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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Filed Pursuant to Section 13 or 15(d) of the Securities Act of 1934
Date of Report (Date of earliest event reported) August 13, 1998
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AFC ENTERPRISES, INC.
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(Exact name of registrant as specified in its charter)
Minnesota - 58-2016606
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(State or other (Commission (IRS Employer
jurisdiction of File Number) Identification No.)
incorporation)
Six Concourse Parkway, Suite 1700, Atlanta, Georgia 30328-5352
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (770) 391-9500
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Not Applicable
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(Former name or former address, if changed since last report)
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Item 2. Acquisition or Disposition of Assets
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On August 13, 1998, AFC Enterprises, Inc., a Minnesota corporation, and AFC
Franchise Acquisition Corp, a Delaware corporation, (collectively "AFC") and
Cinnabon International, Inc. ("CII" or "the Seller"), a Delaware corporation,
entered into an Agreement and Plan of Merger (the "Merger Agreement") whereby
CII will become a wholly-owned subsidiary of AFC through AFC's purchase of 100
percent of CII's common stock (the "Purchase"). CII operates and franchises 358
retail cinnamon roll bakeries operating in 39 states, Canada and Mexico, of
which 214 are company-operated.
As provided in the Merger Agreement, the consideration to be paid by AFC to
the Seller for CII's common stock will be $67.0 million in cash. AFC will obtain
$47.0 million of the cash consideration from AFC's credit facility through its
Amended and Restated Senior Secured Credit Facility with Goldman Sachs Credit
Partners L.P., certain lenders defined in the credit agreement and Canadian
Imperial Bank Of Commerce. The other $20.0 million will be funded with the
proceeds from the sale of approximately 2.6 million shares of AFC's common stock
to certain "qualified" investors who are existing AFC shareholders and option
holders, on a pro-rata basis, at a price of $7.75 per share. To the extent
necessary, Freeman Spogli, AFC's majority shareholder, has agreed to purchase
unsubscribed shares up to the entire $20.0 million.
The amount of consideration to be paid by AFC for CII's common stock was
arrived at through normal common stock valuation techniques which took into
consideration certain factors, including but not limited to, EBITDA multiples,
working capital, potential growth of the business and brand awareness.
The property and equipment to be acquired by AFC as part of the Purchase
are used for the retailing operations of 214 cinnamon roll bakeries. The
property and equipment to be acquired include restaurant and corporate furniture
and equipment as well as leasehold improvements. The acquired property and
equipment will be utilized in the same manner used prior to the Purchase.
The Purchase will be accounted for using the purchase method of accounting.
Item 7. Financial Statements and Exhibits
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(a) Financial Statements.
It is impractical to provide the required financial statements of CII at
the time of filing this Report. It is anticipated that such financial statements
will be filed by amendment as soon as practicable but in no event later than 60
days following the date on which this Report must be filed provided that such
financial statements are required under Rule 3-05 of Regulation S-X.
(b) Pro Forma Information.
It is impractical to provide the required pro forma financial information
with respect to CII at the time of filing this Report. It is anticipated that
such financial statements will be filed by amendment as soon as practicable but
in no event later than 60 days following the date on which this Report must be
filed provided that such pro forma financial information is required under Rule
11-01 of Regulation S-X.
(c) Exhibit Index.
Exhibit 10.05 Agreement of Plan of Merger by and among Cinnabon
International, Inc., AFC Enterprises, Inc. and AFC Franchise
Acquisition Corp., effective August 13, 1998.
Exhibit 2.13 of the Merger Agreement--Working Capital will be filed with
the amendment referred to in (a) and (b) above. This exhibit
will be completed at closing.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AFC Enterprises, Inc.
By: /s/ Gerald J. Wilkins
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Gerald J. Wilkins
Chief Financial Officer
(Principal Financial and Accounting Officer)
DATE: August 28, 1998
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EXHIBIT 10.5
AGREEMENT AND PLAN OF MERGER
by and among
CINNABON INTERNATIONAL, INC.,
a Delaware corporation,
AFC ENTERPRISES, INC.,
a Minnesota corporation
and
AFC FRANCHISE ACQUISITION CORP.,
a Delaware corporation
Dated as of August 13, 1998
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TABLE OF CONTENTS
SECTION PAGE
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1. Definitions.................................................... 1
2. The Merger..................................................... 4
2.1 The Merger............................................... 4
2.2 Effective Time........................................... 4
2.3 Effects of the Merger.................................... 4
2.4 Certificate of Incorporation and Bylaws.................. 4
2.5 Directors and Officers................................... 4
2.6 Conversion of Shares; Options............................ 4
2.7 Conversion of Acquisition Company Common Stock........... 5
2.8 Repayment of Obligations of Company and Subsidiary....... 6
2.9 Closing.................................................. 6
2.10 Dissenting Shares........................................ 6
2.11 Exchange of Shares....................................... 7
2.12 No Further Transfer of Shares............................ 7
2.13 Working Capital Adjustment............................... 8
3. Representations and Warranties of the Company.................. 8
3.1 Corporate................................................ 9
3.2 Authorization............................................ 9
3.3 Validity of Contemplated Transactions.................... 9
3.4 Capitalization and Stock Ownership....................... 9
3.5 Financial Statements..................................... 10
3.6 Title to Assets and Related Matters...................... 11
3.7 Permits.................................................. 11
3.8 Real Property............................................ 11
3.9 Accounts Receivable...................................... 13
3.10 Inventory................................................ 13
3.11 Absence of Undisclosed Liabilities....................... 13
3.12 Taxes.................................................... 13
3.13 Equipment................................................ 14
3.14 ERISA.................................................... 15
3.15 Subsidiaries............................................. 17
3.16 Compliance with Courts Orders and Regulations............ 17
3.17 Legal Proceedings........................................ 17
3.18 Contracts and Commitments................................ 17
3.19 Insurance................................................ 18
3.20 Employee Relationships................................... 19
3.21 Intellectual Property.................................... 19
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3.22 Absence of Certain Changes............................... 22
3.23 Premises................................................. 23
3.24 Franchise, License and Development Agreements............ 23
3.25 Advertising.............................................. 25
3.26 Franchise Registration/UFOC.............................. 26
3.27 [Intentionally Omitted].................................. 27
3.28 [Intentionally Omitted].................................. 27
3.29 Employee and Labor Matters............................... 27
3.30 Product Liabilities and Warranties....................... 27
3.31 Suppliers................................................ 28
3.32 No Finder's Fee.......................................... 28
3.33 Accounts Payable......................................... 28
3.34 Obligations.............................................. 28
3.35 Letter of Credit......................................... 28
3.36 Materiality.............................................. 29
3.37 Disclosure............................................... 29
4. Representations and Warranties of the Buyer.................... 29
4.1 Corporate................................................ 29
4.2 Authorization............................................ 29
4.3 Validity of Contemplated Transactions.................... 29
4.4 No Finder's Fee.......................................... 30
4.5 Available Funds.......................................... 30
5. Covenants of the Company....................................... 30
5.1 Interim Conduct of Business.............................. 30
5.2 Fulfillment of Conditions................................ 33
5.3 No Solicitation.......................................... 33
5.4 Shareholder Approval..................................... 33
5.5 Access to Information.................................... 33
5.6 Disclosure Supplements................................... 34
5.7 Updated Obligations...................................... 34
6. Covenants of the Buyer......................................... 34
6.1 Fulfillment of Conditions................................ 34
6.2 Payments................................................. 34
6.3 Employee Benefit Matters................................. 35
6.4 Solvency After the Closing............................... 35
7. Conditions Precedent to the Buyer's Obligations................ 36
7.1 Representations True at Closing.......................... 36
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7.2 Performance of Covenants................................. 36
7.3 Litigation Affecting Closing............................. 36
7.4 Regulatory Compliance and Approvals...................... 36
7.5 Consents................................................. 36
7.6 Opinion of Company's Counsel............................. 37
7.7 Shareholder Approval..................................... 37
7.8 No Material Adverse Change............................... 37
7.9 Release of Liens......................................... 37
7.10 Debt Cancellation Acknowledgments........................ 37
7.11 Termination Agreements................................... 37
7.12 Landlord Estoppel Letters................................ 37
7.13 Franchisee Estoppel Letters.............................. 38
7.14 Due Diligence Review..................................... 38
7.15 Delivery of Audited Financial Statements................. 38
7.16 Corporate Documents...................................... 38
7.17 Franchise Matters........................................ 38
7.18 Resignation of Officers and Directors.................... 39
7.19 Letter of Credit......................................... 39
7.20 Corporate Documents...................................... 39
8. Conditions Precedent to Obligations of the Company............. 39
8.1 Representations True at Closing.......................... 39
8.2 Performance of Covenants................................. 39
8.3 Litigation Affecting Closing............................. 40
8.4 Regulatory Compliance and Approvals...................... 40
8.5 Consents................................................. 40
8.6 Opinion of Buyer's Counsel............................... 40
8.7 Corporate Documents...................................... 40
9. Termination.................................................... 40
9.1 Termination.............................................. 40
9.2 Effect of Termination.................................... 40
10. General........................................................ 41
10.1 Nonsurvival.............................................. 41
10.2 Governing Law............................................ 41
10.3 Further Assurances....................................... 41
10.4 Binding Effect........................................... 41
10.5 Waiver of Conditions..................................... 41
10.6 Exhibits................................................. 41
10.7 Disclosure Schedule...................................... 41
10.8 Specific Performance..................................... 41
10.9 Public Announcements..................................... 42
10.10 Expenses................................................. 42
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10.11 Entire Agreement......................................... 42
10.12 Notices.................................................. 42
10.13 Counterparts............................................. 43
10.14 Amendment................................................ 43
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AGREEMENT AND PLAN OF MERGER
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THIS AGREEMENT AND PLAN OF MERGER is made as of the 13th day of August,
1998, by and among AFC Enterprises, Inc., a Minnesota corporation (the "Buyer"),
AFC Franchise Acquisition Corp., a Delaware corporation and a wholly-owned
subsidiary of the Buyer (the "Acquisition Company"), and Cinnabon International,
Inc., a Delaware corporation (the "Company").
Recitals
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The Boards of Directors of the Company, the Buyer and the Acquisition
Company have approved a merger (the "Merger") of the Acquisition Company with
and into the Company in accordance with the Delaware General Corporation Law
(the "DGCL"), on the terms and conditions set forth herein. Stockholders
representing 85.3% of the voting power of the Company's Common Stock have this
day entered into agreements substantially in the form of Exhibit A attached
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hereto pursuant to which they have agreed to vote in favor of the Merger.
WITNESSETH:
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In consideration of the mutual promises, representations and warranties,
covenants, payments and actions herein provided, the parties hereto, each
intending to be legally bound hereby, do agree as follows:
1. Definitions
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For convenience, certain terms used in this Agreement are listed in
alphabetical order and defined or referred to below (such terms as well as any
other terms defined elsewhere in this Agreement shall be equally applicable to
both singular and plural forms of the terms defined).
"Agreement" means this Agreement and Plan of Merger and the exhibits and
schedules hereto.
"Assets" means all of the assets, properties, business, goodwill and rights
of every kind and description, real and personal, tangible and intangible,
wherever situated belonging to the Company or the Subsidiary and whether or not
reflected in the Financial Statements of the Company and the Subsidiary.
"Bakery" means each location owned by the Company or the Subsidiary which
sells specialty baked goods.
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"Business" means the existing business, operations, facilities and other
Assets, financial condition, results of operations, finances, markets, products,
competitive positions, raw materials and other supplies, and customers and
customer relations of the Company and the Subsidiary.
"Business Condition" means the Business and Assets of the Company and the
Subsidiary, taken as a whole.
"Closing" and "Closing Date" are defined in Section 2.9.
"Common Stock" means the common stock, $0.01 par value per share, of the
Company.
"Company's knowledge" or words of like import means the actual knowledge of
the Chief Executive Officer and Chief Financial Officer of the Company and of
the Subsidiary, in either case after reasonable investigation and inquiry.
"Contract" means any written or oral contract, agreement, lease, instrument
or other commitment (including Franchise Agreements and Development Agreements)
that is binding on any person or its property under applicable law, other than
its charter or bylaws.
"Court Order" means any judgment, decree, injunction, order or ruling of
any foreign, federal, state or local court or governmental or regulatory body or
authority that is binding on any person or its property under applicable law.
"Effective Time" is defined in Section 2.2.
"Encumbrance" means any claim, charge, easement, encumbrance, lease,
covenant, security interest, lien, option, pledge, rights of others, or
restriction (whether on voting, sale, transfer, disposition or otherwise),
whether imposed by agreement, understanding, law, equity or otherwise, except
for any restrictions on transfer generally arising under any applicable Federal
or state securities law.
"Financial Statements" means, collectively, the Audited Financial
Statements and the Interim Financial Statements.
"Holder" is defined in Section 2.11(a).
"Liability" means any direct or indirect liability, indebtedness,
obligation, expense, claim, loss, damage, deficiency, guaranty or endorsement of
or by any person, absolute or contingent, accrued or unaccrued, due or to become
due, liquidated or unliquidated.
"Material" or "materially" means material or materially to the Business
Condition.
"Material Consents" is defined in Section 7.5.
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"Merger Consideration" means $0.01 per Share.
"Options" is defined in Section 2.6(c).
"Preferred Stock" means the Class A and Class B Preferred Stock, $.01 par
value per share, of the Company.
"Regulation" means any statute, law, ordinance, regulation, order or rule
of any federal, state, local, foreign or other governmental agency or body or of
any other type of regulatory body, including, without limitation, those covering
environmental, energy, safety, health, transportation, bribery, recordkeeping,
zoning, anti-discrimination, antitrust, wage and hour, and price and wage
control matters.
"Shares" is defined in Section 2.6(a).
"Solvent" means, with respect to any person, that the fair saleable value
of the property of such person is, on the date of determination, greater than
the total amount of liabilities (including contingent and unliquidated
liabilities) of such person as of such date and that, as of such date, such
person is able to pay all liabilities of such person as such liabilities mature
and does not have unreasonably small capital for conducting the business
theretofore or proposed to be conducted by such person and its subsidiaries. In
computing the amount of contingent or unliquidated liabilities at any time, such
liabilities will be computed at the amount which, in light of all the facts and
circumstances existing at such time, represents the amount that can reasonably
be expected to become an actual or matured liability.
