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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
--------
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities and Exchange Act of 1934
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Date of Report (Date of earliest event reported): December 4, 1998 (November 19, 1998)
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MRS. FIELDS' ORIGINAL COOKIES, INC.
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(Exact name of Registrant as specified in its charter)
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DELAWARE 333-45179 87-0552899
- ---------------------------------------------- ----------------------- ---------------------------------
(State or other jurisdiction of incorporation) (Commission File Number) (IRS Employer Identification No.)
2855 East Cottonwood Parkway, Suite 400
Salt Lake City, Utah 84121-7050
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(Address of principal executive offices) (Zip Code)
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Registrant's telephone number, including area code: (801) 736-5600
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
- --------------------------------------------
On November 19, 1998, Mrs. Fields' Original Cookies, Inc., a Delaware
corporation (the "Company"), pursuant to a Stock Purchase Agreement (the "Stock
Purchase Agreement"), dated as of November 19, 1998 by and among Pretzelmaker
Holdings, Inc. ("PHI"), and the holders of all outstanding capital stock of PHI,
(collectively the "Sellers") and the Company, acquired all of the outstanding
capital stock of the Sellers for $5,739,000 and assumed liabilities totaling
$1,299,000. The transaction was financed with Sellers' Notes that will be paid
by the Company in installments through January 4, 1999. Of the assumed
indebtedness, $722,000 also will be paid by the Company in installments through
January 4 1999. The Sellers' Notes are secured by all of the outstanding capital
stock of PHI.
The foregoing summary should be read in conjunction with and is
qualified by reference to the Stock Purchase Agreement, which is set forth as an
exhibit to this report and incorporated by reference herein.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
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ITEM 7 (a) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED
-----------------------------------------
The financial statements required by this item are not included with
this report because it is impracticable to provide them at the time of this
filing. The financial statements will be filed by amendment not later than 60
days after the date this report is filed.
ITEM 7 (b) PRO FORMA FINANCIAL INFORMATION
-------------------------------
The pro forma financial information required by this item is not
included with this report because it is impracticable to provide it at the time
of this filing. The pro forma financial information will be filed by amendment
not later than 60 days after the date this report is filed.
ITEM 7 (c) EXHIBITS
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Exhibit 2.1 Stock Purchase Agreement, dated as of November 19, 1998, among
Mrs. Fields' Original Cookies, Inc., as Buyer, Pretzelmaker
Holdings, Inc., and the holders of all the outstanding stock of
Pretzelmaker Holdings, Inc., collectively as Sellers (schedules
and exhibits to the agreement have been omitted from this filing
and will be furnished to the Securities and Exchange Commission
upon request.)
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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 hereunto duly authorized.
MRS. FIELDS' ORIGINAL COOKIES, INC.
Date: December 4, 1998 /s/ L. Tim Pierce
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L. Tim Pierce, Chief Financial Officer
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EXHIBIT INDEX
Item 7 (c) EXHIBITS
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Exhibit 2.1 Stock Purchase Agreement, dated as of November 19, 1998, among
Mrs. Fields' Original Cookies, Inc., as Buyer, Pretzelmaker
Holdings, Inc., and the holders of all the outstanding stock of
Pretzelmaker Holdings, Inc., collectively as Sellers (schedules
and exhibits to the agreement have been omitted from this filing
and will be furnished to the Securities and Exchange Commission
upon request.)
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STOCK PURCHASE AGREEMENT
among
MRS. FIELDS' ORIGINAL COOKIES, INC.,
as Buyer,
and
THOSE PERSONS LISTED ON THE SIGNATURE PAGE HEREOF,
holders of all outstanding capital stock
of
PRETZELMAKER HOLDINGS, INC.,
as Sellers
November 19, 1998
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TABLE OF CONTENTS
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1. Definitions................................................................................... 1
2. Purchase and Sale of Company Shares........................................................... 8
(a) Basic Transaction.................................................................... 8
(b) Purchase Price....................................................................... 9
(c) Purchase Price Payments.............................................................. 11
(d) Working Capital Requirement; Purchase Price Adjustment for Working Capital........... 11
(e) The Closing.......................................................................... 12
(f) Escrow; Power of Attorney; Agent Sellers; Pledgees' Agent............................ 12
(g) Deliveries at Closing................................................................ 13
(h) Preparation of Closing Balance Sheet; Payment of Purchase Price Adjustment for
Working Capital...................................................................... 13
3. Representations and Warranties Concerning the Transaction..................................... 15
(a) Representations and Warranties of the Sellers........................................ 15
(i) Authorization of Transaction................................................ 15
(ii) Noncontravention............................................................ 15
(iii) Brokers' Fees............................................................... 16
(iv) Company Shares.............................................................. 16
(b) Representations and Warranties of the Buyer.......................................... 17
(i) Organization of the Buyer................................................... 17
(ii) Authorization of Transaction................................................ 17
(iii) Non-Contravention........................................................... 17
(iv) Brokers' Fees............................................................... 17
(v) Investment.................................................................. 17
4. Representations and Warranties Concerning the Company......................................... 18
(a) Organization, Qualification, and Corporate Power..................................... 18
(b) Capitalization....................................................................... 19
(c) Non-Contravention.................................................................... 19
(d) Brokers' Fees........................................................................ 20
(e) Title to Assets...................................................................... 20
(f) Subsidiaries......................................................................... 20
(g) Financial Statements................................................................. 21
(h) Events Subsequent to Most Recent Fiscal Year End..................................... 22
(i) Undisclosed Liabilities.............................................................. 24
(j) Legal Compliance..................................................................... 25
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(k) Tax Matters................................................................................... 25
(l) Real Property................................................................................. 27
(m) Intellectual Property......................................................................... 28
(n) Tangible Assets............................................................................... 30
(o) Inventory..................................................................................... 30
(p) Contracts..................................................................................... 31
(q) Notes and Accounts Receivable................................................................. 32
(r) Powers of Attorney............................................................................ 33
(s) Insurance..................................................................................... 33
(t) Litigation.................................................................................... 34
(u) Product Warranty.............................................................................. 34
(v) Product Liability............................................................................. 34
(w) Employees..................................................................................... 34
(x) Employee Benefit.............................................................................. 35
(y) Guaranties.................................................................................... 37
(z) Environment, Health, and Safety............................................................... 37
(aa) Certain Business Relationships with the Company............................................... 38
(ab) Company Debt; Shareholder Loans; Non-Compete Payments......................................... 38
(ac) Disclosure.................................................................................... 38
5. Pre-Closing Covenants.................................................................................. 38
(a) General....................................................................................... 38
(b) Notices and Consents.......................................................................... 39
(c) Operation of Business......................................................................... 39
(d) Preservation of Business...................................................................... 41
(e) Full Access................................................................................... 41
(f) Notice of Developments........................................................................ 41
(g) Waiver of Refusal Rights...................................................................... 41
(h) Exclusivity; Encumbrance or Transfer of Shares................................................ 41
(i) Conversion of Preferred Shares; Cancellation of Options....................................... 42
6. Post-Closing Covenants................................................................................. 42
(a) General....................................................................................... 42
(b) Litigation Support............................................................................ 42
(c) Transition.................................................................................... 43
(d) Confidentiality............................................................................... 43
(e) Covenant Not to Compete....................................................................... 43
(f) Post-Closing Audit and Preparation of Consolidated Financial Statements....................... 44
(g) Office Lease; Location of Company Records..................................................... 45
7. Conditions to Obligation to Close...................................................................... 45
(a) Conditions to Obligation of the Buyer......................................................... 45
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(b) Conditions to Obligation of the Sellers.............................................. 47
8. Remedies for Breaches of This Agreement....................................................... 48
(a) Survival of Representations and Warranties........................................... 48
(b) Indemnification...................................................................... 48
(i) Principal Sellers' Indemnification of Buyer................................. 48
(ii) Buyer's Indemnification of Sellers.......................................... 49
(iii) Buyers Indemnification of Sellers and Company............................... 49
(iv) Reimbursement of Costs...................................................... 50
(c) Matters Involving Third Parties...................................................... 51
(d) Determination of Adverse Consequences................................................ 52
(e) Certain Set-Off Rights............................................................... 52
(f) Other Indemnification Provisions..................................................... 53
(g) Sellers' Release of Claims........................................................... 53
(h) Termination.......................................................................... 54
(i) Termination of Agreement.................................................... 54
(ii) Action By Fewer Than All Sellers............................................ 54
(iii) Effect of Termination....................................................... 54
9. Miscellaneous................................................................................. 55
(a) Press Releases and Public Announcements.............................................. 55
(b) No Third-Party Beneficiaries......................................................... 55
(c) Entire Agreement..................................................................... 55
(d) Succession and Assignment............................................................ 55
(e) Counterparts......................................................................... 55
(f) Headings............................................................................. 55
(g) Notices.............................................................................. 55
(h) Governing Law........................................................................ 56
(i) Amendments and Waivers............................................................... 57
(j) Severability......................................................................... 57
(k) Expenses............................................................................. 57
(l) Construction......................................................................... 57
(m) Incorporation of Exhibits, Annexes, and Schedules.................................... 57
(n) Dispute Resolution................................................................... 58
(o) Submission to Jurisdiction........................................................... 60
(p) Attorneys' Fees...................................................................... 60
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EXHIBITS
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A LTM EBITDA Adjustments
B Sellers and Company Shares
C Purchase Price Allocation
D Escrow Agreement
E Financial Statements of the Company
F Form of Opinion of the Seller=s Counsel
ANNEXES
-------
II Exceptions to Buyer's Representations
DISCLOSURE SCHEDULE
-------------------
1.1 Shareholder Obligations
1.2 Working Capital
3(a)(vii) Sellers' Indebtedness
4(a) Organization
4(c) Non-Contravention
4(e) Security Interests
4(g) Financial Statements on Exhibit E
4(h) Subsequent Events
4(i) Undisclosed Liabilities Balance Sheet
4(k) Tax Returns
4(l)(i) Real Property Owned
4(l)(ii) Real Property Leased or Subleased
4(m)(iii) Intellectual Property
4(m)(iv) Licenses From Third Parties
4(o) Inventory
4(p) Contracts
4(r) Powers of Attorney
4(s) Insurance
4(t) Litigation
4(t)(ii) Threatened Litigation
4(w) Employees
4(x) Employee Benefit Plans
4(y) Guaranties
4(aa) Business Relationships
2(b)(iv) Promissory Notes
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STOCK PURCHASE AGREEMENT
This STOCK PURCHASE AGREEMENT entered into effective as of November
19, 1998, by and among Mrs. Fields Original Cookies, Inc., a Delaware
corporation (the "Buyer"), Pretzelmaker Holdings, Inc., a Colorado corporation
(the "Company"), and those persons listed on the signature page hereof (referred
to herein individually as a "Seller" and collectively as the "Sellers"). The
Buyer and the Sellers are referred to collectively herein as "Party" in the
singular and "Parties" in the plural.
The Sellers presently own, or at the Closing will own, one hundred
percent (100%) of the issued and outstanding capital stock of the Company.
This Agreement contemplates a transaction in which the Buyer will
purchase from the Sellers, and the Sellers will sell to the Buyer, all of the
issued and outstanding capital stock of the Company in return for cash and other
consideration set forth herein.
Now, therefore, in consideration of the premises and the mutual
promises herein made, and in consideration of the representations, warranties,
and covenants herein contained, the Parties agree as follows.
1 Definitions.
"Adjusted EBITDA" means the Company's earnings for the twelve month
period ending on August 31, 1998, before interest, taxes, depreciation
and amortization, adjusted for non-recurring expenses as set forth on
Exhibit A.
"Adjustment for Reduction of Company Debt" has the meaning set forth
in (S) 2(b)(i)(B) below.
"Adverse Consequences" means all actions, suits, proceedings,
hearings, investigations, charges, complaints, claims, demands,
injunctions, judgments, orders, decrees, rulings, damages, dues,
penalties, fines, costs, amounts paid in settlement, Liabilities,
obligations, Taxes, liens, losses, expenses, and fees, including court
costs and attorneys' fees and expenses.
"Affiliate" has the meaning set forth in Rule 12b-2 of the regulations
promulgated under the Securities Exchange Act.
"Affiliated Group" means any affiliated group within the meaning of
Code Sec. 1504, or any similar group defined under a similar provision of
state, local or foreign law.
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"Agent Sellers" has the meaning set forth in (S) 2(f)(iii).
"Audit" has the meaning set forth in (S) 6(f) below.
"Auditors" has the meaning set forth in (S) 6(f) below.
"Basis" means any past or present fact, situation, circumstance,
status, condition, activity, practice, plan, occurrence, event, incident,
action, failure to act, or transaction that forms or could form the basis
for any specified consequence.
"Bonus Payments" shall mean amounts to be paid to the Bonus Recipients
pursuant to Exhibit C in consideration for service to the Company.
"Bonus Recipients" shall mean those persons listed on Exhibit C who
are receiving Bonus Payments pursuant to this Agreement.
"Buyer" has the meaning set forth in the preface above.
"Buyer's Deposit" has the meaning set forth in (S) 2(f)(i).
"Closing" has the meaning set forth in (S) 2(e) below.
"Closing Balance Sheet" has the meaning set forth in (S) 2(h)(ii)
below.
"Closing Date" has the meaning set forth in (S) 2(e) below.
"Closing Installment" has the meaning set forth in (S) 2(b)(i) below.
"Closing Working Capital" has the meaning set forth in (S) 2(d)(i)
below.
"Code" means the Internal Revenue Code of 1986, as amended.
"Common Share" means any share of the common stock, $.001 par value
per share, of the Company.
"Company" has the meaning set forth in the preface above.
"Company Debt" means the unpaid balance at the Closing of the
Company's (i) bank debt, but in no event in an amount in excess of
$486,000, (ii) notes payable to franchisees of the Company, but in no
event in an amount in excess of $49,500, and (iii) capital lease
obligations, but in no event in an amount in excess of $180,200;
2
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provided the aggregate amount of all Company Debt shall not exceed
$715,700 at Closing.
"Company Share" means any Common Share, Preferred Share or Conversion
Share of the Company.
"Confidential Information" means any information concerning the
businesses and affairs of the Company that is not generally available to
the public.
"Consolidated Financial Statements" has the meaning set forth in (S)
6(f) below.
"Consulting Payments" shall mean amounts to be paid to the Consultants
pursuant to Exhibit C in consideration for service to the Company.
"Consultants" shall mean those persons listed on Exhibit C who are
receiving Consulting payments pursuant to this Agreement.
"Conversion Share" means any Common Shares or other securities of the
Company issued in connection with the conversion of the Preferred Shares
by the Preferred Shareholders.
"Deferred Payments" has the meaning set forth in (S) 2(c)(i) below.
"Disclosure Schedule" has the meaning set forth in (S) 4 below.
"Employee Benefit Plan" means any (a) nonqualified deferred
compensation or retirement plan or arrangement which is an Employee
Pension Benefit Plan, (b) qualified defined contribution retirement plan
or arrangement which is an Employee Pension Benefit Plan, (c) qualified
defined benefit retirement plan or arrangement which is an Employee
Pension Benefit Plan (including any Multiemployer Plan), or (d) Employee
Welfare Benefit Plan.
"Employee Pension Benefit Plan" has the meaning set forth in ERISA
Sec. 3(2).
"Employee Welfare Benefit Plan" has the meaning set forth in ERISA
Sec. 3(1).
"Environmental, Health, and Safety Laws" means the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, the
Resource Conservation and Recovery Act of 1976, and the Occupational
Safety and Health Act of 1970, each as amended, together with all other
laws (including rules, regulations,
3
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codes, plans, injunctions, judgments, orders, decrees, rulings, and
charges thereunder) of federal, state, local, and foreign governments
(and all agencies thereof) concerning pollution or protection of the
environment, public health and safety, or employee health and safety,
including laws relating to emissions, discharges, releases, or threatened
releases of pollutants, contaminants, or chemical, industrial, hazardous,
or toxic materials or wastes into ambient air, surface water, ground
water, or lands or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport, or handling
of pollutants, contaminants, or chemical, industrial, hazardous, or toxic
materials or wastes.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Escrow Account" has the meaning set forth in (S) 2(f) below.
"Escrow Agent" has the meaning set forth in (S) 2(f) below.
"Escrow Agreement" has the meaning set forth in (S) 2(f) below.
"Estimated Closing Working Capital" has the meaning set forth in (S)
2(h)(i) below.
"Extremely Hazardous Substance" has the meaning set forth in Sec. 302
of the Emergency Planning and Community Right-to-Know Act of 1986, as
amended.
"Fiduciary" has the meaning set forth in ERISA Sec. 3(21).
"Financial Statements" has the meaning set forth in (S) 4(g) below.
"GAAP" means United States generally accepted accounting principles as
in effect from time to time.
"Indemnified Party" has the meaning set forth in (S) 8(c) below.
"Indemnifying Party" has the meaning set forth in (S) 8(c) below.
