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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) November 26, 1997
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Skyline Chili, Inc.
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(Exact name of registrant as specified in its charter)
Ohio 001-12315 31-0717287
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(State or other jurisdiction (Commission IRS Employer
of incorporation File Number) Identification No.)
4180 Thunderbird Lane, Fairfield, Ohio 45014
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (513) 874-1188
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(Former name or former address, if changed since last report.)
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Item Numbers 1(a), 2, 3, 4, 5, 6 and 7(a) and (b) are not applicable and are
omitted from this Report.
Item 1(b). Changes in Control of Registrant.
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On November 26, 1997, the Registrant, Skyline Chili, Inc. ("Skyline" or
the "Company") and certain of its shareholders (Lambert N. Lambrinides, Christie
N. Lambrinides, William N. Lambrinides and Kevin R. McDonnell, collectively the
"Consenting Shareholders") entered into an Agreement and Plan of Merger with
Skyline Acquisition Corp., a new, private Ohio corporation formed by certain
members of Skyline's management and Fleet Venture Resources, Inc. and certain of
its affiliates ("Fleet") for purposes of acquiring Skyline. The acquisition
would be accomplished by the reverse merger of Skyline Acquisition Corp. into
Skyline, with Skyline remaining as the surviving corporation (the
"Transaction"). Skyline's President, Chief Executive Officer and Director Kevin
R. McDonnell, and other current members of senior management (the "Management
Group") plan to remain with Skyline and would be equity participants with Fleet
in the Transaction. None of Skyline's other current shareholders or directors
would have any equity, financial or other interest in Skyline after completion
of the Transaction. Skyline's shareholders would receive $6.75 per share in cash
in connection with the Transaction. Completion of the Transaction remains
subject to the negotiation and execution of certain related documentation,
satisfactory completion of due diligence, regulatory and third party approvals,
debt financing and approval by Skyline's shareholders. The Transaction is
expected to be completed in February 1998.
Completion of the Transaction will result in a change in control of
Skyline. If the Transaction is completed: (i) Fleet and the Management Group
will obtain control of Skyline, (ii) the Board of Directors and officers of
Skyline Acquisition Corp. will become the Board of Directors and officers of
Skyline, and (iii) Skyline's common stock will be delisted from the American
Stock Exchange and its registration under the Securities Exchange Act of 1934
will be terminated. In the Agreement and Plan of Merger, the Consenting
Shareholders (who collectively own 55.8% of the Company's outstanding common
stock) agreed to vote all of the shares of the Company's common stock over which
they have or exercise voting control and to take all other necessary or
desirable actions within their control in favor of the Agreement and Plan of
Merger and the Transaction.
Item 7(c). Exhibits.
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Exhibit 2.1 Agreement and Plan of Merger among Skyline
Acquisition Corp., Skyline Chili, Inc. and certain
stockholders of Skyline Chili, Inc. dated
November 26, 1997
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Date: December 2, 1997 Skyline Chili, Inc.
/s/ Kevin R. McDonnell
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By: Kevin R. McDonnell
Its: President and Chief Executive
Officer
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Exhibit 2.1
AGREEMENT AND PLAN OF MERGER
AMONG
SKYLINE ACQUISITION CORP.,
SKYLINE CHILI, INC.
AND
CERTAIN STOCKHOLDERS OF SKYLINE CHILI, INC.