"Subsidiary" means Cinnabon, Inc., a Washington corporation.
"Surviving Corporation" is the Company at and after the Effective Time.
"Taxes" shall mean all Federal, state, local, sales and use and foreign
taxes, and other assessments of a similar nature (whether imposed directly or
through withholding or otherwise), including any interest, additions to tax, or
penalties applicable thereto.
"Tax Returns" shall mean all Federal, state, local, and foreign tax
returns, declarations, statements, reports, schedules, forms and information
returns, and any amended Tax Return relating to Taxes.
"Transactions" means the transactions contemplated by this Agreement.
"Warrants" is defined in Section 2.6(d).
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2. The Merger.
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2.1 The Merger. Upon the terms and subject to the conditions hereof, and
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in accordance with the relevant provisions of the DGCL, the Acquisition Company
shall be merged with and into the Company on the Closing Date. In connection
with the Merger, the Buyer has agreed to make available to the Company and the
Subsidiary an aggregate of $67,000,000 to be used to repay the obligations set
forth in Section 2.8 hereof, to pay the aggregate Merger Consideration and to
pay amounts required under Section 2.6(c), if any. Following the Merger, the
Company shall continue as the surviving corporation (the "Surviving
Corporation") under the name "Cinnabon International, Inc." and shall continue
its existence under the laws of the State of Delaware, and the separate
corporate existence of the Acquisition Company shall cease.
2.2 Effective Time. The Merger shall be consummated by filing with the
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Delaware Secretary of State a certificate of merger in the form attached hereto
as Exhibit 2.2 (the "Certificate of Merger"), as is required by, and executed in
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accordance with, the relevant provisions of the DGCL. The Merger shall become
effective upon the filing of the Certificate of Merger with the Secretary of
State of the State of Delaware (the time of such effectiveness being the
"Effective Time").
2.3 Effects of the Merger. The Merger shall have the effects set forth in
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the DGCL.
2.4 Certificate of Incorporation and Bylaws. The Certificate of
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Incorporation, as amended, of the Acquisition Company shall be the Certificate
of Incorporation of the Surviving Corporation. The Bylaws of the Acquisition
Company shall be the Bylaws of the Surviving Corporation.
2.5 Directors and Officers. The directors and officers of the Surviving
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Corporation at the Effective Time shall be the directors and officers of the
Acquisition Corporation immediately prior to the Effective Time.
2.6 Conversion of Shares; Options.
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(a) Each share of Common Stock issued and outstanding immediately prior to
the Effective Time (collectively, the "Shares") (other than Dissenting Shares,
as defined in Section 2.10) shall, by virtue of the Merger and without any
action on the part of the Holder thereof, be converted into the right to receive
a net amount in cash equal to the Merger Consideration. Any shares of Common
Stock held in the treasury of the Company or by the Acquisition Company shall be
cancelled and retired and no consideration shall be issued in exchange therefor.
(b) The holders of shares of Preferred Stock issued and outstanding
immediately prior to the Effective Time shall, by virtue of the Merger and
without any action on the part of the holder thereof, be entitled to receive,
upon delivery of appropriate documentation
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reasonably acceptable to Buyer, an amount equal to $0.01 per share of Preferred
Stock (which amount shall, in the aggregate, be noted on Schedule 2.8 attached
hereto as the "Minimum Preferred Consideration"), plus an additional amount as
set forth on Schedule 2.8 attached hereto (the "Preferred Consideration"), which
amounts shall be paid to the holders of the Preferred Stock on a pro rata basis,
according to the number of shares of Preferred Stock owned by each such holder.
The receipt of such amounts by the holders of Preferred Stock shall be in full
satisfaction of the amounts due to such holders by the Company. Any shares of
Preferred Stock held in the treasury of the Company shall be cancelled and
retired and no consideration shall be issued in exchange therefor.
(c) At the Effective Time, each option to purchase Common Stock which is
then outstanding and vested or which may in the future become vested
(collectively, the "Options") shall be considered an option to receive the
aggregate Merger Consideration into which such Common Stock is converted
pursuant to this Agreement, and not an option to receive stock in the Company or
the Surviving Corporation. In order to receive such Merger Consideration, any
holder of an Option which is vested will be required to exercise such Option in
accordance with its terms, including payment of the exercise price therefor.
Notwithstanding the foregoing, any holder of an Option who prior to Closing
provides the Company with a waiver and release, in form satisfactory to the
Company and the Buyer, shall be entitled to receive an amount equal to $0.01 per
vested Option, which amount will be payable at the Effective Time from the funds
provided by the Buyer pursuant to Section 2.1 hereof. Upon receipt of such
consideration, such vested Option shall be cancelled. Any unvested Options shall
be cancelled for no additional consideration.
(d) At the Effective Time, each warrant to purchase Common Stock which is
then outstanding (collectively, the "Warrants") shall be cancelled for no
additional consideration. The cancellation of a Warrant shall be deemed a
release of any and all rights the Holder had or may have had in respect to such
Warrant and all other warrants to acquire capital stock of the Company.
(e) The Merger Consideration and the Preferred Consideration will be
payable upon the surrender of the Certificates and receipt of written agreements
(in form and substance acceptable to Buyer) releasing the Company and the
Subsidiary from liability thereunder, and other documentation as specified in
Section 2.11.
2.7 Conversion of Acquisition Company Common Stock. Each share of common
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stock, par value $.01, of the Acquisition Company issued and outstanding
immediately prior to the Effective Time shall, by virtue of the Merger and
without any action on the part of the holder thereof, be converted into and
become one share of common stock of the Surviving Corporation with the same
rights, powers and privileges as the shares so converted and shall constitute
the only outstanding shares of capital stock of the Surviving Corporation.
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2.8 Repayment of Obligations of Company and Subsidiary. At the Effective
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Time and as a condition to the Merger, the Buyer shall satisfy, or shall cause
the Company and the Subsidiary to satisfy (solely from the funds provided by the
Buyer pursuant to Section 2.1), the obligations of the Company and the
Subsidiary set forth on Schedule 2.8 hereto (the "Obligations"). The
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Obligations shall be satisfied in the order shown on Schedule 2.8 and in the
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amounts indicated. To the extent that the funds provided by the Buyer pursuant
to Section 2.1 are insufficient to satisfy all of the Obligations, any such
unsatisfied Obligations shall be cancelled pursuant to a written cancellation
and release agreement to be delivered at the Closing (as defined below), in form
and substance satisfactory to Buyer. To the extent that, following the
satisfaction of the Obligations in full, a portion of the funds provided by the
Buyer pursuant to Section 2.1 remain unused, such amounts shall be added to the
Merger Consideration.
2.9 Closing.
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(a) On the third business day following the satisfaction or waiver of the
conditions specified in Sections 7 and 8 hereof, but in any event not later than
September 28, 1998, a closing (the "Closing") will be held at the offices of
Cohen Pollock Merlin Axelrod & Tanenbaum, P.C., Atlanta, Georgia (or such other
date and place as the parties may agree). The date on which the Closing occurs
is hereinafter referred to as the "Closing Date." At the Closing, there shall
be delivered the documents referred to in Sections 7 and 8.
(b) Contemporaneously with the Closing, the Surviving Corporation shall
deliver to the Delaware Secretary of State a duly executed and verified
Certificate of Merger, as required by the DGCL, and the parties shall take all
such other and further actions as may be required by law to make the Merger
effective upon the terms and subject to the conditions hereof.
2.10 Dissenting Shares. Notwithstanding anything in this Agreement to the
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contrary, the Shares that are issued and outstanding immediately prior to the
Effective Time and that are held by stockholders who did not vote in favor of
the Merger and who comply with all of the relevant provisions of Section 262 of
the DGCL (the "Dissenting Shares") shall not be converted into the right to
receive the Merger Consideration, unless and until such Holders shall have
failed to perfect or shall have effectively withdrawn or lost their rights to
appraisal under the DGCL; and any such stockholder shall have only such rights
in respect of the Dissenting Shares owned by them as are provided by Section 262
of the DGCL. If any such Holder shall have failed to perfect or shall have
effectively withdrawn or lost such right, such Holder's Dissenting Shares shall
thereupon be deemed to have been converted into and to have become exchangeable,
as of the Effective Time, for the right to receive the Merger Consideration
without any interest thereon, pursuant to the terms of Section 2.6. Prior to the
Effective Time, the Company will not, except with the prior written consent of
the Buyer, voluntarily make any payment with respect to, or settle or offer to
settle, any claim made by the stockholders owning the Dissenting Shares. At the
Effective Time, if any Shares are entitled to become Dissenting Shares, the
Company will withhold and place into an escrow account with Hutchins, Wheeler &
Dittmar, pursuant to an Escrow Agreement to be in form reasonably satisfactory
to Buyer and the Company, an amount
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<PAGE>
equal to $500,000, which funds shall be used to pay any costs and expenses
associated with any Dissenting Shares claim. At such time as all Dissenting
Shares claims, if any, are resolved, the funds remaining in such escrow account
shall be paid to the holders of Obligations that would have been satisfied by
such funds at the Effective Time.
2.11 Exchange of Shares.
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(a) At and after the Effective Time, the Surviving Corporation shall pay to
each record holder (a "Holder"), as of the Effective Time, of an outstanding
certificate or certificates that immediately prior to the Effective Time
represented shares of Common Stock or Preferred Stock (the "Certificates"), upon
surrender of such Certificates, by certified or bank check, the amount to be
paid with respect thereto pursuant to Section 2.6. All such surrendered
Certificates shall be cancelled upon their delivery. All surrendered
Certificates shall be accompanied by a duly executed letter of transmittal (a
"Letter of Transmittal") which shall specify that delivery shall be effected,
and the risk of loss of title to such Certificates shall pass, only upon proper
delivery of the Certificates and the Letter of Transmittal to the Surviving
Corporation. Until so surrendered and exchanged, each such Certificate shall
represent solely the right to receive the Merger Consideration or the Preferred
Consideration, as the case may be, as described in Section 2.6. No Merger
Consideration is allocable to any Preferred Stock or Warrants.
(b) No interest will be paid or accrued on the amounts payable upon the
surrender of the Certificates. If payment is to be made to a person other than
the person in whose name a Certificate surrendered in exchange therefor is
registered, it shall be a condition of payment that the Certificate so
surrendered shall be properly endorsed or otherwise in proper form for transfer
and that the person requesting such payment shall pay any transfer or other
taxes required by reason of the payment to a person other than the Holder of the
Certificate surrendered or shall establish to the satisfaction of the Surviving
Corporation that such tax has been paid or is not applicable. Following the
Effective Time, until surrendered in accordance with the provisions of this
Section 2.11, each Certificate (other than Certificates evidencing Dissenting
Shares) shall represent, for all purposes, only the right to receive the Merger
Consideration with respect thereto pursuant to Section 2.6.
2.12 No Further Transfer of Shares. From and after the date of this
-----------------------------
Agreement, the Company shall not recognize any transfers of Common Stock or
Preferred Stock on the stock record books of the Company, other than those
transfers as to which the Company has been notified in writing as of the date of
this Agreement. After the Effective Time, there shall be no transfers of Common
Stock that were outstanding immediately prior to the Effective Time on the stock
transfer books of the Surviving Corporation. If, after the Effective Time,
Certificates are presented to the Surviving Corporation for transfer, they shall
be cancelled and exchanged for the Merger Consideration as provided in this
Section 2. At the Effective Time, the stock ledger of the Company shall be
closed.
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2.13 Working Capital Adjustment. Attached hereto as Exhibit 2.13 is a
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schedule setting forth the Company's Working Capital (as defined below) as of
June 29, 1998 (the "June Working Capital"), including a detailed computation
thereof. One (1) business day prior to the Closing Date, the Company and the
Buyer shall agree on an estimate of the Company's Working Capital as of the
close of business on the Closing Date (the "Closing Working Capital"), which
shall be calculated and presented in the same manner as set forth on Exhibit
2.13. There shall be no adjustment to the amount provided by the Buyer pursuant
to Section 2.1 hereof if (i) the Closing Working Capital is equal to or greater
than the June Working Capital or (ii) the Closing Working Capital is less than
the June Working Capital by $200,000 or less. If the Closing Working Capital is
less than the June Working Capital by more than $200,000 (the "Deficit"), the
funds provided by the Buyer pursuant to Section 2.1 hereof shall be reduced by
the amount of the Deficit. For purposes of this Section 2.13, the term "Working
Capital" shall mean the Company's current assets minus current liabilities
(excluding accrued interest and such other items as shall be set forth on
Exhibit 2.13).
2.14 Purchase Price Adjustment. The amount of funds provided by the Buyer
-------------------------
pursuant to Section 2.1 hereof shall be subject to adjustment as set forth in
this Section 2.14.
(a) At the Effective Time, the Company will withhold and place into an
escrow account with either Hutchins, Wheeler & Dittmar or Cohen Pollock Merlin
Axelrod & Tanenbaum, P.C., pursuant to an Escrow Agreement to be in form
reasonably satisfactory to Buyer and the Company, an amount (the "Escrow
Amount") to be determined as set forth in the next sentence to effect a purchase
price adjustment with respect to the matters set forth in Section 2.14(b)
hereof. The Escrow Amount shall be an amount equal to $5.00 multiplied by the
number of Options for which the Company has not, as of the Effective Time,
received termination agreements pursuant to Section 7.16, provided that the
Escrow Amount shall not in any event exceed $500,000.
(b) For a period of 90 days following the Closing, the Company shall use
its commercially reasonable best efforts to obtain termination agreements (as
contemplated by Section 7.16 hereof) from holders of Options who did not provide
such termination agreements prior to the Closing. At the end of such 90 day
period, as compensation for the additional liabilities being assumed by the
Buyer, the Buyer shall be entitled to receive from the Escrow Amount an amount
equal to $5.00 multiplied by the number of Options for which the Company has not
received termination agreements as of such date. Any Escrow Amount remaining in
excess of the amounts paid to the Buyer pursuant to the immediately preceding
sentence shall be paid to the holders of Obligations that would have been
satisfied by such amounts at the Effective Time.