"Intellectual Property" means (a) all inventions (whether patentable
or unpatentable and whether or not reduced to practice), all improvements
thereto, and all patents, patent applications, and patent disclosures,
together with all reissuances, continuations, continuations-in-part,
revisions, extensions, and reexaminations thereof, (b) all trademarks,
service marks, trade dress, logos, trade names, and corporate names,
together with all translations, adaptations, derivations, and
combinations
4
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thereof and including all goodwill associated therewith, and all
applications, registrations, and renewals in connection therewith, (c)
all copyrightable works, all copyrights, and all applications,
registrations, and renewals in connection therewith, (d) all mask works
and all applications, registrations, and renewals in connection
therewith, (e) all trade secrets and confidential business information
(including ideas, research and development, know-how, recipes, formulas,
production processes and techniques, technical data, designs, drawings,
specifications, customer and supplier lists, pricing and cost
information, and business and marketing plans and proposals), (f) all
computer software (including data and related documentation), (g) all
other proprietary rights, and (h) all copies and tangible embodiments
thereof (in whatever form or medium).
"Knowledge" means actual knowledge after reasonable investigation.
"Liability" means any liability (whether known or unknown, whether
asserted or unasserted, whether absolute or contingent, whether accrued
or unaccrued, whether liquidated or unliquidated, and whether due or to
become due), including any liability for Taxes.
"Management Letter" has the meaning set forth in (S) 6(f) below.
"Most Recent Balance Sheet" means the balance sheet contained within
the Most Recent Financial Statements.
"Most Recent Financial Statements" has the meaning set forth in (S)
4(g) below.
"Most Recent Fiscal Month End" has the meaning set forth in (S) 4(g)
below.
"Most Recent Fiscal Year End" has the meaning set forth in (S) 4(g)
below.
"Multiemployer Plan" has the meaning set forth in ERISA Sec. 3(37).
"Non-Compete Payments" means the unpaid balance at the Closing of the
Company's covenant not to compete payments owed by the Company to the
Non-Compete Recipients.
"Non-Compete Recipients" means the recipients of the Non-Compete
Payments set forth on Exhibit C.
"Notes" shall have the meaning set forth in (S) 2(b)(i). The principal
balance of the Notes in the aggregate after application of the
appropriate portion of the Closing Installment as set out on Exhibit C
shall not exceed Four Million Two Hundred
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Seventy-Six Thousand Five Hundred Eighteen Dollars and 78/100
($4,276,518.78), plus the Adjustment for Reduction of Company Debt, if
any. The Notes shall be held by the Pledgees' Agents until they are paid
in full.
"Objections" has the meaning set forth in (S) 2(h)(iv).
"Option Holders" means the following named Sellers: Marc N. Geman,
Donald G. Cox, Jr., Brian Woods, Anthony Joseph, Dale Fowler, Lynn Gore
and Mark Maximovich.
"Options" means any rights granted by the Company to purchase the
Company Shares.
"Ordinary Course of Business" means the ordinary course of business
consistent with past custom and practice (including with respect to
quantity and frequency).
"Party" has the meaning set forth in the preface above.
"PBGC" means the Pension Benefit Guaranty Corporation.
"Person" means an individual, a partnership, a corporation, limited
liability company, an association, a joint stock company, a trust, a
joint venture, an unincorporated organization, or a governmental entity
(or any department, agency, or political subdivision thereof).
"Pledge Agreement" means Security Agreement-Pledge securing the
obligations of the Buyer to the Sellers under the Notes and the Buyer's
payment of the Bonus Payments, Severance Payments, Consulting Payments,
Shareholder Loans and, subject to the terms of (S) 2(h)(vii) below, the
payment, if any, required by the Buyer to the Sellers pursuant to such
(S) 2(h)(vii). The Pledge Agreement shall not secure any other
obligations of the Buyer, whether under this Agreement or otherwise. The
Pledge Agreement shall be executed by the Pledgees' Agent on behalf of
the Sellers and shall be held by the Pledgees' Agent on behalf of the
Sellers.
"Pledgees' Agent" shall have the meaning set forth in (S) 2(f)(iv).
"Preferred Shares" means any preferred shares, including Series A
Preferred Stock and Series B Preferred Stock, of the Company.
"Preferred Shareholders" means all legal or beneficial owners and
holders of Preferred Shares, all of whom are listed on Exhibit B.
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"Principal Sellers" means jointly and severally Marc N. Geman, Donald
G. Cox, Jr. and Louis H. Marks.
"Prohibited Transaction" has the meaning set forth in ERISA Sec. 406
and Code Sec. 4975.
"Purchase Price" has the meaning set forth in (S) 2(b) below.
"Purchase Price Adjustment for Working Capital" has the meaning set
forth in (S) 2(d)(ii) below.
"Reportable Event" has the meaning set forth in ERISA Sec. 4043.
"Securities Act" means the Securities Act of 1933, as amended.
"Securities Exchange Act" means the Securities Exchange Act of 1934,
as amended.
"Security Interest" means any mortgage, pledge, lien, encumbrance,
charge, or other security interest, other than (a) mechanic's,
materialmen's, and similar liens, (b) liens for Taxes not yet due and
payable or for Taxes that the taxpayer is contesting in good faith
through appropriate proceedings, (c) purchase money liens and liens
securing rental payments under capital lease arrangements, and (d) other
liens arising in the Ordinary Course of Business and not incurred in
connection with the borrowing of money.
"Seller" and "Sellers" have the meaning set forth in the preface
above.
"Series A Preferred Shares" means any share of the Series A Preferred
Stock, $.001 par value, of the Company.
"Series B Preferred Shares" means any share of the Series B Preferred
Stock, $.001 par value, of the Company.
"Severance Payments" shall mean amounts to be paid to the Severance
Recipients pursuant to Exhibit C in consideration for service to the
Company.
"Severance Recipients" shall mean those persons listed on Exhibit C
who are receiving Severance Payments pursuant to this Agreement.
"Shareholder Loans" means the unpaid balance at the Closing of loans
to the Company from the present and former shareholders listed on
Schedule 1.1 in the
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amounts set forth thereon, but in no event in an aggregate amount greater
than $540,000.
"Store" or "Stores" has the meaning set forth in (S)4(a) below.
"Store Leases" has the meaning set forth in (S)4(l)(ii) below.
"Subsidiary" means any (A) corporation with respect to which a
specified Person (or a Subsidiary thereof) owns a majority of the common
stock or has the power to vote or direct the voting of sufficient
securities to elect a majority of the directors, (B) limited liability
company of which a specified Person (or a Subsidiary thereof) is a member
or managing member, (C) any other entity in which the Company has any
ownership interest, (D) Pretzelmaker, Inc., a Colorado corporation, one
hundred percent (100%) of the capital stock of which is owned by the
Company, and (E) Pretzelmaker Canada, Inc., one hundred percent (100%) of
the capital stock of which is owned by Pretzelmaker, Inc.
"Tax" means any federal, state, local, or foreign income, gross
receipts, license, payroll, employment, excise, severance, stamp,
occupation, premium, windfall profits, environmental (including taxes
under Code Sec. 59A), customs duties, capital stock, franchise, profits,
capital gains, withholding, social security (or similar), unemployment,
disability, real property, personal property, sales, use, transfer,
registration, value added, alternative or add-on minimum, estimated, or
other tax of any kind whatsoever, including any interest, penalty, or
addition thereto, whether disputed or not.
"Tax Return" means any return, declaration, report, claim for refund,
or information return or statement relating to Taxes, including any
schedule or attachment thereto, and including any amendment thereof.
"Third Party Claim" has the meaning set forth in (S) 8(c) below.
"Working Capital" shall mean the excess of Company's current assets
(consisting of the Company's cash, accounts receivable, notes receivable,
inventories and pre-paid expenses and supplies), less the Company's
current liabilities (consisting of the Company's accounts payables, other
payables, income taxes payable, deferred initial franchise fees and
deferred revenues). For purposes of computing Working Capital, those
current assets and liabilities of the Company listed on Schedule 1.2
shall be treated in the manner set forth thereon.
"Working Capital Requirement" has the meaning set forth in (S) 2(d).
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2. Purchase and Sale of Company Shares.
(a) Basic Transaction. On and subject to the terms and conditions of
this Agreement, for the consideration specified below in this (S) 2, the
Buyer agrees to purchase from each of the Sellers, and each of the
Sellers agrees to sell to the Buyer, all of the Company Shares owned by
each such Seller, as described on Exhibit B, in the aggregate
constituting all of the issued and outstanding Company Shares.
(b) Purchase Price. Subject to (S)(S) 2(c), 2(f) and 8(e) below, the
Buyer, in consideration for the Sellers' delivery of the Company Shares
at the Closing, shall deliver to or on behalf of the Sellers at the
Closing aggregate consideration to be allocated among the Sellers,
Consultants, Bonus Recipients, Severance Recipients, and Non-Compete
Recipients in the manner set forth on Exhibit C) (the "Purchase Price"),
as follows.
(i) at the Closing, the Buyer shall deliver promissory notes
(collectively, the "Notes") in the aggregate amount of:
(A) Five Million Six Hundred Thousand Dollars ($5,600,000),
plus
(B) the amount (the "Adjustment for Reduction of Company
Debt"), if any, by which the Company Debt as of the Closing is
less than Seven Hundred Fifteen Thousand Seven Hundred Dollars
($715,700), which amount, if any, shall be allocated pro rata
among all of the Notes; less
(C) Bonus Payments, Severance Payments and Consulting
Payments in the aggregate principal amount of Three Hundred
Nineteen Thousand Five Hundred Ninety-Eight Dollars ($319,598).
The Notes shall be payable in four (4) installments, with the
first installment due at the Closing in the amount of One Million
Three Thousand Eight Hundred Eighty-Two and 96/100 Dollars
($1,003,882.96) (the "Closing Installment"). The Closing
Installment shall bear no interest and shall be applied at the
Closing as a principal reduction of the Notes as set forth in
Exhibit C. The three (3) remaining installments under the Notes,
payable on December 15, 1998, December 23, 1998 and January 4,
1999, respectively (the "Payment Dates"), will bear interest at
the rate of ten percent (10%) per annum; and
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(ii) on and after the Closing, the Buyer shall pay or cause the
Company to pay the Non-Compete Payments, Consulting Payments,
Severance Payments, Bonus Payments and Shareholder Loans, as
follows:
(A) the Buyer shall pay or cause the Company to pay the
Non-Compete Payments to the Non-Compete Recipients (the
aggregate amount of which shall not exceed $182,300 and
shall bear no interest under this Agreement). The Non-
Compete Payments shall be made in four (4) installments,
with the first installment of Thirty-Five Thousand Four
Hundred Ninety-Two and 04/100 Dollars ($35,492.04) to be
paid by the Buyer at the Closing, and with the three (3)
remaining installments to be paid on the Payment Dates in
the amounts set forth in Exhibit C;
(B) the Buyer shall pay or cause the Company to pay the
Consulting Payments to the Consultants the aggregate
principal amount of which shall not exceed $26,800. The
Consulting Payments shall be made in four (4) installments,
with the first installment of Four Thousand Nine Hundred
Sixty-five Dollars ($4,965) to be paid by the Buyer at the
Closing, and with the three (3) remaining installments
(together with interest thereon), as specified in Exhibit
C, to be paid on the Payment Dates;
(C) the Buyer shall pay or cause the Company to pay the
Severance Payments to the Severance Recipients the
aggregate principal amount of which shall not exceed
$151,200. The Severance Payments shall be made in four (4)
installments, with the first installment of Twenty-eight
Thousand Five Dollars ($28,005) to be paid by the Buyer at
the Closing, and with the three (3) remaining installments
(together with interest thereon), as specified in Exhibit
C, to be paid on the Payment Dates;
(D) the Buyer shall pay or cause the Company to pay the
Bonus Payments to the Bonus Recipients the aggregate
principal amount of which shall not exceed $149,300. The
Bonus Payments shall be made in four (4) installments, with
the first installment of Twenty-Seven Thousand Six Hundred
Fifty-five Dollars ($27,655) to be paid by the Buyer at the
Closing, and with the three (3) remaining installments
(together with interest thereon), as specified in Exhibit
C, to be paid on the Payment Dates;
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<PAGE>
(E) the Buyer shall pay or cause the Company to pay
the Shareholder Loans to the holders thereof, as set forth
in Exhibit C, in a single installment on January 4, 1999
(the aggregate principal amount of which shall not exceed
$540,000). The Shareholder Loans will bear interest at the
rate set forth in the promissory notes identified in the
Company's Note Register affixed to (S) 1.1 of the
Disclosure Schedule) evidencing the Shareholder Loans;
provided however, the Shareholder Loans shall bear
----------------
no interest under this Agreement); and
(iii) at the Closing, the Company shall retain Company
Debt up to a maximum of Seven Hundred Fifteen Thousand Seven
Hundred Dollars ($715,700) less the amount of the Adjustment For
Reduction of Company Debt;
provided that in no event shall the aggregate amount of the Purchase
Price, excluding any Purchase Price Adjustment for Working Capital or
interest payable under this Agreement, exceed the aggregate amount of
Seven Million Thirty-Eight Thousand Dollars ($7,038,000).
(c) Purchase Price Payments.
(i) The payments of the Purchase Price shall be paid by
wire transfer to the Sellers or delivery of other immediately
available funds to the Agent Sellers on behalf of the Sellers.
(ii) From the final installment payment to be made under
the Notes, the sum of One Hundred Thousand Dollars ($100,000.00)
shall be deducted on a pro rata basis from all of the Notes and
deposited by the Buyer into the Escrow Account, for disbursement
to the Sellers subject to the terms and conditions of (S) 2(f)
below and the Escrow Agreement (collectively, the "Deferred
Payments"). Notwithstanding the foregoing, the Sellers may, at or
prior to the Closing, elect to substitute a Letter of Credit for
the full amount of the Deferred Payments, the terms, conditions
and issuer of which shall be acceptable to the Buyer in its sole
discretion.
(d) Working Capital Requirement; Purchase Price Adjustment for
Working Capital. Upon and immediately after the Closing:
(i) the Company shall have Working Capital ("Closing
Working Capital") in an amount not less than Thirty-One Thousand
Nine Hundred Thirty-Eight Dollars ($31,938) (the "Working Capital
Requirement"), which the Sellers represent and warrant, based on
the Company's historical
11
<PAGE>
experience, is an adequate amount of working capital for the
operation of the Company's business after the Closing in the same
manner as presently conducted; and
(ii) to the extent that the amount, if any, by which the
Company's Closing Working Capital is less than the Working Capital
Requirement, the Purchase Price shall be decreased by such amount;
to the extent that the amount, if any, by which the Company's
Closing Working Capital is greater than the Working Capital
Requirement, the Purchase Price shall be increased by such amount.
The adjustment to the Purchase Price based on the Working Capital
as described herein shall be referred to as the "Purchase Price
Adjustment for Working Capital". The Purchase Price Adjustment for
Working Capital shall be determined in accordance with (S) 2(h),
below.
(e) The Closing. Unless otherwise agreed by the Parties, the
closing of the transactions contemplated by this Agreement (the
"Closing") shall take place at the offices of the Company in Denver,
Colorado, commencing at a mutually agreeable time, following the
satisfaction or waiver of all other conditions to the obligations of the
Parties to consummate the transactions contemplated hereby (other than
conditions with respect to actions the respective Parties will take at
the Closing itself) on November 19, 1998, or such other date as the Buyer
and the Agent Sellers may mutually determine (the "Closing Date").
(f) Escrow; Power of Attorney; Agent Sellers; Pledgees' Agent.
(i) The Deferred Payments shall be deposited into an
interest bearing escrow (the "Escrow Account") established by the
Parties prior to the Closing with Centennial Bank (the "Escrow
Agent") at its offices located at 46th and Harrison Streets,
Ogden, Utah 84403, for disbursement subject to the terms and
conditions set forth in that certain escrow agreement executed by
the Parties and the Escrow Agent on or before the Closing
substantially in the form and substance of Exhibit D hereto (the
"Escrow Agreement"). Concurrently with the deposit of the Deferred
Payments into the Escrow Account, the Buyer shall deposit from its
own funds the sum of One Hundred Thousand Dollars ($100,000) (the
"Buyer's Deposit") against which claims may be recouped or set-off
by the Buyer pursuant to (S) 8(e) below for amounts in excess of
the Deferred Payments up to the amount of the Buyer's Deposit. The
first $100,000 of claims shall be recouped or set-off against the
Deferred Payments, and after the release of the balance of the
Deferred Payments, directly from the Sellers, and only after
$100,000 has been recovered from the Sellers shall claims be
recouped or set-off against the Buyer's Deposit. Interest earned
on the Escrow Account shall be shared between the Sellers and the
Buyer pro rata
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<PAGE>
according to the relative amounts and duration of the Deferred
Payments and the Buyer's Deposit.
(ii) Subject to the terms and conditions of the Escrow
Agreement, (A) the Deferred Payments, less all amounts that after
Closing may be recouped from or set-off against the Deferred
Payments pursuant to (S) 8(e) below, shall be payable from the
Escrow Account to the Agent Sellers on behalf of the Sellers on
the first anniversary of the Closing Date, and (B) the Buyer's
Deposit, less all amounts that after Closing may be recouped from
or set-off against the Buyer's Deposit pursuant to (S) 8(e) below,
shall be payable from the Escrow Account to the Buyer on the
second anniversary of the Closing Date.