NOVEMBER 26, 1997
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TABLE OF CONTENTS
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<TABLE>
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1. DEFINITIONS...................................................................1
2. BASIC TRANSACTION.............................................................8
(a) THE MERGER................................................................8
(b) THE CLOSING...............................................................8
(c) ACTIONS AT THE CLOSING....................................................8
(d) EFFECT OF MERGER..........................................................9
(e) PROCEDURE FOR PAYMENT OF MERGER CONSIDERATION............................10
(f) CLOSING OF TRANSFER RECORDS..............................................12
(g) PROCEDURE FOR PAYMENT OF OPTION MERGER CONSIDERATION.....................12
(h) DISSENTERS' RIGHTS.......................................................13
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY................................13
(a) ORGANIZATION, QUALIFICATION, AND CORPORATE POWER.........................13
(b) CAPITALIZATION; SUBSIDIARIES.............................................14
(c) AUTHORIZATION OF TRANSACTION.............................................15
(d) NONCONTRAVENTION; CONSENTS...............................................15
(e) FILINGS WITH THE SEC.....................................................16
(f) FINANCIAL STATEMENTS.....................................................16
(g) EVENTS SUBSEQUENT TO REFERENCE DATE......................................17
(h) UNDISCLOSED LIABILITIES..................................................18
(i) BROKERS' FEES............................................................18
(j) DISCLOSURE...............................................................19
(k) COMPLIANCE WITH LAW......................................................19
(l) NECESSARY LICENSES AND PERMITS...........................................19
</TABLE>
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<TABLE>
<S> <C>
(m) MATERIAL CONTRACTS AND OBLIGATIONS.......................................20
(n) OBLIGATIONS WITH MATERIAL ADVERSE EFFECT.................................22
(o) EMPLOYEES................................................................22
(p) TAX MATTERS..............................................................23
(q) REAL PROPERTY OWNED AND LEASED...........................................23
(r) PERSONAL PROPERTY OWNED AND LEASED.......................................25
(s) PROPRIETARY RIGHTS.......................................................25
(t) ENVIRONMENTAL............................................................26
(u) LITIGATION...............................................................28
(v) LABOR MATTERS............................................................28
(w) Employee Benefits and Arrangements.......................................28
(x) ARMS LENGTH TRANSACTIONS; CONFLICTS OF INTEREST..........................29
(y) GOVERNMENTAL REGULATIONS.................................................30
(x) SMALL BUSINESS CONCERN...................................................30
(aa) D&O INSURANCE...........................................................30
(bb) INSURANCE...............................................................30
(cc) RESTAURANTS.............................................................30
(dd) ALL MATERIAL INFORMATION................................................30
3A. REPRESENTATIONS AND WARRANTIES OF THE CONSENTING STOCKHOLDERS...............31
(a) AUTHORITY................................................................31
(b) NONCONTRAVENTION.........................................................31
(c) TITLE....................................................................31
(d) CONSENTS.................................................................31
4. REPRESENTATIONS AND WARRANTIES OF THE BUYER..................................32
</TABLE>
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<TABLE>
<S> <C>
(a) ORGANIZATION.............................................................32
(b) AUTHORIZATION OF TRANSACTION.............................................32
(c) NONCONTRAVENTION.........................................................32
(d) BROKERS' FEES............................................................33
(e) DISCLOSURE...............................................................33
(f) CAPITALIZATION...........................................................33
(g) FINANCING................................................................34
(h) NO PRIOR ACTIVITIES......................................................34
(i) LITIGATION...............................................................34
5. COVENANTS....................................................................34
(a) GENERAL..................................................................34
(b) NOTICES AND CONSENTS.....................................................34
(c) REGULATORY MATTERS AND APPROVALS.........................................35
(d) FAIRNESS OPINION AND COMFORT LETTER......................................35
(e) FINANCING................................................................36
(f) OPERATION OF BUSINESS....................................................36
(g) FULL ACCESS..............................................................37
(h) NOTICE OF DEVELOPMENTS; SUPPLEMENTS TO DISCLOSURE SCHEDULE...............37
(i) EXCLUSIVITY..............................................................37
(j) BREAK-UP FEE.............................................................38
(k) D&O INSURANCE; INDEMNIFICATION...........................................38
(l) EMPLOYEE BENEFITS .......................................................40
