<PAGE> 1
EXHIBIT 1.1
KRISPY KREME DOUGHNUTS, INC.
2,000,000 Shares of Common Stock
Underwriting Agreement
, 2001
Deutsche Bank Securities Inc.(1)
J.P. Morgan Securities Inc.
Dain Rauscher Incorporated
Scott & Stringfellow, Inc.
As Representatives of the several Underwriters
listed in Schedule I hereto
c/o Deutsche Bank Securities Inc.
One South Street
Baltimore, MD 21202
Ladies and Gentlemen:
Krispy Kreme Doughnuts, Inc., a North Carolina corporation (the
"Company"), and certain shareholders of the Company named in Schedule II hereto
(the "Selling Shareholders") propose to sell to the several underwriters named
in Schedule I hereto (the "Underwriters"), for whom you are acting as
representatives (the "Representatives"), an aggregate of 2,000,000 shares of the
Company's common stock, no par value(the "Common Stock"), of that 150,000 shares
will be sold by the Company and 1,850,000 shares will be sold by the Selling
Shareholders (collectively, the "Underwritten Shares"). The Company and the
Selling Shareholders are sometimes referred to herein collectively as the
"Sellers." In addition, at the option of the Underwriters and for the sole
purpose of covering over-allotments in connection with the sale of the
Underwritten Shares, the Company and certain Selling Shareholders also propose
to sell to the Underwriters an aggregate of up to 300,000 additional shares of
the Company's Common Stock (the "Option
---------------
(1) N.B. - Following the merger of our two U.S. Broker dealers, which is
expected to occur in January 2001, our legal name will change to
"Deutsche Banc Alex. Brown Inc."
<PAGE> 2
Shares"). The Underwritten Shares and the Option Shares (to the extent the
aforementioned option is exercised) are herein collectively called the "Shares."
The Common Stock, including the Shares, will have attached thereto
rights (the "Rights") to purchase one one-hundredth (1/100) of a share of Series
A Participating Cumulative Preferred Stock, $1.00 par value per share (the
"Series A Preferred Stock"). The Rights are to be issued pursuant to a Rights
Agreement (the "Rights Agreement") dated as of January 18, 2000 between the
Company and Branch Banking and Trust Company.
The Company has prepared and filed with the Securities and Exchange
Commission (the "Commission") in accordance with the provisions of the
Securities Act of 1933, as amended, and the rules and regulations of the
Commission thereunder (collectively, the "Securities Act"), a registration
statement, including a prospectus, relating to the Shares and the Rights. The
registration statement as amended at the time when it shall become effective,
including information (if any) deemed to be part of the registration statement
at the time of effectiveness pursuant to Rule 430A under the Securities Act, is
referred to in this Agreement as the "Registration Statement," and the
prospectus in the form first used to confirm sales of Shares is referred to in
this Agreement as the "Prospectus." Each preliminary prospectus contained in the
Registration Statement prior to the time it becomes effective is referred to in
this Agreement as a "Preliminary Prospectus." If the Company has filed an
abbreviated registration statement pursuant to Rule 462(b) under the Securities
Act (the "Rule 462 Registration Statement"), then any reference herein to the
term "Registration Statement" shall be deemed to include such Rule 462
Registration Statement.
1. The Company agrees to issue and sell the Underwritten
Shares to be sold by the Company, and the Selling Shareholders agree, severally
and not jointly, to sell the Underwritten Shares set forth opposite the name of
each such Selling Shareholder on Schedule II hereto to the several Underwriters
as hereinafter provided, and each Underwriter, upon the basis of the
representations and warranties herein contained, but subject to the conditions
hereinafter stated, agrees to purchase, severally and not jointly, from each of
the Company and each Selling Shareholder at a purchase price per share of $ (the
"Purchase Price") the number of Underwritten Shares (to be adjusted by you so as
to eliminate fractional shares) determined by multiplying the aggregate number
of Underwritten Shares to be sold by each of the Company and each Selling
Shareholder, as the case may be, by a fraction, the numerator of that is the
aggregate number of Underwritten Shares to be purchased by such Underwriter as
set forth opposite the name of such Underwriter in Schedule I hereto (or such
number as increased as set forth in Section 9 hereto) and the denominator of
that is the aggregate number of Underwritten Shares to be purchased by all the
Underwriters from the Company and all of the Selling Shareholders hereunder.
-2-
<PAGE> 3
In addition, the Company agrees to issue and sell up to 71,675 Option
Shares to the several Underwriters as hereinafter provided, and certain of the
Selling Shareholders agree, severally and not jointly, to sell up to the number
of Option Shares indicated on Schedule II hereto to the several Underwriters as
hereinafter provided, and the Underwriters, on the basis of the representations
and warranties herein contained, but subject to the conditions hereinafter
stated, shall have the option to purchase, severally and not jointly, from each
of the Company and each such Selling Shareholder, for the sole purpose of
covering over-allotments (if any) in the sale of Underwritten Shares by the
several Underwriters, all or any portion of the Option Share at the Purchase
Price. The number of Option Shares to be purchased by each Underwriter from each
of the Company and each Selling Shareholder selling Option Shares shall be that
number of Option Shares (to be adjusted by you so as to eliminate fractional
shares) determined by multiplying the aggregate number of Option Shares to be
sold by the Company or such Selling Shareholder, as the case may be, by a
fraction, the numerator of that is the aggregate number of Option Shares to be
purchased by such Underwriter (or such number increased as set forth in Section
9 hereof) and the denominator of that is the aggregate number of Option Shares
to be purchased by all the Underwriters from the Company and the Selling
Shareholders hereunder.
The Underwriters may exercise the option to purchase the Option Shares
in whole or in part at any time (but not more than once) on or before the
thirtieth day following the date of this Agreement, by written notice from the
Representatives to the Company and to the Attorneys-in-Fact (as defined below).
Such notice shall set forth the aggregate number of Option Shares as to that the
option is being exercised and the date and time when the Option Shares are to be
delivered and paid for, that may be the same date and time as the Closing Date
(as hereinafter defined) but shall not be earlier than the Closing Date or later
than the tenth full Business Day (as hereinafter defined) after the date of such
notice (unless such time and date are postponed in accordance with the
provisions of Section 9 hereof). Any such notice shall be given at least two
Business Days prior to the date and time of delivery specified therein.
2. The Company and the Selling Shareholders understand
that the Underwriters intend (A) to make a public offering of the Shares as soon
after (i) the Registration Statement has become effective (if it has not already
become effective) and (ii) the parties hereto have executed and delivered this
Agreement, as in the judgment of the Representatives is advisable and (B)
initially to offer the Shares upon the terms set forth in the Prospectus.
3. Payment for the Shares shall be made by wire transfer
in immediately available funds (A) to the account specified to the
Representatives by the Company with regard to
-3-
<PAGE> 4
payment to the Company in the case of the Underwritten Shares to be issued and
sold by the Company and to the account specified by the Attorneys-in-Fact with
regard to payment to the Selling Shareholders with regard to the Underwritten
Shares to be sold by the Selling Shareholders, on , 2001, or at such
other time on the same or such other date, not later than the fifth Business Day
thereafter, as the Representatives and the Company and the Selling Shareholders
may agree upon in writing or (B) to the account specified to the Representatives
by the Company with regard to payment to the Company with regard to the Option
Shares to be sold by the Company and to the account specified by the
Attorneys-in-Fact with regard to the Option Shares to be sold by the Selling
Shareholders on the date and time specified by the Representatives in the
written notice of the Underwriters' election to purchase such Option Shares. The
time and date of such payment for the Underwritten Shares are referred to herein
as the "Closing Date" and the time and date for such payment for the Option
Shares, if other than the Closing Date, are referred to herein as the
"Additional Closing Date." As used herein, the term "Business Day" means a day
on that the New York Stock Exchange is open for trading and on that banks in New
York are open for business and not permitted by law or executive order to be
closed.
Payment for the Shares to be purchased on the Closing Date or the
Additional Closing Date, as the case may be, shall be made against delivery to
the Representatives for the respective accounts of the several Underwriters of
the Shares to be purchased on such date registered in such names and in such
denominations as the Representatives shall request in writing not later than two
full Business Days prior to the Closing Date or the Additional Closing Date, as
the case may be, with any transfer taxes payable in connection with the transfer
to the Underwriters of the Shares duly paid by the Company or the Selling
Shareholders, as the case may be. The certificates for the Shares will be made
available for inspection and packaging by the Representatives at the office of
Deutsche Bank Securities Inc. set forth above not later than 1:00 P.M., New York
time, on the Business Day prior to the Closing Date or the Additional Closing
Date, as the case may be.