(iii) Each Seller hereby irrevocably appoints the Principal
Sellers to serve as its attorney-in-fact (the "Agent Sellers") for
purposes of the Escrow Agreement, this Agreement, and the
transactions contemplated hereby. This appointment is coupled
with an interest and is irrevocable. The Agent Sellers shall have
the authority, duties and responsibilities granted by the Sellers
to the Agent Sellers under the Escrow Agreement, and this
Agreement, including without limitation the power and authority to
resolve disputes, claims and set-off obligations on behalf of each
Seller. Each Seller hereby authorizes the Agent Sellers to
approve and execute closing and settlement statements on behalf of
each Seller. The Agent Sellers shall only act unanimously when
acting on behalf of the Sellers. Buyer shall be entitled to rely
on the representations and agreements of the Agent Sellers for all
purposes hereunder.
(iv) Each Seller hereby irrevocably appoints each of the
Sellers Marc N. Geman and Donald G. Cox, Jr. to act jointly as the
Pledgees' Agent (as defined in the Pledge Agreement) for the
Pledgees (as defined in the Pledge Agreement).
(g) Deliveries at Closing. At the Closing, (i) the Sellers will
deliver to the Buyer the various certificates, instruments, and documents
referred to in (S) 7(a) below, (ii) the Buyer will deliver to the Sellers
the various certificates, instruments, and documents referred to in (S)
7(b) below, (iii) the Sellers will deliver to the Buyer the stock
certificates representing all of the issued and outstanding Company
Shares, endorsed in blank or accompanied by duly executed assignment
documents or other appropriate instruments in a form satisfactory to the
Buyer; and (iv) the Buyer will deliver to the Sellers and, as
appropriate, the Consultants, Bonus Recipients, Severance Recipients and
Non-Compete Recipients, the Closing Installment and the Buyer will
deliver to the Seller the Notes, the Pledge Agreement, and the Collateral
(as
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<PAGE>
defined in the Pledge Agreement). All of the documents described herein
will be dated as of the Closing Date.
(h) Preparation of Closing Balance Sheet; Payment of Purchase Price
Adjustment for Working Capital.
(i) Immediately prior to the Closing Date, the Seller shall
prepare and deliver to the Buyer for its review and approval, a
written estimate of the Company's Working Capital on the Closing
Date (the "Estimated Closing Working Capital"), together with
supporting documentation and schedules therefor;
(ii) Within thirty (30) days after the Closing Date, the Buyer
or auditors engaged by the Buyer will prepare and deliver to the
Sellers a balance sheet for the Company and its Subsidiaries as of
the Closing Date (determined on a pro forma basis as though the
Parties had not consummated the transactions contemplated by this
Agreement) (the "Closing Balance Sheet"). The Buyer will prepare
the Closing Balance Sheet in accordance with GAAP except with
respect to those matters specified in Schedule 1.2 applied on a
basis consistent with the preparation of the Financial Statements.
(iii) The Closing Balance Sheet shall set forth (A) the
Closing Working Capital of the Company; and (B) the amount, if
any, of the Purchase Price Adjustment for Working Capital,
reflecting the amount that the Closing Working Capital exceeds (or
is less than) the Working Capital Requirement.
(iv) If the Agent Sellers have any objections to the Closing
Balance Sheet, the Agent Sellers will deliver a detailed written
statement describing their objections ("Objections") to the Buyer
within fifteen (15) days after receiving the Closing Balance
Sheet. The Buyer and the Agent Sellers will use reasonable
efforts to resolve any Objections themselves. If the Parties do
not obtain a final resolution within thirty (30) days after the
Buyer has received the statement of Objections, the Buyer and the
Agent Sellers will select an accounting firm mutually acceptable
to them to resolve any remaining Objections. If they are unable
to agree on the choice of an accounting firm, they will select a
nationally-recognized accounting firm by lot (after excluding
their respective, regular outside accounting firms). The
determinations of such accounting firm regarding the Objections
will be set forth in writing and will be conclusive and binding
upon the Parties. The Buyer will revise the Closing Balance Sheet
as appropriate to reflect the resolution of any objections thereto
pursuant to this (S) 2(h)(iv).
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<PAGE>
(v) In the event the Buyer and Agent Sellers submit any
unresolved Objections to the accounting firm for determination as
provided for in (S) 2(h)(iv) above, the Buyer and the Sellers will
share equally the fees and expenses of the accounting firm.
(vi) The Buyer will make the work papers and back-up materials
used in preparing the Closing Balance Sheet available to the Agent
Sellers and their accountants and other representatives at
reasonable times and upon reasonable notice at any time during (A)
the preparation by the Buyer of the Closing Balance Sheet, (B) the
review by the Agent Sellers of the Closing Balance Sheet and (C)
the resolution by the Parties of any objections thereto.
(vii) Within three (3) business days after completion of the
Closing Balance Sheet and the resolution of any Objections thereto
pursuant to (S)(S) 2(h)(iv) above, either (A) the Buyer will pay
to the Sellers the amount, if any, by which the Closing Working
Capital exceeds the Working Capital Requirement, or (B) the Escrow
Agent will pay to the Buyer the amount, if any, by which the
Closing Working Capital is less than the Working Capital
Requirement up to the amount of $50,000. To the extent that the
Working Capital Requirement exceeds the Closing Working Capital by
more than $50,000, any such excess amount shall be paid directly
to the Buyer by the Sellers. The Sellers' obligations in this (S)
2(h)(vii) shall constitute joint and several obligations of all of
the Sellers. Any obligation of Buyer pursuant to this (S)
2(h)(vii) shall be secured by the Pledge Agreement; provided that
Buyer, at its election, may pay any amount disputed pursuant to
(S) 2(h)(iv) into an escrow account pending resolution of such
dispute, whereupon the security interest under the Pledge
Agreement provided for in this (S) 2(h)(vii) shall automatically
terminate.
(i) Pledge of Company Shares. At the Closing, the Buyer shall
execute and deliver the Pledge Agreement, from the Buyer to the Sellers,
of the Company Shares.
3. Representations and Warranties Concerning the Transaction.
(a) Representations and Warranties of the Sellers. Each of the
Sellers represents and warrants to the Buyer, jointly and severally with
the other Sellers, that the statements contained in this (S) 3(a) are
correct and complete as of the date of this Agreement and will be correct
and complete as of the Closing Date (as though made then and as though
the Closing Date were substituted for the date of this Agreement
throughout this (S) 3(a)).
(i) Authorization of Transaction. Each of the Sellers has
full power and authority to execute and deliver this Agreement and
to perform his
15
<PAGE>
or her obligations hereunder. This Agreement constitutes the valid
and legally binding obligation of each of the Sellers, enforceable
in accordance with its terms and conditions. The Sellers need not
give any notice to, make any filing with, or obtain any
authorization, consent, or approval of any government or
governmental agency in order to consummate the transactions
contemplated by this Agreement.
(ii) Noncontravention. Neither the execution and the
delivery of this Agreement, nor the consummation of the
transactions contemplated hereby, will (A) violate any
constitution, statute, regulation, rule, injunction, judgment,
order, decree, ruling, charge, or other restriction of any
government, governmental agency or court to which any Seller is
subject, or (B) conflict with, result in a breach of, constitute a
default under, result in the acceleration of, create in any party
the right to accelerate, terminate, modify, or cancel, or require
any notice under any agreement, contract, lease, license,
instrument or other arrangement to which any Seller is a party or
by which he or it is bound or to which any of his or its assets is
subject.
(iii) Brokers' Fees. The Sellers have no Liability or
obligation to pay any fees or commissions to any broker, finder,
or agent with respect to the transactions contemplated by this
Agreement for which the Buyer could become liable or obligated.
(iv) Company Shares. The Sellers hold of record and own
beneficially the total number of Company Shares set forth next to
his or her or its name in Exhibit B, free and clear of any
restrictions on transfer (other than any restrictions under the
Securities Act and state securities laws), Taxes, Security
Interests, options, warrants, purchase rights, contracts,
commitments, equities, claims and demands. Except as set forth in
(S) 3(a)(v) below:
(A) None of the Sellers is a party to any option,
warrant, purchase right, or other contract or commitment that
could require any Seller to sell, transfer or otherwise dispose
of any capital stock of the Company (other than this
Agreement); and
(B) None of the Sellers is a party to any voting
trust, proxy, or other agreement or understanding with respect
to the voting of any capital stock of the Company.
Upon delivery of the certificates representing the Company Shares,
the Buyer will acquire valid, marketable title thereto, free and
clear of any liens, encumbrances and claims of any other Seller or
any third parties.
16
<PAGE>
(v) Conversion of Preferred Shares. The Sellers and the
Company have irrevocably agreed that, prior to the Closing, each
of the legal or beneficial owners or holders of any Preferred
Shares will convert them into Common Shares of the Company as set
forth in Exhibit B, whereupon there shall be no Preferred Shares
of the Company issued or outstanding. Prior to Closing, the
Sellers shall furnish the Buyer with documentation demonstrating
to the Buyer's satisfaction that such conversion of the Preferred
Shares and the issuance of the Common Shares have occurred.
(vi) Cancellation of Options Before Closing. The Option
Holders and the Company have irrevocably agreed that, prior to the
Closing, the Options shall be cancelled, and the Company shall
have no further obligation or liability under the Options, and no
Options shall be outstanding.
(vii) Absence of Indebtedness and Claims. Except as set forth
on (S) 3(a)(vii) of the Disclosure Schedule attached hereto, none
of the Sellers is indebted to the Company or any of its
Affiliates, other than in the ordinary course of business, and no
Seller has any claims against the Company.
(b) Representations and Warranties of the Buyer. The Buyer
represents and warrants to the Sellers that the statements contained in
this (S) 3(b) are correct and complete as of the date of this Agreement
and will be correct and complete as of the Closing Date (as though made
then and as though the Closing Date were substituted for the date of this
Agreement throughout this (S) 3(b)), except as set forth in Annex II
attached hereto.
(i) Organization of the Buyer. The Buyer is a corporation
duly organized, validly existing, and in good standing under the
laws of the state of its incorporation.
(ii) Authorization of Transaction. The Buyer has full power
and authority (including full corporate power and authority) to
execute and deliver this Agreement and to perform its obligations
hereunder. This Agreement constitutes the valid and legally
binding obligation of the Buyer, enforceable in accordance with
its terms and conditions. The Buyer need not give any notice to,
make any filing with, or obtain any authorization, consent, or
approval of any government or governmental agency in order to
consummate the transactions contemplated by this Agreement.
(iii) Non-Contravention. Neither the execution and the
delivery of this Agreement, nor the consummation of the
transactions contemplated hereby, violate any constitution,
statute, regulation, rule, injunction, judgment,
17
<PAGE>
order, decree, ruling, charge or other restriction of any
government, governmental agency or court to which the Buyer is
subject or any provision of its charter or bylaws.
(iv) Brokers' Fees. The Buyer has no Liability or obligation
to pay any fees or commissions to any broker, finder or agent with
respect to the transactions contemplated by this Agreement for
which Sellers could become liable or obligated.
(v) Investment. The Buyer is not acquiring the Company
Shares with a view to or for sale in connection with any
distribution thereof within the meaning of the Securities Act. The
Buyer represents that the Buyer has had access to information
regarding the Company and the Subsidiaries. The Buyer has had an
opportunity to ask questions of and receive answers from the
Company's representatives concerning this investment.
4. Representations and Warranties Concerning the Company. Each of
the Principal Sellers jointly and severally represents and warrants to the Buyer
that the statements contained in this (S) 4 are correct and complete as of the
date of this Agreement and will be correct and complete as of the Closing Date
(as though made then and as though the Closing Date were substituted for the
date of this Agreement throughout this (S) 4), except as set forth in the
disclosure schedule delivered by the Seller to the Buyer on the date hereof (the
"Disclosure Schedule"). Nothing in the Disclosure Schedule shall be deemed
adequate to disclose an exception to a representation or warranty made herein,
however, unless the Disclosure Schedule identifies the exception with reasonable
particularity and describes the relevant facts in reasonable detail. The
Disclosure Schedule will be arranged in paragraphs corresponding to the lettered
and numbered paragraphs contained in this (S) 4.
(a) Organization, Qualification, and Corporate Power. The
Company is a corporation duly organized, validly existing, and in good
standing under the laws of Colorado. The Company is duly authorized to
conduct business and is in good standing under the laws of each
jurisdiction where such qualification is required. The Company has full
corporate power and authority and all licenses, permits, and
authorizations necessary to carry on the businesses in which it is
engaged and in which it presently proposes to engage and to own and use
the properties owned, used, leased or operated by it, including, without
limitation, all of its existing and proposed retail stores (collectively,
"Store" in the singular or "Stores" in the plural), each of which is
listed on (S) 4(a) of the Disclosure Schedule and appropriately
designated thereon as a Company-owned, franchised, master-licensed or
licensed Store, or a Store for which the lease is being negotiated, or a
Store that is in the process of being built out.
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<PAGE>
(S) 4(a) of the Disclosure Schedule lists the directors and officers
of the Company. The Sellers have delivered or made available to the Buyer
copies of the Company's charter and bylaws (as amended to date). The
Sellers have delivered to the Buyer correct and complete copies of the
Company's minute books (containing the records of meetings of the
stockholders, the board of directors, and any committees of the board of
directors), and, except as disclosed on (S) 4(a) of the Disclosure
Schedule, they are correct and complete in all material respects. The
Sellers have delivered to the Buyer copies of the Company's stock record
books, and, except as disclosed on (S) 4(a) of the Disclosure Schedule,
they are correct and complete in all respects and accurately reflect the
record ownership and, to the Knowledge of the Principal Sellers, the
beneficial ownership of all the outstanding Company Shares. Except as set
forth on (S) 4(a) of the Disclosure Schedule, there are no shareholder,
buy/sell, co-sale, option, first-right-of-refusal or other similar
agreements between or among any of the Sellers and the Company with
respect to the capital stock of the Company or any of the Subsidiaries.
The Company is not in default under or in violation of any provision of
its charter or bylaws.
(b) Capitalization. On or before the date of execution of this
Agreement, the entire authorized capital stock of the Company consists
of: (i) 1,000,000 Common Shares, of which 100,000 Common Shares are
issued and outstanding; (ii) 300,000 Series A Preferred Shares, of which
275,942 are issued and outstanding; and (iii) 800 Series B Preferred
Shares, all of which are issued and outstanding. All of the issued and
outstanding Company Shares have been duly authorized, are validly issued,
fully paid, and non-assessable, and are held of record as set forth on
Exhibit B. There are no outstanding or authorized options, warrants,
purchase rights, subscription rights, conversion rights (other than those
associated with the Preferred Shares to be converted immediately before
Closing), exchange rights, or other contracts or commitments that could
require the Company to issue, sell or otherwise cause to become
outstanding any of its capital stock.
Immediately before Closing, but following the conversion of the
Preferred Shares to Common Shares, (i) the entire authorized capital
stock of the Company will consist of (A) 1,000,000 Common Shares, of
which 135,155 shares will be issued and outstanding to the Sellers, (B)
300,000 Series A Preferred Shares, none of which shall be issued or
outstanding, and (C) 800 Series B Preferred Shares, none of which shall
be issued or outstanding; and (ii) there shall be no outstanding or
authorized options, warrants, purchase rights, subscription rights,
conversion rights, exchange rights, or other contracts or commitments
that could require the Company to issue, sell or otherwise cause to
become outstanding any of its capital stock. Notwithstanding any
adjustment at Closing in the number of shares of capital stock, the Buyer
shall acquire at Closing all of the issued and outstanding shares of
Capital Stock of the Company at the Closing.
19
<PAGE>
There are no outstanding or authorized stock appreciation, phantom
stock, profit participation or similar rights with respect to the
Company. There are no voting trusts, proxies, or other agreements or
understandings with respect to the voting of the capital stock of the
Company which shall not have been terminated prior to the Closing.
(c) Non-Contravention. Except as set forth on (S) 4(c) of the
Disclosure Schedule, neither the execution and the delivery of this
Agreement, nor the consummation of the transactions contemplated hereby,
will (i) violate any constitution, statute, regulation, rule, injunction,
judgment, order, decree, ruling, charge, or other restriction of any
government, governmental agency, or court to which the Company or any
Subsidiary is subject or any provision of the charter, bylaws, or other
constituent document of the Company or any subsidiary, (ii) conflict
with, result in a breach of, constitute a default under, result in the
acceleration of, create in any party the right to accelerate, terminate,
modify, or cancel, or require any notice under any agreement (including
without limitation, any franchise agreement), contract, lease or sublease
(including without limitation, any store lease or sublease), license,
instrument or other arrangement to which the Company or any subsidiary is
a party or by which it is bound or to which any of its assets is subject
(or result in the imposition of any Security Interest upon any of its
assets). Except as set forth on Schedule 4(c), neither the Company nor
any subsidiary needs to give any notice to, make any filing with, or
obtain any authorization, consent, or approval of any government or
governmental agency in order for the Parties to consummate the
transactions contemplated by this Agreement.