3. Representations and Warranties of the Company.
---------------------------------------------
The Company represents and warrants to the Buyer and the Acquisition
Company as follows, except to the extent specified on Schedule 3 hereto (the
"Disclosure Schedule"), and all
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<PAGE>
such representations and warranties shall be true and correct at and as of the
Closing Date as though then made:
3.1 Corporate. Each of the Company and the Subsidiary is a corporation
---------
duly organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation, and it has all necessary power and authority
to own, lease and operate its properties and other assets and to carry on its
business as it is now being conducted or presently proposed to be conducted.
Each of the Company and the Subsidiary is duly licensed and qualified to do
business as a foreign corporation and is in good standing in each jurisdiction
in which it owns or leases any real property except as disclosed on the
Disclosure Schedule and in every jurisdiction where the failure to so qualify
could reasonably be expected to have a material adverse effect on the Business
Condition. The Disclosure Schedule contains a complete and current copy of the
Certificate of Incorporation and of the Bylaws of each of the Company and the
Subsidiary. The Disclosure Schedule lists with respect to the Company and the
Subsidiary its name, jurisdiction of incorporation, officers and directors, and
states and other jurisdictions in which it is qualified to do business as a
foreign corporation.
3.2 Authorization. The Company has all necessary corporate power and
-------------
authority to execute, deliver and perform this Agreement and to perform the
Transactions to be performed by it. Such execution, delivery and performance
has been or will be duly authorized by all necessary corporate action, including
approval by the Board of Directors and stockholders of the Company. This
Agreement constitutes or will constitute a legal, valid and binding obligation
of the Company, enforceable against it in accordance with its terms.
3.3 Validity of Contemplated Transactions. Except for the consents
-------------------------------------
specified in the Disclosure Schedule, neither the execution and delivery by the
Company of this Agreement, nor the performance of the Transactions to be
performed by it will violate, constitute a breach or default (with or without
the giving of notice, or lapse of time, or both), require any filing, consent,
authorization or approval under or be in conflict with (with or without the
giving of notice, or lapse of time, or both) or result in the imposition of any
Encumbrance against any property or other asset of the Company or the Subsidiary
pursuant to (a) any Regulation or Court Order to which the Company or the
Subsidiary or any of their respective properties or assets are subject, (b) the
Certificate of Incorporation or Bylaws of the Company or the Subsidiary or (c)
any material Contract or other material document to which the Company or the
Subsidiary is a party or to which any of their respective properties or other
assets may be subject.
3.4 Capitalization and Stock Ownership. (a) The total authorized capital
----------------------------------
stock of the Company consists of (i) 18,500,000 shares of Common Stock, par
value $0.01 per share, and (ii) 9,000,000 shares of Preferred Stock, $.01 par
value per share. As of the date of this Agreement (i) 14,183,851 shares of
Common Stock are issued and outstanding, (ii) 9,000,000 shares of Preferred
Stock are issued and outstanding, (iii) options (constituting all of the
Options) to acquire a total of 752,715 shares of Common Stock are outstanding
and (iv) warrants (constituting all of the Warrants) to acquire a total of
851,830 shares of Common Stock are
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<PAGE>
outstanding. Except for the options and warrants identified in clauses (iii) and
(iv) above, there are no, and as of the Effective Time there will not be any,
options, warrants, calls, commitments or other rights of any character
(including conversion rights) obligating the Company or the Subsidiary to issue,
transfer or sell capital stock of the Company or the Subsidiary. The outstanding
shares of Common Stock are duly and validly authorized and issued, fully paid,
non-assessable and free of pre-emptive rights (other than those contained in the
Stockholders Agreement dated as of June 3, 1994 (the "Stockholders Agreement"),
a copy of which has been provided to Buyer). The outstanding capital stock of
the Company are owned of record by the persons listed in the Disclosure
Schedule, in the amounts shown therein. All unvested Options will expire and be
of no further force or effect upon the consummation of the Merger. All of the
Options are subject to the terms and conditions of the Stockholders Agreement
described in Section 3.36 below.
(b) The total authorized capital stock of the Subsidiary consists of 100
shares of common stock, par value $0.01 per share, and as of the date of this
Agreement 100 shares of common stock are issued and outstanding, all of which
are owned by the Company. The outstanding shares of the Subsidiary's common
stock are duly and validly authorized and issued, fully paid, non-assessable and
free of pre-emptive rights.
3.5 Financial Statements. The Company has delivered to the Buyer
--------------------
financial statements of the Company and the Subsidiary consisting of: (i)
consolidated balance sheets as of the last day of its fiscal years ending in
1995 through 1996 and the related statements of income, retained earnings,
stockholders' equity and changes in financial position or cash flow for the
periods then ended, certified by Ernst & Young (the "Audited Financial
Statements") and (ii) draft Audited Financial Statements as of the last day of
its fiscal years ending in 1997 and 1998 substantially in the form as will be
certified by Ernst & Young. The Company has also delivered to the Buyer
unaudited consolidated balance sheets and statements of income (the "Interim
Financial Statements") as of the quarter ended June 29, 1998 and for the
quarterly period then ended. The Audited Financial Statements, the draft Audited
Financial Statements and the Interim Financial Statements (collectively, the
"Financial Statements") (a) are true, correct, complete and in accordance with
the books and records of the Company and the Subsidiary, (b) have been prepared
in conformity with generally accepted accounting principles consistently applied
for the respective periods covered thereby and (c) when read together with any
related notes thereto, fairly present the financial condition of the Company and
the Subsidiary as of such dates and the results of its operations for the
periods ended on such dates, subject in the case of Interim Financial Statements
to normal year-end audit adjustments and the absence of footnotes. Except to the
extent reflected or reserved against or noted in the Company Balance Sheet,
neither the Company nor the Subsidiary had, as of such date, any material
liabilities or obligations of any nature, whether accrued, absolute, contingent
or otherwise which are required to be set forth on the Company Balance Sheet in
accordance with generally accepted accounting principles consistently applied,
including without limitation tax liabilities, whether incurred in respect to or
measured by the Company's or the Subsidiary's income for any period prior to the
date of such Company Balance Sheet, or arising out of transactions entered
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<PAGE>
into, or any set of facts existing prior thereto. For purposes of this
agreement, the balance sheet of the Company and the Subsidiary as of March 29,
1998 is referred to as the "Company Balance Sheet" and the date thereof is
referred to as the "Company Balance Sheet Date".
3.6 Title to Assets and Related Matters. Each of the Company and the
-----------------------------------
Subsidiary has good and marketable title to all of their respective Assets,
including the Assets listed on the Company Balance Sheet and the Financial
Statements, free and clear of any Encumbrances except those (a) specified in the
Disclosure Schedule, (b) arising in connection with secured indebtedness
disclosed in the Financial Statements covering the properties and assets
described therein, (c) minor matters that, in the aggregate, could not
reasonably be expected to have a material adverse effect on the Business
Condition, and (d) consisting of liens for taxes not yet due. The property,
plant and equipment of the Company and the Subsidiary are, reasonable wear and
tear excepted, sufficient to conduct the Business as it has been conducted since
January 1, 1998.
3.7 Permits. Except as set forth on the Disclosure Schedule, (i) each of
-------
the Company and the Subsidiary holds all material permits that are required by
any governmental entity to permit it to conduct its respective business as now
being conducted or presently proposed to be conducted, the failure of which to
hold could reasonably be expected to have a material adverse effect on the
Business Condition and (ii) all such permits have been validly issued and are in
full force and effect and will remain so upon consummation of the Transactions.
No suspension, cancellation or termination of any such permit that could
reasonably be expected to have a material adverse effect upon the Business
Condition is, to the knowledge of the Company, threatened or imminent.
3.8 Real Property.
-------------
(a) Leased Property. The Disclosure Schedule describes all real estate
---------------
used in the operation of the Business as well as any other real estate that is
in the possession of or leased by the Company or the Subsidiary (as tenant or
sub-lessor) (collectively, the "Real Property"). Neither the Company nor the
Subsidiary owns any real estate. All leasehold properties held by the Company or
the Subsidiary as lessee are held under valid, binding and enforceable leases,
true and correct copies of which have been delivered to the Buyer. Except as set
forth on the Disclosure Schedule, no consents, approvals or other actions are
required to maintain each of the leases existing at the Effective Time in full
force and effect after the Effective Time. The Disclosure Schedule contains a
true and correct description of each lease (including any amendment thereto) to
which the Company or the Subsidiary is a party, together with a list of all
current rent obligations payable thereunder, and each of the leases disclosed on
the Disclosure Schedule is in full force and effect and there are no existing
defaults or events of default on the part of the Company or the Subsidiary or
events which with notice or lapse of time or both would constitute defaults, the
consequences of which, severally or in the aggregate, would have an adverse
effect on the Business Condition. There are no material monetary obligations to
any lessor including, without limitation, any damage to such Real
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<PAGE>
Property or improvements occurring prior to the Closing Date, other than the
rent obligations set forth on the Disclosure Schedule. Except as disclosed on
the Disclosure Schedule, neither the execution of this Agreement nor the
consummation of the Transactions shall constitute a default under any of the
leases. Except as disclosed on the Disclosure Schedule, no consent of any
landlord under the leases is required as a result of the execution of this
Agreement or the consummation of the transactions contemplated herein. Except as
indicated on the Disclosure Schedule, all improvements on any Real Property are
in compliance with all building ordinances and health and safety ordinances,
except where the failure so to comply would not have a material adverse effect
on the Business Condition. To the Company's knowledge, the Real Property is
zoned for the purposes for which it is presently being used.
(b) Terminated Leases. The Disclosure Schedule describes all leases to
-----------------
which the Company or the Subsidiary were parties which have been terminated
within the last 12 months. Except as set forth on the Disclosure Schedule,
neither the Company nor the Subsidiary has any liability with respect to any
terminated lease whether or not such terminated lease is set forth on the
Disclosure Schedule.
(c) Violations. Neither the Company nor the Subsidiary has received
----------
written notice from any governmental body that the Real Property or any
improvements situated thereon, or the uses conducted thereon or therein, violate
any Regulations of any governmental body having jurisdiction over the Real
Property, which violation could reasonably be expected to have a material
adverse effect upon the Business Condition, and, to the Company's knowledge, no
conditions exist that are likely to give rise to any such notice.
(d) Environmental. (i) Neither the Company nor the Subsidiary is in
-------------
Violation of any Regulation relating to pollution or protection of human health
or the environment including, without limitation, Regulations relating to
emissions, discharges, releases or threatened releases of chemicals, pollutants,
contaminants, wastes, toxic substances, hazardous substances, petroleum or
petroleum products, asbestos or asbestos-containing materials, or
polychlorinated biphenyls ("Materials of Environmental Concern"), or otherwise
relating to the manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling of Materials of Environmental Concern
(collectively, "Environmental Laws") which could reasonably be expected to have
a material adverse effect upon the Business Condition. "Violation" includes, but
is not limited to, noncompliance with any permit or other governmental
authorization required under applicable Environmental Laws and noncompliance
with the terms and conditions of any such permit or authorization.
(ii) Neither the Company nor the Subsidiary has received any communication
alleging that it is or may be liable or is not in full compliance with any
Environmental Laws or permit or authorization required under applicable
Environmental Laws where such failure to comply fully could reasonably be
expected to have a material adverse effect on the Business Condition and, to the
knowledge of the Company, there are no circumstances that may prevent or
interfere with such full compliance in the future.
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<PAGE>
(iii) To the Company's knowledge, there is no claim, action, cause of
action, investigation or notice by any person or entity alleging potential
liability arising out of, based on or resulting from (a) the presence in or
release into the environment of any Materials of Environmental Concern at any
location owned, leased or operated, now or in the past, by the Company or the
Subsidiary or (b) circumstances forming the basis of any violation or alleged
violation of any Environmental Law (collectively, "Environmental Claims")
pending or, to the knowledge of the Company, threatened against the Company or
the Subsidiary.
3.9 Accounts Receivable. The accounts receivable of the Company and the
-------------------
Subsidiary are bona fide accounts receivable created in the ordinary course of
business and are not subject to any right of set-off. All accounts receivable
of the Company and the Subsidiary (other than those which have arisen since the
Company Balance Sheet Date) are accurately reflected on the Company Balance
Sheet.
3.10 Inventory. The inventory of the Company and the Subsidiary consists,
---------
in all material respects, of items of quality and quantity usable and saleable
in the ordinary course of business, except for items that are obsolete,
discontinued, returned, damaged or of below-standard quality or merchantability
that for purposes of the Company Balance Sheet and the more recent Financial
Statements have been written down to the bona fide selling price less cost of
disposition, or for which adequate reserves have been provided.
3.11 Absence of Undisclosed Liabilities. There are no liabilities or
----------------------------------
other obligations of the Company or the Subsidiary (whether absolute, accrued,
contingent or otherwise and whether or not due) required to be shown in the
Financial Statements in accordance with generally accepted accounting principles
and not shown except (i) to the extent reflected in the Company Balance Sheet
and the notes and schedules thereto, (ii) those liabilities described in this
Agreement, (iii) those liabilities incurred in the ordinary course of business
since the Company Balance Sheet Date, (iv) those liabilities not required under
generally accepted accounting principles to be reflected in the Financial
Statements and (v) as of the Closing Date, those liabilities arising from
actions that shall not have violated Section 5.1.
