises in connection with
any criminal proceeding, action, indictment, allegation or investigation;
(B) the Indemnified Person reasonably believes an adverse determination
with respect to the action, lawsuit, investigation, proceeding or other claim
giving rise to such claim for indemnification would be detrimental to or
materially injure the Indemnified Person's reputation or future business
prospects; (C) the claim seeks an injunction or equitable relief against
the Indemnified Person; (D) upon petition by the Indemnified Person, the
appropriate court rules that the Indemnitor failed or is failing to vigorously
prosecute or defend such claim; or (E) the Indemnified Person reasonably
believes that the Damages relating to such claim for indemnification could
exceed the maximum amount that such Indemnified Person could then be entitled
to
recover under the applicable provisions of Article
X;
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(iii) if
the
Indemnitor shall control the defense of any such claim, the Indemnitor shall
obtain the prior written consent of the Indemnified Person before entering
into
any settlement of a claim or ceasing to defend such claim if, pursuant to
or as
a result of such settlement or cessation, injunctive or other equitable relief
will be imposed against the Indemnified Person or if such settlement does
not
expressly and unconditionally release the Indemnified Person from all
liabilities and obligations with respect to such claim, with prejudice;
and,
(iv) any
defense of a claim relating to a Franchise Dispute shall continue to be
conducted in a manner consistent with the Company’s past practice in defending
such claims to the extent practicable.
10.7 Procedure
for Indemnification - Other Claims
In
the event any Indemnified Party should have a claim against any Indemnitor
that
does not involve a third party claim being asserted against or sought to
be
collected from such Indemnitor, the Indemnified Party shall deliver notice
of
such claim with reasonable promptness to the Indemnitor. The failure by any
Indemnified Party so to notify the Indemnitor shall not relieve the Indemnitor
from any liability that it may have to such Indemnified Party except to the
extent (and only to the extent) that the Indemnitor demonstrates that it
has
been materially prejudiced by such failure. If the Indemnitor does not notify
the Indemnified Party within thirty (30) calendar days following its receipt
of
such notice that the indemnifying party disputes its liability to the
Indemnified Party under Article
X,
such
claim specified by the Indemnified Party in such notice shall be conclusively
deemed a liability of the Indemnitor under Article
X.
ARTICLE
XI
Termination
11.1 Right
to Terminate
This Merger Agreement and the transactions contemplated hereby may be terminated
at any time prior to the Closing:
(a) by
the
mutual written consent of Buyer and the Company;
(b) by
either
Buyer or the Company if the Closing shall not have occurred by March 31,
2007
(the “Termination
Date”);
-61-
(c) by
either
Buyer or the Company if a court of competent jurisdiction or other Government
Authority shall have issued a nonappealable final order, decree or ruling
or
taken any other action, in each case having the effect of permanently
restraining, enjoining or otherwise prohibiting the transactions contemplated
hereby, except if the party relying on such order, decree or ruling or other
action has not complied with its obligations under this Merger
Agreement;
(d) by
the
Company, if there has been a breach of any representation, warranty, covenant
or
agreement on the part of a Buyer Party set forth in this Merger Agreement
that
causes the conditions set forth in Article IX to become incapable of fulfillment
by the Termination Date, unless waived by the Company; or
(e) by
Buyer,
if there has been a breach of any representation, warranty, covenant or
agreement on the part of the Company or Securityholders set forth in this
Merger
Agreement that causes the conditions set forth in Article VIII to become
incapable of fulfillment by the Termination Date, unless waived by
Buyer;
provided,
however,
that
the party exercising its right to so terminate this Merger Agreement pursuant
to
Section 11.1(b),
11.1(d)
or
11.1(e)
shall
not have been responsible (or in the case of Buyer, neither the Buyer nor
Merger
Sub shall have been responsible) for such failure for the Closing to occur
through a material breach of any of its representations, warranties, covenants
or agreements contained in this Merger Agreement.
11.2 Effect
of Termination
In
the event of a termination of this Merger Agreement pursuant to any subsection
of Section
11.1,
all
further obligations of the parties under this Merger Agreement except for
the
obligations under Article XII shall terminate, no party shall have any right
under this Merger Agreement against any other party except as set forth in
this
Section
11.2,
and
each party shall bear its own costs and expenses; provided, however, that
termination under Section
11.1
because
of a breach by the non-terminating party or because one or more conditions
to
the terminating party’s obligations under this Merger Agreement are not
satisfied, the terminating party’s right to pursue all legal remedies will
survive such termination unimpaired.