(d) Brokers' Fees. Neither the Company nor any Subsidiary has any
Liability or obligation to pay any fees or commissions to any broker,
finder or agent with respect to the transactions contemplated by this
Agreement.
(e) Title to Assets. The Company and each Subsidiary has good and
marketable title to, or a valid leasehold interest in, the properties and
assets used by it, located on its premises, or shown on the Most Recent
Balance Sheet or acquired after the date thereof, free and clear of all
Security Interests, except for properties and assets disposed of in the
Ordinary Course of Business since the date of the Most Recent Balance
Sheet.
(f) Subsidiaries.
(i) Each Subsidiary is an entity duly organized, validly
existing, and in good standing under the laws of jurisdiction of
incorporation or organization. Each Subsidiary is duly authorized
to conduct business and is in good standing under the laws of each
jurisdiction where such qualification is
20
<PAGE>
required. Each Subsidiary has full corporate power and authority
and all licenses, permits, and authorizations necessary to carry
on the businesses in which it is engaged and in which it presently
proposes to engage and to own and use the properties owned, used,
leased or operated by it.
(S) 4(a) of the Disclosure Schedule lists the respective
directors and officers of each of the Subsidiaries. The Sellers
have delivered to the Buyer correct and complete copies of the
charter and bylaws (as amended to date) of each of the
Subsidiaries. With respect to each of the Subsidiaries, the
Sellers have delivered to the Buyer correct and complete copies of
the minute books (containing the records of meetings of the
stockholders, the board of directors, and any committees of the
board of directors), and, except as set forth in (S) 4(a) of the
Disclosure Schedule, they are correct and complete in all material
respects. The Sellers have delivered to the Buyer copies of each
Subsidiary's stock record books and, except as set forth in (S)
4(b) of the Disclosure Schedule, they are correct and complete in
all respects and accurately reflect the record ownership and, to
the knowledge of the Sellers, the beneficial ownership of all the
outstanding capital stock of each of the Subsidiaries. No
Subsidiary is in default under or in violation of any provision of
its charter or bylaws.
(ii) (S) 4(f) of the Disclosure Schedule sets forth for each
Subsidiary of the Company (i) its name, its date and jurisdiction
of incorporation or formation, and each jurisdiction in which the
Subsidiary conducts business, or has conducted business within the
five (5) year period prior to the date of this Agreement, (ii) the
number of shares of authorized capital stock of each class of its
capital stock or other ownership interests, (iii) the number of
issued and outstanding shares of each class of its capital stock
(or other ownership interest), the names of the holders thereof,
and the number of shares (or other interests) held by each such
holder, and (iv) the number of shares of its capital stock (or
other interests) held in treasury. All of the issued and
outstanding shares of capital stock (or other interests) of each
Subsidiary have been duly authorized and are validly issued, fully
paid, and non-assessable. Either the Company or a Subsidiary
holds of record and owns beneficially all of the outstanding
shares (or other interests) of each Subsidiary of the Company,
free and clear of any restrictions on transfer (other than
restrictions under the Securities Act and state securities laws),
Taxes, Security Interests, options, warrants, purchase rights,
contracts, commitments, equities, claims, and demands, as
described on (S) 4(f) of the Disclosure Schedule. There are no
outstanding or authorized options, warrants, purchase rights,
conversion rights, exchange rights, or other contracts or
commitments that could require any of the Company or its
Subsidiaries to sell, transfer, or otherwise dispose of any
21
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capital stock (or other interests) of any of its Subsidiaries or
that could require any Subsidiary of the Company to issue, sell,
or otherwise cause to become outstanding any of its own capital
stock (or other interests). There are no outstanding stock
appreciation, phantom stock, profit participation, or similar
rights with respect to any Subsidiary of the Company. There are
no voting trusts, proxies, or other agreements or understandings
with respect to the voting of any capital stock (or other
interests) of any Subsidiary of the Company. None of the Company
or its Subsidiaries controls directly or indirectly or has any
direct or indirect equity participation in any corporation,
partnership, limited liability company, trust, or other business
association which is not a Subsidiary of the Company.
(g) Financial Statements. Attached hereto as Exhibit E are the
following financial statements (collectively the "Financial Statements"):
(i) audited consolidated balance sheets and statements of operations,
stockholders' equity, and cash flows as of and for the fiscal years ended
December 31, 1996 and 1995 for the Company; (ii) unaudited, consolidating
balance sheets and statements of operations as of and for the fiscal year
ended December 31, 1997 and the ten (10) month period ended October 31,
1998 for the Company; (iii) audited balance sheets, statements of
operations, stockholders equity, and cash flows as of, and for the years
ended December 31, 1997 and 1996 for Pretzelmaker, Inc.; (iv) unaudited
balance sheets and statements of operations as of and for the eight (8)
month period ended August 31, 1998 for Pretzelmaker, Inc. (the balance
sheets set forth in (ii) and (iv) for the ten (10) month periods ended
October 31, 1998 collectively referred to as the "Most Recent Balance
Sheets", and the items set forth for the year end December 31, 1997 in
items (ii), (iii) and (iv) collectively referred to as the "Most Recent
Financial Statements"). For purposes of this Agreement, the "Most Recent
Fiscal Year End" shall mean December 31, 1997, and the "Most Recent
Fiscal Month End" shall mean October 31, 1998.
The Financial Statements (including the notes thereto) have been
prepared in accordance with GAAP (except with respect to those matters
specified in Schedule 1.2) applied on a consistent basis throughout the
periods covered thereby, present fairly the financial condition of the
Company and the Subsidiaries as of such dates and the results of
operations of them for such periods, are correct and complete, and are
consistent with their books and records (which books and records are
correct).
The Company's Adjusted EBITDA for the last twelve month period ending
on August 31, 1998, is not less than $1,387,600.
(h) Events Subsequent to Most Recent Fiscal Year End. Since the
Most Recent Fiscal Year End, there has not been any material adverse
change in the
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business, financial condition, operations, results of operations or
future prospects of the Company. Without limiting the generality of the
foregoing, except as set forth in (S) 4(h) of the Disclosure Schedule,
since that date:
(i) neither the Company nor any Subsidiary has sold, leased,
transferred or assigned any of its assets, tangible or intangible,
other than for a fair consideration in the Ordinary Course of
Business;
(ii) neither the Company nor any Subsidiary has entered into
any agreement, contract, lease or license (or series of related
agreements, contracts, leases and licenses) outside the Ordinary
Course of Business;
(iii) no party (including the Company) has accelerated,
terminated, modified, or canceled any agreement, contract, lease
or license (or series of related agreements, contracts, leases,
and licenses) involving more than $5,000 in any single instance or
in the aggregate to which the Company or any Subsidiary is a party
or by which any of them is bound;
(iv) neither the Company nor any Subsidiary has granted any
Security Interest in any of its assets, tangible or intangible;
(v) neither the Company nor any Subsidiary has made any
capital expenditure (or series of related capital expenditures)
either involving more than $25,000 or outside the Ordinary Course
of Business;
(vi) neither the Company nor any Subsidiary has made any
capital investment in, any loan to, or any acquisition of the
securities or assets of, any other Person (or series of related
capital investments, loans and acquisitions) either involving more
than $5,000 or outside the Ordinary Course of Business;
(vii) neither the Company nor any subsidiary has issued any
note, bond or other debt security or created, incurred, assumed or
guaranteed any indebtedness for borrowed money or capitalized
lease obligation either involving more than $5,000 singly or
$10,000 in the aggregate;
(viii) neither the Company nor any Subsidiary has delayed or
postponed the payment of accounts payable and other Liabilities
outside the Ordinary Course of Business;
(ix) neither the Company, nor any Subsidiary, has canceled,
compromised, waived or released any right or claim (or series of
related rights
23
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and claims) either involving more than $5,000 or outside the
Ordinary Course of Business;
(x) neither the Company nor any Subsidiary has granted any
license or sublicense of any rights under or with respect to any
Intellectual Property except as set forth in (S) 4(m) of the
Disclosure Schedule setting forth each of the Company's master
franchise, franchise, sub-franchise, license, area developer and
other similar documents;
(xi) there has been no change made or authorized in the
charter, bylaws, or other constituent documents of the Company or
any Subsidiary;
(xii) neither the Company nor any Subsidiary has issued,
sold, or otherwise disposed of any of its capital stock, or other
interests, or granted any options, warrants or other rights to
purchase or obtain (including upon conversion, exchange or
exercise) any of its capital stock or other interests;
(xiii) neither the Company nor any Subsidiary has declared,
set aside, or paid any dividend or made any distribution with
respect to its capital stock or other interests (whether in cash
or in kind) or redeemed, purchased or otherwise acquired any of
its capital stock or other interests;
(xiv) neither the Company nor any Subsidiary has experienced
any damage, destruction, or loss (whether or not covered by
insurance) to its property;
(xv) neither the Company nor any Subsidiary has made any
loan to, or entered into any other transaction with, any of its
directors, officers and employees outside the Ordinary Course of
Business;
(xvi) neither the Company nor any Subsidiary has entered into
any employment contract or collective bargaining agreement,
written or oral, or modified the terms of any such existing
contract or agreement;
(xvii) neither the Company nor any Subsidiary has granted any
increase in the base compensation of any of its directors,
officers, or employees outside the Ordinary Course of Business;
(xviii) neither the Company nor any Subsidiary has adopted,
amended, modified or terminated any bonus, profit-sharing,
incentive, severance, or other plan, contract or commitment for
the benefit of any of its directors, officers,
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and employees (or taken any such action with respect to any other
Employee Benefit Plan);
(xix) neither the Company nor any Subsidiary has made any
other change in employment terms for any of its directors,
officers or employees outside the Ordinary Course of Business;
(xx) neither the Company nor any Subsidiary has made or
pledged to make any charitable or other capital contribution
outside the Ordinary Course of Business; and
(xxi) to the Knowledge of the Principal Sellers, there has
not been any other material occurrence, event, incident, action,
failure to act or transaction outside the Ordinary Course of
Business.
(i) Undisclosed Liabilities. Neither the Company nor any
Subsidiary has any Liability (and, to the Knowledge of the Principal
Sellers, there is no Basis for any present or future action, suit,
proceeding, hearing, investigation, charge, complaint, claim or demand
against any of them giving rise to any Liability), except for (i)
Liabilities set forth on the face of the Most Recent Balance Sheet, and
(ii) Liabilities which have arisen after the Most Recent Fiscal Month End
in the Company's or any Subsidiary's Ordinary Course of Business (none of
which results from, arises out of, relates to, is in the nature of, or
was caused by any breach of contract, breach of warranty, tort,
infringement or violation of law).
(j) Legal Compliance. The Company and each Subsidiary has
complied, in all material respects, with all applicable laws (including
rules, regulations, codes, plans, injunctions, judgments, orders,
decrees, rulings, and charges thereunder) of federal, state, local, and
foreign governments (and all agencies thereof), and no action, suit,
proceeding, hearing, investigation, charge, complaint, claim, demand, or
notice has been filed or commenced against any of them alleging any
failure so to comply. The Company has made available or will make
available to Buyer copies of all Uniform Franchise Offering Circulars
used by the Company and each Subsidiary, together with copies of all
state and/or Federal Franchise registrations and other filings made by
the Company and each Subsidiary for franchise law compliance purposes.
(k) Tax Matters. Except as disclosed on Schedule 4(k):
(i) The Company and each Subsidiary has filed all Tax
Returns that it was required to file. All such Tax Returns were
correct and complete in all respects. All Taxes owed by the
Company and each Subsidiary (whether or not shown on any Tax
Return) have been paid, or adequate reserves have been
25
<PAGE>
made by the Company and the Subsidiaries for payment as set forth
in the Financial Statements. The Company and each Subsidiary is
not currently the beneficiary of any extension of time within
which to file any Tax Return. No claim has ever been made by an
authority in a jurisdiction where the Company or a Subsidiary does
not file Tax Returns that it is or may be subject to taxation by
that jurisdiction. There are no Security Interests on any of the
assets of the Company or any Subsidiary that arose in connection
with any failure (or alleged failure) to pay any Tax.
(ii) The Company and each Subsidiary has withheld and paid
all Taxes required to have been withheld and paid in connection
with amounts paid or owing to any employee, independent
contractor, creditor, stockholder or other third party.
(iii) No Principal Seller or director or officer (or
employee responsible for Tax matters) of the Company or any
Subsidiary expects any authority to assess any additional Taxes
for any period for which Tax Returns have been filed. There is no
dispute or claim concerning any Tax Liability of the Company or
any Subsidiary either (A) claimed or raised by any authority in
writing or (B) as to which any of the Sellers, the directors and
officers (and employees responsible for Tax matters) of the
Company or such Subsidiary has Knowledge based upon personal
contact with any agent of such authority. (S) 4(k) of the
Disclosure Schedule lists all federal, state, local, and foreign
income Tax Returns filed with respect to the Company and each
Subsidiary, indicates those Tax Returns that have been audited,
and indicates those Tax Returns that currently are the subject of
audit. The Sellers have has delivered to the Buyer correct and
complete copies of all examination reports, and statements of
deficiencies assessed against or agreed to by the Company or any
Subsidiary, and federal income Tax Returns related thereto.
(iv) Neither the Company nor any Subsidiary has waived any
statute of limitations in respect of Taxes or agreed to any
extension of time with respect to a Tax assessment or deficiency.
(v) Neither the Company nor any Subsidiary has filed a
consent under Code Sec. 341(f) concerning collapsible
corporations. Neither the Company nor any Subsidiary has made any
payments, nor is it obligated to make any payments, nor is either
of them a party to any agreement that under certain circumstances
could obligate either of them to make any payments that will not
be deductible under Code Sec. 280G. Neither the Company nor any
Subsidiary has been a United States real property holding
corporation within the meaning of Code Sec. 897(c)(2) during the
applicable period specified in
26
<PAGE>
Code See. 897(c)(1)(A)(ii). Neither the Company nor any Subsidiary
is a party to any Tax allocation or sharing agreement. Neither the
Company nor any Subsidiary (A) has been a member of an Affiliated
Group filing a consolidated federal income Tax Return or (B) has
any Liability for the Taxes of any Person (other than the Company
or such Subsidiary) under Treas. Reg. (S) 1.1502-6 (or any similar
provision of state, local, or foreign law), as a transferee or
successor, by contract, or otherwise.
(vi) (S) 4(k) of the Disclosure Schedule sets forth the
following information with respect to the Company and each
Subsidiary as of the most recent practicable date:
(A) the basis of each of them in its assets;
(B) the amount of any net operating loss, net capital
loss, unused investment or other credit, unused foreign
tax, or excess charitable contribution allocable to each of
them.
(vii) The unpaid Taxes of the Company and each Subsidiary:
(A) did not, as of the Most Recent Fiscal Month End,
exceed the reserve for Tax Liability (rather than any reserve
for deferred Taxes established to reflect timing differences
between book and Tax income) set forth on the face of the Most
Recent Balance Sheet (rather than in any notes thereto); and
(B) do not exceed that reserve as adjusted for the
passage of time through the Closing Date in accordance with the
past custom and practice of the Company and each Subsidiary in
filing their Tax Returns.
(l) Real Property.
(i) Neither the Company nor any Subsidiary owns any real
property or interests in real property.
(ii) (S) 4(l)(ii) of the Disclosure Schedule lists and
describes briefly all real property (a) leased or subleased to the
Company and each Subsidiary including without limitation, each of
the leases or subleases covering the Company's office at 1050 -
17th Street, Suite 1400, Denver, Colorado 80265, and covering the
premises of each of the Stores (collectively, the "Store Leases"),
and (b) leased or subleased by the Company and any Subsidiary to
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<PAGE>
third parties, including the Company's and each Subsidiary's
franchisees and area developers. The Sellers have delivered to
the Buyer correct and complete copies of the leases and the
subleases listed in (S) 4(l)(ii) of the Disclosure Schedule (as
amended to date). With respect to each lease and sublease listed
in (S) 4(l)(ii) of the Disclosure Schedule:
(A) to the Knowledge of the Principal Sellers, the
lease or sublease is legal, valid, binding, enforceable,
and in full force and effect;
(B) subject to the receipt of consents set forth in
(S) 4(l)(ii) of the Disclosure Schedule, to the Knowledge
of the Principal Sellers, the lease or sublease will
continue to be legal, valid, binding, enforceable, and in
full force and effect on identical terms following the
consummation of the transactions contemplated hereby, which
transactions will not violate the terms thereof;
(C) no party to the lease or sublease is in breach
or default, and no event has occurred which, with notice or
lapse of time, would constitute a breach or default or
permit termination, modification, or acceleration
thereunder;
(D) no party to the lease or sublease has
repudiated any provision thereof;
(E) there are no disputes, oral agreements, or
forbearance programs in effect as to the lease or sublease;
(F) with respect to each sublease, the
representations and warranties set forth in subsections (A)
through (E) above are true and correct with respect to the
underlying lease;
(G) neither the Company nor any Subsidiary has
assigned, transferred, conveyed, mortgaged, deeded in trust
or encumbered any interest in the leasehold or
subleasehold;
(H) all facilities leased or subleased thereunder
have received all approvals of governmental authorities
(including licenses and permits) required in connection
with the operation thereof and have been operated and
maintained in accordance with applicable laws, rules and
regulations; and
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(I) All facilities leased or subleased thereunder are
supplied with utilities and other services necessary for the
operation of said facilities.