4. (A) The Company represents and warrants to each
Underwriter that:
(i) no order preventing or suspending the use of
any Preliminary Prospectus has been issued by the Commission,
and each Preliminary Prospectus filed as part of the
Registration Statement as originally filed or as part of any
amendment thereto, or filed pursuant to Rule 424 under the
Securities Act, complied when so filed in all material
respects with the Securities Act, and did not contain an
untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances
under that they were made, not misleading; provided that this
representation and warranty shall not apply to any
statements or omissions made in reliance upon and in
-4-
<PAGE> 5
conformity with information relating to any Underwriter
furnished to the Company in writing by such Underwriter
through the Representatives expressly for use therein;
(ii) no stop order suspending the effectiveness
of the Registration Statement has been issued and no
proceeding for that purpose has been instituted or, to the
best knowledge of the Company, threatened by the Commission;
and the Registration Statement and Prospectus (as amended or
supplemented if the Company shall have furnished any
amendments or supplements thereto) comply, or will comply, as
the case may be, in all material respects with the Securities
Act and do not and will not, as of the applicable effective
date as to the Registration Statement and any amendment
thereto and as of the date of the Prospectus and any amendment
or supplement thereto, contain any untrue statement of a
material fact or omit to state any material fact required to
be stated therein or necessary to make the statements therein
not misleading, and the Prospectus, as amended or
supplemented, if applicable, at the Closing Date or Additional
Closing Date, as the case may be, will not contain any untrue
statement of a material fact or omit to state a material fact
necessary to make the statements therein, in light of the
circumstances under that they were made, not misleading;
except that the foregoing representations and warranties shall
not apply to statements or omissions in the Registration
Statement or the Prospectus made in reliance upon and in
conformity with information relating to any Underwriter
furnished to the Company in writing by such Underwriter
through the Representatives expressly for use therein;
(iii) the financial statements, and the related
notes thereto, included in the Registration Statement and the
Prospectus present fairly the consolidated financial position
of the Company and its consolidated Subsidiaries (as defined
below) and, as of the dates indicated and the results of their
operations and changes in their consolidated cash flows for
the periods specified; said financial statements have been
prepared in conformity with generally accepted accounting
principles applied on a consistent basis; and the supporting
schedules included in the Registration Statement present
fairly the information required to be stated therein;
(iv) since the respective dates as of that
information is given in the Registration Statement and the
Prospectus, there has not been any change in the capital stock
or long-term debt of the Company or any of its Subsidiaries,
or any material adverse change, or any development involving a
prospective material adverse change, in or affecting the
general affairs, business,
-5-
<PAGE> 6
prospects, management, financial position, shareholders'
equity or results of operations of the Company and its
Subsidiaries, taken as a whole (a "Material Adverse Change"),
otherwise than as set forth or contemplated in the Prospectus;
and except as set forth or contemplated in the Prospectus,
none of the Company nor any of its Subsidiaries has entered
into any transaction or agreement (whether or not in the
ordinary course of business) material to the Company and its
Subsidiaries, taken as a whole;
(v) the Company has been duly incorporated and
is validly existing as a corporation in good standing under
the laws of its jurisdiction of incorporation, with power and
authority (corporate and other) to own its properties and
conduct its business as described in the Prospectus, and has
been duly qualified as a foreign corporation for the
transaction of business and is in good standing under the laws
of each other jurisdiction in that it owns or leases
properties, or conducts any business, so as to require such
qualification, other than where the failure to be so qualified
or in good standing would not have a material adverse effect
on the general affairs, business, prospects, management,
financial position, shareholders' equity or results of
operations of the Company and its Subsidiaries, taken as a
whole (a "Material Adverse Effect");
(vi) each of the Company's subsidiaries, as
listed in Exhibit 21.1 to Item 16(a) of the Registration
Statement (collectively, the "Subsidiaries"), has been duly
incorporated or organized and is validly existing as a
corporation under the laws of its jurisdiction of
incorporation or organization, with power and authority
(corporate and other) to own its properties and conduct its
business as described in the Prospectus, and has been duly
qualified as a foreign corporation for the transaction of
business and is in good standing under the laws of each
jurisdiction in that it owns or leases properties, or conducts
any business, so as to require such qualification, other than
where the failure to be so qualified or in good standing would
not have a Material Adverse Effect; and all the outstanding
shares of capital stock of each subsidiary of the Company have
been duly authorized and validly issued, are fully-paid and
non-assessable, and (except, in the case of foreign
subsidiaries, for directors' qualifying shares and except as
set forth in the Prospectus) are owned by the Company,
directly or indirectly, free and clear of all liens,
encumbrances, security interests and claims;
(vii) this Agreement has been duly authorized,
executed and delivered by the Company;
-6-
<PAGE> 7
(viii) the Company has an authorized capitalization
as set forth in the Prospectus, and all of the outstanding
shares of capital stock of the Company have been duly
authorized and validly issued, are fully-paid and
non-assessable and are not subject to any pre-emptive or
similar rights; and, except as set forth in or contemplated by
the Prospectus, there are no outstanding rights (including,
without limitation, pre-emptive rights), warrants or options
to acquire, or instruments convertible into or exchangeable
for, any shares of capital stock or other equity interest in
the Company or any of its Subsidiaries, or any contract,
commitment, agreement, understanding or arrangement of any
kind relating to the issuance of any capital stock of the
Company or any such subsidiary, any such convertible or
exchangeable securities or any such rights, warrants or
options;
(ix) the Shares have been duly authorized, and,
when issued and delivered to and paid for by the Underwriters
in accordance with the terms of this Agreement, will be duly
issued and will be fully paid and non-assessable and will
conform to the description thereof in the Prospectus; and the
issuance of such Shares is not subject to any preemptive or
similar rights;
(x) the Rights Agreement has been duly
authorized, executed and delivered by the Company; the Rights
have been duly authorized by the Company and, when issued upon
issuance of the Shares, will be validly issued, and Series A
Preferred Stock has been duly authorized by the Company and
validly reserved for issuance upon the exercise of the Rights
and, when issued upon exercise in accordance with the terms of
the Rights Agreement, will be validly issued, fully paid and
non-assessable;
(xi) none of the Company nor any of its
Subsidiaries is, or with the giving of notice or lapse of time
or both would be, in violation of or in default under its
certificate or articles of incorporation or by-laws or any
indenture, mortgage, deed of trust, loan agreement or other
agreement or instrument to that any of the Company or any of
its Subsidiaries is a party or by that it or any of them or
any of their respective properties is or will be bound, except
for violations and defaults that individually and in the
aggregate are not material to the Company and its
Subsidiaries, taken as a whole; the issue and sale of the
Shares to be sold by the Company hereunder and the performance
by the Company of its obligations under this Agreement and the
consummation of the transactions contemplated herein will not
conflict with or result in a breach of any of the terms or
provisions of, or constitute a default under, any indenture,
mortgage, deed of trust, loan
-7-
<PAGE> 8
agreement or other agreement or instrument to that the Company
or any of its Subsidiaries is a party or by that the Company
or any of its Subsidiaries is bound or to that any of the
property or assets of the Company or any of its Subsidiaries
is subject, nor will any such action result in any violation
of the provisions of the certificate or articles of
incorporation or the by-laws of the Company or any of its
Subsidiaries or any applicable law or statute or any order,
rule or regulation of any court or governmental agency or body
having jurisdiction over any of the Company, its Subsidiaries
or any of their respective properties; and no consent,
approval, authorization, order, license, registration or
qualification of or with any such court or governmental agency
or body is required for the issue and sale of the Shares to be
sold by the Company hereunder or the consummation by the
Company of the transactions contemplated by this Agreement,
except such consents, approvals, authorizations, orders,
licenses, registrations or qualifications as have been
obtained under the Securities Act and as may be required under
state securities or Blue Sky Laws in connection with the
purchase and distribution of the Shares by the Underwriters;
(xii) other than as set forth or contemplated in
the Prospectus, there are no legal or governmental
investigations, actions, suits or proceedings pending or, to
the knowledge of the Company, threatened against or affecting
the Company, any of its Subsidiaries or any of their
respective properties or to that the Company or any of its
Subsidiaries is a party or to that any property of the Company
or any of its Subsidiaries is, or may be the subject that, if
determined adversely to the Company or any of its
Subsidiaries, could individually or in the aggregate have, or
reasonably be expected to have, a Material Adverse Effect,
and, to the best knowledge of the Company, no such proceedings
are threatened or contemplated by governmental authorities or
threatened by others; to the knowledge of the Company, there
are no legal or governmental investigations, actions, suits or
proceedings pending against or affecting any Krispy Kreme
franchisee that, if determined adversely, could individually
or in the aggregate have, or reasonably be expected to have, a
Material Adverse Effect; and there are no statutes,
regulations, contracts or other documents that are required to
be described in the Registration Statement or the Prospectus
or to be filed as exhibits to the Registration Statement that
are not described or filed as required;
(xiii) the Company and its Subsidiaries have good
and marketable title in fee simple to all items of real
property and good and marketable title to all personal
property owned by them, in each case free and clear of all
-8-
<PAGE> 9
liens (except for the Company's property in Wilmington,
Delaware), encumbrances and defects except such as are set
forth or referred to in the Prospectus or such as do not
materially affect the value of such property and do not
interfere with the use made or proposed to be made of such
property by the Company and its Subsidiaries; and any real
property and buildings held under lease by the Company and its
Subsidiaries are held by them under valid, existing and
enforceable leases with such exceptions as are not material
and do not interfere with the use made or proposed to be made
of such property and buildings by the lessee;
(xiv) no relationship, direct or indirect, exists
between or among the Company or any of its Subsidiaries, on
the one hand, and their directors, officers, shareholders,
customers or suppliers, on the other hand, that is required to
be described in the Registration Statement or the Prospectus
that is not described as required;
(xv) no person has the right to require the
Company to register any securities for offering and sale under
the Securities Act by reason of the filing of the Registration
Statement with the Commission or the issue and sale of the
Shares to be sold by the Company and the Selling Shareholders
hereunder;
(xvi) the Company is not and, after giving effect
to the offering and sale of the Shares, and application of the
net proceeds therefrom as described in the Prospectus, will
not be an "investment company" or an entity "controlled" by an
"investment company," as such terms are defined in the
Investment Company Act of 1940, as amended (the "Investment
Company Act");
(xvii) to the knowledge of the Company,
PricewaterhouseCoopers LLP ("PricewaterhouseCoopers"), who
have certified certain financial statements filed with the
Commission as part of the Registration Statement and the
Prospectus, are independent public accountants as required by
the Securities Act and the rules and regulations thereunder;
(xviii) the Company and its Subsidiaries have filed
all federal, state, local, foreign and franchise tax returns,
that have been required to be filed and have paid all taxes
shown thereon and all assessments received by them or any of
them to the extent that such taxes have become due and are not
being contested in good faith that would have or could
reasonably be expected to have a Material Adverse Effect; and,
except as disclosed in the
-9-
<PAGE> 10
Registration Statement and the Prospectus, to the knowledge of
the Company, there is no tax deficiency that has been or might
reasonably be expected to be asserted or threatened against
the Company or any of its Subsidiaries that would have or
could reasonably be expected to have a Material Adverse
Effect;
(xix) neither the Company nor, to the Company's
knowledge, any of its affiliates, has taken or may take,
directly or indirectly, any action designed to cause or result
in, or that has constituted or that might reasonably be
expected to constitute, the stabilization or manipulation of
the price of the Shares of the Common Stock to facilitate the
sale or resale of the Shares. The Company acknowledges that
the Underwriters may engage in passive market making
transactions in the Shares of the Nasdaq Stock Market in
accordance with Regulation M under the Exchange Act;
(xx) the Company and each of its Subsidiaries
owns, possesses or has obtained all material licenses,
permits, certificates, consents, orders, approvals, franchises
and other authorizations from, and has made all declarations
and filings with, all federal, state, local and other
governmental authorities (including foreign regulatory
agencies), all self-regulatory organizations and all courts
and other tribunals, domestic or foreign, necessary to own or
lease, as the case may be, and to operate its properties and
to carry on its business as conducted as of the date hereof,
except where the failure to own, possess or obtain such
licenses, permits, certificates, consents, orders, approvals,
franchises and other authorizations would not, individually or
in the aggregate, have a Material Adverse Effect; and neither
the Company nor any of its Subsidiaries has received any
actual notice of any proceeding relating to revocation or
modification of any such license, permit, certificate,
consent, order, approval, franchise or other authorization,
except as set forth in the Registration Statement and the
Prospectus; and the Company and each of its Subsidiaries is in
compliance with all material laws and regulations relating to
the conduct of its business as conducted as of the date
hereof;
(xxi) the Company and its Subsidiaries are in
compliance in all material respects with the applicable