3.12 Taxes.
-----
(a) Each of the Company and the Subsidiary has duly and timely filed all
Tax Returns required to be filed by it. The Company and the Subsidiary have
provided to the Buyer copies of all Federal, state, local and foreign tax
returns filed on behalf of the Company and the Subsidiary for all taxable
periods ending on or after December 31, 1995. All such Tax Returns are true,
correct, and complete in all material respects and each of the Company and the
Subsidiary has paid all Taxes required to be paid by it in respect of the
periods covered by such Tax Returns and has made adequate provision for payment
of all accrued but unpaid Taxes anticipated in respect of all periods since the
periods covered by such Tax Returns. Neither the Company nor the Subsidiary will
have any liability for Taxes in excess of the amounts so paid or provision made
and reflected in the Financial Statements for the periods covered by the
Financial
-13-
<PAGE>
Statements and after taking into account any reduction of tax liabilities in
certain states that may result from an increase in tax liabilities in the other
states. None of the Tax Returns of the Company or the Subsidiary for any of the
taxable years up to and including the fiscal year ended March 29, 1998 have been
examined by the Internal Revenue Service ("IRS") or any state, local or foreign
tax authority, except those for which the applicable limitations period has
expired, and neither the Company nor the Subsidiary has agreed to extend the
time or to waive the applicable limitations period for the assessment of any
deficiency or adjustment related to Taxes. There are no Tax liens on any of the
Assets, except for liens for Taxes not yet due or payable or for Taxes which are
being contested in good faith in appropriate proceedings.
(b) The Company and the Subsidiary have withheld and paid over amounts from
its employees and other persons required to be withheld and paid over under the
tax, social security, unemployment and other withholding provisions of all
federal, state, local and foreign laws.
(c) The Company has not, with regard to any assets or property held,
acquired or to be acquired by the Company, filed a consent to the application of
Section 341(f) of the Code.
(d) Neither the Company nor the Subsidiary is or has ever been a party to
or bound by any tax indemnity agreement, tax sharing agreement, tax allocation
agreement or similar agreement or arrangement and none of them has any liability
for Taxes of any person (other than the Company and the Subsidiary) under
Treasury Regulations Section 1.1502-6 (or any similar provision of state, local
or foreign law). Neither the Company nor the Subsidiary has been a member of an
affiliated group filing consolidated federal income tax returns the common
parent of which was not the Company.
(e) The unpaid taxes of the Company and the Subsidiary do not, as of the
most recent month end prior to the date hereof, and will not, as of the most
recent month end prior to the Closing Date, exceed the reserve for taxes
(exclusive of any reserve for deferred taxes) established to reflect differences
between book and taxable income as reflected on the Company Balance Sheet.
3.13 Equipment. The Disclosures Schedule sets forth a brief description
---------
of each item of machinery or equipment typically owned or leased by the Company
or the Subsidiary and used or held for use in the Bakeries with an original book
basis, in the case of owned equipment, in excess of $5,000, indicating the
typical budgeted cost of each such item when purchased new, and in the case of
leased equipment with an annual lease obligation in excess of $1,000, the
remaining term of the lease, any lease escalations and any renewal or purchase
options. Except as set forth on the Disclosure Schedule, each Bakery has all of
the machinery and equipment referenced in this Section 3.13. All such machinery
and equipment is in good repair in all material respects and is fit for the
purpose for which it is used or intended, normal wear and tear excepted.
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<PAGE>
3.14 ERISA.
-----
(a) To the Company's knowledge and except as disclosed in the Disclosure
Schedule, neither the Company, the Subsidiary nor any trade or business, whether
or not incorporated (an "ERISA Affiliate"), that together with the Company would
be deemed a "single employer" within the meaning of section 4001(b)(1) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA") is a party
to or obligated under any "employee benefit plans" as defined in Section 3(3) of
ERISA, or under any other plan, program, trust, contract, agreement or
arrangement, either oral or written, for the benefit of its present or past
employees, whether a single employer or multi-employer plan, and including
welfare, fringe benefit, pension, profit sharing, retirement and other deferred
compensation plans ("Benefit Plans" or "Plans"). To the Company's knowledge and
except as disclosed in the Disclosure Schedule, all Benefit Plans and all trusts
and contracts relating thereto conform to and are being administered and
operated in compliance, in all material respects, with the requirements of ERISA
(including, but not limited to, those relating to health plans) and, where
applicable, Sections 401 and 501(a) of the Internal Revenue Code of 1986, as
amended (the "Code"). The Company, the Subsidiary and each ERISA Affiliate has
made or accrued on its balance sheet all required contributions under the
Benefit Plans due or earned by participants prior to the Closing Date, and such
Plans have been administered and operated in accordance with the material terms
thereof. There are no pending or, to the Company's knowledge, threatened claims
by or on behalf of such Plans or by or on behalf of any individual participants
or beneficiaries of such Plans alleging a breach or breaches of fiduciary duty
on the part of the Company, the Subsidiary, any ERISA Affiliate or any of their
officers, directors or employees under ERISA or any other law, or claiming
benefit payments other than those made in the ordinary operation of such Plans.
Except as set forth on the Disclosure Schedule, there have been no denied claims
under any Plans during the three year period prior to the date hereof. To the
Company's knowledge and except as disclosed in the Disclosure Schedule, the
Benefit Plans are not, and have not been, the subject of any investigation,
audit or action by the IRS, the Department of Labor or the Pension Benefit
Guaranty Corporation as to which the Company or the Subsidiary has received
written notice. To the Company's knowledge, there have not been any "prohibited
transactions," as such term is defined in Section 4975 of the Code or Section
406 of ERISA, involving the Benefit Plans, that are likely to subject the
Company or the Subsidiary to the penalty or tax imposed under Section 4975 of
the Code or Section 502(i) of ERISA. To the Company's knowledge, there has been
no action or failure to act by the Company, the Subsidiary or any ERISA
Affiliate that is likely to subject the Company or the Subsidiary to any
material penalty or tax imposed under Section 4980B of the Code or Section 601
of ERISA.
(b) To the Company's knowledge, no liability under Title IV of ERISA has
been incurred by the Company, the Subsidiary or any ERISA Affiliate since the
effective date of ERISA that has not been satisfied in full, and no condition
exists that presents a material risk to the Company, the Subsidiary or an ERISA
Affiliate of incurring a liability under such Title, other than liability for
premiums due the Pension Benefit Guaranty Corporation ("PBGC"), which payments
have been or will be made when due. To the extent this representation applies to
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<PAGE>
sections 4064, 4069 or 4204 of Title IV of ERISA, it is made not only with
respect to the Plans but also with respect to any employee benefit plan,
program, agreement or arrangement subject to Title IV of ERISA to which the
Company or an ERISA Affiliate made, or was required to make, contributions
during the five (5)-year period ending on the last day of the Company's most
recent fiscal year.
(c) With respect to each of the Plans that is subject to Title IV of ERISA
(other than a Plan that is a multiemployer plan), the present value of accrued
benefits under such Plan, based upon the actuarial assumptions used for plan
termination purposes in the most recent actuarial report prepared by such Plan's
actuary with respect to such Plan, did not, as of its latest valuation date,
exceed the then current value of the assets of such Plan allocable to such
accrued benefits.
(d) No amounts payable under the Plans or any other agreement or
arrangement to which the Company, the Subsidiary or any ERISA Affiliate is a
party will, to the Company's knowledge, as a result of the Transactions
contemplated hereby, fail to be deductible for federal income tax purposes by
virtue of section 280G of the Code.
(e) With respect to any multi-employer plan (within the meaning of Section
3(37) of ERISA) to which the Company, the Subsidiary or any ERISA Affiliate
contributes: (i) the Company, the Subsidiary and each ERISA Affiliate has or
will have, as of the Closing Date, made or accrued all contributions due to each
such multi-employer plan required by the terms of such multi-employer plan or
any collective bargaining agreement; (ii) neither the Company, the Subsidiary
nor any ERISA Affiliate has incurred any withdrawal liability under Part 1 of
Subtitle E of Title IV of ERISA, as of the Closing Date, nor has the Company or
the Subsidiary engaged in a complete or partial withdrawal (as defined in ERISA
Sections 4203 and 4205, respectively) from any such multi-employer plan; and
(iii) the Company has delivered to the Buyer current, accurate and complete
copies of all such multi-employer plans to which the Company, the Subsidiary or
any ERISA Affiliate contributes and of all collective bargaining agreements
requiring contributions to be made to any such multi-employer plan. Neither the
Company nor the Subsidiary has ever been a contributor to a multi-employer plan.
(f) As of March 31, 1998, the Company, the Subsidiary and each ERISA
Affiliate had no outstanding obligations with respect to post-retirement health
and medical benefits for retired employees. To the Company's knowledge, as of
the Effective Time, neither the Company, the Subsidiary nor any ERISA Affiliate
will have any outstanding obligations with respect to post-retirement health and
medical benefits for retired employees.
(g) The Company has delivered to Buyer:
(i) copies of all Benefit Plans, related trust agreements or other
funding vehicles and all amendments thereto,
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<PAGE>
(ii) copies of all summary plan descriptions relating to the Benefit
Plans and any other material communications relating to such
plans,
(iii) a copy of the most recent favorable determination letter from the
IRS regarding any Benefit Plan, and
(iv) a copy of the actuarial reports and Annual Information Returns
(Form 5500 Series), if any, for all Benefit Plans with respect to
the last 3 years.
3.15 Subsidiaries. Other than the Subsidiary, the Company does not own
------------
directly or indirectly, any interest or investment (whether equity or debt) in
any corporation partnership, business, trust, joint venture or other legal
entity.
3.16 Compliance with Courts Orders and Regulations. Neither the Company
---------------------------------------------
nor the Subsidiary is in violation of any Court Order or any Regulation, and
neither the Assets nor the Business have been used or operated by the Company or
the Subsidiary in violation of any Court Order or any Regulation, the violation
of which could reasonably be expected to have a material adverse effect on the
Business Condition. Except as set forth on the Disclosure Schedule, neither the
Company nor the Subsidiary has received notice that any investigation or review
by any governmental entity with respect to the Company or the Subsidiary is
pending or that any such investigation or review is contemplated.
3.17 Legal Proceedings. Except as disclosed on the Disclosure Schedule,
-----------------
there is no civil, criminal or administrative action, lawsuit, arbitration or
other legal proceeding or governmental investigation that is pending or, to the
Company's knowledge, threatened against the Company or the Subsidiary.
3.18 Contracts and Commitments.
-------------------------
(a) The Disclosure Schedule lists (and the Company has provided true and
correct copies to the Buyer of) each of the following items to which either the
Company or the Subsidiary is a party or to which any of their properties or
other assets are subject, except for any Contracts that may be terminated
without liability or penalty on not more than 30 days' notice and any Contracts
under which the executory obligation of the Company or the Subsidiary involves
an individual amount of less than $10,000 (unless a different amount is
specified below):
(i) Contracts with any present or former stockholder, director,
officer, employee, partner or consultants;
(ii) Contracts for the future purchase of, or payment for, supplies or
products, or for the performance of services by a third party, in
excess of $20,000 in any individual case;
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<PAGE>
(iii) Contracts to sell or supply products or to perform services, in
excess of $10,000 in any individual case;
(iv) notes, debentures, bonds, conditional sale agreements, equipment
trust agreements, letter of credit agreements, reimbursement
agreements, loan agreements or other Contracts for the borrowing
or lending of money, agreements or arrangements for a line of
credit or guarantee, pledge or undertaking in any manner
(including guarantees of lease obligations) whatsoever of the
indebtedness of any other person or entity;
(v) Contracts limiting or restraining the Company or the Subsidiary
from engaging or competing in any line of business or any
geographical area;
(vi) Contracts relating to any material license, franchise or
distributorship, or copyright, or to any ideas, technical
assistance or other know-how of or used by the Company or the
Subsidiary;
(vii) Collective bargaining agreements or other contracts with labor
unions;
(viii) Agreements relating to severance arrangements, retirement
benefits, deferred compensation or termination of employment; and
(ix) Contracts not made in the ordinary course of business that
individually involve the payment or receipt of more than $10,000.
(b) Neither the Company, the Subsidiary nor, to the Company's knowledge,
any other party is in default under, nor to the Company's knowledge, has any
event occurred that (with or without the giving of notice or lapse of time, or
both) would constitute a default under any of the Contracts, which default could
reasonably be expected to have a material adverse effect on the Business
Condition. Neither the Company nor the Subsidiary has received any communication
from, or given any communication to, any other party indicating that the
Company, the Subsidiary or such other party, as the case may be, is currently or
by the lapse of time will be in default under any Contract, which default could
reasonably be expected to have a material adverse effect on the Business
Condition.
3.19 Insurance. The Company and the Subsidiary are, and at all times
---------
during the past two years have been, insured with reputable insurers in amounts
and against all risks normally insured against by companies in similar lines of
business and of similar size. The Disclosure Schedule lists all policies or
binders of insurance currently held by or on behalf of the Company and the
Subsidiary or relating to the Business or any of the Assets, including, but not
limited to, policies of life and other similar forms of insurance held by the
Company and the Subsidiary, or with respect to which the Company or the
Subsidiary directly or indirectly pays all or part of the
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premium. The policies and binders listed in the Disclosure Schedule are valid
and in full force and effect and will continue in full force and effect after
the Effective Time. Neither the Company nor the Subsidiary is in default under
any such policy or binder. Neither the Company nor the Subsidiary has failed to
give any required notice or to present any material information under any such
policy or binder in a timely fashion.
3.20 Employee Relationships. Neither the Company nor the Subsidiary is
----------------------
(a) a party to, involved in or, to the knowledge of the Company, threatened by,
any labor dispute or unfair labor practice charge, or (b) currently negotiating
any collective bargaining agreement, and neither the Company nor the Subsidiary
has experienced any work stoppage during the last two years. Neither the Company
nor the Subsidiary is subject to any order, decree or award requiring the
payment by it to any employee, former employee or labor organization of any back
wages or other money damages in a material amount for any reason whatsoever.
3.21 Intellectual Property.
----------------------
(a) Included in the Disclosure Schedule is a true, correct and complete
list of all U.S. and Foreign trade names, trademarks, service marks, logos,
slogans, Internet domain names and assumed names currently used in the conduct
and operation of the Business as it is currently being conducted and operated
(collectively the "Marks") and all U.S. and foreign trademark and service mark
registrations and applications for registration (collectively, the "Trademark
Registration Rights") with respect thereto, including (i) the jurisdictions, if
any, by or in which such Marks are registered or for which an application has
been filed, (ii) the registration or application numbers, (iii) the dates of any
such registration or application and (iv) the dates that any affidavits of use
or renewals have been or are required to be filed.