(m) Intellectual Property.
(i) The Company and each Subsidiary owns or has the
right to use pursuant to license, sublicense, agreement or
permission all Intellectual Property necessary or desirable for
the operation of the businesses of the Company as presently
conducted and as presently proposed to be conducted. Each item of
Intellectual Property owned or used by the Company and each
Subsidiary immediately prior to the Closing hereunder will be
owned or available for use by the Company on identical terms and
conditions immediately subsequent to the Closing hereunder. (S)
4(m)(i) of the Disclosure Schedule lists each item of Intellectual
Property owned, licensed by or used by the Company and each
Subsidiary and sets forth whether it is owned by or licensed to
them.
(ii) To the Knowledge of the Principal Sellers, neither
the Company nor any Subsidiary has interfered with, infringed
upon, misappropriated, or otherwise come into conflict with any
Intellectual Property rights of third parties. Neither the Company
nor any Subsidiary has ever received any charge, complaint, claim,
demand, or notice alleging any such interference, infringement,
misappropriation, or violation (including any claim that either of
them must license or refrain from using any Intellectual Property
rights of any third party). No third party has interfered with,
infringed upon, misappropriated, or otherwise come into conflict
with any Intellectual Property rights of either of them.
(iii) (S) 4(m)(iii) of the Disclosure Schedule identifies
each patent, trademark, servicemark, copyright, and other
intellectual property right (together with the registration
number) which has been issued to the Company or any Subsidiary,
and any license, agreement or other permission which either of
them has granted to any third party with respect to any of its
Intellectual Property (together with any exceptions). The
Principal Sellers have delivered or made available to the Buyer
correct and complete copies of all such registrations,
applications, licenses, agreements, and permissions (as amended to
date) and has made available to the Buyer correct and complete
copies of all other written documentation evidencing ownership of
each such item. (S) 4(m)(iii) of the Disclosure Schedule also
identifies each trade name or unregistered trademark used by the
Company and each Subsidiary in connection with any of their
businesses. With respect to each item of
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<PAGE>
Intellectual Property required to be identified in (S) 4(m)(iii)
of the Disclosure Schedule:
(A) the Company or a Subsidiary possesses all right,
title, and interest in and to the item, free and clear of any
Security Interest, license or other restriction;
(B) the item is not subject to any outstanding
injunction, judgment, order, decree, ruling or charge;
(C) no action, suit, proceeding, hearing, investigation,
charge, complaint, claim or demand is pending or is threatened
which challenges the legality, validity, enforceability, use or
ownership of the item;
(D) neither the Company nor any Subsidiary has ever
agreed to indemnify any Person for or against any interference,
infringement, misappropriation or other conflict with respect
to the item.
(iv) (S) 4(m)(iv) of the Disclosure Schedule identifies each
item of Intellectual Property that any third party owns and that
the Company or any Subsidiary uses pursuant to any license,
sublicense, agreement, or permission. The Sellers have delivered
or made available to the Buyer correct and complete copies of all
such licenses, sublicenses, agreements, and permissions (as
amended to date). With respect to each item of Intellectual
Property required to be identified in (S) 4(m)(iv) of the
Disclosure Schedule:
(A) the license, sublicense, agreement, or permission
covering the item is legal, valid, binding, enforceable and in
full force and effect;
(B) the license, sublicense, agreement, or permission
will continue to be legal, valid, binding, enforceable and in
full force and effect on identical terms following the Closing;
(C) no party to the license, sublicense, agreement or
permission is in breach or default, no event has occurred which
with notice or lapse of time would constitute a breach or
default or permit termination, modification, or acceleration
thereunder;
(D) no party to the license, sublicense, agreement or
permission has repudiated any provision thereof;
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<PAGE>
(E) to the Knowledge of the Principal Sellers, the
underlying item of Intellectual Property is not subject to
any outstanding injunction, judgment, order, decree, ruling
or charge;
(F) no action, suit, proceeding, hearing, investigation,
charge, complaint, claim or demand is pending or is
threatened which challenges the legality, validity or
enforceability of the underlying item of Intellectual
Property; and
(G) neither the Company nor any Subsidiary has granted
any sublicense or similar right with respect to the
license, sublicense, agreement or permission.
(v) To the Knowledge of the Principal Sellers, the
Intellectual Property of the Company and each Subsidiary does not
interfere with, infringe upon, misappropriate or otherwise come
into conflict with, any Intellectual Property rights of third
parties as a result of the continued operation of its business as
presently conducted.
(n) Tangible Assets. The Company and each Subsidiary owns or
leases all premises, machinery, equipment, and other tangible assets
necessary for the conduct of its business as presently conducted and as
presently proposed to be conducted. Each such tangible asset is free
from defects, has been maintained in accordance with normal industry
practice, is in good operating condition and repair (subject to normal
wear and tear), and is suitable for the purposes for which it presently
is used and presently is proposed to be used.
(o) Inventory. The inventories and supplies of the Company and
each Subsidiary are merchantable and fit for the purpose for which they
were procured, and none of which is slow-moving, obsolete, damaged or
defective, subject only to the reserve for inventory writedown set forth
on the face of the Most Recent Balance Sheet (rather than in any notes
thereto) as adjusted for the passage of time through the Closing Date in
accordance with the past custom and practice of the Company and each
Subsidiary.
(p) Contracts. (S) 4(p) of the Disclosure Schedule lists the
following contracts and other agreements to which the Company and each
Subsidiary is a party:
(i) each contract or agreement of any kind or nature
entered into by any of the Company and Affiliates thereof, with
any franchisee, sub-franchisee or area developer, or any officer,
principal, owner, shareholder or representative of any such
franchisee or area developer;
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<PAGE>
(ii) any agreement (or group of related agreements) for the
lease of personal property to or from any Person providing for
lease payments in excess of $1,000 per annum;
(iii) any agreement (or group of related agreements) for the
manufacturing, brokering, distributing, delivering, marketing,
supply, purchase or sale of materials, commodities, inventory,
supplies, products or other personal property, or for the
furnishing or receipt of services, the performance of which will
extend over a period of more than one year, result in a material
loss to the Company, or involve consideration in excess of $1,000;
(iv) each contract or agreement of any kind or nature
entered into by any of the Company and Affiliates thereof for the
development, study or testing of products, inventory or supplies;
(v) any agreement concerning a partnership or joint
venture;
(vi) any agreement (or group of related agreements) under
which it has created, incurred, assumed, or guaranteed any
indebtedness for borrowed money, or any capitalized lease
obligation, in excess of $1,000 or under which it has imposed a
Security Interest on any of its assets, tangible or intangible;
(vii) any agreement concerning confidentiality or
noncompetition;
(viii) any agreement with any of the Sellers or their
Affiliates (other than the Company);
(ix) any profit sharing, stock option, stock purchase, stock
appreciation, deferred compensation, severance, or other plan or
arrangement for the benefit of its current or former directors,
officers, and employees;
(x) any collective bargaining agreement;
(xi) any agreement for the employment of any individual on a
full-time, part-time, consulting, or other basis providing annual
compensation in excess of $15,000 or providing severance benefits;
(xii) any agreement under which it has advanced or loaned any
amount to any of its directors, officers and employees;
(xiii) any agreement with any governmental, regulatory or
administrative office, agency, body, court, tribunal or
organization of any foreign country or foreign or U.S. territory;
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<PAGE>
(xiv) any agreement under which the consequences of a default
or termination could have a material adverse effect on the
business, financial condition, operations, results of operations,
or future prospects of the Company and each Subsidiary; or
(xv) any other agreement (or group of related agreements)
the performance of which involves consideration in excess of
$5,000 in a single instance or $10,000 in the aggregate.
The Sellers have delivered to the Buyer a correct and complete copy of
each written agreement listed in (S) 4(p) of the Disclosure Schedule (as
amended to date) and a written summary setting forth the terms and
conditions of each oral agreement referred to in (S) 4(p) of the
Disclosure Schedule. With respect to each such agreement: (A) the
agreement is legal, valid, binding, enforceable, and in full force and
effect; (B) the agreement will continue to be legal, valid, binding,
enforceable and in full force and effect on identical terms following the
consummation of the transactions contemplated hereby; (C) no party is in
breach or default, and, to the Knowledge of the Principal Sellers, no
event has occurred which with notice or lapse of time would constitute a
breach or default, or permit termination, modification or acceleration,
under the agreement; and (D) none of the Company, any Subsidiary, or any
other party has repudiated any provision of the agreement.
(q) Notes and Accounts Receivable. All notes and accounts
receivable of the Company and each Subsidiary are reflected properly on
its books and records, are valid receivables, subject to no contractual
setoffs or counterclaims (and there is no Basis for asserting any
contractual setoffs or counterclaims with respect thereto) are current
and collectible, and, to the Knowledge of the Principal Sellers, are
collectible in accordance with their terms at their recorded amounts,
subject only to (i) the reserve for bad debts set forth on the face of
the Most Recent Balance Sheet (rather than in any notes thereto) as
adjusted for the passage of time through the Closing Date in accordance
with the past custom and practice of the Company and each Subsidiary, and
(ii) subject to the limitations of bankruptcy, insolvency, fraudulent
conveyance, reorganization, arrangement, moratorium, or other laws
relating to or generally affecting the rights of creditors and by general
principles of equity.
(r) Powers of Attorney. Except as set forth in (S) 4(r) of
the Disclosure Schedule, there are no outstanding powers of attorney
executed on behalf of the Company.
(s) Insurance. (S) 4(s) of the Disclosure Schedule sets
forth the following information with respect to each insurance policy
(including policies providing property, casualty, liability, and workers'
compensation coverage and bond and surety
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<PAGE>
arrangements) to which the Company and any Subsidiary has been a party, a
named insured, or otherwise the beneficiary of coverage at any time
within the past three (3) years:
(i) the name, address, and telephone number of the agent;
(ii) the name of the insurer, the name of the policyholder,
and the name of each covered insured;
(iii) the policy number and the period of coverage;
(iv) the scope (including an indication of whether the
coverage was on a claims made, occurrence, or other basis) and
amount of coverage; and
(v) a description of any retroactive premium adjustments or
other loss-sharing arrangements.
With respect to each such insurance policy: (A) the policy is legal,
valid, binding, enforceable, and in full force and effect; (B) the policy
will continue to be legal, valid, binding, enforceable, and in full force
and effect on identical terms through the date of the Closing; (C) none
of the Company, any Subsidiary, nor any other party to the policy is in
breach or default (including with respect to the payment of premiums or
the giving of notices), and, no event has occurred which, with notice or
the lapse of time, would constitute such a breach or default, or permit
termination, modification, or acceleration, under the policy; and (D)
none of the Company, any Subsidiary, or any other party to the policy
repudiated any provision thereof. The Company and each Subsidiary has
been covered during the past three (3) years by insurance in scope and
amount customary and reasonable for the businesses in which it has
engaged during the aforementioned period. (S) 4(s) of the Disclosure
Schedule describes any self-insurance arrangements affecting the Company.
(t) Litigation. (S) 4(t) of the Disclosure Schedule sets forth
each instance in which any of the Sellers, the Company and any Subsidiary
(i) is subject to any outstanding injunction, judgment, order, decree,
ruling, or charge or (ii) is a party or is threatened to be made a party
to any action, suit, proceeding, hearing, or investigation of, in, or
before any court or quasi-judicial or administrative agency of any
federal, state, local or foreign jurisdiction or before any arbitrator.
None of the actions, suits, proceedings, hearings, and investigations set
forth in (S) 4(t) of the Disclosure Schedule could result in any material
adverse change in the business, financial condition, operations, results
of operations or future prospects of the Company. None of the Principal
Sellers has any reason to believe that any such action, suit, proceeding,
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<PAGE>
hearing or investigation may be brought or threatened against the Company
or any Subsidiary.
(u) Product Warranty. Each product made, sold or delivered by the
Company and each Subsidiary has been in conformity with all applicable
laws, statutes, regulations, retail and other applicable food industry
standards, and, to the Knowledge of the Principal Sellers, neither the
Company nor any Subsidiary has any Liability (and there is no Basis for
any present or future action, suit, proceeding, hearing, investigation,
charge, complaint, claim, or demand against any of them giving rise to
any Liability) for damages in connection therewith.
(v) Product Liability. To the Knowledge of the Principal Sellers,
neither the Company nor any Subsidiary has any Liability and, to the
Knowledge of the Principal Sellers, there is no Basis for any present or
future action, suit, proceeding, hearing, investigation, charge,
complaint, claim, or demand giving rise to any Liability arising out of
any injury to individuals or property as a result of the possession,
consumption or use of any product made, sold or delivered by any of them.
(w) Employees.
(i) To the Knowledge of the Principal Sellers, no executive,
key employee (including any store manager), or group of employees
has any plans to terminate employment with the Company or any
Subsidiary. To the Knowledge of the Principal Sellers, the Company
has not committed any unfair labor practice. Neither the Company
nor any Subsidiary is bound by any collective bargaining
agreement, nor has any of them experienced any strikes,
grievances, claims of unfair labor practices, or other collective
bargaining disputes. Neither the Company nor any Subsidiary has
committed any unfair labor practice.
None of the Principal Sellers has any Knowledge of any
organizational effort presently being made or threatened by or on
behalf of any labor union with respect to the employees of the
Company or any Subsidiary.
(ii) (S) 4(w)(ii) of the Disclosure Schedule sets forth the
accrued vacation and sick and personal leave (if any) of the
employees of the Company and each Subsidiary.
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(x) Employee Benefit.
(i) (S) 4(x) of the Disclosure Schedule lists each Employee
Benefit Plan that the Company and each Subsidiary maintains or to
which either contributes.
(A) Each such Employee Benefit Plan (and each related
trust, insurance contract, or fund) complies in form and in
operation in all respects with the applicable requirements
of ERISA, the Code, and other applicable laws.
(B) All required reports and descriptions (including
Form 5500 Annual Reports, Summary Annual Reports, PBGC-1's,
and Summary Plan Descriptions) have been filed or
distributed appropriately with respect to each such
Employee Benefit Plan. The requirements of Part 6 of
Subtitle B of Title I of ERISA and of Code Sec. 4980B have
been met with respect to each such Employee Benefit Plan
which is an Employee Welfare Benefit Plan.
(C) All contributions (including all employer
contributions and employee salary reduction contributions)
which are due have been paid to each such Employee Benefit
Plan which is an Employee Pension Benefit Plan and all
contributions for any period ending on or before the
Closing Date which have been paid to each such Employee
Pension Benefit Plan or accrued in accordance with past
custom and practice. All premiums or other payments for all
periods ending on or before the Closing Date have been paid
with respect to each such Employee Benefit Plan which is an
Employee Welfare Benefit Plan.
(D) Each such Employee Benefit Plan which is an
Employee Pension Benefit Plan meets the requirements of a
"qualified plan" under Code Sec. 401(a) and has received,
within the last four years, a favorable determination
letter from the Internal Revenue Service.
(E) The market value of assets under each such Employee
Benefit Plan which is an Employee Pension Benefit Plan
equals or exceeds the present value of all vested and
nonvested Liabilities thereunder determined in accordance
with PBGC methods, factors, and assumptions applicable to
an Employee Pension Benefit Plan terminating on the date
for determination.
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(F) The Principal Sellers have delivered or made
available to the Buyer correct and complete copies of the
plan documents and summary plan descriptions, the most
recent determination letter received from the Internal
Revenue Service, the most recent Form 5500 Annual Report,
and all related trust agreements, insurance contracts, and
other funding agreements which implement each such Employee
Benefit Plan.
(ii) With respect to each Employee Benefit Plan that the
Company or any Subsidiary maintains or ever has maintained or to
which any of them contributes, ever has contributed, or ever has
been required to contribute:
(A) No such Employee Benefit Plan which is an Employee
Pension Benefit Plan has been completely or partially
terminated or been the subject of a Reportable Event as to
which notices would be required to be filed with the PBGC.
No proceeding by the PBGC to terminate any such Employee
Pension Benefit Plan has been instituted or threatened.
(B) There have been no Prohibited Transactions with
respect to any such Employee Benefit Plan. No Fiduciary
has any Liability for breach of fiduciary duty or any other
failure to act or comply in connection with the
administration or investment of the assets of any such
Employee Benefit Plan. No action, suit, proceeding,
hearing, or investigation with respect to the
administration or the investment of the assets of any such
Employee Benefit Plan (other than routine claims for
benefits) is pending or threatened. None of the Sellers
nor any of the directors and officers (and employees with
responsibility for employee benefit matters) of the Company
or any Subsidiary has any Knowledge of any Basis for any
such action, suit, proceeding, hearing, or investigation.
(C) Neither the Company nor any Subsidiary has
incurred, and none of the Sellers, directors, or officers
(and employees with responsibility for employee benefits
matters) of the Company or any Subsidiary has any reason to
expect that the Company or any Subsidiary will incur, any
Liability to the PBGC (other than PBGC premium payments) or
otherwise under Title IV of ERISA (including any withdrawal
Liability) or under the Code with respect to any such
Employee Benefit Plan which is an Employee Pension Benefit
Plan.