requirements of the Federal Trade Commission (the "FTC") rules
governing franchising and all applicable provisions of
federal, state, local and other laws or regulations governing
the business of a franchisor;
-10-
<PAGE> 11
(xxii) there are no existing or, to the best
knowledge of the Company, threatened labor disputes with any
employees of the Company or any of its Subsidiaries that might
reasonably be expected to have a Material Adverse Effect;
(xxiii) the Company and its Subsidiaries are (i) in
material compliance with any and all applicable foreign,
federal, state and local laws and regulations relating to the
protection of human health and safety, the environment or
hazardous or toxic substances or wastes, pollutants or
contaminants ("Environmental Laws"), (ii) in receipt of all
permits, licenses or other approvals required of them under
applicable Environmental Laws to conduct their respective
businesses and (iii) in compliance with the terms and
conditions of any such permit, license or other approval,
except where such noncompliance with Environmental Laws,
failure to receive required permits, licenses or other
approvals or failure to comply with the terms and conditions
of such permits, licenses or other approvals would not, singly
or in the aggregate, have a Material Adverse Effect;
(xxiv) each employee benefit plan, within the
meaning of Section 3(3) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), that is
maintained, administered or contributed to by the Company or
any of its Subsidiaries or affiliates for employees or former
employees of the Company, its Subsidiaries and its affiliates
has been maintained in compliance with its terms and the
requirements of any applicable statutes, orders, rules and
regulations, including but not limited to ERISA and the
Internal Revenue Code of 1986, as amended ("Code"). No ----
prohibited transaction, within the meaning of Section 406 of
ERISA or Section 4975 of the Code, has occurred with respect
to any such plan excluding transactions effected pursuant to a
statutory or administrative exemption. For each such plan that
is subject to the funding rules of Section 412 of the Code or
Section 302 of ERISA, no "accumulated funding deficiency" as
defined in Section 412 of the Code has been incurred, whether
or not waived, and the fair market value of the assets of each
such plan (excluding for these purposes accrued but unpaid
contributions) exceeds the present value of all benefits
accrued under such plan determined using reasonable actuarial
assumptions;
(xxv) except as set forth in the Prospectus, the
Company and each of its Subsidiaries owns, is licensed to use
or otherwise possesses adequate rights to use the patents,
patent rights, licenses, inventions, trademarks, service
marks, trade names, copyrights and know-how, including trade
-11-
<PAGE> 12
secrets and other unpatented and/or unpatentable proprietary
or confidential information, systems or procedures
(collectively, the "Intellectual Property"), necessary to
carry on the business conducted by it, except to the extent
that the failure to own, be licensed to use or otherwise
possess adequate rights to use such Intellectual Property
would not have a Material Adverse Effect; except as set forth
in the Prospectus, neither the Company nor any of its
Subsidiaries has received any notice of infringement of or
conflict with (and the Company has no knowledge of any
infringement of or conflict with) asserted rights of others
with respect to Intellectual Property of the Company and its
Subsidiaries that could have a Material Adverse Effect; the
discoveries, inventions, products or processes of the Company
and its Subsidiaries referred to in the Registration Statement
and the Prospectus do not, to the best knowledge of the
Company, infringe or conflict with any right or patent of any
third party, or any discovery, patent product or process that
is the subject of a patent application filed by any third
party, known to the Company that could have a Material Adverse
Effect;
(xxvi) the statistical and market-related data
included in the Registration Statement and the Prospectus are
based on or derived from sources that are believed by the
Company to be reliable;
(xxvii) the Company and each of its Subsidiaries
carry, or are covered by, insurance in such amounts and
covering such risks as is adequate for the conduct of their
business and the value of their properties and as is customary
for companies engaged in similar businesses in similar
industries
(xxviii) to the knowledge of the Company, there are
no affiliations or associations between any member of the NASD
and any of the Company's officers, directors or 5% or greater
security holders, except as set forth in the Registration
Statement; and
(xxix) except for compensation to be received by
the Underwriters under this Agreement, the Company or any of
its Subsidiaries does not know of any outstanding claims for
services, either in the nature of a finder's fee or
origination fee, with respect to any of the transactions
contemplated hereby.
(B) Each of the Selling Shareholders severally represents
and warrants to, and agrees with, each of the Underwriters as follows:
-12-
<PAGE> 13
(i) Such Selling Shareholder now has and at the
Closing Date and the Additional Closing Date, as the case may
be, will have good and marketable title to the Underwritten
Shares and the Option Shares, if any, to be sold by such
Selling Shareholder, free and clear of any liens,
encumbrances, equities and claims, and full right, power and
authority to effect the sale and delivery of such Underwritten
Shares and Option Shares; and upon the delivery of, against
payment for, such Underwritten Shares and Option Shares
pursuant to this Agreement, the Underwriters will acquire good
and marketable title thereto, free and clear of any liens,
encumbrances, equities and claims;
(ii) Such Selling Shareholder has full right,
power and authority to execute and deliver this Agreement, the
Power of Attorney (the "Power of Attorney") and the Custody
Agreement (the "Custody Agreement") referred to below and to
perform its obligations under such Agreements. The execution
and delivery of this Agreement and the consummation by such
Selling Shareholder of the transactions herein contemplated
and the fulfillment by such Selling Shareholder of the terms
hereof will not require any consent, approval, authorization,
or other order of any court, regulatory body, administrative
agency or other governmental body (except as may be required
under the Securities Act, state securities laws or Blue Sky
laws) and will not result in a breach of any of the terms and
provisions of, or constitute a default under, organizational
documents of such Selling Shareholder, if not an individual,
or any indenture, mortgage, deed of trust or other agreement
or instrument to that such Selling Shareholder is a party, or
of any order, rule or regulation applicable to such Selling
Shareholder of any court or of any regulatory body or
administrative agency or other governmental body having
jurisdiction;
(iii) Such Selling Shareholder has not taken and
will not take, directly or indirectly, any action designed to,
or that has constituted, or that might reasonably be expected
to cause or result in the stabilization or manipulation of the
price of the Common Stock of the Company and, other than as
permitted by the Securities Act, the Selling Shareholder will
not distribute any prospectus or other offering material in
connection with the offering of the Shares; and
(iv) Without having undertaken to determine
independently the accuracy or completeness of either the
representations and warranties of the Company contained herein
or the information contained in the Registration Statement,
such Selling Shareholder has no reason to believe that the
-13-
<PAGE> 14
representations and warranties of the Company contained in
Section 4(A) are not true and correct, is familiar with the
Registration Statement and has no knowledge of any material
fact, condition or information not disclosed in the
Registration Statement that has adversely affected or may
adversely affect the business of the Company or any of its
Subsidiaries; and the sale of the Underwritten Shares and the
Option Shares by such Selling Shareholder pursuant hereto is
not prompted by any information concerning the Company or any
of its Subsidiaries that is not set forth in the Registration
Statement. The information pertaining to such Selling
Shareholder under the caption "Selling Shareholders" in the
Prospectus is complete and accurate in all material respects.
5. (A) The Company covenants and agrees with each of the
several Underwriters as follows:
(i) if the Registration Statement has not
already become effective, to use its best efforts to cause the
Registration Statement to become effective at the earliest
possible time and, if required, to file the final Prospectus
with the Commission within the time periods specified by Rule
424(b) and Rule 430A under the Securities Act and to file
promptly all reports and any definitive proxy or information
statements required to be filed by the Company with the
Commission pursuant to Section 13(a), 13(c), 14 or 15(d) of
the Exchange Act subsequent to the date of the Prospectus and
for so long as the delivery of a prospectus is required in
connection with the offering or sale of the Shares; and to
furnish copies of the Prospectus to the Underwriters in New
York prior to 10:00 a.m., New York time, on the Business Day
next succeeding the date of this Agreement in such quantities
as the Representatives may reasonably request;
(ii) to deliver, at the expense of the Company,
to the Representatives six signed copies of the Registration
Statement (as originally filed) and each amendment thereto, in
each case including exhibits, and to each other Underwriter a
conformed copy of the Registration Statement (as originally
filed) and each amendment thereto, in each case without
exhibits and, during the period mentioned in paragraph (e)
below, to each of the Underwriters as many copies of the
Prospectus (including all amendments and supplements thereto)
as the Representatives may reasonably request;
(iii) before filing any amendment or supplement to
the Registration Statement or the Prospectus, whether before
or after the time the Registration Statement becomes
effective, to furnish to the Representatives a copy of the
-14-
<PAGE> 15
proposed amendment or supplement for review and not to file
any such proposed amendment or supplement to that the
Representatives reasonably object;
(iv) to advise the Representatives promptly, and
to confirm such advice in writing (i) when the Registration
Statement has become effective, (ii) when any amendment to the
Registration Statement has been filed or becomes effective,
(iii) when any supplement to the Prospectus or any amended
Prospectus has been filed and to furnish the Representatives
with copies thereof, (iv) of any request by the Commission for
any amendment to the Registration Statement or any amendment
or supplement to the Prospectus or for any additional
information, (v) of the issuance by the Commission of any stop
order suspending the effectiveness of the Registration
Statement or of any order preventing or suspending the use of
any preliminary prospectus or the Prospectus or the initiation
or threatening of any proceeding for that purpose, (vi) of the
occurrence of any event, within the period referenced in
paragraph (e) below, as a result of that the Prospectus as
then amended or supplemented would include an untrue statement
of a material fact or omit to state any material fact
necessary in order to make the statements therein, in the
light of the circumstances when the Prospectus is delivered to
a purchaser, not misleading, and (vii) of the receipt by the
Company of any notification with respect to any suspension of
the qualification of the Shares for offer and sale in any
jurisdiction or the initiation or threatening of any
proceeding for such purpose; and to use its best efforts to
prevent the issuance of any such stop order, or of any order
preventing or suspending the use of any preliminary prospectus
or the Prospectus, or of any order suspending any such
qualification of the Shares, or notification of any such order
thereof and, if issued, to obtain as soon as possible the
withdrawal thereof;
(v) if, during such period of time after the
first date of the public offering of the Shares as in the
opinion of counsel for the Underwriters a prospectus relating
to the Shares is required by law to be delivered in connection
with sales by the Underwriters or any dealer, any event shall
occur as a result of that it is necessary to amend or
supplement the Prospectus in order to make the statements
therein, in light of the circumstances when the Prospectus is
delivered to a purchaser, not misleading, or if it is
necessary to amend or supplement the Prospectus to comply with
law, forthwith to prepare and furnish, at the expense of the
Company, to the Underwriters and to the dealers (whose names
and addresses the Representatives will furnish to the Company)
to that Shares
-15-
<PAGE> 16
may have been sold by the Representatives on behalf of the
Underwriters and to any other dealers upon request, such
amendments or supplements to the Prospectus as may be
necessary so that the statements in the Prospectus as so
amended or supplemented will not, in the light of the
circumstances when the Prospectus is delivered to a purchaser,
be misleading or so that the Prospectus will comply with law;
(vi) to endeavor to qualify the Shares for offer
and sale under the securities or Blue Sky laws of such
jurisdictions as the Representatives shall reasonably request
and to continue such qualification in effect so long as
reasonably required for distribution of the Shares; provided
that the Company shall not be required to file a general
consent to service of process in any jurisdiction;
(vii) to make generally available to its security
holders and to the Representatives as soon as practicable, but
in any event not later than 15 months after the effective date
of the Registration Statement, a consolidated earning
statement (in reasonable detail), covering a period of at
least 12 consecutive months beginning after the effective date
of the Registration Statement, that earning statement shall
satisfy the requirements of Section 11(a) of the Securities
Act and Rule 158 of the rules and regulations thereunder and
will advise you in writing when such statement has been so
made available;
(viii) for a period of three years from the Closing
Date, to furnish to the Representatives copies of all reports
or other communications (financial or other) furnished to
holders of the Shares, and copies of any reports and financial
statements furnished to or filed with the Commission or any
national securities exchange;
(ix) for a period of 90 days after the date of
the public offering of the Shares (the "Lock-Up Period") not
to (a) offer, pledge, announce the intention to sell, sell,
contract to sell, sell any option or contract to purchase,
purchase any option or contract to sell, grant any option,
right or warrant to purchase or otherwise transfer or dispose
of, directly or indirectly, any shares of Common Stock or any
securities of the Company that are substantially similar to
the Common Stock, including but not limited to, any securities
convertible into or exercisable or exchangeable for Common
Stock or (b) enter into any swap, option, future, forward or
other agreement that transfers, in whole or in part, any of
the economic consequences of ownership of the Common Stock or
any securities of the Company, whether
-16-
<PAGE> 17
any such transaction described in clause (a) or (b) above is
to be settled by delivery of Common Stock or such other
securities, in cash or otherwise without the prior written
consent of Deutsche Bank Securities Inc., other than the
Shares to be sold by the Company hereunder and any options
granted or shares of Common Stock issued upon the exercise of
options granted under any stock option plan or stock incentive
plan existing as of the date of this Agreement.