(b) Included in the Disclosure Schedule is a true, correct and complete
list of all U.S. and foreign copyright registrations and applications for
registration of the Company and the Subsidiary (collectively, the "Copyright
Registration Rights") pertaining to the materials in which the Company or the
Subsidiary claim a copyright currently being used for the conduct of the
Business as it is currently being conducted (the "Copyrights"), together with
(i) the jurisdictions, if any, by or in which such Copyrights are registered or
for which an application has been filed, (ii) the registration or application
numbers and (iii) the dates of any such registrations or applications.
(c) Included in the Disclosure Schedule is a true, correct and complete
list by name or other commonly-used description, of all U.S. and foreign patents
and patent applications currently being used for the conduct and operation of
the Business as it is currently being conducted and operated (collectively the
"Patents"), together with the number and date of issuance of any patents and the
application number and filing date of any application for a patent. The
Disclosure Schedule also contains a true, correct and complete list of all of
the Company's training manuals, trade secrets, formulae, recipes, unique sources
of supply and sources not generally known which are currently being used for the
conduct and operation of the Business as it is currently being conducted and
operated.
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(d) The Marks, the Trademark Registration Rights, the Copyrights, the
Copyright Registration Rights and the Patents (collectively the "Intellectual
Property"), together with training manuals, formulae, recipes and other trade
secrets currently being used for the conduct and operation of the Business as it
is currently being conducted and operated (collectively, the "Trade Secrets")
and the elements of the trade dress currently being used in the conduct and
operation of the Business as it is currently being conducted and operated
(collectively, the "Trade Dress") shall be collectively referred to as the
"Proprietary Rights." Except as otherwise described in the Disclosure Schedule,
the Company or the Subsidiary is the sole and exclusive owner of the Proprietary
Rights, free and clear of all liens, claims and encumbrances. Except for the
rights granted to franchisees or developers in the franchise agreements and
development agreements and as otherwise described in the Disclosure Schedule,
the Company and the Subsidiary have sole and exclusive rights to use, execute,
reproduce, display, perform, modify, enhance, distribute, prepare derivative
works of, license and transfer the Proprietary Rights; have not granted any
options or licenses or entered into any agreements of any kind relating to the
Proprietary Rights or the marketing and distribution thereof; and the Merger, as
contemplated herein, will not result, directly or indirectly, in the loss or
impairment, in whole or in part, of any Proprietary Right. All registrations and
applications relating to the Proprietary Rights are standing in the name of the
Company or the Subsidiary.
(e) Except as described in the Disclosure Schedule, neither the Company nor
the Subsidiary has, as of and since the date upon which it acquired the
Proprietary Rights, (i) filed or authorized the filing with the Assignment
Division of the United States Patent and Trademark Office (the "PTO"), United
States Copyright Office or similar foreign office of any lien, security interest
or encumbrance against any registration, patent or application identified in the
Disclosure Schedule; (ii) authorized or filed any lien relating to Proprietary
Rights under the UCC or any similar foreign statute; (iii) entered into any
license, franchise or other agreement with respect to any of the Proprietary
Rights with any third person (except for the franchise agreements and the
Development Agreements listed on the Disclosure Schedule); (iv) otherwise
transferred, conveyed, sold, assigned, pledged, mortgaged, granted a security
interest in or encumbered any of the Proprietary Rights or (v) entered into any
settlement consent, covenant not to sue or similar agreement with respect to any
Proprietary Right.
(f) Except as described in the Disclosure Schedule, neither the Company nor
the Subsidiary has received any written notice to the effect that the Company
and/or the Subsidiary are not the sole owners of or do not have the sole and
exclusive right to use (except as otherwise provided in the franchise
agreements) the Proprietary Rights.
(g) All registrations and applications for the Intellectual Property are
subsisting and in good standing, the Proprietary Rights are valid and
enforceable and, to the knowledge of the Company, no act or omission has
occurred which would adversely affect the validity or enforceability of any
Proprietary Right. Except as described in the Disclosure
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Schedule, the Company and the Subsidiary have obtained confidentiality and
nondisclosure agreements to protect the secrecy of all Proprietary Rights which
are considered to be confidential information or trade secrets where the failure
to obtain such agreements would have a material adverse effect on the
Proprietary Rights.
(h) To the knowledge of the Company, neither the conduct of the Business
nor the operation of the Bakeries or franchise system, nor the use of the
Proprietary Rights infringes upon, dilutes or constitutes an unauthorized use of
any proprietary rights owned or controlled by any third party. Except as set
forth on the Disclosure Schedule, there is no written claim, suit, action or
proceeding (a "Proprietary Right Claim") pending or threatened against the
Company, the Subsidiary or any franchisees alleging that use of the Proprietary
Rights by the Company, the Subsidiary or the franchisees infringes upon, dilutes
or constitutes an unauthorized use of the proprietary rights of any third
person, or alleging that the Company, the Subsidiary and/or the franchisees do
not have the valid right to use any Proprietary Right. The Disclosure Schedule
lists each Proprietary Right Claim pending or threatened against the Company,
the Subsidiary or any franchisee, together with (i) the identity of the
Proprietary Right alleged to be infringing; (ii) the basis for such claim,
including the right alleged to be infringed; (iii) the name of the party by whom
such Proprietary Right Claim has been made; and (iv) if applicable, the
jurisdiction, court or agency before which the Proprietary Right Claim has been
commenced and the number assigned to such proceeding.
(i) Except as described in the Disclosure Schedule, to the knowledge of the
Company, there are no existing infringements, dilutions or unauthorized uses by
any third party of any of the Proprietary Rights, and neither the Company nor
the Subsidiary has any written claim outstanding with respect to prior
infringements, dilutions or unauthorized uses. The Disclosure Schedule lists
each such Proprietary Right Claim against any third party pending or threatened
by the Company or the Subsidiary, together with (i) the identity of the
Proprietary Right alleged to be infringed; (ii) the basis for such claim,
including the right alleged to be infringed; (iii) the name of the party against
whom such Proprietary Right Claim has been made; and (iv) if applicable, the
jurisdiction, court or agency before which such Proprietary Right Claim has been
commenced and the number assigned to such proceeding.
(j) There are no breaches or defaults on the part of the Company or the
Subsidiary under agreements which are included in the Proprietary Rights,
including any license agreements permitting the use of the Proprietary Rights by
third parties, and all such agreements constitute valid and binding obligations
of the parties thereto, enforceable in accordance with their respective terms.
The consummation of the transactions contemplated by this Agreement will not
constitute a breach or default or event which, with notice, lapse of time, or
both, would constitute a default or an event of default under any agreement
included within or relating to any of the Proprietary Rights.
(k) The Company and the Subsidiary currently license or own, and, in either
case have the legal right to use, all computer software that is material to the
conduct of the
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Business and the operation of the units and the franchise system and all such
computer software is being so used in material compliance with any applicable
licenses.
(l) Except as described in the Disclosure Schedule, no former or current
officer, employee or agent has asserted in writing any claim against the Company
or the Subsidiary in connection with such person's involvement in the conception
and development of any Proprietary Rights. None of the current officers or
employees of the Company or the Subsidiary have any patents issued or
applications pending for any device, process, design or invention of any kind
now used or needed by the Company or the Subsidiary in connection with the
conduct of the Business or the operation of the units and the franchise system,
which patents or applications have not been assigned to the Company or the
applicable Subsidiary, with such assignments duly recorded in the PTO.
(m) All franchise agreements and all license agreements granting the right
to use the Proprietary Rights to third parties give the Company or the
Subsidiary as franchisor (the "Franchisor") or licensor and its successors and
assigns the rights to control the quality of products and services sold under
the Marks described under the franchise agreements or license agreements, as the
case may be.
3.22 Absence of Certain Changes. Since the Company Balance Sheet Date,
--------------------------
the Company and the Subsidiary have conducted the Business in the ordinary
course and consistent with prior practice (except as of the Closing Date for
actions that shall not have violated Section 5.1 or 5.3) and except as set forth
on the Disclosure Schedule there has not been with respect to the Company or the
Subsidiary:
(a) any material adverse change in the Business Condition;
(b) any distribution or payment declared or made in respect of its capital
stock by way of dividends, purchase or redemption of shares or otherwise;
(c) any increase in the compensation payable or to become payable by the
Company or the Subsidiary to any director, officer, employee or agent of the
Company or the Subsidiary, except for merit and seniority increases made in the
ordinary course of business not exceeding $5,000 per director, officer, employee
or agent;
(d) any waiver or release of any claim or right of the Company or the
Subsidiary or cancellation of any debt held by the Company or the Subsidiary;
(e) any casualty, loss, damage or destruction (whether or not covered by
insurance) of any material property of the Company or the Subsidiary; or
(f) any material change in the accounting methods or practices of the
Company or the Subsidiary or any change in depreciation or amortization policies
or rates theretofore adopted by the Company or the Subsidiary.
-22-
<PAGE>
3.23 Premises.
--------
(a) Except as set forth on the Disclosure Schedule, all utilities and major
service systems (including, without limitation, electrical, sanitary and sewage,
HVAC, air filtering, refrigeration and water supply) necessary for the operation
of the Bakeries and the Business are in good working order and are adequate for
the present needs of the Bakeries and the Business, except where the failure of
such systems would not have a material adverse effect on the business conducted
at such location. To the knowledge of the Company, there are no facts or
circumstances which will result in the termination of the present access from
the location of any Bakery to utility services or existing streets, highways and
roads adjoining such Bakery.
(b) The use, occupancy, operation and condition of all of the Premises
comply with all applicable covenants, conditions, restrictions and contracts and
any applicable health, safety, environmental and other Regulations to which they
are subject, except where the failure so to comply would not have a material
adverse effect on the business conducted at such location. All applicable
permits, licenses and other evidences of compliance which are or were required
to be obtained in connection with the construction of the improvements on the
Bakeries and the occupancy, condition, operation and use thereof have been
obtained and complied with, except where the failure so to comply would not have
a material adverse effect on the business conducted at such location. Except as
described on the Disclosure Schedule, neither the Company nor the Subsidiary has
received any Health Department or other governmental citation with respect to
any Bakery, manufacturing facility or any other aspect of the Business, which
has not been cured, except where the failure so to cure would not have a
material adverse effect on the business conducted at such location.
(c) Neither the Company nor the Subsidiary has knowledge, or has received
written notice, that any of the Bakeries are or will be subjected to or affected
by (i) any special assessments, whether or not presently a lien thereon, or (ii)
any condemnation, eminent domain or similar proceedings.
3.24 Franchise, License and Development Agreements.
---------------------------------------------
(a) The Disclosure Schedule sets forth a true and complete list of, and the
Company has provided the Buyer with a copy of, all documents that are currently
in the Company's possession within each of the following categories:
(i) each franchise and license agreement for the Marks, currently in
effect as of the date of this Agreement, and any written
amendments or modifications thereto, pursuant to which the Company
or the Subsidiary has granted to third parties ("Franchisees" or
"Licensees") the right to operate Bakeries or restaurants
("Franchised Bakeries") or to use any components of either the
franchise system (the "System") or the Marks;
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<PAGE>
(ii) each development agreement for Franchised Bakeries, currently in
effect as of the date of this Agreement, and any written
amendments or modifications thereto;
(iii) each notice of default sent to a Franchisee or Licensee by the
Company or the Subsidiary within the two year period prior to the
date of this Agreement pursuant to a franchise, license or
development agreement that is in effect as of the date of this
Agreement and any subsequent correspondence between the Company or
the Subsidiary and the Franchisee or Licensee relating to that
notice of default; and
(iv) each letter or other correspondence to the Company or the
Subsidiary within the two year period prior to the date of this
Agreement from a Franchisee or Licensee whose franchise or license
agreement is in effect as of the date of this Agreement alleging a
material default of the applicable franchise or license agreement
by the Company or the Subsidiary.
(b) The Disclosure Schedule sets forth a true and complete list of, and the
Company has provided the Buyer with copies of, the following documents:
(i) each franchise, license or development agreement, to the Company's
knowledge after reasonable inquiry, for which a default exists and
has not been cured, the details of such default, the date and
details of each default and/or termination notice, if any, sent to
such Franchisee or Licensee, and the current status of each such
default notice;
(ii) each current material default by the Company or the Subsidiary
with regard to any franchise, license or development agreement
that currently is in effect as of the date of this Agreement and
the details of that default;
(iii) each material oral franchise, license or development agreement
entered into by the Company or the Subsidiary that currently is in
effect as of the date of this Agreement and pursuant to which a
Franchisee or Licensee currently is operating a Franchised Bakery;
(iv) each oral modification, approved by the Company or the Subsidiary,
to a written franchise, license or development agreement that
currently is in effect as of the date of this Agreement; and
(v) each terminated or expired franchise agreement, license agreement
and/or development agreement, and with respect to each such
agreement, a list of all locations at which former Franchisees or
Licensees continue to use the Marks
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<PAGE>
or other significant elements of the System, other than minor non-
material elements of trade dress.
(c) With respect to each franchise, license and development agreement, the
Disclosure Schedule sets forth a true and complete list of:
(i) the initial license or development fee paid to the Company or the
Subsidiary by each Franchisee or Licensee during the past five
years;
(ii) the total amount claimed by the Franchisee or Licensee as Gross
Sales or Revenues for the 12 month period ending March 29, 1998;
and
(iii) the total amount paid to the Company or the Subsidiary by the
Franchisee or Licensee as royalties for the 12 month period ending
March 29, 1998.
3.25 Advertising.
-----------
(a) The Disclosure Schedule sets forth each written complaint or claim made
to the Company or the Subsidiary by a current Franchisee or Licensee regarding
the Company's application of rebates, marketing and advertising allowances
received by the Company or the Subsidiary from suppliers, vendors or other
persons (collectively, "Suppliers") since January 1, 1996.