(m) VOTING AGREEMENT OF CONSENTING STOCKHOLDERS..............................40
(n) COMPLIANCE WITH LAW......................................................40
</TABLE>
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<TABLE>
<S> <C>
6. CONDITIONS TO OBLIGATION TO CLOSE............................................41
(a) CONDITIONS TO OBLIGATION OF THE BUYER....................................41
(b) CONDITIONS TO OBLIGATION OF THE COMPANY..................................42
7. TERMINATION..................................................................44
(a) TERMINATION OF AGREEMENT.................................................44
(b) EFFECT OF TERMINATION....................................................45
8. MISCELLANEOUS................................................................45
(a) SURVIVAL.................................................................45
(b) PRESS RELEASES AND PUBLIC ANNOUNCEMENTS..................................45
(c) NO THIRD-PARTY BENEFICIARIES.............................................45
(d) ENTIRE AGREEMENT.........................................................45
(e) SUCCESSION AND ASSIGNMENT................................................45
(f) COUNTERPARTS.............................................................46
(g) HEADINGS.................................................................46
(h) NOTICES..................................................................46
(i) GOVERNING LAW............................................................47
(j) AMENDMENTS AND WAIVERS...................................................47
(k) SEVERABILITY.............................................................47
(l) EXPENSES.................................................................47
(m) CONSTRUCTION.............................................................47
(n) INCORPORATION OF EXHIBITS AND SCHEDULES..................................48
EXHIBIT A--CERTIFICATE OF MERGER.................................................1
EXHIBIT B--FORM OF LETTER OF TRANSMITTAL.........................................1
EXHIBIT C--FORM OF OPTION RELINQUISHMENT AND RELEASE AGREEMENT...................1
</TABLE>
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<TABLE>
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EXHIBIT D--PERMITTED INVESTMENTS.................................................1
EXHIBIT E--FORM OF OPINION OF COUNSEL TO THE COMPANY.............................1
EXHIBIT F--FORM OF CONFIDENTIALITY AND MARKETING AGREEMENT.......................1
EXHIBIT G--FORM OF MANAGEMENT OPTION PLAN INCLUDING TABLE OF OPTION GRANTS.......1
EXHIBIT H--FORM OF STOCKHOLDERS' AGREEMENT.......................................1
EXHIBIT I--RETAINED OPTIONS......................................................1
EXHIBIT J--FORM OF OPTION RETENTION AGREEMENT....................................1
EXHIBIT K--PERMITTED EXPENSE REIMBURSEMENTS......................................1
DISCLOSURE SCHEDULE--EXCEPTIONS TO REPRESENTATIONS AND WARRANTIES................1
</TABLE>
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AGREEMENT AND PLAN OF MERGER
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Agreement and Plan of Merger dated as of November 26, 1997, by and among
SKYLINE ACQUISITION CORP., an Ohio corporation (the "Buyer"), SKYLINE CHILI,
INC., an Ohio corporation (the "Company"), and certain stockholders of the
Company executing this Agreement (the "Consenting Stockholders"). The Buyer, the
Company and the Consenting Stockholders are referred to collectively herein as
the "Parties."
This Agreement contemplates a transaction in which the Buyer will acquire
all of the outstanding capital stock of the Company for cash through a reverse
merger of the Buyer with and into the Company.
Now, therefore, in consideration of the premises and the mutual promises
herein made, and in consideration of the representations, warranties, and
covenants herein contained, the Parties agree as follows.
1. Definitions.
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"Affiliate" has the meaning set forth in Rule 12b-2 of the regulations
promulgated under the Securities Exchange Act.
"Break-up Fee" has the meaning set forth in Section 5(j) below.
"Break-up Fee Trigger" has the meaning set forth in Section 5(j) below.
"Business" means (a) the ownership, operation, development and franchising
of "Skyline Chili" restaurants, (b) the manufacture and sale of chili and
related food products for sale in such restaurants, (c) the manufacture and sale
of frozen, canned and packaged chili and related grocery products, and (d) the
licensing of trademarks of the Company and its Subsidiaries for use on certain
branded products.
"Buyer" has the meaning set forth in the Preamble above.
"Capitalized Lease Obligation" means with respect to any Person any lease
to which such Person or any of its Subsidiaries is party as lessee under which
it leases any property (real, personal or mixed) from any lessor, and which is
required to be capitalized in accordance with GAAP, consistently applied.
"Cash and Cash Equivalents" means with respect to any Person as of any date
the consolidated total cash and cash equivalents of such Person in each case as
of such date determined in accordance with GAAP, consistently applied.
"Certificates" has the meaning set forth in Section 2(e)(ii).
"Certificate of Merger" has the meaning set forth in Section 2(c) below.
"Class A Voting Stock" has the meaning set forth in Section 2(d)(vi) below.
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"Closing" has the meaning set forth in Section 2(b) below.
"Closing Date" has the meaning set forth in Section 2(b) below.
"Code" means the Internal Revenue Code of 1986, as amended, and all rules
and regulations promulgated thereunder.
"Company" has the meaning set forth in the Preamble above.