Notwithstanding the foregoing, the Company may issue shares of
its Common Stock during the Lock-Up Period in connection with
acquisitions, strategic alliances, joint ventures or
transactions with franchisees ("Excepted Transactions");
provided, however, that: (a) the Company shall give Deutsche
Bank Securities Inc. five days prior written notice of any
such issuance describing the Excepted Transaction in
reasonable detail and stating the number of shares of Common
Stock proposed to be issued in the Excepted Transaction, (b)
all Common Stock issued in connection with the Excepted
Transaction shall remain subject to the lock-up restrictions
of this paragraph 5(A)(ix) for the remainder of the Lock-Up
Period, (c) prior to any such issuance of Common Stock, each
person that is to acquire any such Common Stock shall sign a
lock-up agreement in form and substance reasonably acceptable
to Deutsche Bank Securities Inc. covering all such shares of
Common Stock for the remainder of the Lock-Up Period and (iv)
no such issuance shall be made unless and until the
requirements and conditions in the foregoing clauses (a), (b)
and (c) have been complied with and satisfied;
(x) to use the net proceeds received by the
Company from the sale of the Shares by the Company pursuant to
this Agreement in the manner specified in the Prospectus under
caption "Use of Proceeds";
(xi) to file with the Commission such reports as
may be required by Rule 463 under the Securities Act;
(xii) to not invest, or otherwise use the proceeds
received by the Company form it sale of the Shares in such a
manner as would require the Company or any of its Subsidiaries
to register as an investment company under the Investment
Company Act;
(xiii) to not take, directly or indirectly, any
action designed to cause or result in, or that has constituted
or might reasonably be expected to constitute, the
stabilization or manipulation of the price of any securities
of the Company; and
-17-
<PAGE> 18
(xiv) to use its best efforts to list for
quotation the Shares on the National Market System of The
Nasdaq Stock Market, Inc. (the "NNM").
(B) Each of the Selling Shareholders covenants and agrees
with each of the several Underwriters as follows:
(i) for a period of 90 days after the date of
the Prospectus not to (a) offer, pledge, announce the
intention to sell, sell, contract to sell, sell any option or
contract to purchase, purchase any option or contract to sell,
grant any option, right or warrant to purchase or otherwise
transfer or dispose of, directly or indirectly, any shares of
Common Stock or any securities convertible into or exercisable
or exchangeable for Common Stock or (b) enter into any swap or
other agreement that transfers, in whole or in part, any of
the economic consequences of ownership of the Common Stock,
whether any such transaction described in clause (a) or (b)
above is to be settled by delivery of Common Stock or such
other securities, in cash or otherwise, or (c) make any demand
for, or exercise any right with respect to, the registration
of any shares of Common Stock or any securities convertible
into or exercisable or exchangeable for Common Stock without
the prior written consent of the Representatives, in each case
other than the Shares to be sold by such Selling Shareholder
hereunder;
(ii) in order to document the Underwriters'
compliance with the reporting and withholding provisions of
the Tax Equity and Fiscal Responsibility Act of 1982 and the
Interest and Dividend Tax Compliance Act of 1983 with respect
to the transactions herein contemplated, each of the Selling
Shareholders agrees to deliver to you prior to or at the
Closing Date a properly completed and executed United States
Treasury Department Form W-8 or W-9 (or other applicable form
or statement specified by Treasury Department in lieu
thereof); and
(iii) such Selling Shareholder will not take,
directly or indirectly, any action designed to cause or result
in, or that has constituted or might reasonably be expected to
constitute, the stabilization or manipulation of the price of
any securities of the Company.
(C) whether or not the transactions contemplated in this
Agreement are consummated or this Agreement is terminated, the Company and the
Selling Shareholders agree to pay or cause to be paid all costs and expenses
incident to the performance of the Company's and the Selling Shareholders'
obligations hereunder, including without limiting the generality of the
foregoing, all costs and expenses (i) incident to the preparation,
-18-
<PAGE> 19
reregistration, transfer, execution and delivery of the Shares (including
reasonable accounting fees of the Company and fees and disbursements of counsel
for the Company and the Selling Shareholders), (ii) incident to the preparation,
printing and filing under the Securities Act of the Registration Statement, the
Prospectus and any preliminary prospectus (including in each case all exhibits,
amendments and supplements thereto), (iii) incurred in connection with the
registration or qualification of the Shares under the laws of such jurisdictions
as the Representatives may designate (including reasonable fees of counsel for
the Underwriters and its disbursements), (iv) in connection with the listing of
the Shares on the NNM, (v) related to the filing with, and clearance of the
offering by, the National Association of Securities Dealers, Inc., (vi) in
connection with the printing (including word processing and duplication costs)
and delivery of this Agreement, the Preliminary and Supplemental Blue Sky
Memoranda and the furnishing to the Underwriters and dealers of copies of the
Registration Statement and the Prospectus, including mailing and shipping, as
herein provided, (vii) any expenses incurred by the Company in connection with a
"road show" presentation to potential investors, (viii) the cost of preparing
stock certificates and (ix) the cost and charges of any transfer agent and any
registrar. The portion of costs and expenses allocated to the Company and each
Selling Shareholder in connection with the sale of the Underwritten Shares shall
be equal to an amount determined by multiplying the total costs and expenses
payable under this Section 5(C) times a number derived by dividing the number of
Underwritten Shares to be sold by each of the Company and each such Selling
Shareholder hereunder by the total number of Underwritten Shares to be sold by
the Company and all the Selling Shareholders hereunder, and such amount shall be
remitted to the Company by the custodian in accordance with the Custody
Agreement. The portion of the costs and expenses allocated to each of the
Company and each such Selling Shareholder in connection with the sale of any
Option Shares, if applicable, shall be equal to an amount determined by
multiplying the total incremental costs incurred under this Section 5(C) in
connection with the sale of the Option Shares times a number derived by dividing
the number of Option Shares to be sold by each of the Company and each such
Selling Shareholder hereunder by the total number of Option Shares to be sold by
the Company and all the Selling Shareholders hereunder, and such amount shall be
remitted to the Company by the custodian in accordance with the Custody
Agreement.