(b) The Disclosure Schedule sets forth a true and complete list of:
(i) the asset or liability amount constituting the advertising fund as
of March 29, 1998;
(ii) the aggregate of all rebates, marketing and advertising allowances
received by the Company or the Subsidiary from Suppliers within
the past five (5) year period prior to the date of this Agreement,
that were contributed to the advertising fund by the Company or
the Subsidiary as of the date of this Agreement; and
(iii) a correct and complete list of all advertising cooperatives
established by the Company, the Subsidiary and/or any Franchisee
or Licensee with respect to the Business, and the addresses and
owners of the Franchised Bakeries that participate in each such
cooperative currently in existence.
(c) For a period of five (5) years prior to the date of this Agreement, no
monies, other than Franchisees' or Licensees' and the Company's and the
Subsidiary's, if applicable, contributions to the advertising funds and Supplier
rebates, marketing and advertising allowances, have been credited as income of
the advertising funds.
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<PAGE>
(d) The Disclosure Schedule sets forth, for each franchise, license and
development agreement, a true and complete list of the total amounts paid to the
Company or the Subsidiary by each Franchisee or Licensee as advertising fees for
the 12 month period ending March 29, 1998.
(e) Except as set forth on the Disclosure Schedule, to the knowledge of the
Company, the advertising fund has been operated in substantial compliance with
all applicable franchise, license and development agreements between the Company
or the Subsidiary and any Franchisee or Licensee.
3.26 Franchise Registration/UFOC.
---------------------------
(a) The Disclosure Schedule sets forth, and the Company has provided the
Buyer with a copy of, all documents that are currently in the Company's
possession within each of the following categories:
(i) each letter or other correspondence from federal and/or state
franchise examiners received by the Company or the Subsidiary
since January 1, 1996 relating to franchise or license agreements
currently in effect as of the date of this Agreement;
(ii) each letter or other correspondence from state franchise examiners
received by the Company or the Subsidiary since January 1, 1996
relating to the franchise registration status of the Company or
the Subsidiary in that jurisdiction;
(iii) each letter or other correspondence from state franchise examiners
received by the Company or the Subsidiary since January 1, 1996
relating to the Company or the Subsidiary's exemption from the
registration provisions of such jurisdiction's franchise
registration law;
(iv) each franchise offering circular provided to a Franchisee or
Licensee or registered with any jurisdiction since January 1,
1996;
(v) each acknowledgment of receipt of a franchise offering circular
that relates to a franchise, license or development agreement that
currently is in effect as of the date of this Agreement; and
(vi) each franchise offering circular, if any currently being used by
the Company or the Subsidiary in connection with offers to sell
and sales of franchises for Franchised Bakeries.
(b) The Disclosure Schedule sets forth a complete list of the states in
which the Company or the Subsidiary's franchise offering currently is
registered.
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<PAGE>
(c) Except as set forth on the Disclosure Schedule, to the knowledge of the
Company (which in addition to the persons identified in Section 1 above, solely
for the purpose of this Section 3.26(c), includes the actual knowledge of the
General Counsel of the Company and the Subsidiary, after reasonable inquiry),
(i) each offer or sale of a franchise by the Subsidiary was made in substantial
compliance with applicable franchise laws and (ii) since such offer or sales,
neither the Company nor the Subsidiary has violated any applicable franchise
relationship or termination laws with respect to such franchises.
3.27 [Intentionally Omitted].
3.28 [Intentionally Omitted].
3.29 Employees and Labor Matters.
---------------------------
(a) Attached to the Disclosure Schedule is a list of (i) all employees
(part-time and full-time) of the Company and the Subsidiary who currently have
annualized compensation of greater than $75,000; (ii) the rate of compensation
payable to each such employee; and (iii) the accrued vacation pay and other
benefits payable by the Company or the Subsidiary to each employee listed
thereon. Since March 31, 1998, neither the Company nor any Subsidiary has made
any promise or commitment, whether oral or in writing, to increase any
employee's compensation (other than in connection with regular salary reviews),
grant severance pay or grant any bonus to any employee. Except as otherwise
described in the Disclosure Schedule, neither the Company nor any Subsidiary is
a party to or has any obligations under any agreement, collective bargaining or
otherwise, with any party regarding the rates of pay or working conditions of
any of its employees. Neither the Company nor the Subsidiary is obligated under
any agreement to recognize or bargain with any labor organization or union on
behalf of its employees. To the knowledge of the Company, there is not now any
formal organization activity among any of the employees of the Company or any
Subsidiary, nor has the Company or any Subsidiary been charged with, or received
notice of any threatened action with respect to, any unfair labor practice.
(b) The Company and the Subsidiary have complied with all applicable
Regulations concerning the employer/employee relationship and with all of their
respective agreements relating to the employment of their employees, including
without limitation provisions thereof relating to wages, bonuses, hours of work
and payment of Social Security and other withholding taxes, except where the
failure so to comply would not have a material adverse effect on the Business
Condition. Except as disclosed on the Disclosure Schedule and such amounts
owing for the current pay period in the ordinary course of business, neither the
Company nor the Subsidiary is liable for any unpaid wages, bonuses or
commissions, or any tax, penalty, assessment or forfeiture, for failure to
comply with any of the foregoing.
3.30 Products Liability and Warranties. There are no product liability,
---------------------------------
warranty claims or other claims existing or, to the knowledge of the Company,
threatened in writing
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<PAGE>
against the Company or the Subsidiary which relate to the products or services
sold or distributed by the Company, the Subsidiary or any Franchisee.
3.31 Suppliers. The Disclosure Schedule sets forth a true, correct and
---------
complete list of each Supplier who has furnished inventory or other merchandise
to the Company or the Subsidiary at any time since January 1, 1998 in excess of
$200,000 per year. Except as set forth on the Disclosure Schedule, no Supplier
is a sole source of supply of any good or service used by the Company or the
Subsidiary. None of the Suppliers has canceled or otherwise terminated, or
threatened in writing to cancel or otherwise terminate its relationship with the
Company or the Subsidiary. No Supplier has notified the Company or the
Subsidiary of its intention to decrease or materially limit the services,
supplies or materials sold or furnished to the Company or the Subsidiary where
such action would have a material adverse effect on the Business Condition.
3.32 No Finder's Fee. Except as set forth on the Disclosure Schedule, no
---------------
person, corporation, partnership or firm retained by the Company or the
Subsidiary is entitled to any commission or finder's or similar fee in
connection with the Transactions.
3.33 Accounts Payable. Except as set forth on the Disclosure Schedule,
----------------
all accounts payable of each of the Company and the Subsidiary are currently
within their respective terms or understandings and are not in default or
otherwise past due.
3.34 Obligations. Schedule 2.8 is a true, complete and correct list of
-----------
all of the Obligations of the Company and the Subsidiary. For purposes hereof,
the term "Obligations" shall mean all liabilities and obligations for borrowed
or invested money (including accrued interest thereon) of the Company and the
Subsidiary (including all long-term and current portions of any debt, all
Preferred Stock (together with all accrued and unpaid dividends thereon) and all
related party debt and obligations) other than accounts payable incurred in the
ordinary course of business and accrued liabilities relating to employee
benefits and compensation to be assumed by the Surviving Corporation pursuant to
Section 6.3 hereof.
3.35 Letter of Credit. Pursuant to the Letter of Credit Adjustment
----------------
Agreement entered into as of August 7, 1996 by RUI One Corp. and Restaurants
Unlimited, Inc., subsequently known as Cinnabon Holdings, Inc. and merged with
and into the Company (the "L/C Agreement"), the Company is the beneficiary of an
Irrevocable Letter of Credit, Number S300340, from U.S. Bank of Washington,
National Association in the current face amount of $745,848.00 (the "Letter of
Credit"). The Letter of Credit is subject to further reduction in the event
certain guarantees of the Company expire or are released as provided in the L/C
Agreement. The Letter of Credit is in full force and effect as of the date
hereof. The consummation of the Transaction will not impact the effectiveness
of the Letter of Credit, and the Letter of Credit shall remain in full force and
effect thereafter, in accordance with the L/C Agreement.
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3.36 Stockholders Agreement. That certain Stockholders Agreement dated as
----------------------
of June 3, 1994 (the "Stockholders Agreement") by and among the Company and the
holders of its Common Stock and Common Stock Equivalents (as such term is
defined therein) is, and as of the Closing will continue to be, in full force
and effect. Each holder of Common Stock or Common Stock Equivalents is a party
to the Stockholders Agreement. The Stockholders Agreement was duly authorized
and executed by the Company and the other parties thereto and is enforceable
against each such party in accordance with its terms.
3.37 Materiality. When used herein, qualifications as to material adverse
-----------
effect and materiality shall be read and interpreted so as to require that all
the breaches of representations and warranties contained herein, determined as
if such qualifications did not exist, shall not, taken as a whole, result in a
material adverse effect on the Business Condition.
3.38 Disclosure. The information contained in this Agreement and the
----------
Schedules and Exhibits hereto, taken as a whole, does not contain any material
misstatement or omit to state any material information necessary to make the
statements contained herein, in light of the circumstances under which they were
made, true in all material respects. Notwithstanding the foregoing, the Company
shall not be deemed to have violated this Section by virtue of having failed to
disclose facts or developments relating to the economy in general.
4. Representations and Warranties of the Buyer.
-------------------------------------------
The Buyer and the Acquisition Company, jointly and severally, represent and
warrant to the Company that the statements set forth in this Section 4 are true
and correct as of the date hereof, except as otherwise provided in this
Agreement.
4.1 Corporate. Each of the Buyer and the Acquisition Company is a
---------
corporation duly organized, validly existing and in good standing under the laws
of the jurisdiction in which it was incorporated.
4.2 Authorization. Each of the Buyer and the Acquisition Company has the
-------------
corporate power and authority to execute, deliver and perform this Agreement and
to perform the Transactions to be performed by it. Such execution, delivery and
performance have been duly authorized and approved by all necessary corporate
action, including approval by the respective Stockholders and Boards of
Directors of the Buyer and the Acquisition Company. This Agreement constitutes
or will constitute the valid and binding obligation of the Buyer and the
Acquisition Company, enforceable in accordance with its terms.
4.3 Validity of Contemplated Transactions. Neither the execution and
-------------------------------------
delivery by the Buyer and the Acquisition Company of this Agreement, nor the
performance of the Transactions to be performed by them will violate, require
any filing, consent or approval under or be in conflict with (with or without
the giving of notice, or lapse of time, or both) (i) any Regulatory or Court
Order that is applicable to the Buyer or the Acquisition Company, (ii) the
Certificate of
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<PAGE>
Incorporation or Bylaws of the Buyer or the Acquisition Company or (iii) any
material Contract or other material document to which the Buyer or the
Acquisition Company is a party or by which any of its properties or other assets
may be subject.
4.4 No Finder's Fee. No person, corporation, partnership or firm retained
---------------
by the Buyer or the Acquisition Company is entitled to any commission or
finder's or similar fee payable by either the Company or the Subsidiary in
connection with the Transactions.
4.5 Available Funds. The Buyer has sufficient funds on hand to fund the
---------------
Merger Consideration, to provide the funds required by Section 2.1 hereof and to
fund all other payments, fees and expenses of the Buyer, the Acquisition
Company, and the Surviving Corporation associated with or contemplated by this
Agreement and Transactions.