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(iii) Neither the Company nor any Subsidiary contributes to,
has contributed to, nor has been required to contribute to, any
Multiemployer Plan or has any Liability (including withdrawal
Liability) under any Multiemployer Plan.
(iv) Neither the Company nor any Subsidiary maintains, has
maintained or contributed to, nor has been required to contribute
to any Employee Welfare Benefit Plan providing medical, health, or
life insurance or other welfare-type benefits for current or
future retired or terminated employees, their spouses, or their
dependents (other than in accordance with Code Sec. 4980B).
(y) Guaranties. Neither the Company nor any Subsidiary is a
guarantor or otherwise liable for any Liability or obligation (including
indebtedness) of any other Person.
(z) Environment, Health, and Safety.
(i) To the Knowledge of the Principal Sellers, the Company and
each Subsidiary has complied in all material respects with all
Environmental, Health, and Safety Laws, and no action, suit,
proceeding, hearing, investigation, charge, complaint, claim,
demand, or notice has been filed or commenced against the Company
or any Subsidiary alleging any failure so to comply. Without
limiting the generality of the preceding sentence, the Company and
each Subsidiary, and their respective predecessors and Affiliates,
has obtained and been in compliance with all of the terms and
conditions of all permits, licenses, and other authorizations
which are required under, and has complied with all other
limitations, restrictions, conditions, standards, prohibitions,
requirements, obligations, schedules, and timetables which are
contained in, all Environmental, Health, and Safety Laws.
(ii) Neither the Company nor any Subsidiary has any Liability
(and none of the Company, any Subsidiary, or to the Knowledge of
the Principal Sellers, their predecessors and Affiliates has
handled or disposed of any substance, arranged for the disposal of
any substance, exposed any employee or other individual to any
substance or condition, or owned or operated any property or
facility in any manner that could form the Basis for any present
or future action, suit, proceeding, hearing, investigation,
charge, complaint, claim, or demand against the Company or any
Subsidiary giving rise to any Liability) for damage to any site,
location, or body of water (surface or subsurface), for any
illness of or personal injury to any employee or other individual,
or for any reason under any Environmental, Health, and Safety Law.
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(iii) To the Knowledge of the Principal Sellers, all
properties and equipment used in the business of the Company and
each Subsidiary have been free of asbestos, PCB'S, methylene
chloride, trichloroethylene, 1,2-transdichloroethylene, dioxins,
dibenzofurans, and Extremely Hazardous Substances.
(aa) Certain Business Relationships with the Company. Except as
disclosed in (S) 4(aa) of the Disclosure Schedule, none of the Sellers
has been involved in any business arrangement or relationship with the
Company or any Subsidiary within the past twelve (12) months, and none of
the Sellers owns any asset, tangible or intangible, which is used in the
business of the Company or any Subsidiary.
(bb) Company Debt; Shareholder Loans; Non-Compete Payments.
(i) The aggregate Company Debt is less than or equal to
$715,700 on the date hereof and shall be less than or equal to
$715,700 at the Closing.
(ii) The aggregate Shareholder Loans are less than or equal to
$540,000 on the date hereof, and shall be less than or equal to
$540,000 at the Closing.
(iii) The aggregate Non-Compete Payments are less than or equal
to $182,300 on the date hereof, and shall be less than or equal to
$182,300 at the Closing.
(cc) Disclosure. To the Knowledge of the Principal Sellers, the
representations and warranties contained in this (S) 4 do not contain any
untrue statement of a material fact or omit to state any material fact
necessary in order to make the statements and information contained in
this (S) 4 not misleading.
5. Pre-Closing Covenants. The Parties agree as follows with respect to
the period between the execution of this Agreement and the Closing.
(a) General. Each of the Parties will use his or its best efforts to
take all action and to do all things necessary in order to consummate and
make effective the transactions contemplated by this Agreement (including
satisfaction, but not waiver, of the closing conditions set forth in (S)
7 below).
(b) Notices and Consents. The Sellers will cause the Company and each
Subsidiary to give any notices to third parties, and will cause each of
them to use its best efforts to obtain any third-party consents, that the
Buyer may request in connection with the matters referred to in (S) 4(c)
above. Each of the Parties will (and the Sellers will cause the Company
to) give any notices to, make any filings with, and
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use its best efforts to obtain any authorizations, consents, and
approvals of governments and governmental agencies in connection with the
matters referred to in (S) 3(a)(ii), (S) 3(b)(iii), and (S) 4(c) above.
(c) Operation of Business. Except as disclosed on (S) 5(c) of the
Disclosure Schedule, the Sellers will not cause or permit the Company or
any Subsidiary to engage in any practice, take any action or enter into
any transaction outside the Ordinary Course of Business. Without
limiting the generality of the foregoing, except with the written consent
of the Buyer, or as disclosed on (S) 5(c) of the Disclosure Schedule, the
Sellers will not cause or permit the Company or any Subsidiary to:
(i) sell, lease, transfer or assign any of its assets, tangible
or intangible, other than the sale of its inventory in the
Ordinary Course of Business;
(ii) enter into, or terminate, modify, accelerate or cancel,
any agreement, contract, lease or license to which any of them is
a party or by which they are bound;
(iii) grant or permit any new Security Interest to be imposed
upon any of their assets, tangible or intangible;
(iv) close, or permit the closure of, any of its Stores or
other premises upon which any of its business operations are
presently conducted; commit to or acquire any new store or new
store sites;
(v) fail to maintain inventories and supplies necessary for the
proper and continuing conduct of operations before and after the
Closing in the manner presently conducted;
(vi) make any capital expenditure (or series of related capital
expenditures) other than in the Ordinary Course of Business;
(vii) make any capital investment in, any loan to, or any
acquisition of the securities or assets of, any other Person (or
series of related capital investments, loans, and acquisitions);
(viii) issue any note, bond or other debt security or create,
incur, assume, or guarantee any indebtedness for borrowed money or
capitalized lease obligation;
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(ix) delay or postpone the payment of accounts payable and
other Liabilities outside the Ordinary Course of Business;
(x) cancel, compromise, waive or release any right or claim (or
series of related rights and claims);
(xi) grant any license or sublicense of any rights under or
with respect to any Intellectual Property;
(xii) make or authorize any change in the charter, bylaws, or
constituent documents of the Company or any Subsidiary;
(xiii) except as otherwise provided herein with respect to the
conversion of the Preferred Shares, issue, sell or otherwise
dispose of the Company=s or any Subsidiary's capital stock or
other interests, or grant any options, warrants, or other rights
to purchase or obtain (including upon conversion, exchange or
exercise) the foregoing;
(xiv) declare, set aside, or pay any dividend or make any
distribution with respect to its capital stock or other interests
(whether in cash or in kind) or redeem, purchase or otherwise
acquire any of its capital stock or other interests;
(xv) make any loan to, or enter into any other transaction or
agreement with, any directors, officers or employees outside the
Ordinary Course of Business;
(xvi) grant any increase in the compensation of any directors,
officers and employees; or adopt, amend, modify or terminate any
bonus, profit-sharing, incentive, severance, or other plan,
contract, or commitment for the benefit of any directors,
officers, or employees (or take any such action with respect to
any other Employee Benefit Plan); or make any other change in
employment terms for any directors, officers, or employees;
(xvii) otherwise take any action or engage in any transaction
outside the Ordinary Course of Business; provided that, subject to
all other terms, limitations and requirements of this Section 5
(including without limitation the Sellers' obligations herein to
preserve the Company's business pursuant to (S) 5(c)), and subject
to the Working Capital Requirement, the Company may pay down
Company Debt prior to the Closing in amounts larger and at times
more frequent than in the Company's Ordinary Course of Business;
or
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(xviii) otherwise engage in any practice, take any action, or
enter into any transaction of the sort described in (S) 4(h)
above.
(d) Preservation of Business. Except as disclosed on (S) 5(d) of the
Disclosure Schedule, the Sellers will cause the Company and each
Subsidiary to keep its business and properties substantially intact,
including its present operations, physical facilities, working
conditions, and relationships with lessors, licensors, suppliers,
customers, and employees.
(e) Full Access. The Sellers will permit, and the Sellers will cause
the Company and each Subsidiary to permit, representatives of the Buyer
to have full access to all premises, properties, personnel, books,
records (including Tax records), contracts and documents of or pertaining
to the Company and each Subsidiary at all reasonable times.
(f) Notice of Developments/Updating the Disclosure Schedule. (i)
Prior to the Closing Date, the Sellers will give prompt written notice to
the Buyer of any adverse development causing a breach of any of the
representations and warranties in (S) 4 above. Prior to the Closing
Date, each Party will give prompt written notice to the other Parties of
any adverse development causing a breach of any of his or its own
representations and warranties in (S) 3 above; and (ii) from and after
the execution of this Agreement, and prior to the Closing Date, the
Sellers shall update and revise the Disclosure Schedule to refine the
qualifications and disclosures set forth thereon, and as may be requested
by the Buyer.
(g) Waiver of Refusal Rights. Each Seller hereby waives any right of
first refusal, co-sale right or other right that it may have to acquire
the Company Shares of any other Seller.
(h) Exclusivity; Encumbrance or Transfer of Shares. Prior to the
earlier of the termination of this Agreement in accordance with (S) 9
below or the Closing Date, the Sellers will not (and the Sellers will not
cause or permit the Company or any Subsidiary to) (i) solicit, initiate,
or encourage the submission of any proposal or offer from any Person
relating to the acquisition of any capital stock or other voting
securities, or any substantial portion of the assets of, the Company or
any Subsidiary (including any acquisition structured as a merger,
consolidation, share exchange) or otherwise; or (ii) participate in any
discussions or negotiations regarding, furnish any information with
respect to, assist or participate in, or facilitate in any other manner
any effort or attempt by any Person to do or seek any of the foregoing;
or (iii) vote their Company Shares in favor of any such acquisition,
whether structured as a merger, consolidation, share exchange or
otherwise; or (iv) offer for sale, sell, hypothecate, pledge, encumber or
transfer, or enter into any agreement or understanding involving
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the offering for sale, selling, hypothecating, pledging, encumbering or
transferring, of any of the Company Shares or the stock of any of the
Subsidiaries. The Sellers will promptly notify (and will cause the
Company and each Subsidiary to promptly notify) the Buyer immediately if
any Person makes any proposal, offer, inquiry, or contact with respect to
any of the foregoing.
(i) Conversion of Preferred Shares; Cancellation of Options. The
Sellers, shall cause:
(i) the Preferred Shares to be converted and the Conversion
Shares to be issued in accordance with the requirements of (S)(S)
3(a)(v) and 4(b) above; and
(ii) together with the Company, the Options to be cancelled
prior to the Closing.
6. Post-Closing Covenants. The Parties agree as follows with
respect to the period following the Closing.
(a) General. In case at any time after the Closing any further action
is necessary or desirable to carry out the purposes of this Agreement,
each of the Parties will take such further action (including the
execution and delivery of such further instruments and documents) as any
other Party may reasonably request, all at the sole cost and expense of
the requesting Party (unless the requesting Party is entitled to
indemnification therefor under (S) 8 below). The Sellers acknowledge and
agree that from and after the Closing the Buyer will be entitled to
possession of all documents, books, records (including Tax records),
agreements and financial data of any sort relating to the Company and
each Subsidiary.
(b) Litigation Support. In the event and for so long as any Party
actively is contesting or defending against any action, suit, proceeding,
hearing, investigation, charge, complaint, claim, or demand in connection
with (i) any transaction contemplated under this Agreement or (ii) any
fact, situation, circumstance, status, condition, activity, practice,
plan, occurrence, event, incident, action, failure to act, or transaction
on or prior to the Closing Date involving the Company or any Subsidiary,
each of the other Parties will cooperate with him or it and his or its
counsel in the contest or defense, make available their personnel, and
provide such testimony and access to their books and records as shall be
necessary in connection with the contest or defense, all at the sole cost
and expense of the contesting or defending Party (unless the contesting
or defending Party is entitled to indemnification therefor under (S) 8
below).
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(c) Transition. The Sellers will not (and will not permit the Company
or any subsidiary to) take any action that is designed or intended to
have the effect of discouraging any lessor, sublessor, sub-lessee,
licensor, licensee, franchisee, customer, supplier, or other business
associate of the Company or any Subsidiary from maintaining the same
business relationships with the Company and each Subsidiary after the
Closing as it maintained prior to the Closing. The Sellers will refer
all customer and vendor inquiries relating to the businesses of the
Company and each Subsidiary to the Buyer from and after the Closing.
After the Closing, the Sellers shall have reasonable access to the
Company's and Subsidiaries' books and records pertaining to the periods
of their operations prior to the Closing. Such access shall be provided
upon reasonable notice to the Buyer and upon terms established by the
Buyer, including without limitation, the execution of confidentiality and
non-disclosure agreements satisfactory to the Buyer.
(d) Confidentiality. Each of the Sellers will treat and hold as such
all of the Confidential Information, refrain from using any of the
Confidential Information except in connection with this Agreement, and
deliver promptly to the Buyer or destroy, at the request and option of
the Buyer, all tangible embodiments (and all copies) of the Confidential
Information which are in his or her possession. In the event that the
Seller is requested or required (by oral question or request for
information or documents in any legal proceeding, interrogatory,
subpoena, civil investigative demand, or similar process) to disclose any
Confidential Information, such Seller will notify the Buyer promptly of
the request or requirement so that the Buyer may seek an appropriate
protective order or waive compliance with the provisions of this (S)
6(d). If, in the absence of a protective order or the receipt of a waiver
hereunder, such Seller is, on the advice of counsel, compelled to
disclose any Confidential Information to any tribunal, such Seller may
disclose the Confidential Information to the tribunal; provided, however,
that the disclosing Seller shall use his or her best efforts to obtain,
at the request of the Buyer, an order or other assurance that
confidential treatment will be accorded to such portion of the
Confidential Information required to be disclosed as the Buyer shall
designate. The foregoing provisions shall not apply to any Confidential
Information which is generally available to the public immediately prior
to the time of disclosure.
(e) Covenant Not to Compete. Each of the Principal Sellers hereby
agrees that he it will not "directly or indirectly compete" with the
Buyer for a period of two (2) years from and after the Closing Date. For
purposes of this Agreement, the phrase "directly or indirectly compete"
shall include: (i) owning, managing, operating, or controlling, or
participating in the ownership, management, operation, or control of, or
being connected with or having any interest in, as a stockholder,
director, officer, employee, agent, consultant, assistant, advisor, sole
proprietor, partner or otherwise, any (A) business, (B) operation, or (C)
single or multiple retail stores, any of the
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foregoing which singularly or in the aggregate derive fifteen percent
(15%) or more of its sales or revenues from any retail baked-goods or
mall-based, snack foods business (collectively, a "Competing Business");
and (ii) soliciting or attempting to solicit the services of any employee
of Buyer or any affiliate of Buyer. Provided however, this paragraph 6(e)
-------- -------
shall not apply to any Principal Seller operating a Competing Business as
a franchisee or licensee of the Buyer.
If the final judgment of a court of competent jurisdiction declares
that any term or provision of this (S) 6(e) is invalid or unenforceable,
the Parties agree that the court making the determination of invalidity
or unenforceability shall have the power to reduce the scope, duration,
or area of the term or provision, to delete specific words or phrases, or
to replace any invalid or unenforceable term or provision with a term or
provision that is valid and enforceable and that comes closest to
expressing the intention of the invalid or unenforceable term or
provision, and this Agreement shall be enforceable as so modified after
the expiration of the time within which the judgment may be appealed.
(f) Post-Closing Audit and Preparation of Consolidated Financial
Statements. The Parties acknowledge that after the Closing, the Buyer
and the Company intend to select, engage and pay an independent
accounting firm (the "Auditors") to conduct an audit (the "Audit") of the
books, records and operations and to prepare (i) audited consolidated
balance sheets and statements of operations, stockholders' equity and
cash flows of the Company as of and for the fiscal year ending December
31, 1997, and (ii) unaudited consolidated balance sheets and statements
of the Company's operations for the interim period commencing on January
1, 1998, and ending on a date specified by the Buyer (collectively, the
"Consolidated Financial Statements"). The Principal Seller Marc N. Geman
agrees to fully cooperate with and assist the Auditors, the Buyer and the
Company in connection with the Audit and the preparation of Consolidated
Financial Statements, including (i) promptly reviewing, analyzing, and
commenting upon information prepared for, compiled by or furnished to the
Auditors by or on behalf of the Company, (ii) furnishing information
requested by the Auditors, (iii) reviewing and approving Consolidated
Financial Statements (and notes thereto) prepared by the Auditors, and
(iv) executing and delivering to the Auditors a so-called
"Representation" or "Management Letter" (the "Management Letter")
containing statements and representations concerning the Consolidated
Financial Statements and the books, records, assets, liabilities and
operations of the Company prior to the Closing Date. The Management
Letter shall be substantially in the same form as those management
letters, dated February 11, 1997 and February 25, 1998, executed
respectively by the Company and Pretzelmaker, Inc., and Pretzelmaker,
Inc., and delivered to BDO Seidman, LLP in connection with the Financial
Statements referred to in (S)(S) 4(g)(i) and (iii) above (copies of which
are included as a part of Exhibit E), supplemented in accordance with the
American
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Institute of Certified Public Accountants' then current standards and
requirements applicable to such Management Letters.