6. The several obligations of the Underwriters hereunder
to purchase the Shares on the Closing Date or the Additional Closing Date, as
the case may be, are subject to the performance by the Company and each of the
Selling Shareholders of their respective obligations hereunder and to the
following additional conditions:
(A) the Registration Statement and all post-effective
amendments thereto shall have become effective and any and all filings required
by Rule 424 and Rule 430A of the rules and regulations of the Securities Act
shall have been made, and any request of the Commission for additional
information (to be included in the Registration Statement or
-19-
<PAGE> 20
otherwise) shall have been disclosed to the Representatives and complied with to
their reasonable satisfaction not later than 5:00 P.M., New York time, on the
date hereof; and no stop order suspending the effectiveness of the Registration
Statement or any post-effective amendment shall be in effect, and no proceedings
for that purpose shall be pending before or, to the knowledge of the Company or
the Selling Shareholders, shall be threatened by the Commission and no
injunction, restraining order, or order of any nature by a Federal or state
court of competent jurisdiction shall have been issued as of the Closing Date
that would prevent the issuance of the Shares;
(B) the respective representations and warranties of the
Company and the Selling Shareholders contained herein are true and correct on
and as of the Closing Date or the Additional Closing Date, as the case may be,
as if made on and as of the Closing Date or the Additional Closing Date, as the
case may be, and each of the Company and the Selling Shareholders shall have
complied with all agreements and all conditions on its part to be performed or
satisfied hereunder at or prior to the Closing Date or the Additional Closing
Date, as the case may be;
(C) since the respective dates as of that information is
given in the Prospectus there shall not have been any change in the capital
stock or long-term debt of the Company or any of its Subsidiaries, or any
Material Adverse Change, or any development involving a prospective Material
Adverse Change, otherwise than as set forth or contemplated in the Prospectus,
the effect of that in the judgment of the Representatives makes it impracticable
or inadvisable to proceed with the public offering or the delivery of the Shares
on the Closing Date or the Additional Closing Date, as the case may be, on the
terms and in the manner contemplated in the Prospectus; and neither the Company
nor any of its Subsidiaries shall have sustained since the date of the latest
audited financial statements of the Company and its consolidated Subsidiaries
included in the Prospectus any material loss or interference with its business
from fire, explosion, flood or other calamity, whether or not covered by
insurance, or from any labor dispute or court or governmental action, order or
decree, otherwise than as set forth or contemplated in the Prospectus;
(D) the Representatives shall have received on and as of
the Closing Date or the Additional Closing Date, as the case may be, (i) a
certificate or certificates of the Chief Executive Officer and the Chief
Financial Officer of the Company to the effect that, as of the Closing Date or
the Additional Closing Date, as the case may be, each of them severally
represents as follows:
(a) the Registration Statement has become
effective under the Act and no stop order suspending the effectiveness
of the Registration Statement has been issued, and no proceedings for
such purpose have been taken or are, to his knowledge, contemplated by
the Commission;
-20-
<PAGE> 21
(b) the representations and warranties of the
Company contained in Section 1 hereof are true and correct as of the
Closing Date or the Additional Closing Date, as the case may be;
(c) all filings required to have been made
pursuant to Rules 424 or 430A under the Act have been made;
(d) he or she has carefully examined the
Registration Statement and the Prospectus and, in his or her opinion,
as of the effective date of the Registration Statement, the statements
contained in the Registration Statement were true and correct, and such
Registration Statement and Prospectus did not omit to state a material
fact required to be stated therein or necessary in order to make the
statements therein not misleading, and since the effective date of the
Registration Statement, no event has occurred which should have been
set forth in a supplement to or an amendment of the Prospectus which
has not been so set forth in such supplement or amendment; and
(e) since the respective dates as of which
information is given in the Registration Statement and Prospectus,
there has not been any material adverse change or any development
involving a prospective material adverse change in or affecting the
general affairs, business, prospects, management, financial position,
shareholders' equity or results of operations of the Company and the
Subsidiaries taken as a whole, whether or not arising in the ordinary
course of business;
and (ii) a certificate of the Selling Shareholders, satisfactory to the
Representatives to the effect set forth in subsection (B) of this Section 6
(with respect to the respective representations, warranties, agreements and
conditions of the Selling Shareholders);
(E) Cahill Gordon & Reindel, counsel for the Company,
shall have furnished to the Representatives their written opinion, dated the
Closing Date or the Additional Closing Date, as the case may be, in form and
substance reasonably satisfactory to the Representatives, to the effect that:
(i) the Registration Statement has been declared
effective under the Securities Act and, to such counsel's
knowledge, no stop order proceedings with respect thereto are
pending before or threatened by the Commission under the
Securities Act;
(ii) to such counsel's knowledge, all holders of
securities of the Company having rights to the registration of
shares of Common Stock, or other securities, because of the
filing of the Registration Statement have
-21-
<PAGE> 22
waived such rights or such rights have expired by reason of
lapse of time following notification of the intent to file the
Registration Statement;
(iii) the Company is not and, after giving effect
to the offering and sale of the Shares and application of the
net proceeds therefrom as described in the Prospectus, will
not be an "investment company" or entity "controlled" by an
"investment company," as such terms are defined in the
Investment Company Act; and
(iv) such counsel is of the opinion that the
Registration Statement and the Prospectus and any amendments
and supplements thereto (other than the financial statements
and related schedules therein, as to that such counsel need
express no opinion) comply as to form in all material respects
with the requirements of the Securities Act.
In addition, such counsel shall also include a statement to the effect
that they have participated in conferences with officers and other
representatives of the Company, representatives of the Underwriters, counsel for
the Underwriters and representatives of the independent accountants for the
Company at that the contents of the Registration Statement, the Prospectus and
related matters were discussed, and, although such counsel is not passing upon
and does not assume any responsibility for the accuracy, completeness or
fairness of the statements contained in the Registration Statement and
Prospectus (except to the extent specified elsewhere in such letter), on the
basis of the foregoing (relying as to materiality to a large extent upon the
opinions of officers and other representatives of the Company), no facts have
come to the attention of such counsel that causes such counsel to believe that
the Registration Statement at the time it became effective contained an untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary to make the statements therein not misleading or
that the Prospectus as of its date or as of the Closing Date or the Additional
Closing Date, as the case may be, contained or contains an untrue statement of a
material fact or omitted or omits to state a material fact necessary in order to
make the statements therein, in the light of the circumstances under that they
were made, not misleading (it being understood that such counsel has not been
requested to and does not express any comment with respect to the financial
statements and schedules and other financial and statistical data included in
the Registration Statement and the Prospectus).
In rendering the aforementioned opinions, such counsel may rely (i) as
to matters involving the application of laws other than the laws of the United
States and the State of New York, to the extent such counsel deems proper and to
the extent specified in such opinion, if at all, upon an opinion or opinions (in
form and substance reasonably satisfactory to Underwriters' counsel) of other
counsel reasonably acceptable to
-22-
<PAGE> 23
Underwriters' counsel, familiar with the applicable laws; (ii) as to matters of
fact, to the extent such counsel deems proper, on certificates of responsible
officers of the Company and certificates or other written statements of
officials of jurisdictions having custody of documents respecting the corporate
existence or good standing of the Company and its Subsidiaries. The opinion of
such counsel for the Company shall state that the opinion of any such other
counsel upon that they relied is in form satisfactory to such counsel and, in
such counsel's opinion, the Underwriters and they are justified in relying
thereon. With respect to the matters to be covered in subparagraph (iv) above
counsel may state their opinion and belief is based upon their participation in
the preparation of the Registration Statement and the Prospectus and any
amendment or supplement thereto and review and discussion of the contents
thereof but is without independent check or verification except as specified.
The opinion of Cahill Gordon & Reindel described above shall be
rendered to the Underwriters at the request of the Company and shall so state
therein;
(F) Stephen Johnson, Senior Counsel to the Company, and
Kilpatrick Stockton LLP, counsel to the Company,(2) shall have furnished to the
Representatives his and its, as the case may be, written opinion, dated the
Closing Date or the Additional Closing Date, as the case may be, in form and
substance reasonably satisfactory to the Representatives, to the effect that:
(i) the Company has been duly incorporated and
is validly existing as a corporation in good standing under
the laws of its jurisdiction of incorporation, with power and
authority (corporate and other) to own its properties and
conduct its business as described in the Prospectus;
(ii) the Company has been duly qualified as a
foreign corporation for the transaction of business and is in
good standing under the laws of each other jurisdiction in
that it owns or leases properties, or conducts any business,
so as to require such qualification, other than where the
failure to be so qualified or in good standing would not have
a Material Adverse Effect;
--------------------
(2) The opinion in Section 6(F) will be divided between Stephen Johnson and
Kilpatrick Stockton LLP as appropriate.
-23-
<PAGE> 24
(iii) each of the Company's Subsidiaries has been
duly incorporated or organized and is validly existing as a
corporation under the laws of its jurisdiction of
incorporation or organization with power and authority
(corporate and other) to own its properties and conduct its
business as described in the Prospectus and has been duly
qualified as a foreign corporation for the transaction of
business and is in good standing under the laws of each other
jurisdiction in that it owns or leases properties, or conducts
any business, so as to require such qualification, other than
where the failure to be so qualified and in good standing
would not have a Material Adverse Effect; and all of the
outstanding shares of capital stock of each subsidiary have
been duly and validly authorized and issued, are fully paid
and non-assessable, and (except, in the case of foreign
subsidiaries, for directors' qualifying shares and except as
otherwise set forth in the Prospectus) are owned directly or
indirectly by Holding, free and clear of all liens,
encumbrances, equities or claims;
(iv) other than as set forth or contemplated in
the Prospectus, there are no legal or governmental
investigations, actions, suits or proceedings pending or, to
the best of such counsel's knowledge, threatened against or
affecting the Company or any of its Subsidiaries or any of
their respective properties or to that the Company or any of
its Subsidiaries is or may be a party or to that any property
of the Company or its Subsidiaries is or may be the subject
that, if determined adversely to the Company or any of its
Subsidiaries, would individually or in the aggregate have, or
reasonably be expected to have, a Material Adverse Effect; to
the best of such counsel's knowledge, no such proceedings are
threatened or contemplated by governmental authorities or
threatened by others; and such counsel does not know of any
statutes, regulations, contracts or other documents that are
required to be described in the Registration Statement or the
Prospectus or to be filed as exhibits to the Registration
Statement that are not described or filed as required;
(v) this Agreement has been duly authorized,
executed and delivered by the Company;
(vi) the authorized capital stock of the Company
conforms as to legal matters to the description thereof
contained in the Prospectus;
(vii) the shares of capital stock of the Company
outstanding prior to the issuance of the Shares to be sold by
the Company hereunder have been duly authorized and are
validly issued, fully paid and non-assessable;
-24-
<PAGE> 25
(viii) the Shares to be issued and sold by the
Company hereunder have been duly authorized, and when
delivered to and paid for by the Underwriters in accordance
with the terms of this Agreement, will be validly issued,
fully paid and non-assessable, and the issuance of such Shares
is not subject to any statutory, and to the best of such
counsel's knowledge, contractual preemptive or similar rights;
(ix) the statements in the Prospectus under
"Shares Eligible For Future Sale" and "Description of Capital
Stock", and in the Registration Statement in Items 14 and 15,
insofar as such statements constitute a summary of the terms
of the Common Stock, legal matters, documents or proceedings
referred to therein, fairly summarize in all material respects
the information called for with respect to such terms, legal
matters, documents or proceedings;
(x) neither the Company nor any of its
Subsidiaries is, or with the giving of notice or lapse of time
or both would be, in violation of or in default under its
certificate or articles of incorporation or by-laws or any
indenture, mortgage, deed of trust, loan agreement or other
agreement or instrument known to such counsel to that the
Company or any of its Subsidiaries is a party or by that it or
any of them or any of their respective properties is bound,
except for violations and defaults, that would not,
individually and in the aggregate, have a Material Adverse
Effect; the issue and sale of the Shares being delivered on
the Closing Date or the Additional Closing Date, as the case
may be, to be sold by the Company hereunder and the
performance by the Company of its obligations under this
Agreement and the consummation of the transactions
contemplated herein will not conflict with or result in a
breach of any of the terms or provisions of, or constitute a