"Company Comfort Letter" has the meaning set forth in Section 5(d) below.
"Company Financial Statements" has the meaning set forth in Section 3(j)
below.
"Company Option" means any option granted by the Company to purchase
Company Shares pursuant to the Employee Stock Option Plans, except for the
Retained Options.
"Company Share" means any share of the Common Stock, no par value per
share, of the Company.
"Company Stockholder" means any Person who or which holds any Company
Shares.
"Confidential Information" means any information concerning the businesses
and affairs of the Company and its Subsidiaries that is not already generally
available to the public.
"Confidentiality and Marketing Agreements" means the Confidentiality and
Marketing Agreements between each of the Consenting Stockholders (except Kevin
R. McDonnell) and the Company in the form of Exhibit F attached hereto.
"Consenting Stockholders" has the meaning set forth in the Preamble above.
"Contract" has the meaning set forth in Section 3(m) below.
"Contributed Company Share" means any Company Share that the Buyer owns
beneficially, or that the Management Group have contributed (or agreed or
elected to contribute) to the Buyer pursuant to the Investment Agreement.
"Current Assets" means with respect to any Person as of any date the
consolidated total current assets of such Person in each case as of such date
determined in accordance with GAAP, consistently applied.
"Current Liabilities" means with respect to any Person as of any date the
consolidated total current liabilities of such Person LESS the principal portion
of Long-Term Indebtedness of such Person payable within one year, in each case
as of such date determined in accordance with GAAP, consistently applied.
"D&O Policies" has the meaning set forth in Section 3(aa) below.
"Definitive Financing Agreements" has the meaning set forth in Section 5(e)
below.
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"Definitive Proxy Materials" means the definitive proxy materials relating
to the Special Meeting.
"Disclosure Schedule" has the meaning set forth in Section 3 below.
"Dissenting Share" has the meaning set forth in Section 2(h) below.
"Effective Time" has the meaning set forth in Section 2(d)(i) below.
"Employee Stock Option Plan" means the 1986 Stock Option Plan and the 1990
Stock Option and Stock Incentive Plan of the Company, each as amended through
the date hereof and copies of each of which have been provided to the Buyer.
"Employment Agreements" means the Employment Agreements dated June 27, 1995
between the Company and Kevin McDonnell, as amended on or before the Effective
Time in form and substance satisfactory to the Company and the Buyer.
"Equitable Securities" means Equitable Securities Corporation, a Tennessee
corporation.
"Equitable Securities Letter" means the engagement letter between the
Company and Equitable Securities dated February 27, 1997.
"Exclusivity Termination Date" has the meaning set forth in Section 5(i)
below.
"Fairness Opinion" has the meaning set forth in Section 5(d) below.
"FFCA Commitment Letter" has the meaning set forth in Section 5(f)(v)
below.
"Financing Commitment" means a written commitment of the Provident Bank to
provide a $22,200,000 senior secured credit facility to the Company and its
Subsidiaries in accordance with the terms and provisions of a letter dated
November 11, 1997 from such bank to the Company and Fleet Venture Resources,
Inc.
"Fleet Entities" means the Persons designated as Fleet Entities on Schedule
A to the Investment Agreement.
"Franchisee" means any Person operating a restaurant under the name
"Skyline Chili", using "Skyline Chili" servicemarks and serving the Company's
secret recipe chili and related food products pursuant to the terms of a
franchise or license agreement with the Company.
"GAAP" means United States generally accepted accounting principles as in
effect from time to time.
"Governmental Authority" has the meaning set forth in Section 3(t) below.
"Hart-Scott-Rodino Act" means the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended.
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"Intellectual Property" has the meaning set forth in Section 3(s) below.
"Investment Agreement" means the Investment Agreement among the members of
the Management Group and the Persons designated as Fleet Entities or "Option
Holders" on Schedule A thereto of even date herewith pursuant to which the Buyer
shall be capitalized.
"Knowledge" means (a) when used with respect to the Company or the Buyer,
actual knowledge after reasonable investigation by the Company or the Buyer, as
applicable, and (b) when used with respect to any Consenting Stockholder, actual
knowledge (but not constructive or implied knowledge) of such Consenting
Stockholder; provided that a fact or matter shall not be within the knowledge of
such Consenting Stockholder if it is not actually and specifically known by such
Consenting Stockholder regardless of whether such Consenting Stockholder should
have known of such fact or matter.