5. Covenants of the Company.
------------------------
5.1 Interim Conduct of Business. From the date hereof until the Effective
---------------------------
Time, the Company and the Subsidiary shall (i) operate their respective
businesses as a going concern consistent with prior practice and in the ordinary
course of business and (ii) use their reasonable best efforts to preserve intact
their respective business organizations and relationships with third parties and
to keep available the services of their respective key employees, subject to the
terms of this Agreement. Without limiting the generality of the foregoing, from
the date hereof until the Effective Time, except as may be contemplated pursuant
to this Agreement or as expressly approved in writing by the Buyer, neither the
Company nor the Subsidiary shall:
(i) Enter into or amend any employment, bonus, severance or retirement
contract or arrangement, or increase any salary or other form of
compensation payable or to become payable to any of its
executives, stockholders, affiliates, directors or employees,
enter into or amend any contract or arrangement of any affiliates,
directors or employees nor pay any special bonus to its
executives, stockholders, affiliates, directors or employees
except for payments under those contracts and arrangements
disclosed pursuant to Section 6.3(a) hereof;
(ii) Purchase, lease or otherwise acquire any real estate or any
personal property (excluding inventory purchased in the ordinary
course of business and consistent with prior practice) or any
interest therein for consideration in excess of $125,000 in the
aggregate, other than Bakery remodel contracts which are set forth
on the Disclosure Schedule;
(iii) Declare, set aside or pay any dividend or make any other
distribution with respect to its capital stock, except for
distribution of that certain Note dated August 7, 1996 in favor of
the Company from Restaurants Acquisition, Inc. as necessary to
satisfy the "Restaurant Portion" of the Company's deferred seller
debt and preferred stock;
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<PAGE>
(iv) Merge or consolidate with or agree to merge or consolidate with,
nor purchase or agree to purchase all or substantially all of the
assets of, nor otherwise acquire any corporation, partnership, or
other business organization;
(v) Sell, lease, license or otherwise dispose of or agree to sell,
lease, license or otherwise dispose of any of its assets,
properties, rights or claims, except for fair consideration and in
the ordinary course of business and except for Bakery closings
which were negotiated prior to the date of this Agreement and
those planned Bakery closings which are currently being
negotiated, all of which are set forth on the Disclosure Schedule
and except for distribution of that certain Note dated August 7,
1996 in favor of the Company from Restaurants Acquisition, Inc. to
satisfy the "Restaurant Portion" of the Company's deferred seller
debt and preferred stock;
(vi) Authorize for issuance, issue, sell or deliver any additional
shares of its capital stock or any securities or obligations
convertible into shares of its capital stock (other than shares
issued upon exercise of the Options) or issue or grant any option,
warrant or other right to purchase any shares of its capital
stock;
(vii) Split, combine or reclassify any shares of its capital stock of
any class or redeem, repurchase or otherwise acquire, directly or
indirectly any shares of its capital stock;
(viii) Incur any liability, guaranty or obligation (fixed or contingent)
other than in the ordinary course of business and consistent with
past practice;
(ix) Mortgage, pledge or subject to lien or security interest any of
its assets or properties, other than statutory liens arising in
the ordinary course of business;
(x) Make or propose any amendments to its Certificate of Incorporation
or Bylaws;
(xi) [intentionally omitted];
(xii) Accelerate receivables, delay payables, liquidate inventory or
enter into any other transaction, except in the ordinary course of
business consistent with past practices;
(xiii) Settle any audit or make any election with respect to any matters
related to Taxes of the Company or the Subsidiary which may
reasonably be expected to have a material adverse impact on the
Tax Liability of the Company or the Subsidiary;
(xiv) Fail to maintain insurance on the Assets and with respect to the
conduct of the Business in at least such amounts and of such kinds
as are listed on the Disclosure Schedule;
-31-
<PAGE>
(xv) Modify, amend, cancel, terminate or renew any existing lease
agreement, except for negotiated Bakery closings or Bakery remodel
contracts set forth on the Disclosure Schedule; provided however,
that the Subsidiary shall pursue renewal of existing leases
nearing termination using best commerical efforts, subject to the
approval of the Buyer prior to executing any such renewal;
(xvi) Modify, amend, cancel or terminate any existing agreement or
arrangement relating to the Business involving any obligation with
a value in excess of $10,000 and not otherwise expressly provided
for in this Section 5.1, except in the ordinary course of business
and not enter into any transaction involving the exchange of
ownership of any units operated by franchisees for retail units
currently operated by any other entity or under any other name;
(xvii) Fail to timely notify Buyer in writing of any judgments, orders or
decrees entered or any suits, actions, claims, administrative
proceedings or labor negotiations instituted, threatened or
asserted by or against the Company or the Subsidiary, after the
date of this Agreement and prior to the Effective Time, which has
or may reasonably be expected to have a materially adverse effect
on the Business Condition;
(xviii) Fail to timely advise Buyer in writing of any material adverse
change in the Business Condition;
(xix) Enter into any contract relating to the Business extending beyond
the date of the Closing (other than negotiated Bakery closings or
Bakery remodel contracts set forth on the Disclosure Schedule, as
updated pursuant to Section 5.6 hereof) with either (i) a value in
excess of $10,000 or (ii) which cannot be terminated by the
Company or the Subsidiary without cost or penalty upon no more
than 30 days written notice, including, without limitation,
Franchise Agreements and Development Agreements;
(xx) Fail to maintain, at their sole expense, all of their property in
customary repair, order and condition, reasonable wear and use and
damage by fire or unavoidable casualty excepted;
(xxi) Fail to comply in all material respects with all Regulations
applicable to the Business;
(xxii) Other than payments of interest that are required pursuant to the
terms of the Credit Agreement among the Company, the Subsidiary
and U.S. Bank of Washington, National Association, dated as of
November 22, 1996, as amended to date (the "Credit Facility"),
make any payment whatsoever on any of the Obligations, unless the
Closing Working Capital exceeds the June Working Capital (as
determined
-32-
<PAGE>
in accordance with Section 2.13 one business day prior to the
Closing Date) by in excess of $200,000 and then only (i) after the
determination under Section 2.13 has been made and (ii) to reduce
the principal due on the Revolving Credit Facility portion of the
Credit Facility to the extent of such excess over $200,000; or
(xxiii) Abandon any part of its business or authorize, recommend, propose,
or agree to do any of the foregoing.
5.2 Fulfillment of Conditions. At and prior to the Closing, the Company
-------------------------
and the Subsidiary shall use commercially reasonable efforts to fulfill the
conditions specified in Section 7 to the extent that the fulfillment of such
conditions is within its control. The foregoing obligation includes the use of
commercially reasonable efforts to assure the accuracy of its representations
and warranties as of the Closing, the execution and delivery of the documents
referred to in Section 7 and the use of commercially reasonable efforts to
prepare all necessary documentation and to obtain all necessary approvals,
waivers and consents.
5.3 No Solicitation. During the continuance of this Agreement, the
---------------
Company and the Subsidiary shall deal exclusively with the Buyer in connection
with the subject matter hereof. During the continuance of this Agreement, the
Company will not, directly or indirectly (through any officer, director,
shareholder, employee or agent) or otherwise, solicit, initiate or encourage any
proposal from any third party to merge or combine with, or purchase or acquire
all or substantially all of the assets or equity securities of, the Company
(each, an "Alternative Transaction") or enter into or engage in any negotiations
or discussions with, or provide any information to, any third party relating to
an Alternative Transaction. The Company will suspend any discussions involving
an Alternative Transaction existing as of the date of this Agreement and to
communicate to the Buyer the terms of, and the identity of any party making, any
inquiry, proposal, offer or contact with respect to an Alternative Transaction
promptly upon obtaining knowledge of such inquiry, proposal, offer or contact.
5.4 Shareholder Approval. The Company shall use all commercially
--------------------
reasonable efforts to cause its shareholders to consider and act upon this
Agreement and the Transactions in accordance with Section 251(b) of the DGCL as
soon as practicable. The Company shall use all commercially reasonable efforts
to secure the consent of the shareholders of the Company required by the DGCL to
consummate the Transactions.
5.5 Access to Information. From the date hereof to the Effective Time,
---------------------
the Company and the Subsidiary shall give the Buyer and the Acquisition Company,
their respective counsel, financial advisors and sources, auditors and other
authorized representatives reasonable access to the offices, properties, books
and records of the Company and the Subsidiary, furnish to the Buyer and the
Acquisition Company, their respective counsel, financial advisors and sources,
auditors and other authorized representatives such financial and operating data
and other information as such persons may reasonably request, and instruct its
employees, counsel and financial advisors to cooperate fully with the Buyer and
the Acquisition Company in their
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<PAGE>
investigation of the businesses of the Company and the Subsidiary; provided that
--------
no investigation pursuant to this Section shall affect the ability of the Buyer
or the Acquisition Company to rely on any representation or warranty given by
the Company to such party hereunder. The Buyer, the Acquisition Company and each
of their respective representatives agree to treat any information obtained in
connection with their investigation hereunder as confidential information
subject to the terms of the Confidentiality Agreement by and between the Company
and the Buyer.
5.6 Disclosure Supplements. From time to time prior to the Closing Date,
----------------------
the Company will supplement or amend the Schedules hereto with respect to any
matter hereafter arising which, if existing or occurring at or prior to the date
of this Agreement, would have been required to be set forth or described in the
Schedules hereto or which is necessary to complete or correct any information in
the Schedules or in any representation or warranty of the Company which has been
rendered inaccurate thereby.
5.7 Updated Obligations. Three (3) business day prior to the Closing, the
-------------------
Company shall provide the Buyer with an updated Schedule 2.8 setting forth the
final amounts to be due as of Closing.
5.8 Exercise of Drag-Along. The Company shall, prior to the Effective
----------------------
Time, take all actions necessary to effect the "drag along" provisions of
Section 7 of the Stockholders Agreement with respect to all holders of Common
Stock Equivalents.
5.9 Delivery of Additional Due Diligence Materials.
----------------------------------------------
(a) On or prior to September 4, 1998, the Company shall have delivered to
the Buyer the materials required pursuant to Section 7.17(a) hereof.
(b) Within five (5) business days of the date of this Agreement, the
Company shall deliver to the Buyer a list of the holders of Options and the
holders of Warrants, in each case, indicating such holder's name and the number
of Options or Warrants (as the case may be) held by such person.
6. Covenants of the Buyer.
----------------------
6.1 Fulfillment of Conditions. At and prior to the Closing, the Buyer and
-------------------------
the Acquisition Company shall use commercially reasonable efforts to fulfill the
conditions specified in Section 8, to the extent that the fulfillment of such
conditions is within their control. The foregoing obligation includes the use
of commercially reasonable efforts to assure the accuracy of their
representations and warranties as of the Closing, the execution and delivery of
the documents referred to in Section 8 and the use of commercially reasonable
efforts to prepare all necessary documentation and to obtain all necessary
approvals, waivers and consents.
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<PAGE>
6.2 Payments. The Buyer shall take all necessary steps to cause the
--------
Surviving Corporation to make the payments contemplated by Section 2.8 in
accordance with the terms of this Agreement.
6.3 Employee Benefit Matters.
------------------------
(a) Benefit Agreements. On and after the Closing Date, the Surviving
------------------
Corporation shall honor the employment, severance, termination and retirement
agreements to which the Company or the Subsidiary is presently a party and which
are attached to or disclosed in the Disclosure Schedule, as such agreements may
hereafter be amended, modified or terminated with the written consent of Buyer
and the other party (the "Benefit Agreements").
On and after the Closing Date, it is the Buyer's intention to cause the
Surviving Corporation to take all such actions as are necessary so that, for not
less than one year after the Closing Date, employees of the Surviving
Corporation during such period (other than employees holding or being a party to
Benefit Agreements for which provision is made elsewhere in this Section 6.3)
will be provided employee benefit and similar plans and programs as will provide
benefits which in the aggregate are not less favorable than those provided to
similarly situated employees of the Buyer as of the date hereof: provided,
--------
however, that it is understood that after the Closing Date no party hereto will
- -------
have any obligation to issue shares of capital stock (or options or warrants to
acquire any such shares) of any entity pursuant to any such plan or program.
Notwithstanding the above, this Section 6.4 shall not create any obligation on
the part of the Buyer or the Surviving Corporation to continue the employment of
any employee of the Company or the Subsidiary following the Closing or create
any rights in any employee to receive any additional benefits. There are no
intended third-party beneficiaries of this Section 6.3.
(b) Indemnification and Insurance. The Buyer agrees that all rights to
-----------------------------
indemnification or exculpation now existing in favor of the employees, agents,
directors or officers of the Company (the "Company Indemnified Parties") as
provided in its Certificate of Incorporation or By-Laws, or otherwise in effect
on the date hereof shall continue in full force and effect, with respect to the
Surviving Corporation, for a period of not less than six years from the Closing
Date and the Buyer agrees to purchase, or cause the Surviving Corporation to
purchase, director and officer insurance for such six year period at its sole
expense; provided, however, that the Buyer's obligation to maintain the
-------- -------
insurance coverage required hereunder shall terminate upon the earlier of (i)
the sixth anniversary of the Closing Date or (ii) Buyer's payment of premiums
for such insurance in the aggregate amount of $50,000; provided, further,
-------- -------
however, that, in the event any claim or claims are asserted or made within such
- -------
six-year period, all rights to indemnification in respect of any such claim or
claims shall continue until disposition of any and all such claims. Any
determination required to be made with respect to whether a Company Indemnified
Party's conduct complies with the standards set forth in the Certificate of
Incorporation or By-Laws of the Company or otherwise shall be made by
independent counsel selected by the Company Indemnified Party reasonably
satisfactory to the Surviving Corporation (whose fees and expenses shall be paid
by the Surviving Corporation).
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<PAGE>
6.4 Solvency After the Closing. After the Closing, the Buyer agrees that
--------------------------
neither the Buyer nor the Surviving Corporation shall have any right to bring
any claim against the directors, officers, stockholders or creditors of the
Company immediately prior to the Effective Time on the basis that the Company
(i) was insolvent at the time of the Closing, (ii) became insolvent as a result
of the Transactions, (iii) was left with unreasonably small capital with which
to engage in its business or (iv) incurred debts beyond its ability to pay such
debts as they mature; provided however, that the Buyer shall not, by virtue of
this Section 6.4, be obligated to indemnify any of the directors, officers,
stockholders or creditors of the Company immediately prior to the Effective Time
from any claims brought by third parties in connection with the Transactions on
the basis of any one or more of the assertions set forth in clauses (i)-(iv) of
this Section 6.4.
7. Conditions Precedent to the Buyer's Obligations.
-----------------------------------------------
All obligations of the Buyer and the Acquisition Company to be performed on
the Closing Date shall be subject to the satisfaction (or waiver by the Buyer or
the Acquisition Company), prior thereto, of the following conditions:
7.1 Representations True at Closing. Except as affected by the actions
-------------------------------
contemplated by this Agreement or by actions not prohibited by Sections 5.1 or
5.3, the representations and warranties of the Company set forth in this
Agreement shall be true and correct, in all material respects, at and as of the
Closing Date as though such representations and warranties were made at and as
of such time.
7.2 Performance of Covenants. The Company and the Subsidiary shall have
------------------------
performed, in all material respects, all covenants and agreements that are to be
performed by them under this Agreement on or prior to the Closing Date and shall
have delivered to the Buyer evidence, in form and substance satisfactory to
Buyer's counsel, that such covenants and agreements have been performed.
7.3 Litigation Affecting Closing. No action, suit or proceeding shall
----------------------------
have been instituted before a court or governmental body, or instituted or
threatened by any governmental agency or body, to restrain or prevent the
consummation of the Transactions and no Court Order shall have been issued or
entered that would be violated by the completion of the Transactions.
7.4 Regulatory Compliance and Approvals. All approvals required under any
-----------------------------------
Law or Regulation, including the Hart-Scott-Rodino Antitrust Improvements Act
("HSR"), to carry out the Transactions shall have been obtained, and the Company
and the Subsidiary shall have complied in all material respects with all Laws
and regulations applicable to the Company and the Subsidiary with respect to the
Transactions.
7.5 Consents. The Company shall have delivered to the Buyer:
--------
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<PAGE>
(a) landlord consents to assignment of all the leases listed on Schedule
7.5(a);
(b) landlord consents to assignment of at least 70% of the leases listed on
Schedule 7.5(b); and
(c) any other material consents listed on Schedule 7.5(c) hereof (the
"Material Consents"), which are required to be obtained in connection with the
Transactions in order to avoid a material breach under any material Contract to
or by which the Company is a party or may be bound.
7.6 Opinion of Company's Counsel. Ogden Murphy Wallace, counsel to the
----------------------------
Company and the Subsidiary shall have delivered to the Buyer their opinion,
dated the Closing Date, in form and substance reasonably acceptable to Buyer.
7.7 Shareholder Approval. The requisite Holders of the Common Stock and,
--------------------
if necessary, the Preferred Stock of the Company prior to the Effective Time
shall have approved the Merger, this Agreement and the Transactions contemplated
hereby in accordance with applicable law and not more than 5% of the Shares of
Common Stock that are issued and outstanding immediately prior to the Effective
Time shall be Dissenting Shares or shall be entitled to become Dissenting
Shares.