default under, any indenture, mortgage, deed of trust, loan
agreement or other agreement or instrument known to such
counsel to that the Company or any of its Subsidiaries is a
party or by that the Company or any of its Subsidiaries is
bound or to that any of the property or assets of the Company
or any of its Subsidiaries is subject, nor will any such
action result in any violation of the provisions of the
articles of incorporation or the by-laws of the Company or any
applicable law or statute or any order, rule or regulation of
any court or governmental agency or body having jurisdiction
over the Company, its Subsidiaries or any of their respective
properties;
(xi) no consent, approval, authorization, order,
license, registration or qualification of or with any
regulatory, administrative or other governmental agency or
body is necessary for the issuance by the Company
-25-
<PAGE> 26
of the Shares to be sold by it hereunder or the consummation
of the transactions contemplated by this Agreement, except
such consents, approvals, authorizations, orders, licenses,
registrations or qualifications as have been obtained under
the Securities Act and as may be required under state
securities or Blue Sky laws in connection with the purchase
and distribution of the Shares by the Underwriters;
(xii) the Rights Agreement has been duly
authorized, executed and delivered by the Company; the Rights
have been duly authorized by the Company and, when issued upon
issuance of the Shares, will be validly issued, and the Series
A Preferred Stock has been duly authorized by the Company and
validly reserved for issuance upon the exercise of the Rights
and, when issued upon such exercise in accordance with the
terms of the Rights Agreement, will be validly issued, fully
paid and non-assessable;
(xiii) such counsel believes that (other than the
financial statements and related schedules therein and the
statistical or other industry data therein, as to that such
counsel need express no belief) the Registration Statement and
the prospectus included therein at the time the Registration
Statement became effective did not contain any untrue
statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the
statements therein not misleading, and that the Prospectus, as
amended or supplemented, if applicable, does not contain any
untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements
therein, in the light of the circumstances under that they
were made, not misleading;
(xiv) the Company and each of its Subsidiaries
owns, possesses or has obtained all licenses, permits,
certificates, consents, orders, approvals and other
authorizations from, and has made all declarations and filings
with, all federal, state, local and other governmental
authorities (including foreign regulatory agencies), all
self-regulatory organizations and all courts and other
tribunals, domestic or foreign, necessary to own or lease, as
the case may be, and to operate its properties and to carry on
its business as conducted as of the date hereof, except where
the failure to own, possess, or obtain such licenses, permits,
certificates, consents, orders, approvals, franchises or other
authorization, and except where the failure to make sure
declarations or filings, would not, individually or in the
aggregate, have a Material Adverse Effect; and, to such
counsel's knowledge, neither the Company nor any such
subsidiary has received any actual notice of any proceeding
relating to revocation or modification of any such license,
permit, certificate, consent,
-26-
<PAGE> 27
order, approval or other authorization, except as described in
the Registration Statement and the Prospectus; and the Company
and each of its Subsidiaries is in compliance with all laws
and regulations relating to the conduct of its business as
conducted as of the date of the Prospectus, except where any
such failure to comply would not, individually or in the
aggregate, have a Material Adverse Effect;
(xv) the Company and its Subsidiaries have good
and marketable title in fee simple to all real property and
good and marketable title to all personal property owned by
them, in each case free and clear of all liens (except for the
Company's property in Wilmington, Delaware), encumbrances and
defects except such as are set forth or referred to in the
Prospectus or such as do not materially affect the value of
such property and do not interfere with the use made and
proposed to be made of such property by the Company and its
Subsidiaries; and any real property and buildings held under
lease by the Company and its Subsidiaries are held by them
under valid, existing and enforceable leases with such
exceptions as are not material and do not interfere with the
use made or proposed to be made of such property and buildings
by the Company or its Subsidiaries;
(xvi) to the best knowledge of such counsel, the
Company and each of its Subsidiaries is in compliance with all
Environmental Laws, except, in each case, where noncompliance,
individually or in the aggregate, would not have a Material
Adverse Effect; there are no legal or governmental proceedings
pending or, to the best knowledge of such counsel, threatened
against or affecting the Company or any of its Subsidiaries
under any Environmental Law, that, individually or in the
aggregate, could reasonably be expected to have a Material
Adverse Effect; and
(xvii) except as set forth in the Prospectus, the
Company and each of its Subsidiaries owns, is licensed to use,
or otherwise possesses adequate rights to use, the
Intellectual Property reasonably necessary to carry on the
business conducted by it, except to the extent that the
failure to own, be licensed to use, or otherwise possess
adequate rights to use, such Intellectual Property would not
have a Material Adverse Effect; except as set forth in the
Prospectus, none of the Company or any subsidiary has received
any notice of infringement of or conflict with, and to the
best of the such counsel's knowledge, there is no infringement
of or conflict with, asserted rights of others with respect to
the Intellectual Property, the discoveries, inventions,
products or processes of the Company and its Subsidiaries
referred to in the Registration Statement and the Prospectus
do not, to the best of such
-27-
<PAGE> 28
counsel's knowledge, infringe or conflict with any right or
patent of any third party, or any discovery, patent product or
process, that is the subject of a patent application filed by
any third party, except for such infringement or conflict that
would not, individually or in the aggregate, have a Material
Adverse Effect.
In rendering such opinions, such counsel may rely (i) as to matters
involving the application of laws other than the laws of the United States and
the State of North Carolina, to the extent such counsel deems proper and to the
extent specified in such opinion, if at all, upon an opinion or opinions (in
form and substance reasonably satisfactory to Underwriters' counsel) of other
counsel reasonably acceptable to Underwriters' counsel, familiar with the
applicable laws; (ii) as to matters of fact, to the extent such counsel deems
proper, on certificates of responsible officers of the Company and certificates
or other written statements of officials of jurisdictions having custody of
documents respecting the corporate existence or good standing of the Company and
its Subsidiaries. The opinion of such counsel for the Company shall state that
the opinion of any such other counsel upon that they relied is in form
satisfactory to such counsel and, in such counsel's opinion, the Underwriters
and they are justified in relying thereon. With respect to the matters to be
covered in subparagraph (xiii) above counsel may state their opinion and belief
is based upon their participation in the preparation of the Registration
Statement and the Prospectus and any amendment or supplement thereto and review
and discussion of the contents thereof but is without independent check or
verification except as specified.
The opinions of Stephen Johnson and Kilpatrick Stockton LLP described
above shall be rendered to the Underwriters at the request of the Company and
shall so state therein;
(G) The Representatives shall have received on the
Closing Date or the Additional Closing Date, as the case may be, the opinion of
Kilpatrick Stockton LLP, counsel for the Selling Shareholders, dated the Closing
Date or the Additional Closing Date, as the case may be, addressed to the
Underwriters (and stating that it may be relied upon by counsel to the
Underwriters) to the effect that:
(i) The Underwriting Agreement has been duly
authorized, executed and delivered on behalf of such Selling
Shareholder;
(ii) Such Selling Shareholder has full legal
right, power and authority, and any approval required by law
(other than as required by State securities and Blue Sky laws
as to that such counsel need express no opinion), to sell,
assign, transfer and deliver the portion of the Shares to be
sold by such Selling Shareholder;
-28-
<PAGE> 29
(iii) Each of the Custody Agreement and the Power
of Attorney executed and delivered by such Selling Shareholder
is valid and binding; and
(iv) The Underwriters (assuming that they are
bona fide purchasers within the meaning of the Uniform
Commercial Code) have acquired good and marketable title to
the Shares being sold by such Selling Shareholder on the
Closing Date, and the Additional Closing Date, as the case may
be, free and clear of all liens, encumbrances, equities and
claims.
The opinion of Kilpatrick Stockton LLP described above shall be
rendered to the Underwriters at the request of the Company and shall so state
therein;
(H) Piper Marbury Rudnick & Wolfe LLP, special franchise
counsel for the Company, shall have furnished to the Representatives their
written opinion, dated the Closing Date or the Additional Closing Date, as the
case may be, in form and substance satisfactory to the Representatives, to the
effect that:
(i) the Company's uniform franchise offering
circular dated April 15, 1999 inclusive of attached exhibits
("UFOC"), contained information in compliance, as of the
effective date of the UFOC, with the disclosure provisions of
the FTC Trade Regulation Rule entitled "Disclosure
Requirements and Prohibitions Concerning Franchising and
Business Opportunity Ventures" (the "FTC Rule") and the
franchise disclosure laws of those states with that the
Company has filed such UFOC and the UFOC complied as to form
with the FTC Rule and such state franchise disclosure laws,
provided however, that in compiling the UFOC, such counsel may
state that it relied as to matters of fact upon
representations and warranties of the Company and we have made
no independent verification of said facts;
(ii) To such counsel's knowledge, (a) the
procedures of the Company for offering and selling franchises
comply in all material respects with the FTC Rule and the
franchise disclosure laws of those states with that the
Company has filed the UFOCS and (b) with respect to the UFOC,
the Company has made all filings with all federal and state
authorities required for the offer and sale of franchises in
such states where the Company offers franchises, except for
any noncompliance or failure to file that would not have a
material adverse effect on the business or financial condition
of the Company;
(iii) the descriptions of federal and state
franchise regulations set forth in the Prospectus under the
captions "Risk Factors - We may be
-29-
<PAGE> 30
harmed by actions taken by our franchisees that are outside of
our control" and "Business - Government regulations" fairly
and accurately describe the status of the material
governmental franchise regulations pertaining to franchising
activities of the Company and its Subsidiaries;
(iv) the description of the franchising
agreements of the Company and its Subsidiaries set forth in
the Prospectus under the caption "Business - Store ownership"
fairly and accurately describes the material terms of such
franchise agreements; and
(v) to such counsel's knowledge, the Company has
not received any notice of violation of the FTC Rule or any
state franchise registration or franchise disclosure law.
The opinion of Piper Marbury Rudnick & Wolfe LLP described above shall
be rendered to the Underwriters at the request of the Company and shall so state
therein;
(I) on the effective date of the Registration Statement
and the effective date of the most recently filed post-effective amendment to
the Registration Statement and also on the Closing Date or Additional Closing
Date, as the case may be, PricewaterhouseCoopers shall have furnished to you
letters, dated the respective dates of delivery thereof, in form and substance
satisfactory to you, containing statements and information of the type
customarily included in accountants' "comfort letters" to underwriters with
respect to the financial statements and certain financial information contained
in the Registration Statement and the Prospectus;
(J) the Representatives shall have received on and as of
the Closing Date or Additional Closing Date, as the case may be, an opinion of
Piper Marbury Rudnick & Wolfe LLP, counsel to the Underwriters, substantially to
the effect specified in Paragraphs (E)(i) and (iv) and (F)(v) and (viii) of this
Section 6, and that the Company is validly organized and existing corporation
under the laws of the State of North Carolina. In rendering such opinion such
counsel may rely as to all matters governed other than by the laws of the United
States and the State of Maryland on the opinions of counsel referred to in
Paragraphs(E) and (F) of this Section 6. In addition to the matters set forth
above, such opinion shall also include a statement to the effect that nothing
has come to the attention of such counsel that leads them to believe that (i)
the Registration Statement, or any amendment thereto, as of the time it became
effective under the Act (but after giving effect to any modifications
incorporated therein pursuant to Rule 430A under the Act) as of the Closing Date
or Additional Closing Date, as the case may be, contained an untrue statement of
a material fact or omitted to state a material fact required to be stated
therein or necessary to make the statement therein not misleading, and (ii) the
Prospectus, or any
-30-
<PAGE> 31
supplement thereto, on the date it was filed pursuant to the Rules and
Regulations and as of the Closing Date or Additional Closing Date, as the case
may be, contained an untrue statement of a material fact or omitted to state a
material fact, necessary in order to make the statements, in light of the
circumstances under which they are made, not misleading (except that such
counsel need express no view as to financial statements, schedules and
statistical information therein). With respect to such statement, Piper Marbury
Rudnick & Wolfe LLP may state that their belief is based upon the procedures set
forth therein, but is without independent check and verification;
(K) the Shares to be delivered on the Closing Date or
Additional Closing Date, as the case may be, shall have been approved for
listing on the NNM, subject to official notice of issuance;
(L) on or prior to the Closing Date or Additional Closing
Date, as the case may be, the Company and the Selling Shareholders shall have
furnished to the Representatives such further certificates and documents as the
Representatives shall reasonably request; and
(M) the lock-up agreements of the Company's officers,
directors and certain shareholders, in the form delivered to the Company, shall
be in full force and effect on the Closing Date or Additional Closing Date, as
the case may be.