"Laws" means all federal, state, local or foreign laws, treaties,
regulations, rules, orders or administrative or judicial determinations having
the effect of law.
"Letter of Transmittal" has the meaning set forth in Section 2(e)(ii).
"Licenses" has the meaning set forth in Section 3(l) below.
"Liens" means all liens, pledges, charges, encumbrances, Security
Interests, mortgages, leases, options, title conditions, community property
rights or other adverse claims of any kind or description.
"Long-Term Indebtedness" means with respect to any Person as of any date
the aggregate of all indebtedness and Capitalized Lease Obligations of such
Person which when originally incurred had a maturity in excess of one year, as
of the date of incurrence, determined on a consolidated basis in accordance with
GAAP, consistently applied.
"Management Group" means Kevin R. McDonnell (individually and IRA), Thomas
L. Allen, Phillip M. Lewis, Jr., Jeffry W. Shelton, Deborah L. Chitwood, Kenneth
Davis, Charles Harnist and the Skyline Non-Qualified Deferred Compensation Plan.
"Management Option Plan" means the 1997 Management Incentive Stock Option
Plan and the option agreements in the form of Exhibit G attached hereto to be
entered into as of the Effective Time by the Surviving Corporation and the
Persons designated on Exhibit G with respect to the options described therein.
"Material Adverse Effect" means with respect to any Person (i) a material
adverse effect on the business (including without limitation, in the case of the
Company and its Subsidiaries, the Business), operations, assets, properties,
condition (financial or otherwise) or business prospects of such Person, (ii)
any material adverse effect upon the binding nature, validity, or enforceability
of any of the Related Agreements to which such Person is a party, (iii) any
material adverse effect upon the ability of such Person to perform its
obligations hereunder or under any other Related Agreement, or (iv) Kevin R.
McDonnell shall cease to be Chief Executive Officer of the Company and the
Company shall have
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failed prior to the Closing Date to have appointed a successor to Kevin R.
McDonnell satisfactory to the Buyer in all respects.
"Merger" has the meaning set forth in Section 2(a) below.
"Merger Consideration" has the meaning set forth in Section 2(d)(v) below.
"Net Working Capital" means with respect to any Person as of any date
Current Assets of such Person LESS Current Liabilities of such Person, in each
case as of such date determined in accordance with GAAP, consistently applied.
"Net Worth" means with respect to any Person as of any date consolidated
total assets of such Person LESS consolidated total liabilities of such Person,
in each case as of such date determined in accordance with GAAP, consistently
applied.
"Ohio Corporation Law" means the Ohio General Corporation Law, as amended.
"Option Merger Consideration" has the meaning set forth in Section
2(d)(vii).
"Option Plan Amendment" means an amendment effective as of the Effective
Time by the Surviving Corporation of the Employee Stock Option Plans and the
agreement of the holder of such Retained Options that provides among other
matters that (a) each Retained Option shall be fully and immediately exercisable
in accordance with the terms and conditions of the applicable Employee Stock
Option Plan and the agreement of the holder of such Retained Option with respect
thereto, (b) the termination date of each Retained Option will be extended until
the tenth (10th) anniversary of the Closing Date, and (c) each Retained Option
upon exercise thereof will entitle the holder thereof to acquire shares of Class
A Voting Stock.
"Option Relinquishment and Release Agreement" has the meaning set forth in
Section 2(g).
"Option Retention Agreement" means the Option Retention Agreements dated on
or before the Closing Date between each of the Persons listed on Exhibit I as to
the Retained Options held by them and the Buyer in the form of Exhibit J
attached hereto.
"Ordinary Course of Business" means the ordinary course of business
consistent with past custom and practice of the Business (including with respect
to quantity and frequency).
"Outstanding Options" has the meaning set forth in Section 2(g).
"Party" has the meaning set forth in the Preamble above.
"Paying Agent" has the meaning set forth in Section 2(e) below.
"Paying Agent Agreement" means the agreement, on terms acceptable to the
Buyer, to be entered into on or prior to the Closing Date between the Company
and the Paying Agent with respect to the payment of the Merger Consideration and
the Option Merger Consideration.