7.8 No Material Adverse Change. Since the Balance Sheet Date, there shall
--------------------------
not have been any material adverse change in the Business Condition.
7.9 Release of Liens. Concurrently with the Closing, all liens and
----------------
encumbrances on the Assets shall have been released and the Company and the
Subsidiary shall have received written releases from all holders thereof.
7.10 Cancellation Acknowledgments. To the extent that the funds provided
----------------------------
pursuant to Section 2.8 hereof are insufficient to satisfy all of the
Obligations in full, the Buyer shall have received appropriate documentation
from the holders of such unsatisfied Obligations acknowledging that such
Obligations shall be cancelled at the Effective Time and all claims against the
Company and the Subsidiary released.
7.11 Termination Agreements. The Buyer shall have received Termination
----------------------
Agreements from each holder of a Warrant acknowledging that such Warrants shall,
as of the Effective Time, be cancelled for no consideration and that all claims
against the Company and the Subsidiary are released.
7.12 Landlord Estoppel Letters. The Company or the Subsidiary shall have
-------------------------
received an estoppel letter, in form and substance satisfactory to the Buyer,
from:
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<PAGE>
(a) each of the landlords for the 60 locations which contributed the
highest amounts to the Company's cash flow during fiscal year 1998, as listed on
Schedule 7.12(a) hereto;
(b) at least 80% of the landlords for the locations which contributed more
than $50,000 to the Company's cash flow during fiscal year 1998, as listed on
Schedule 7.12(b); and
(c) each of the remaining landlords with whom the Company or the Subsidiary
has a valid existing lease to the extent that such estoppels can be obtained
using commercially reasonable efforts.
7.13 Franchisee Estoppel Letters. The Company or the Subsidiary shall
---------------------------
have received an estoppel letter, in form and substance satisfactory to the
Buyer, from each Franchisee and Developer listed on Schedule 7.13. The Buyer
may add to such list any existing Franchisee, who entered into a franchise
agreement or license agreement after 1993, to whom proper franchise disclosure
and registration was not made.
7.14 Due Diligence Review. Buyer shall have given its approval to any
--------------------
amendments or modifications to the Disclosure Schedule pursuant to Section 5.6
and 7.15 hereof within 2 business days of delivery of such amendment or
modification. If the Buyer fails to object to such amendment or modification
within such period, such amendment or modification shall be deemed accepted by
the Buyer.
7.15 Delivery of Audited Financial Statements. Two (2) business days
----------------------------------------
prior to Closing, the Company shall deliver to the Buyer the audited financial
statements of the Company for the fiscal years ended March 30, 1997 and March
29, 1998 (the "Audits"); it being understood and agreed that the Audits shall be
dated as of the Closing Date and shall not be released until such date. The
Audits will be consistent in form and content, in all material respects, with
the draft Audited Financial Statements provided to the Buyer by the Company
pursuant to the provisions of Section 3.5 hereof.
7.16 Option Terminations. The Company shall have received an agreement,
-------------------
in form and substance reasonably satisfactory to the Buyer, from holders of at
least 80% of the Options pursuant to which such holders shall have agreed to
terminate their Options and released the Company for any claims thereunder.
7.17 Franchise Matters.
-----------------
(a) The Buyer shall have received the franchise information described on
Schedule 7.17 hereof, to the extent not already provided to Buyer prior to the
date of this Agreement and to the extent not already disclosed on Schedules
3.24, 3.25 and 3.26 hereto.
(b) Neither the Company nor the Buyer shall have determined that there are
any violations of law or other potential claims (not legally barred from being
made) with respect
-38-
<PAGE>
to franchise matters, which individually or in the aggregate could have a
material adverse effect on the Business and no claim, action, suit or proceeding
not disclosed on the Disclosure Schedule shall have been made, instituted or
threatened by any governmental agency or body, any Franchisee or former
Franchisee or by any other person, relating to or alleging material violations
of any Regulations, laws, orders, consents, decrees or other requirements
relating to the offer or sale of franchises by the Company or the Subsidiary.
7.18 Resignation of Officers and Directors. The Company shall have
-------------------------------------
received resignations of those officers and directors of the Company and the
Subsidiary as the Buyer shall have requested.
7.19 Letter of Credit. The Company shall have received evidence from U.S.
----------------
Bank of Washington, National Association, reasonably satisfactory to the Buyer
that the Letter of Credit will remain in full force and effect following the
Closing.
7.20 Corporate Documents. The Buyer shall have received:
-------------------
(a) A Certificate of the Secretary of the Company, certifying the
incumbency of officers and genuineness of signatures of all officers executing
this Agreement or any document or certificate delivered in connection herewith
for it, copies of its Bylaws, and copies of its director and stockholder
resolutions authorizing the Transactions; and
(b) The Certificate of Incorporation, as amended, of the Company certified
as of a recent date by the Secretary of State of Delaware; and
(c) A Certificate of Corporate Good Standing, Legal Existence and Tax
Clearance of each of the Company and the Subsidiary as of a recent date from the
Secretary of State of Delaware, with respect to the Company, and Washington,
with respect to the Subsidiary, and such other jurisdictions as shall reasonably
be requested by the Buyer.
7.21 Beverly Center. The Company shall have received an executed lease
--------------
agreement, in substantially the form previously provided to the Buyer, for the
Bakery located in Beverly Center, California for the current or comparable
space. In addition, the Company shall have received a consent from the landlord
with respect to such lease.
8. Conditions Precedent to Obligations of the Company.
--------------------------------------------------
All obligations of the Company to be performed on the Closing Date shall be
subject to the satisfaction (or waiver by the Company), prior thereto, of each
of the following conditions:
8.1 Representations True at Closing. The representations and warranties
-------------------------------
of the Buyer and the Acquisition Company set forth in this Agreement shall be
true and correct, in all material
-39-
<PAGE>
respects, at and as of the Closing Date as though such representations and
warranties were made at and as of such time.
8.2 Performance of Covenants. The Buyer and the Acquisition Company shall
------------------------
have performed, in all material respects, all covenants and agreements that are
to be performed by it under this Agreement on or prior to the Closing Date and
shall have delivered to the Company evidence, in form and substance satisfactory
to counsel to the Company, that such covenants and agreements have been
performed.
8.3 Litigation Affecting Closing. No Court Order shall have been issued
----------------------------
or entered that would be violated by the completion of the Transactions.
8.4 Regulatory Compliance and Approvals. All approvals required under any
-----------------------------------
Regulation, including HSR, to carry out the Transactions required to be obtained
by the Buyer shall have been obtained, and the Buyer and the Acquisition Company
shall have complied in all material respects with all Laws applicable to them
with respect to the Transactions.
8.5 Consents. The Buyer shall have obtained all Material Consents
--------
required to be obtained by it.
8.6 Opinion of Buyer's Counsel. Cohen Pollock Merlin Axelrod & Tanenbaum,
--------------------------
P.C., counsel to the Buyer and the Acquisition Company, shall have delivered to
the Company their opinion, dated the Closing Date, in form and substance
reasonably acceptable to the Company.
8.7 Corporate Documents. The Company shall have received:
-------------------
(a) Certificates of the Secretary of the Buyer and the Acquisition Company,
respectively, certifying the incumbency of officers and genuineness of
signatures of all officers executing this Agreement or any document or
certificate delivered in connection herewith for them, copies of their By-laws,
and copies of their director and stockholder resolutions authorizing the
Transactions;
(b) Certificates of Incorporation, as amended, of the Buyer and the
Acquisition Company certified as of a recent date by the Secretary of State of
the State of Delaware; and
(c) Certificates of Corporate Good Standing and Legal Existence of the
Buyer and the Acquisition Company as of a recent date from the Secretary of
State of the State of Minnesota, with respect to the Buyer, and Delaware, with
respect to the Acquisition Company.
-40-
<PAGE>
9. Termination.
-----------
9.1 Termination. This Agreement and all of the respective obligations of
-----------
the parties hereunder may be terminated at any time prior to the Closing Date:
(a) by mutual consent of the Company and the Buyer; or (b) by written notice by
either the Company or the Buyer to each other if the Closing shall not have
occurred on or before October 15, 1998 (other than as a result of a breach of
this Agreement by the party seeking termination); or (c) by either the Company
or the Buyer if any permanent injunction or other order of a court or other
competent authority preventing the consummation of the Transactions shall have
become final and nonappealable.
9.2 Effect of Termination. In the event that this Agreement is terminated
---------------------
pursuant to Section 9.1, the Agreement shall become null and void and have no
further force or effect except that, notwithstanding the foregoing, the
termination of this Agreement shall not relieve any party from liability for any
breach of this Agreement occurring prior to such termination.
10. General.
-------
10.1 Nonsurvival. The representations and warranties of the Company made
-----------
in Section 3 of this Agreement shall terminate upon the effectiveness of, and
shall not survive, the Merger. Following the Effective Time, the Buyer shall
not have any right to pursue the Company or those persons who were stockholders
or creditors of the Company immediately prior to the Effective Time for any
breach of any of such representations and warranties; provided, however, that
nothing in this Section 10.1 shall limit the Buyer's remedies with respect to
fraud.
10.2 Governing Law. This Agreement shall be construed and enforced in
-------------
accordance with the Laws of the Commonwealth of Massachusetts.
10.3 Further Assurances. The parties hereto agree to execute and deliver
------------------
any and all papers and documents necessary to complete the Transactions
contemplated hereby.
10.4 Binding Effect. This Agreement shall be binding upon the parties
--------------
hereto and their respective successors and assigns; provided, however, that this
Agreement and all rights hereunder may not be assigned by any party hereto
without the written consent of the other parties.
10.5 Waiver of Conditions. Any party hereto may waive any condition
--------------------
provided in this Agreement for its benefit.
10.6 Exhibits. All of the Exhibits attached to this Agreement are hereby
--------
incorporated herein and made a part hereof.
10.7 Disclosure Schedule. Items required to be disclosed on the
-------------------
Disclosure Schedule under Section 3 shall be deemed to be disclosed on such
Disclosure Schedule for all purposes of
-41-
<PAGE>
Section 3 irrespective of whether they are disclosed with reference to each of
the Sections under Section 3 to which they relate.
10.8 Specific Performance. Each party agrees that remedies at law may be
--------------------
inadequate to protect the other party from and against any actual or threatened
breach of this Agreement by such party or any of its representatives. Without
prejudice to the rights and remedies otherwise available to it, each party
agrees that any other party may seek equitable relief in favor of the other
party by way of specific performance or otherwise without proof of actual
damages, if such party or any of its representatives breach or threaten to
breach any of the provisions of this Agreement.
10.9 Public Announcements. The Company and the Buyer shall consult with
--------------------
each other prior to issuing any press release or making any public statement or
any filing with any governmental entity with respect to this Agreement and the
Transactions contemplated hereby.
10.10 Expenses. All costs and expenses incurred in connection with this
--------
Agreement shall be paid by the party incurring such cost or expense. All legal,
accounting and investment banking fees and expenses of the Company relating to
the transactions contemplated hereby shall be paid by the stockholders and
creditors of the Company. Such fees and expenses shall be listed on the updated
list of Obligations provided pursuant to Section 5.7.
10.11 Entire Agreement. This Agreement and the Confidentiality Agreement
----------------
contain the entire agreement among the parties hereto and there are no
agreements, representations or warranties which are not set forth herein. All
prior negotiations, agreements and understandings are superseded hereby.
10.12 Notices. Every notice or other communication required, contemplated
-------
or permitted by this Agreement by any party shall be in writing and shall be
delivered by personal delivery, telegram, private courier service or by
certified mail, postage prepaid, return receipt requested or sent by telegraph,
telefax, telecopy or telex and confirmed via courier or postal service,
addressed as follows:
TO THE BUYER OR THE
ACQUISITION COMPANY:
AFC Enterprises, Inc.
Six Concourse Parkway, Suite 1700
Atlanta, Georgia 30328
Attention: Samuel N. Frankel
Facsimile: (770) 353-3028
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<PAGE>
With a copy to:
Cohen Pollock Merlin Axelrod & Tanenbaum, P.C.
2100 RiverEdge Parkway, Suite 300
Atlanta, Georgia 30328
Attention: H. Stephen Merlin, Esq.
Facsimile: (770) 858-1277
TO THE COMPANY:
Cinnabon International, Inc.
936 North 34th Street, 4th Floor
Seattle, Washington 98103
Attention: Kern Gillette, President
Facsimile: (206) 547-3987
With copies to:
Thomas H. Lee Company
75 State Street, 26th Floor
Boston, Massachusetts 02109
Attention: Terrence M. Mullen
Facsimile: (617) 227-3514
Hutchins, Wheeler & Dittmar, A Professional Corporation
101 Federal Street
Boston, Massachusetts 02110
Attention: James Westra, Esq.
Facsimile: (617) 951-1295
Ogden Murphy Wallace
2100 Westlake Center Tower
1601 Fifth Avenue
Seattle, Washington 98101
Attention: David A. Ellenhorn, Esq.
Facsimile: (206) 447-2015
10.13 Counterparts. This Agreement may be executed in two or more
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counterparts, each of which shall be binding as of the date first written above.
Each such copy shall be deemed an original, and it shall not be necessary in
making proof of this Agreement to produce or account for more than one such
counterpart.
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10.14 Amendment. This Agreement may be amended by the Boards of
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Directors of the parties hereto at any time prior to the filing of the
Certificate of Merger, and any such amendment shall be by a written instrument
signed by each of the parties hereto; provided, however, that this Agreement may
only be amended without approval of the stockholders of the Company, the Buyer
and the Acquisition Company to the extent permitted by applicable Law.
[Remainder of Page Intentionally Left Blank]
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IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as
of the date first above written.
Attest: CINNABON INTERNATIONAL, INC.
____________________ By:
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Name:
Title:
Attest: AFC ENTERPRISES, INC.
____________________ By:
----------------------------------------
Name:
Title:
Attest: AFC FRANCHISE ACQUISITION CORP.
____________________ By:
----------------------------------------
Name:
Title:
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