If any of the conditions hereinabove provided for in this
Section 6 shall not have been fulfilled when and as required by this Agreement
to be fulfilled, the obligations of the Underwriters hereunder may be terminated
by the Representatives by notifying the Company and the Selling Shareholders of
such termination in writing or by telegram at or prior to the Closing Date or
Additional Closing Date, as the case may be.
7. (A) The Company agrees:
(i) to indemnify and hold harmless each
Underwriter and each person, if any, who controls any
Underwriter within the meaning of the Securities Act, against
any losses, claims, damages or liabilities to that such
Underwriter or any such controlling person may become subject
under the Securities Act or otherwise, insofar as such losses,
claims, damages or liabilities (or actions or proceedings in
respect thereof) arise out of or are based upon (i) any untrue
statement or alleged untrue statement of any material fact
contained in the Registration Statement, any Preliminary
Prospectus, the Prospectus or any amendment or supplement
thereto, (ii) the omission or alleged omission to state
therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, or
-31-
<PAGE> 32
(iii) any alleged act or failure to act by any Underwriter in
connection with, or relating in any manner to, the Shares or
the offering contemplated hereby, and that is included as part
of or referred to in any loss, claim, damage, liability or
action arising out of or based upon matters covered by clause
(i) or (ii) above (provided that the Company shall not be
liable under this clause (iii) to the extent that it is
determined in a final judgment by a court of competent
jurisdiction that such loss, claim, damage, liability or
action resulted directly from any such acts or failures to act
undertaken or omitted to be taken by such Underwriter through
its gross negligence or willful misconduct); provided,
however, that the Company will not be liable in any such case
to the extent that any such loss, claim, damage or liability
arises out of or is based upon an untrue statement or alleged
untrue statement, or omission or alleged omission made in the
Registration Statement, any Preliminary Prospectus, the
Prospectus, or such amendment or supplement, in reliance upon
and in conformity with written information furnished to the
Company by or through the Selling Shareholders or the
Representatives specifically for use in the preparation
thereof; and
(ii) to reimburse each Underwriter and each such
controlling person upon demand for any legal or other
out-of-pocket expenses reasonably incurred by such Underwriter
or such controlling person in connection with investigating or
defending any such loss, claim, damage or liability, action or
proceeding or in responding to a subpoena or governmental
inquiry related to the offering of the Shares, whether or not
such Underwriter or controlling person is a party to any
action or proceeding. In the event that it is finally
judicially determined that the Underwriters were not entitled
to receive payments for legal and other expenses pursuant to
this subparagraph, the Underwriters will promptly return all
sums that had been advanced pursuant hereto.
(B) The Selling Shareholders agree to indemnify the
Underwriters and each person, if any, who controls any Underwriter within the
meaning of the Act, against any losses, claims, damages or liabilities to that
such Underwriter or controlling person may become subject under the Act or
otherwise to the same extent as indemnity is provided by the Company pursuant to
Section 7(A) above; provided, however, that each Selling Shareholder will be
liable in each case to the extent, but only to the extent, that such untrue
statement or alleged untrue statement or omission or alleged omission has been
made in the Registration Statement, any Preliminary Prospectus, the Prospectus
or such amendment or supplement, in reliance upon and in conformity with written
information furnished to the Company by or through such Selling Shareholder
specifically for use in the preparation thereof. In no event, however, shall the
liability of any Selling Shareholder for indemnification under this
-32-
<PAGE> 33
Section 7(B) exceed the proceeds received by such Selling Shareholder from the
Underwriters in the offering. This indemnity obligation will be in addition to
any liability that the Company may otherwise have.
(C) Each Underwriter severally and not jointly will
indemnify and hold harmless the Company, each of its directors, each of its
officers who have signed the Registration Statement, the Selling Shareholders
and each person, if any, who controls the Company or the Selling Shareholders
within the meaning of the Securities Act, against any losses, claims, damages or
liabilities to that the Company or any such director, officer, Selling
Shareholder or controlling person may become subject under the Securities Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions or
proceedings in respect thereof) arise out of or are based upon (i) any untrue
statement or alleged untrue statement of any material fact contained in the
Registration Statement, any Preliminary Prospectus, the Prospectus or any
amendment or supplement thereto, or (ii) the omission or the alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading in the light of the circumstances under
that they were made; and will reimburse upon demand any legal or other expenses
reasonably incurred by the Company or any such director, officer, Selling
Shareholder or controlling person in connection with investigating or defending
any such loss, claim, damage, liability, action or proceeding; provided,
however, that each Underwriter will be liable in each case to the extent, but
only to the extent, that such untrue statement or alleged untrue statement or
omission or alleged omission has been made in the Registration Statement, any
Preliminary Prospectus, the Prospectus or such amendment or supplement, in
reliance upon and in conformity with written information furnished to the
Company by or through the Representatives specifically for use in the
preparation thereof. This indemnity agreement will be in addition to any
liability that such Underwriter may otherwise have.
(D) In case any proceeding (including any governmental
investigation) shall be instituted involving any person in respect of that
indemnity may be sought pursuant to this Section 7, such person (the
"indemnified party") shall promptly notify the person against whom such
indemnity may be sought (the "indemnifying party") in writing. No
indemnification provided for in Section 7(A), (B) or (C) shall be available to
any party who shall fail to give notice as provided in this Section 7(D) if the
party to whom notice was not given was unaware of the proceeding to that such
notice would have related and was materially prejudiced by the failure to give
such notice, but the failure to give such notice shall not relieve the
indemnifying party or parties from any liability that it or they may have to the
indemnified party for contribution or otherwise than on account of the
provisions of Section 7(A), (B) or (C). In case any such proceeding shall be
brought against any indemnified party and it shall notify the indemnifying party
of the commencement thereof, the indemnifying party shall be entitled to
participate therein and, to the extent that it shall
-33-
<PAGE> 34
wish, jointly with any other indemnifying party similarly notified, to assume
the defense thereof, with counsel satisfactory to such indemnified party and
shall pay as incurred the fees and disbursements of such counsel related to such
proceeding. In any such proceeding, any indemnified party shall have the right
to retain its own counsel at its own expense. Notwithstanding the foregoing, the
indemnifying party shall pay as incurred (or within 30 days of presentation) the
fees and expenses of the counsel retained by the indemnified party in the event
(i) the indemnifying party and the indemnified party shall have mutually agreed
to the retention of such counsel, (ii) the named parties to any such proceeding
(including any impleaded parties) include both the indemnifying party and the
indemnified party and representation of both parties by the same counsel would
be inappropriate due to actual or potential differing interests between them or
(iii) the indemnifying party shall have failed to assume the defense and employ
counsel acceptable to the indemnified party within a reasonable period of time
after notice of commencement of the action. It is understood that the
indemnifying party shall not, in connection with any proceeding or related
proceedings in the same jurisdiction, be liable for the reasonable fees and
expenses of more than one separate firm for all such indemnified parties. Such
firm shall be designated in writing by you in the case of parties indemnified
pursuant to Section 7(A) or 7(B) and by the Company and the Selling Shareholders
in the case of parties indemnified pursuant to Section 7(C). The indemnifying
party shall not be liable for any settlement of any proceeding effected without
its written consent but if settled with such consent or if there be a final
judgment for the plaintiff, the indemnifying party agrees to indemnify the
indemnified party from and against any loss or liability by reason of such
settlement or judgment. In addition, the indemnifying party will not, without
the prior written consent of the indemnified party, settle or compromise or
consent to the entry of any judgment in any pending or threatened claim, action
or proceeding of that indemnification may be sought hereunder (whether or not
any indemnified party is an actual or potential party to such claim, action or
proceeding) unless such settlement, compromise or consent includes an
unconditional release of each indemnified party from all liability arising out
of such claim, action or proceeding.
(E) To the extent the indemnification provided for in
this Section 7 is unavailable to or insufficient to hold harmless an indemnified
party under Section 7(A), (B) or (C) above in respect of any losses, claims,
damages or liabilities (or actions or proceedings in respect thereof) referred
to therein, then each indemnifying party shall contribute to the amount paid or
payable by such indemnified party as a result of such losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) in such proportion as
is appropriate to reflect the relative benefits received by the Company and the
Selling Shareholders on the one hand and the Underwriters on the other from the
offering of the Shares. If, however, the allocation provided by the immediately
preceding sentence is not permitted by applicable law then each indemnifying
party shall contribute to such amount paid or payable by such indemnified party
in such proportion as is appropriate to
-34-
<PAGE> 35
reflect not only such relative benefits but also the relative fault of the
Company and the Selling Shareholders on the one hand and the Underwriters on the
other in connection with the statements or omissions that resulted in such
losses, claims, damages or liabilities (or actions or proceedings in respect
thereof), as well as any other relevant equitable considerations. The relative
benefits received by the Company and the Selling Shareholders on the one hand
and the Underwriters on the other shall be deemed to be in the same proportion
as the total net proceeds from the offering (before deducting expenses) received
by the Company and the Selling Shareholders bear to the total underwriting
discounts and commissions received by the Underwriters, in each case as set
forth in the table on the cover page of the Prospectus. The relative fault shall
be determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by the Company or the Selling
Shareholders on the one hand or the Underwriters on the other and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission.
The Company, the Selling Shareholders and the Underwriters
agree that it would not be just and equitable if contributions pursuant to this
Section 7(E) were determined by pro rata allocation (even if the Underwriters
were treated as one entity for such purpose) or by any other method of
allocation that does not take account of the equitable considerations referred
to above in this Section 7(E). The amount paid or payable by an indemnified
party as a result of the losses, claims, damages or liabilities (or actions or
proceedings in respect thereof) referred to above in this Section 7(E) shall be
deemed to include any legal or other expenses reasonably incurred by such
indemnified party in connection with investigating or defending any such action
or claim. Notwithstanding the provisions of this subsection (E), (i) no
Underwriter shall be required to contribute any amount in excess of the
underwriting discounts and commissions applicable to the Shares purchased by
such Underwriter, (ii) no person guilty of fraudulent misrepresentation (within
the meaning of Section 11(f) of the Act) shall be entitled to contribution from
any person who was not guilty of such fraudulent misrepresentation and (iii) no
Selling Shareholder shall be required to contribute any amount in excess of the
proceeds received by such Selling Shareholder from the Underwriters in the
offering. The Underwriters' obligations in this Section 7(E) to contribute are
several in proportion to their respective underwriting obligations and not
joint.