(g) Office Lease; Location of Company Records. Until the later of
January 4, 1999 or the payment in full of the Notes, the Buyer shall (i)
cause the offices of the Company to remain in its current location
(subject to landlord approval), and (ii) to maintain the books and
records of the Company at the current offices of the Company.
7. Conditions to Obligation to Close.
(a) Conditions to Obligation of the Buyer. The obligation of the
Buyer to consummate the transactions to be performed by it in connection
with the Closing is subject to satisfaction of the following conditions:
(i) the representations and warranties set forth in (S) 3(a)
and (S) 4 above shall be true and correct in all material respects
at and as of the Closing Date;
(ii) each of the Sellers shall have performed and complied with
all of his or her covenants hereunder in all material respects
through the Closing;
(iii) the Company shall have procured all of the third party
consents specified in (S) 5(b) above including, without
limitation, any required consent of the Company's landlords and
sublandlords with respect to each of the Store Leases;
(iv) no action, suit, or proceeding shall be pending or
threatened before any court or quasi-judicial or administrative
agency of any federal, state, local, or foreign jurisdiction or
before any arbitrator wherein an unfavorable injunction, judgment,
order, decree, ruling, or charge would:
(A) prevent consummation of any of the transactions
contemplated by this Agreement;
(B) cause any of the transactions contemplated by this
Agreement to be rescinded following consummation;
(C) affect adversely the right of the Buyer to own the
Company Shares and to control the Company and each Subsidiary;
or
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(D) affect adversely the right of the Company and each
Subsidiary to own its assets and to operate its businesses (and
no such injunction, judgment, order, decree, ruling, or charge
shall be in effect);
(v) each of the Sellers shall have delivered to the Buyer a
certificate to the effect that each of the conditions specified
above in (S) 7(a)(i)-(iv) is satisfied in all respects;
(vi) the Parties and the Company shall have received all
other authorizations, consents, and approvals of governments and
governmental agencies referred to in (S) 3(a)(ii), (S) 3(b)(ii),
and (S) 4(c) above;
(vii) the Buyer shall have received from counsel to the
Sellers an opinion substantially in the form set forth in Exhibit
F attached hereto, addressed to the Buyer, and dated as of the
Closing Date;
(viii) at least five (5) business days prior to the Closing,
the Buyer shall have received the resignations, effective as of
the Closing, of each of the Company's and the Subsidiaries'
respective directors and the officers set forth on (S)(S) 4(a) and
(b) of the Disclosure Schedule;
(ix) the Buyer shall have obtained on terms and conditions
satisfactory to it all of the financing it needs in order to
consummate the transactions contemplated hereby;
(x) the Buyer's due diligence investigation of the Sellers,
the Company and each Subsidiary shall have been completed to the
Buyer's satisfaction, and the results of such due diligence
investigation shall be acceptable to the Buyer in its sole
discretion;
(xi) the Parties and the Company's creditors shall have
agreed with regard to the payment or assumption of the Company
Debt or any of its components, and the release of encumbrances
covering the assets and/or capital stock of the Company and/or the
Subsidiaries;
(xii) all actions to be taken by the Sellers in connection
with consummation of the transactions contemplated hereby and all
certificates, opinions, instruments, and other documents required
to effect the transactions contemplated hereby will be reasonably
satisfactory in form and substance to the Buyer;
(xiii) [intentionally blank];
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(xiv) the Buyer shall have determined in its sole discretion
that there is no unacceptable material conflict between the
respective development areas of the Company, the Subsidiaries and
the Buyer;
(xv) all voting trusts, proxies and other agreements or
understandings with respect to the voting of the capital stock of
the Company shall have been terminated before the Closing;
(xvi) the conversion of the Preferred Shares to Common
Shares, as described in (S)(S) 3(a)(v) and 4(b) above, shall have
occurred, and before the Closing there shall be no issued or
outstanding Preferred Shares;
(xvii) the Options shall have been cancelled, and all
obligations of the Company thereunder shall have been forever
terminated.
The Buyer may waive any condition specified in this (S) 7(a) if it
executes a writing so stating at or prior to the Closing.
(b) Conditions to Obligation of the Sellers. The obligation of the
Sellers to consummate the transactions to be performed by them in
connection with the Closing is subject to satisfaction of the following
conditions:
(i) the representations and warranties set forth in (S)
3(b) above shall be true and correct in all material respects at
and as of the Closing Date;
(ii) the Buyer shall have performed and complied with all of
its covenants hereunder in all material respects through the
Closing;
(iii) no action, suit, or proceeding shall be pending or
threatened before any court or quasi-judicial or administrative
agency of any federal, state, local, or foreign jurisdiction or
before any arbitrator wherein an unfavorable injunction, judgment,
order, decree, ruling, or charge would (A) prevent consummation of
any of the transactions contemplated by this Agreement or (B)
cause any of the transactions contemplated by this Agreement to be
rescinded following consummation (and no such injunction,
judgment, order, decree, ruling, or charge shall be in effect);
(iv) the Buyer shall have delivered to the Sellers a
certificate to the effect that each of the conditions specified
above in (S) 7(b)(i)-(iii) is satisfied in all respects;
48
<PAGE>
(v) the Parties and the Company shall have received all
other authorizations, consents, and approvals of governments and
governmental agencies referred to in (S) 3(a)(ii), 3(b)(iii), and
(S) 4(c) above; and
(vi) all actions to be taken by the Buyer in connection with
consummation of the transactions contemplated hereby and all
certificates, opinions, instruments, and other documents required
to effect the transactions contemplated hereby will be reasonably
satisfactory in form and substance to the Sellers.
The Sellers, through the Agent Sellers, may waive any condition specified
in this (S) 7(b) if they execute a writing so stating at or prior to the
Closing.
8. Remedies for Breaches of This Agreement.
(a) Survival of Representations and Warranties. All of the
representations and warranties of the Parties contained in this Agreement
shall survive the Closing hereunder (even if the damaged Party knew or
had reason to know of any misrepresentation or breach of warranty at the
time of Closing) and continue in full force and effect for a period of
two (2) years thereafter, except for representations regarding the
Company's Tax Liabilities, which representations will expire and be
terminated on the date of expiration of the statute of limitations for
collection of such Tax Liabilities.
(b) Indemnification.
(i) Principal Sellers' Indemnification of Buyer. The
Principal Sellers, jointly and severally, shall indemnify, save
and hold harmless each of the Buyer, its Affiliates and each of
its officers, directors, employees, agents, legal representatives,
advisors, consultants, successors and assigns, up to a maximum of
$7,800,000 in the aggregate, from any Adverse Consequences
suffered or incurred by any of them to the extent arising from:
(A) any breach of any of the Sellers' or the Company's
(and any Subsidiary's) representations, warranties and
covenants contained in this Agreement, in the Disclosure
Schedule, or in any certificate, instrument or other
document delivered pursuant hereto or thereto;
(B) any breach of any covenant of the Sellers contained
in this Agreement requiring performance after the Closing
Date; or
49
<PAGE>
(C) any Liability of the Company or any Subsidiary
for the unpaid Taxes of any Person (other than the Company)
under Treas. Reg. (S) 1.1502-6 (or any similar provision of
state, local, or foreign law), as a transferee or successor,
by contract, or otherwise;
provided, that the aggregate indemnification obligation, if any,
of the Principal Seller Louis H. Marks under this Section 8(b)(i),
which shall be the only financial obligation of Louis H. Marks
under this Agreement, shall not exceed $1,500,000. The Principal
Sellers expressly acknowledge and agree that the indemnification
obligations of the other Principal Sellers, Marc N. Geman and
Donald G. Cox, Jr., under this Agreement or otherwise, shall not
be affected or limited in any manner by the limitation set forth
in the preceding sentence concerning the indemnification
obligations of the Principal Seller, Louis H. Marks.
(ii) Buyer's Indemnification of Sellers. The Buyer shall
indemnify, save and hold harmless each of the Sellers, their
Affiliates and each of their respective officers, directors,
employees, partners, members, agents, legal representatives,
advisors, consultants, successors and assigns, from any Adverse
Consequences suffered or incurred by any of them to the extent
arising from:
(A) any breach of any of the Buyer's
representations, warranties and covenants contained in this
Agreement, or in any certificate, instrument or other
document delivered by the Buyer pursuant hereto or thereto;
(B) any breach of any covenant of the Buyer
contained in this Agreement requiring performance after the
Closing Date.
(iii) Buyers Indemnification of Sellers and Company. The
Buyer shall indemnify, save and hold harmless each of the Sellers
and the Company, and the Affiliates of each of the Sellers and the
Company, and each of their respective officers, directors,
partners, members, employees, agents, legal representatives,
advisors, consultants, successors and assigns, from any Adverse
Consequences suffered or incurred by any of them to the extent
arising from any Third Party Claim brought against the Sellers,
the Company (or any of the Sellers' or the Company's Affiliates or
their respective officers, directors, partners, members,
employees, agents, legal representatives, advisors, consultants,
successors or assigns) to restrict, restrain, prohibit or enjoin
the execution of this Agreement, the execution or delivery of
documents or instruments executed or delivered in connection
herewith or the
50
<PAGE>
consummation of the transactions that are the subject of this
Agreement or such related documents or instruments, or to recover
damages arising from Third Party Claims that the execution of this
Agreement, the execution or delivery of documents or instruments
executed or delivered in connection herewith or the consummation
of the transactions that are the subject of this Agreement or such
related documents or instruments, (A) will or has violated any
constitution, statute, regulation, rule, injunction, judgment,
order, decree, ruling, charge, or other restriction of any
government, governmental agency or court to which Buyer or any
Affiliate of Buyer is subject or any provision of the charter or
bylaws of Buyer or any Affiliate of Buyer, or (B) will or has
conflicted with, resulted in a breach of, constituted a default
under, resulted in the acceleration of, created in any party the
right to accelerate, terminate, modify, or cancel, or required any
notice be given by Buyer or by any Affiliate of Buyer (or by their
respective officers, directors, partners, members, employees,
agents, legal representatives, advisors, consultants, successors
or assigns) for which notice was not given, under, any agreement,
contract, lease, license, instrument or other arrangement to which
Buyer or any Affiliate of Buyer is a party or by which Buyer or
any Affiliate of Buyer is bound (other than this Agreement) or to
which any of the assets of Buyer or of any Affiliate of Buyer is
subject, or (C) will or does require the approval or consent of
any third party, including but not limited to, any Affiliate of
Buyer, or any officer, director, shareholder, partner, member,
employee, agent, legal representative, advisor or consultant of
Buyer or of any Affiliate of Buyer, and such approval or consent
was not obtained.
(iv) Reimbursement of Costs. In the event Buyer shall fail
to consummate the transactions that are the subject of this
Agreement on the Closing Date due to the parties being restricted,
restrained, prohibited or enjoined from executing this Agreement,
executing or delivering documents or instruments executed or
delivered in connection herewith or consummating the transactions
that are the subject of this Agreement or such related documents
or instruments due to a Third Party Claim for which Buyer is
required to indemnify, save and hold harmless the Sellers and the
Company in accordance with Section 8(b)(i) above, in addition to
any Adverse Consequences that may be incurred by the Sellers, the
Company, or both as a result thereof for which the Buyer shall be
liable, Buyer shall reimburse and pay to the Company and the
Sellers all costs and expenses incurred by the Company, the
Sellers or both (or any of their Affiliates or respective
officers, directors, shareholders, partners, members, employees,
agents, legal representatives, advisors, consultants, successors
or assigns) as a result of or associated with this Agreement, the
negotiations hereunder or the preparation for the consummation of
the transactions hereunder, including but not limited to, all
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travel, lodging and meal costs, copying costs, telephone costs,
postage and other delivery charges, fees and expenses of non-
employee and non-Seller attorneys, accountants, financial
advisers, brokers, engineers and other professionals, advisors and
consultants of the Company or the Sellers, and all other out of
pocket expenses of any kind or nature. The Buyer shall pay such
costs and expenses to the Company or the Sellers, as the case may
be, within fifteen (15) days following presentation of an invoice
and supporting documentation therefor.
(c) Matters Involving Third Parties.
(i) If any third party shall notify any Party (the
"Indemnified Party") with respect to any matter (a "Third Party
Claim") which may give rise to a claim for indemnification against
any other Party (the "Indemnifying Party") under this ' 8, then
the Indemnified Party shall promptly notify the Indemnifying Party
thereof in writing; provided, however, that no delay on the part
of the Indemnified Party in notifying any Indemnifying Party shall
relieve the Indemnifying Party from any obligation hereunder
unless (and then solely to the extent) the Indemnifying Party
thereby is prejudiced.
(ii) Any Indemnifying Party will have the right to
defend the Indemnified Party against the Third Party Claim with
counsel of its choice reasonably satisfactory to the Indemnified
Party so long as:
(A) the Indemnifying Party notifies the
Indemnified Party in writing within 15 days after the
Indemnified Party has given notice of the Third Party
Claim that the Indemnifying Party will indemnify the
Indemnified Party from and against the entirety of any
Adverse Consequences the Indemnified Party may suffer
resulting from, arising out of, relating to, in the nature
of, or caused by the Third Party Claim;
(B) the Indemnifying Party provides the
Indemnified Party with evidence acceptable to the
Indemnified Party that the Indemnifying Party will have
the financial resources to defend against the Third Party
Claim;
(C) the Third Party Claim involves only money
damages and does not seek an injunction or other equitable
relief;
(D) settlement of, or an adverse judgment with
respect to, the Third Party Claim is not, in the good
faith judgment of the Indemnified Party, likely to
establish a precedential custom or practice
52
<PAGE>
materially adverse to the continuing business interests of
the Indemnified Party; and
(E) the Indemnifying Party conducts the defense of the
Third Party Claim actively and diligently.
(iii) So long as the Indemnifying Party is conducting the
defense of the Third Party Claim in accordance with (S) 8(c)(ii)
above,
(A) the Indemnified Party may retain separate co-counsel
at its sole cost and expense and participate in the defense
of the Third Party Claim;
(B) the Indemnified Party will not consent to the entry
of any judgment or enter into any settlement with respect to
the Third Party Claim without the prior written consent of the
Indemnifying Party (not to be withheld unreasonably); and
(C) the Indemnifying Party will not consent to the entry
of any judgment or enter into any settlement with respect to
the Third Party Claim without the prior written consent of the
Indemnified Party (not to be withheld unreasonably).
(iv) In the event any of the conditions in (S) 8(c)(ii) above
is or becomes unsatisfied, however,
(A) the Indemnified Party may defend against, and consent
to the entry of any judgment or enter into any settlement with
respect to, the Third Party Claim in any manner it reasonably
may deem appropriate (and the Indemnified Party need not
consult with, or obtain any consent from, any Indemnifying
Party in connection therewith);
(B) the Indemnifying Parties will reimburse the
Indemnified Party promptly and periodically for the costs
of defending against the Third Party Claim (including
reasonable attorneys fees and expenses); and
(C) the Indemnifying Parties will remain responsible for
any Adverse Consequences the Indemnified Party may suffer
resulting from, arising out of, relating to, in the nature
of, or caused by the Third Party Claim to the fullest
extent provided in this (S) 8.
53
<PAGE>
(d) Determination of Adverse Consequences. The Parties shall take
into account the time cost of money in determining Adverse Consequences
for purposes of this (S) 8.
(e) Certain Set-Off Rights. At the Buyer's election, payments, if
any, to be made by any of the Sellers under this (S) 8 shall be made by
reducing, on a dollar-for-dollar basis, any unpaid balance of any of the
Deferred Payments, by the amount of all or any portion of any Adverse
Consequences the Buyer may suffer or incur. All such indemnification
payments under this (S) 8 shall be deemed adjustments to the Purchase
Price. Notwithstanding the foregoing, before any set-off rights may be
exercised, the Buyer shall give written notice to the Agent Sellers of
any claim for indemnification hereunder, specifying in reasonable detail
the grounds for indemnification and the amount of the set-off, and the
Agent Sellers may object to any such set-off by responding in writing
within fifteen (15) days after receipt of the Buyer's notice. If the
Agent Sellers fail to object within the fifteen (15)-day period
specified, the Agent Sellers shall waive any right to object to the
Buyer's right of indemnification hereunder or the amount of the set-off.
If the Agent Sellers dispute either the Buyer's right to indemnification,
or the amount of the set-off, or both, then Escrow Agent shall retain the
amount of the set-off pending resolution of the dispute, and the Parties
shall negotiate in good faith to resolve all issues in dispute. If,
after a period of fifteen (15) days following the date on which the Agent
Sellers give Buyer notice of its objection to Sellers indemnification
hereunder, any such matter remains in dispute, then the Parties shall
employ the dispute resolution procedures set forth in (S) 9 of this
Agreement. Each Party agrees to make available to the other Party and
the attorneys and accountants of the other Party, within a reasonable
time after a request is made, all books and records which are reasonably
required by the requesting Party to evaluate a claim for indemnification
or objection hereunder.