ARTICLE
XII
Miscellaneous
Provisions
12.1 Notices
Any notice, request, demand or other communication required or permitted
under
this Merger Agreement shall be in writing and will be deemed to have been
duly
given when (a) delivered by hand (with written confirmation of receipt),
(b)
sent by facsimile (with written confirmation of receipt); provided
that a
copy is mailed by registered mail, return receipt requested, or (c) received
by
the addressee, if sent by a nationally recognized overnight delivery service
(receipt requested), in each case to the appropriate addresses and facsimile
numbers set forth below (or to such other addresses and facsimile numbers
as a
party may designate by notice to the other parties):
If
to the
Company:
00000
Xxxxxxxx Xxxxxxxx Xxxxxxx
Xxxxx
000
Xxxxxxxx,
XX 00000
Attention:
CEO
Facsimile:
(000) 000-0000
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With
a
copy to:
Securityholders’
Representative
00
X.X.
Xxxxxxx Xxxx
Xxx
Xxxxxxxx, XX 00000
Attn:
Xxxxxx Xxxxxx
With
a
copy to (in both cases):
Xxxxx
Peabody LLP
000
0xx
Xxxxxx, XX
Xxxxx
000
Xxxxxxxxxx,
XX 00000
Attention:
Xxxxxx X. Xxxxxxxxx, Esq.
H.
Xxxxx
Xxxxxx, III, Esq.
Facsimile:
(000) 000-0000
If
to the
Majority Securityholders, such address as is set forth below such Person’s name
on the signature page to this Merger Agreement.
If
to
Buyer or Merger Sub:
0000
Xxxxxx xx xxx Xxxxxxxx
00xx
Xxxxx
Xxx
Xxxx,
XX 00000
Attention:
Xxxxx Xxxxx
Facsimile:
(000) 000-0000
With
copies to:
Xxxxxxxx
& Xxxxx LLP
000
00xx
Xxxxxx, X.X.
Xxxxxxxxxx,
XX 00000
Attention:
Xxxx X. Director, Esq.
Facsimile:
(000) 000-0000
12.2 Entire
Agreement; Nonassignability; Parties in Interest
This Merger Agreement and the certificates, exhibits, schedules, documents,
instruments and other agreements specifically referred to herein or therein
or
delivered pursuant hereto or thereto: (a) constitute the entire agreement
among
the parties with respect to the subject matter hereof and supersede all prior
agreements and understandings, both written and oral, among the parties with
respect to the subject matter hereof, including that certain letter of intent
by
and between Buyer and the Company, dated as of December 15, 2006, (b) are
not
intended to confer upon any other Person, either explicitly or implicitly,
any
equitable or legal rights or remedies of any nature whatsoever hereunder,
and
(c) shall not be assigned by operation of law or otherwise without the written
consent of the other party; provided, however, that Buyer may, without the
consent of the Company, (i) assign any or all of its rights and interests
hereunder to one or more of its Affiliates, (ii) designate one or more of
its
Affiliates to perform its obligations hereunder and (iii) assign its rights
to
indemnification under this Merger Agreement upon a sale or transfer of Buyer
or
all or substantially all of the assets or equity securities of Buyer. Any
assignment by Buyer pursuant to this Section
12.2
will not
relieve it from any of its obligations hereunder.
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12.3 Expenses
Except as otherwise provided in this Merger Agreement, each party shall bear
its
own costs and expenses in connection with this Merger Agreement and the
transactions contemplated hereby and thereby, including all legal, accounting,
financial advisory, consulting and all other fees and expenses of third parties,
whether or not the transactions contemplated herein are consummated; provided
that Buyer shall reimburse the Company for its out-of-pocket costs (which
shall
not exceed $20,000) for fees payable to Peacock, Condron, Xxxxxxxx & Co. for
review of the Company Interim Reports and such reimbursement shall occur
promptly following delivery of the Company Interim Reports to Buyer. At least
two (2) business days prior to the Closing, the Company shall deliver a
certificate to the Buyer, signed by the President and Chief Financial Officer
of
the Company, setting forth a detailed listing of the fees and expenses of
legal
counsel, advisors, accountants and consultants, and fees and expenses payable
to
Xxxx Xxxx & Company, incurred by (or payable by) the Company in connection
with this Merger Agreement and the transactions contemplated herein (the
“Closing
Transaction Expenses Certificate”).
As
promptly as practicable following receipt of the Closing Transaction Expenses
Certificate but no later than the Closing, the Buyer shall identify any
adjustments that it believes are required to the Closing Transaction Expenses
Certificate. If the Buyer identifies any adjustments, the Buyer and the Company
shall use reasonable best efforts to resolve any dispute with respect to
any
such adjustment after which the Company shall re-deliver to the Buyer the
Closing Transaction Expenses Certificate reflecting such
adjustments.