(F) In any proceeding relating to the Registration
Statement, any Preliminary Prospectus, the Prospectus or any supplement or
amendment thereto, each party against whom contribution may be sought under this
Section 7 hereby consents to the jurisdiction of any court having jurisdiction
over any other contributing party, agrees that process issuing from such court
may be served upon him or it by any other contributing party and consents to the
service of such process and agrees that any other contributing
-35-
<PAGE> 36
party may join him or it as an additional defendant in any such proceeding in
that such other contributing party is a party.
(G) Any losses, claims, damages, liabilities or expenses
for that an indemnified party is entitled to indemnification or contribution
under this Section 7 shall be paid by the indemnifying party to the indemnified
party as such losses, claims, damages, liabilities or expenses are incurred. The
indemnity and contribution agreements contained in this Section 7 and the
representations and warranties of the Company set forth in this Agreement shall
remain operative and in full force and effect, regardless of (i) any
investigation made by or on behalf of any Underwriter or any person controlling
any Underwriter, the Company, its directors or officers or any persons
controlling the Company, (ii) acceptance of any Shares and payment therefor
hereunder, and (iii) any termination of this Agreement. A successor to any
Underwriter, or to the Company, its directors or officers, or any person
controlling the Company, shall be entitled to the benefits of the indemnity,
contribution and reimbursement agreements contained in this Section 7.
8. Notwithstanding anything herein contained, this
Agreement may be terminated by you by notice to the Company and the Attorneys-in
Fact at any time prior to the Closing Date (A) if any of the following has
occurred: (i) since the respective dates as of that information is given in the
Registration Statement and the Prospectus, any material adverse change or any
development involving a prospective material adverse change in or affecting the
general affairs, business, prospects, management, financial position,
shareholders' equity or results of operations of the Company and its
Subsidiaries taken as a whole, whether or not arising in the ordinary course of
business, (ii) any outbreak or escalation of hostilities or declaration of war
or national emergency or other national or international calamity or crisis or
change in economic or political conditions if the effect of such outbreak,
escalation, declaration, emergency, calamity, crisis or change on the financial
markets of the United States would, in your reasonable judgment, make it
impracticable or inadvisable to market the Shares or to enforce contracts for
the sale of the Shares, or (iii) suspension of trading in securities generally
on the New York Stock Exchange or the American Stock Exchange or limitation on
prices (other than limitations on hours or numbers of days of trading) for
securities on either such Exchange, (iv) the enactment, publication, decree or
other promulgation of any statute, regulation, rule or order of any court or
other governmental authority that in your opinion materially and adversely
affects or may materially and adversely affect the business or operations of the
Company, (v) declaration of a banking moratorium by United States or New York
State authorities, (vi) any downgrading, or placement on any watch list for
possible downgrading, in the rating of the Company's debt securities by any
"nationally recognized statistical rating organization" (as defined for purposes
of Rule 436(g) under the Exchange Act), (vii) the suspension of trading of the
Company's common stock by the Nasdaq Stock
-36-
<PAGE> 37
Market, the Commission, or any other governmental authority or, (viii) the
taking of any action by any governmental body or agency in respect of its
monetary or fiscal affairs that in your reasonable opinion has a material
adverse effect on the securities markets in the United States; or
(B) as provided in Sections 6 and 9 of this Agreement.
9. This Agreement shall become effective upon the later
of (A) execution and delivery hereof by the parties hereto and (B) release of
notification of the effectiveness of the Registration Statement (or, if
applicable, any post-effective amendment) by the Commission.
If on the Closing Date or the Additional Closing Date, as the case may
be, any one or more of the Underwriters shall fail or refuse to purchase Shares
that it or they have agreed to purchase hereunder on such date (otherwise than
by reason of any default on the part of the Company or a Selling Shareholder),
and the aggregate number of Shares that such defaulting Underwriter or
Underwriters agreed but failed or refused to purchase is not more than one-tenth
of the aggregate number of Shares to be purchased on such date, the other
Underwriters shall be obligated severally in the proportions that the number of
Shares set forth opposite their respective names in Schedule I bears to the
aggregate number of Underwritten Shares set forth opposite the names of all such
non-defaulting Underwriters, or in such other proportions as the Representatives
may specify, to purchase the Shares, that such defaulting Underwriter or
Underwriters agreed but failed or refused to purchase on such date; provided
that in no event shall the number of Shares that any Underwriter has agreed to
purchase pursuant to Section 1 be increased pursuant to this Section 9 by an
amount in excess of one-ninth of such number of Shares without the written
consent of such Underwriter. If on the Closing Date or the Additional Closing
Date, as the case may be, any Underwriter or Underwriters shall fail or refuse
to purchase Shares that it or they have agreed to purchase hereunder on such
date, and the aggregate number of Shares with respect to that such default
occurs is more than one-tenth of the aggregate number of Shares to be purchased
on such date, and arrangements satisfactory to the Representatives, the Company
and the Selling Shareholders for the purchase of such Shares are not made within
36 hours after such default, this Agreement (or the obligations of the several
Underwriters to purchase the Option Shares, as the case may be) shall terminate
without liability on the part of any non-defaulting Underwriter, the Company or
the Selling Shareholders. In any such case either you or the Company or the
Selling Shareholders shall have the right to postpone the Closing Date (or, in
the case of the Option Shares, the Additional Closing Date), but in no event for
longer than seven days, in order that the required changes, if any, in the
Registration Statement and in the Prospectus or in any other documents or
arrangements may be effected. Any action taken under this paragraph shall not
relieve any
-37-
<PAGE> 38
defaulting Underwriter from liability in respect of any default of such
Underwriter under this Agreement.
10. The Company and the Selling Shareholders shall not be
required to pay for any of the Underwriters expenses (other than those related
to qualification under NASD regulation and State securities or Blue Sky laws)
except that, if this Agreement shall not be consummated because the condition in
Section 6 hereof are not satisfied, or because this Agreement is terminated by
the Representatives pursuant to Section 8(A)(i-viii) hereof, or by reason of any
failure, refusal or inability on the part of the Company or Selling Shareholders
to perform any undertaking or satisfy any condition of this Agreement or to
comply with any of the terms hereof on their part to be performed, unless such
failure to satisfy said condition or to comply with said terms be due to the
default or omission of any Underwriter, then the Company shall reimburse the
several Underwriters for reasonable out-of-pocket expenses, including fees and
disbursements of counsel, reasonably incurred in connection with investigating,
marketing and proposing to market the Shares or in contemplation of performing
their obligations hereunder; but the Company and the Selling Shareholders shall
not in any event be liable to any of the several Underwriters for damages on
account of loss of anticipated profits from the sale by them of the Shares.
11. This Agreement shall inure to the benefit of and be
binding upon the Company, the Selling Shareholders and the Underwriters, each
affiliate of any Underwriter that assists such Underwriter in the distribution
of the Shares, any controlling persons referred to herein and their respective
successors and assigns. Nothing expressed or mentioned in this Agreement is
intended or shall be construed to give any other person, firm or corporation any
legal or equitable right, remedy or claim under or in respect of this Agreement
or any provision herein contained. No purchaser of Shares from any Underwriter
shall be deemed to be a successor by reason merely of such purchase.
12. Any action by the Underwriters hereunder may be taken
by the Representatives jointly or by Deutsche Bank Securities Inc. alone on
behalf of the Underwriters, and any such action taken by the Representatives
jointly or by Deutsche Bank Securities Inc. alone shall be binding upon the
Underwriters. All notices and other communications hereunder shall be in writing
and shall be deemed to have been duly given if mailed or transmitted by any
standard form of telecommunication. Notices to the Underwriters shall be given
to the Representatives, c/o Deutsche Bank Securities Inc., One South Street,
Baltimore, Maryland 21202; Attention: Syndicate Department (telefax: (410)
895-2720). Notices to the Company and the Selling Shareholders shall be given to
it and the Attorneys-in-Fact, as the case may be, at 370 Knollwood Street,
Winston-Salem, NC 27103 (telefax: (336) 733-3790); Attention: President - Krispy
Kreme Doughnuts, Inc.
-38-
<PAGE> 39
13. The Company, the Selling Shareholders and the
Underwriters acknowledge and agree that the only information furnished or to be
furnished by any Underwriter to the Company for inclusion in any Prospectus or
the Registration Statement consists of the information set forth in the last
paragraph on the front cover page (insofar as such information relates to the
Underwriters), legends required by Item 502(d) of Regulation S-K under the Act
and the information under the caption "Plan of Distribution" in the Prospectus.
14. This Agreement may be signed in counterparts, each of
that shall be an original and all of that together shall constitute one and the
same instrument.
15. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF MARYLAND, WITHOUT GIVING EFFECT TO THE
CONFLICTS OF LAWS PROVISIONS THEREOF.
If the foregoing is in accordance with your understanding,
please sign and return four counterparts hereof.
Very truly yours,
KRISPY KREME DOUGHNUTS, INC.
By:
--------------------------------------------
Name:
Title:
THE SELLING SHAREHOLDERS
By:
--------------------------------------------
Name:
Title: Attorney-in Fact
As Attorney-in-Fact acting on behalf of
each of the Selling Shareholders named in
Schedule II to this Agreement.
-39-
<PAGE> 40
Accepted the date first written above:
DEUTSCHE BANK SECURITIES INC.
J.P. MORGAN SECURITIES INC.
DAIN RAUSCHER INCORPORATED
SCOTT & STRINGFELLOW, INC.
Acting severally on behalf of
themselves and the several
Underwriters listed in Schedule I
hereto.
By: DEUTSCHE BANK SECURITIES INC.
By:
-----------------------------------
Name:
Title:
-40-
<PAGE> 41
SCHEDULE I
<TABLE>
<CAPTION>
Number of
Underwritten
Shares
Underwriter To Be Purchased
----------- ---------------
<S> <C>
Deutsche Bank Securities Inc........................
J.P. Morgan Securities Inc. ........................
Dain Rauscher Incorporated..........................
Scott & Stringfellow, Inc...........................
Total
===============
</TABLE>
<PAGE> 42
SCHEDULE II
<TABLE>
<CAPTION>
Number of Underwritten Number of Option
Name Shares To Be Sold Shares to Be Sold
---- ---------------------- -----------------
<S> <C> <C>
[List Selling Shareholders]
</TABLE>