(f) Other Indemnification Provisions. The foregoing indemnification,
set off and recoupment provisions are in addition to, and not in
derogation of, any statutory, equitable, or common law remedy any Buyer
may have for breach of representation, warranty or covenant against any
of the Sellers.
(g) Sellers' Release of Claims. Effective as of the Closing Date,
each of the Sellers (for themselves and their respective officers,
directors, members, shareholders, partners, beneficiaries, employees,
agents, representatives, heirs, successors and assigns) hereby (i)
releases, acquits and forever discharges the Company and each of the
Subsidiaries from any and all liabilities, obligations, indebtedness,
claims, demands, actions or causes of action arising from or relating to
any event, occurrence, act, omission or condition occurring or existing
on or prior to the Closing Date, including, without limitation, any claim
for indemnity or contribution from the Company or any of the Subsidiaries
in connection with the obligations or liabilities of
54
<PAGE>
the Sellers hereunder, except for (A) any contractual obligations of the
Buyer to the Sellers set forth in this Agreement, and (B) interests in
benefit plans to which any of the Sellers are entitled; (ii) waives all
breaches, defaults or violations of each agreement, if any, among or
between shareholders applicable to the Company Shares and agrees that any
and all such agreements are terminated as of the Closing Date, and (iii)
waives any and all preemptive or other rights to acquire any shares of
stock the Company or any of the Subsidiaries and releases any and all
claims arising in connection with any prior default, violation or failure
to comply with or satisfy any such preemptive or other rights.
(h) Termination.
(i) Termination of Agreement. The Parties may terminate
this Agreement as provided below:
(A) The Buyer and all of the Sellers acting together may
terminate this Agreement by mutual written consent at any
time prior to the Closing;
(B) The Buyer may terminate this Agreement for any or no
reason, including without limitation, based on the results
of its due diligence investigation, by giving written
notice to the Sellers at any time prior to the Closing;
(C) [Intentionally Omitted]; and
(D) Time being of the essence, in the event of either
party's failure to tender full performance of their or its
closing duties set forth hereunder, for any reason
whatsoever, before 5:00 p.m. MST on November 19, 1998
(unless mutually agreed to the contrary by the Buyers and
the Agent Sellers), this Agreement shall terminate.
Whether this Agreement closes or terminates pursuant to
this section, such closing or termination, as the case may
be, shall not prejudice either party's right to pursue any
claim for damages, if any, resulting from any breach of
condition or covenant (whether pre- or post-closing).
(ii) Action By Fewer Than All Sellers. Any action permitted
to be taken under this (S) 8(h) by the Sellers holding a majority
of the Company
<PAGE>
Shares shall, if so taken, be binding upon and constitute the act
of all of the Sellers.
(iii) Effect of Termination. If any Party terminates this
Agreement pursuant to (S) 8(h)(i) above, all rights and
obligations of the Parties under this Agreement, and any other
agreement or instrument executed in connection herewith shall
terminate without any Liability of any Party to any other Party
(except for any Liability of any Party then in breach).
9. Miscellaneous.
(a) Press Releases and Public Announcements. No Party shall issue
any press release or make any public announcement relating to the subject
matter of this Agreement prior to the Closing without the prior written
approval of the Buyer and the Seller; provided, however, that any Party
may make any public disclosure it believes in good faith is required by
applicable law (in which case the disclosing Party will use its best
efforts to advise the other Parties prior to making the disclosure).
(b) No Third-Party Beneficiaries. This Agreement shall not confer
any rights or remedies upon any Person other than the Parties and their
respective successors and permitted assigns.
(c) Entire Agreement. This Agreement (including the documents
referred to herein) constitutes the entire agreement among the Parties
and supersedes any prior understandings, agreements, or representations
by or among the Parties, written or oral, to the extent they related in
any way to the subject matter hereof.
(d) Succession and Assignment. This Agreement shall be binding
upon and inure to the benefit of the Parties named herein and their
respective successors and permitted assigns. No Party may assign either
this Agreement or any of his, her, or its rights, interests, or
obligations hereunder without the prior written approval of the Buyer and
the Seller; provided, however, that the Buyer may (i) assign any or all
of its rights and interests hereunder to one or more of its Affiliates
and (ii) designate one or more of its Affiliates to perform its
obligations hereunder (in any or all of which cases the Buyer nonetheless
shall remain responsible for the performance of all of its obligations
hereunder).
(e) Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument.
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<PAGE>
(f) Headings. The section headings contained in this Agreement are
inserted for convenience only and shall not affect in any way the meaning
or interpretation of this Agreement.
(g) Notices. All notices, requests, demands, claims, and other
communications hereunder will be in writing. Any notice, request,
demand, claim, or other communication hereunder shall be deemed duly
given if (and then two business days after) it is sent by registered or
certified mail, return receipt requested, postage prepaid, and addressed
to the intended recipient as set forth below:
If to any Seller,
c/o Agent Sellers: Marc N. Geman
c/o 3855 South Dahlia Street
Englewood, CO 80110
Don Cox
c/o Juices Wild
1015 South Cimarron Road
Las Vegas, NV 89128
Louis H. Marks
c/o M&R Enterprises
8707 Skokie Blvd., #301
Skokie, IL 60077-2292
Copy to: Smith McCullough, P.C.
4643 South Ulster Street Suite 900
Denver, CO 80237
If to the Buyer: Mrs. Fields' Original Cookies, Inc.
ATTN: Legal Department
2855 E. Cottonwood Parkway, Suite 400
Salt Lake City, UT 84121
Copy to: Jones, Waldo, Holbrook & McDonough
ATTN: Glen D. Watkins
1500 Wells Fargo Plaza
170 So. Main Street
Salt Lake City, UT 84101
Any Party may send any notice, request, demand, claim, or other
communication hereunder to the intended recipient at the address set forth
above using any other means
57
<PAGE>
(including personal delivery, expedited courier, messenger service,
telecopy, telex, ordinary mail, or electronic mail), but no such notice,
request, demand, claim, or other communication shall be deemed to have been
duly given unless and until it actually is received by the intended
recipient. Any Party may change the address to which notices, requests,
demands, claims, and other communications hereunder are to be delivered by
giving the other Parties notice in the manner herein set forth.
(h) Governing Law. This Agreement shall be governed by and construed
in accordance with the domestic laws of the State of Utah without giving
effect to any choice or conflict of law provision or rule (whether of the
State of Utah or any other jurisdiction) that would cause the application of
the laws of any jurisdiction other than the State of Utah.
(i) Amendments and Waivers. No amendment of any provision of this
Agreement shall be valid unless the same shall be in writing and signed by
the Buyer and the Seller. No waiver by any Party of any default,
misrepresentation, or breach of warranty or covenant hereunder, whether
intentional or not, shall be deemed to extend to any prior or subsequent
default, misrepresentation, or breach of warranty or covenant hereunder or
affect in any way any rights arising by virtue of any prior or subsequent
such occurrence.
(j) Severability. Any term or provision of this Agreement that is
invalid or unenforceable in any situation in any jurisdiction shall not
affect the validity or enforceability of the remaining terms and provisions
hereof or the validity or enforceability of the offending term or provision
in any other situation or in any other jurisdiction.
(k) Expenses. Each of the Parties will bear his or its own costs and
expenses (including legal fees and expenses) incurred in connection with
this Agreement and the transactions contemplated hereby, provided that the
Company shall pay the costs and expenses of the Sellers in connection with
this Agreement up to the Closing. Nothing in this section shall be
construed to affect the Working Capital Requirement.
(l) Construction. The Parties have participated jointly in the
negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be
construed as if drafted jointly by the Parties and no presumption or burden
of proof shall arise favoring or disfavoring any Party by virtue of the
authorship of any of the provisions of this Agreement. Any reference to any
federal, state, local, or foreign statute or law shall be deemed also to
refer to all rules and regulations promulgated thereunder, unless the
context requires otherwise. The word "including" shall mean including
without limitation. The Parties intend that each representation, warranty,
and covenant contained herein shall have independent significance. If any
Party has breached any representation, warranty, or covenant
58
<PAGE>
contained herein in any respect, the fact that there exists another
representation, warranty, or covenant relating to the same subject matter
(regardless of the relative levels of specificity) which the Party has not
breached shall not detract from or mitigate the fact that the Party is in
breach of the first representation, warranty, or covenant.
(m) Incorporation of Exhibits, Annexes, and Schedules. The Exhibits,
Annexes, and Schedules identified in this Agreement are incorporated herein
by reference and made a part hereof.
(n) Dispute Resolution. Any dispute arising out of or relating to
this Agreement, including, but not limited to, claims for indemnification
pursuant to Section 8 shall be resolved in accordance with the procedures
specified in this Section 9(n), which shall be the sole and exclusive
procedures for the resolution of any such disputes; provided, however, that
-------- -------
this Section 9(n) shall not apply to or govern the Parties' resolution of
any Objections to the Closing Balance Sheets (for which the provisions of
(S) 2(h) constitute the sole and exclusive dispute resolution procedures
therefor).
(i) The Parties shall attempt in good faith to resolve any dispute
arising out of or relating to this Agreement promptly by negotiation
between the Sellers and their appointed representatives and executives
of Buyer who, if possible, are at a higher level of management than the
persons with direct responsibility for administration of this
Agreement.
(A) Any Party may give the other Party written notice of any
dispute not resolved in the normal course of business. Within
fifteen (15) days after delivery of the notice, the receiving
Party shall submit to the other a written response. The notice
and response shall include (1) a statement of each Party's
position and a summary of arguments supporting that position, and
(2) the name and title of the executives or representatives who
will represent that Party and of any other person who will
accompany the executives or representatives. Within thirty (30)
days after delivery of the disputing Party's notice, the
executives or representatives of the Parties shall meet at a
mutually acceptable time and place, and thereafter as often as
they reasonably deem necessary, to attempt to resolve the dispute.
All reasonable requests for information made by one Party to the
other will be honored.
(B) If the matter has not been resolved by these persons
within sixty (60) days of the disputing Party's notice, or if the
parties fail to meet within thirty (30) days of the disputing
Party's notice, either Party may initiate mediation as provided
hereinafter.
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<PAGE>
(C) All negotiations pursuant to this clause are confidential
and shall be treated as compromise and settlement negotiations for
purposes of the Federal Rules of Evidence and State rules of
evidence.
(ii) If the dispute has not been resolved by negotiation as
provided herein, the Parties shall endeavor to settle the dispute by
nonbinding mediation and to bear equally the costs of the mediation.
The Parties will jointly appoint a mutually acceptable mediator
promptly after a request for mediation is made by any Party. The
Parties agree to participate in the mediation and all related
negotiations in good faith.
(iii) If the dispute has not been resolved by non-binding means as
provided herein within ninety (90) days of the initiation of such
procedure, either Party may initiate litigation (upon thirty (30) days'
written notice to the other Party); provided, however, that if one
Party has requested the other to participate in a non-binding procedure
and the other has failed to participate, the requesting Party may
initiate litigation before expiration of the above period.
(iv) The procedures specified in this Section 9(n) shall be the
sole and exclusive procedures for the resolution of disputes between
the Parties arising out of or relating to this Agreement; provided,
however, that a Party, without prejudice to the above procedures, may
file a complaint (for statute of limitations or venue reasons) or to
seek temporary or preliminary injunctive or other provisional judicial
relief, if in its sole judgment such action is necessary to avoid
irreparable damage or to preserve the status quo. Despite such action
the Parties will continue to participate in good faith in the
procedures specified in this Section.
(v) All applicable statues of limitation and defenses based upon
the passage of time shall be tolled while the procedures specified in
this Section are pending. The Parties will take such action, if any,
required to effectuate such tolling.
(vi) Each Party is required to continue to perform its obligations
under this Agreement pending final resolution of any dispute arising
out of or relating to this Agreement.
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(o) Submission to Jurisdiction. Each of the Parties submits to the
jurisdiction of any state or federal court sitting in Salt Lake City, Utah,
in any action or proceeding arising out of or relating to this Agreement and
agrees that all claims in respect of the action or proceeding may be heard
and determined in any such court. Each Party also agrees not to bring any
action or proceeding arising out of or relating to this Agreement in any
other court. Each of the Parties waives any defense of inconvenient forum
to the maintenance of any action or proceeding so brought and waives any
bond, surety, or other security that might be required of any other Party
with respect thereto. Each Party agrees that a final judgment in any action
or proceeding so brought shall be conclusive and may be enforced by suit on
the judgment or in any other manner provided by law or at equity.
(p) Attorneys' Fees. Should any litigation be commenced with respect
to any matters governed by this Agreement, the Party prevailing shall be
entitled, in addition to such other relief as may be granted, to a
reasonable sum for such Party's attorneys' fees and expenses determined by
the court in such litigation.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as
of the date first above written.
BUYER: MRS. FIELDS' ORIGINAL COOKIES, INC.
By: /s/ Michael Ward
----------------------------------
Its: Vice President
---------------------------------
COMPANY: PRETZELMAKER HOLDINGS, INC.
By: /s/ Marc Geman
----------------------------------
Its: CEO
---------------------------------
SELLERS:
/s/ Marc Geman
- ----------------------------------
Marc Geman
/s/ Marc N. Geman IRA /s/ Marty Geman IRA
- ---------------------------------- ---------------------------------
Marc N. Geman, IRA Marty Geman, IRA
S-1
<PAGE>
/s/ Donald Cox Jr. /s/ Jerrold H. Marks
- ----------------------------- ------------------------------
Donald G. Cox, Jr. Jerrold H. Marks
/s/ Louis H. Marks /s/ Jeffrey L. Katzell
- ----------------------------- ------------------------------
Louis H. Marks Dr. Jeffrey L. Katzell
/s/ John Capone /s/ Bonnie Capone
- ----------------------------- ------------------------------
John Capone Bonnie Capone
/s/ Jack Ruggles /s/ Mildred Ruggles
- ----------------------------- ------------------------------
Jack Ruggles Mildred Ruggles
/s/ Jeffrey Tripp /s/ April Tripp
- ----------------------------- ------------------------------
Jeffrey Tripp April Tripp
/s/ Dale Fowler /s/ Brian Woods
- ----------------------------- ------------------------------
Dale Fowler Brian Woods
/s/ Anthony D. Joseph /s/ Lynn Gore
- ----------------------------- ------------------------------
Anthony Joseph Lynn Gore
/s/ Mark Maximovich
- -----------------------------
Mark Maximovich
S-2
<PAGE>
JJJJM, LLC NORTHWESTERN TRUST,
FBO C. LEROY SCHENK, IRA
By: /s/ Eugene D. Johnson By: /s/ James P. McGovern
--------------------------- ---------------------------------------
Its: Managing Director Its: Vice President & Senior Trust Officer
-------------------------- --------------------------------------
COLORADO PRETZEL PARTNERSHIP WILLIAM WIENER, IN TRUST FOR
MICHAEL WIENER
By: /s/ Michael Opatowski By: /a/ William Wiener
--------------------------- --------------------------------------
Its: Its: Trustee
-------------------------- -------------------------------------
WILLIAM WIENER, IN TRUST FOR
KEVIN WIENER
By: /s/ William Wiener
---------------------------
Its: Trustee
--------------------------
S-3
<PAGE>
EXHIBIT A
ATTACH LTM EBITDA ADJUSTMENT
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EXHIBIT B
ATTACH LIST OF SELLERS AND ESTIMATED COMPANY SHARES OWNED
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EXHIBIT C
OLD--NEEDS TO BE REVISED!!!
===========================
PURCHASE PRICE ESTIMATED ALLOCATIONS AND DEDUCTIONS
ALLOCATIONS
SHAREHOLDER NET PROCEEDS %
Marc Geman (Promissory Note) 22.7632%
Marc Geman (Cash)/*/ 11.5695%
Geman IRA's 1.6629%
Louis Marks 9.6440%
Jerrold Marks 9.6440%
JJJJM, LLC 7.7156%
John & Bonnie Capone 1.9291%
Colorado Pretzel Partnership 1.9291%
LeRoy Schenk IRA 1.9291%
Jeffery & April Trip/**/ 4.8000%
Bill Weiner, Trustee 1.9291%
Dr. Jeffrey L. Katzell 0.9642%
Don Cox 17.6369%
Jack & Mildred Ruggles 2.8933%
Brian Woods 0.4800%
Anthony Joseph/*/ 1.3694%
Dale Fowler 0.4562%
Lynn Gore/*/ 0.2285%
Mark Maximovich/*/ 0.4562%
100.000%
- ---------------------------------
/*/ Tax on option exercise to be withheld from option employees gross proceeds
and remitted to Pretzelmaker, Inc.
/**/ Sixteen Thousand Dollars ($16,000.00) to be withheld from Sellers Tripp and
remitted to Pretzelmaker, Inc. in settlement of past royalties and advertising
fees.
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EXHIBIT D
ATTACH ESCROW AGREEMENT
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EXHIBIT E
ATTACH FINANCIAL STATEMENTS OF THE COMPANY
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EXHIBIT F
ATTACH FORM OF SELLERS' OPINION
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ANNEX II
EXCEPTIONS TO BUYER'S REPRESENTATIONS
NONE.