12.4 Waiver
and Amendment
Any representation, warranty, covenant, term or condition of this Merger
Agreement which may legally be waived, may be waived, or the time of performance
thereof extended, at any time by the party hereto entitled to the benefit
thereof and any term, condition or covenant hereof may be amended by the
parties
hereto at any time. Any such waiver, extension or amendment shall be evidenced
by an instrument in writing executed on behalf of the appropriate party by
a
person who has been authorized by such party to execute waivers, extensions
or
amendments on its behalf. No waiver by any party hereto, whether express
or
implied, of its rights under any provision of this Merger Agreement shall
constitute a waiver of such party’s rights under such provisions at any other
time or a waiver of such party’s rights under any other provision of this Merger
Agreement. No failure by any party hereto to take any action against any
breach
of this Merger Agreement or default by another party shall constitute a waiver
of the former party’s right to enforce any provision of this Merger Agreement or
to take action against such breach or default or any subsequent breach or
default by such other party.
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12.5 Severability
In
the event that any one or more of the provisions contained in this Merger
Agreement shall be declared invalid, void or unenforceable, the remainder
of the
provisions of this Merger Agreement shall remain in full force and effect,
and
such invalid, void or unenforceable provision shall be interpreted as closely
as
possible to the manner in which it was written. The parties further agree
to
replace such invalid, void or unenforceable provision of this Merger Agreement
with a valid and enforceable provision that will achieve, to the extent
possible, the economic, business and other purposes of such invalid, void
or
unenforceable provision.
12.6 Remedies
Cumulative
Except as otherwise provided herein, any and all remedies herein expressly
conferred upon a party will be deemed cumulative with and not exclusive of
any
other remedy conferred hereby, or by law or equity upon such party, and the
exercise by a party of any one remedy will not preclude the exercise of any
other remedy.
12.7 Counterparts
This Merger Agreement may be executed in any number of counterparts, each
of
which shall be deemed an original but all of which together shall constitute
one
and the same instrument when signed by each of the parties and delivered
to the
other parties, it being understood that all parties need not sign the same
counterpart.
12.8 Governing
Law; Jurisdiction
The Parties agree to attempt to resolve any claim or dispute arising under
this
Merger Agreement with respect to the Holdback Account, Earn-Out Payment,
or
Buyer Statement (only for claims that fall outside of the scope of Section
2.12)
through
mandatory, non-binding mediation before a mutually agreeable, single mediator
from the American Arbitration Association (AAA) and that the forum for any
mediation hearing will be in the New York City metropolitan area. A party
desiring mediation will send a written notice to the other party under this
Merger Agreement. The Parties agree to pick a mutually agreeable mediator
within
30 days of a written demand of mediation by either party unless extended
by
mutual agreement of the parties involved in the mediation. If the Parties
cannot
agree on a mediator, AAA will appoint a mediator for the parties sufficiently
knowledgeable in the quick service restaurant ice cream industry to mediate
such
claims and/or disputes. The parties will bear their respective costs of
mediation and mediation shall take place within 60 days of selection of a
mediator. If a claim or dispute is not resolved as a result of mediation,
then
all Parties are free to pursue their respective claims as follows:
This
Merger Agreement has been entered into and shall be construed and enforced
in
accordance with the laws of the State of New York without reference to the
choice of law principles thereof. Each party hereto agrees that any action,
proceeding or claim it commences against any other party pursuant to this
Merger
Agreement shall be brought in either the courts of the State of New York,
sitting in New York County, or the courts of the United States for the Southern
District of New York. Each party hereby irrevocably submits to the jurisdiction
of the courts of the State of New York, sitting in New York County, and the
courts of the United States for the Southern District of New York. Each party
irrevocably waives, to the fullest extent permitted by law, any objection
which
it may now or hereafter have to the laying of the venue of any such suit,
action
or proceeding brought in any such court, any claim that any such suit, action
or
proceeding brought in such a court has been brought in an inconvenient forum
and
the right to object, with respect to any such suit, action or proceeding
brought
in any such court, that such court does not have jurisdiction over such party.
In any such suit, action or proceeding, each party waives, to the fullest
extent
it may effectively do so, personal service of any summons, complaint or other
process and agrees that the service thereof may be made by certified or
registered mail, addressed to such party at its address set forth in
Section
12.1.
Each
party agrees that a final nonappealable judgment in any such suit, action
or
proceeding in such a court shall be conclusive and binding.
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12.9 Rules
of Construction
Whenever the context of this Merger Agreement requires, words used in the
singular shall be construed to include the plural and vice versa, and pronouns
of gender shall be deemed to include and designate the masculine, feminine,
or
neuter gender. The captions in this Merger Agreement, and the schedules hereto,
are for convenience of reference only and shall not limit or otherwise affect
any of the terms or provisions hereof. Any reference to any federal, state,
local or foreign statute or law shall be deemed also to refer to all rules
and
regulations promulgated thereunder, unless the context requires otherwise.
The
word “including” shall mean “including, without limitation.” Any reference in
this Merger Agreement to a “day” or number of “days” (without the explicit
qualification of “business”) shall be interpreted as a reference to a calendar
day or number of calendar days. If any action or notice is to be taken or
given
on or by a particular calendar day, and such calendar day is not a business
day,
then such action or notice shall be deferred until, or may be taken or given
on,
the next business day. References to the term “business day” shall mean any day
which is not a Saturday, Sunday or day on which banks in New York, New York
are
authorized or required by law to close. If any action is to be taken by the
Securityholders pursuant to this Merger Agreement, unless otherwise provided,
such action may only be taken by all of the Securityholders acting together,
or
with the written consent of each Securityholder. The disclosure of any matter
in
the schedules hereto shall expressly not be deemed to constitute an admission
by
Buyer or the Company, or to otherwise imply, that any such matter is material
for the purposes of this Merger Agreement. The mere listing (or inclusion
of a
copy) of a document or other item shall not be deemed adequate to disclose
an
exception to a representation or warranty made herein (unless the representation
or warranty has to do with the existence of the document or other item itself).
The parties have participated jointly, and have been represented by counsel,
in
the negotiation and drafting of this Merger Agreement. In the event an ambiguity
or question of intent or interpretation arises, this Merger Agreement shall
be
construed as if drafted jointly by the parties and no presumption or burden
of
proof shall arise favoring or disfavoring any party by virtue of the authorship
of any of the provisions of this Merger Agreement. The parties intend that
each
representation, warranty and covenant contained herein shall have independent
significance. If any party has breached any representation, warranty or covenant
contained herein in any respect, the fact that there exists another
representation, warranty or covenant relating to the same subject matter
(regardless of the relative levels of specificity) which the party has not
breached shall not detract from or mitigate the fact that the party is in
breach
of the first representation, warranty or covenant.
12.10 Further
Assurances
From time to time following the Closing, the Majority Securityholders shall
execute and deliver, or cause to be executed and delivered, to Buyer such
other
instruments of conveyance and transfer as Buyer may reasonably request or
as may
be otherwise necessary to more effectively convey and transfer to, and vest
in,
Buyer and to put Buyer in possession of, any part of the Acquired Interests.
From time to time following the Closing, Buyer shall execute and deliver,
or
cause to be executed and delivered, to the Majority Securityholders such
other
instruments and documents as the Majority Securityholders may reasonably
request
or as may be otherwise necessary to more effectively consummate the transactions
contemplated hereby.
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12.11 Remedies
The parties acknowledge and understand that their obligations pursuant to
this
Merger Agreement are of a special and unique nature, the loss of which cannot
be
adequately compensated for in damages by an action at law, and that the breach
or threatened breach of such provisions of this Merger Agreement would cause
the
other parties irreparable harm. Accordingly, each of the parties agrees that
the
other parties shall be entitled to an injunction or injunctions to prevent
breaches of the provisions of this Merger Agreement and to enforce specifically
this Merger Agreement and the terms and provisions hereof in any action
instituted in any court of the United States or any state thereof having
jurisdiction over the parties and the matter, in addition to any other remedy
to
which they may be entitled, at law or in equity.
[REMAINDER
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[SIGNATURE
PAGE FOLLOWS]
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IN
WITNESS WHEREOF, the parties hereto have each executed and delivered this
Merger
Agreement as of the day and year first above written.
By:
/s/ Xxxxxx X.
X'Xxxxx
Name:
Xxxxxx X.
X'Xxxxx
Title:
Chief Executive Officer
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MM
ACQUISITION SUB, LLC
By: NexCen
Brands, Inc., its Managing Member
By:
/s/ Xxxxxx X.
X'Xxxxx
Name:
Xxxxxx X.
X'Xxxxx
Title:
Chief Executive Officer
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MAGGIEMOO’S
INTERNATIONAL, LLC
By:
/s/ Xxxxxx
Xxxxxx
Name:
Xxxxxx
Xxxxxx
Title:Chairman
of the Operating Board
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MAJORITY SECURITYHOLDERS:
/s/ Xxxxxx
Xxxxxx
Xxxxxx
Xxxxxx
Address:
00 Xxxxxxx
Xxxx
Xxx
Xxxxxxxx, XX
00000
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/s/
Xxxxxxxx
Xxxxxxx
Xxxxxxxx
Xxxxxxx
Address: 00 Xxxxxxxx
Xxxx
Xxxxxx
Xxxx, XX 00000
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SECURITYHOLDERS’
REPRESENTATIVE:
/s/ Xxxxxx
Xxxxxx
Xxxxxx
Xxxxxx |