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"Payment Fund" has the meaning set forth in Section 2(e) below.
"Permitted Liens" shall mean (a) Liens for current taxes or assessments due
but not yet payable as of the applicable date, (b) Liens arising by operation of
law in the ordinary course of business, such as mechanics' liens, materialmen's
liens, carriers' liens, warehouseman's liens, and similar liens, none of which
are substantial in character, amount or extent and none of which materially
detract from the value or materially interfere with the present use of the asset
to which such Lien attaches, (c) with respect to the Real Estate, all easements,
rights-of-way, building, zoning, use and other restrictions of record which do
not (i) materially detract from or reduce the value of, or impair or restrict
the use of or access to or from, such Real Estate by the Company or its
Subsidiaries in the operation of the Business, or (ii) have a Material Adverse
Effect, and (d) Liens described in the Disclosure Schedule.
"Person" means an individual, a partnership, a corporation, a limited
liability company, an association, a joint stock company, a trust, a joint
venture, an unincorporated organization, or a governmental entity (or any
department, agency, or political subdivision thereof).
"Public Report" has the meaning set forth in Section 3(e) below.
"Real Estate" has the meaning set forth in Section 3(q) below.
"Reference Date" has the meaning set forth in Section 3(f) below.
"Related Agreements" means this Agreement, the Definitive Financing
Agreements, the Investment Agreement, the Confidentiality and Marketing
Agreements, the Employment Agreements, the Severance Agreements, the Management
Option Plan, the Option Retention Agreements, the Option Plan Amendment and the
Stockholders' Agreement.
"Required Statutory Stockholder Approval" means the affirmative vote of the
holders of a majority of (a) the issued and outstanding Company Shares, and (b)
the issued and outstanding Company Shares present in person or by proxy at the
Special Meeting (other than the Company Shares held by the Consenting
Stockholders, the Management Group, the Buyer or their respective Affiliates),
in favor of this Agreement and the Merger.
"Requisite Stockholder Approval" means the affirmative vote of the holders
of (a) a majority of the issued and outstanding Company Shares (other than the
Company Shares held by the Consenting Stockholders, the Buyer or their
respective Affiliates), and (b) eighty-five percent (85%) of all of the issued
and outstanding Company Shares, in favor of this Agreement and the Merger.
"Restaurants" means the restaurants listed on the Disclosure Schedule.
"Retained Options" means all of the options granted by the Company to
purchase Company Shares pursuant to the Employee Stock Option Plans held by
members of the Management Group and certain other persons designated on Exhibit
I attached hereto for the number of shares, exercisable on and after the dates
and at the average exercise prices indicated on such Exhibit.
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"SEC" means the Securities and Exchange Commission.
"Secret Recipe Documentation" has the meaning set forth in Section 3(s).
"Securities Act" means the Securities Act of 1933, as amended.
"Securities Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Security Interest" means any mortgage, pledge, lien, encumbrance, charge,
or other security interest, other than (a) mechanic's, materialman's, and
similar liens, (b) liens for taxes not yet due and payable or for taxes that the
taxpayer is contesting in good faith through appropriate proceedings, (c)
purchase money liens and liens securing rental payments under capital lease
arrangements, and (d) other liens arising in the Ordinary Course of Business and
not incurred in connection with the borrowing of money.
"Severance Agreements" means Severance Agreements between the Company and
Jeffry W. Shelton, Thomas L. Allen, Phillip M. Lewis, Jr., Charles Harnist,
Kenneth E. Davis and Deborah L. Chitwood effective as of the Effective Time, in
form and substance satisfactory to the Company and the Buyer.
"Skyline Non-Qualified Deferred Compensation Plan Trust" means the trust or
trusts established pursuant to the Skyline Chili, Inc. Non-Qualified Deferred
Compensation Plan for the benefit of Messrs. McDonnell, Allen, Lewis and
Shelton, as such trusts and plan shall be amended prior to the Effective Time on
terms and conditions reasonably satisfactory to the Buyer so as to effect the
transactions contemplated hereby affecting the Management Group, including
without limitation the execution, delivery and performance of the Investment
Agreement and the Stockholders' Agreement.
"Special Meeting" has the meaning set forth in Section 5(c)(ii) below.
"Stockholders' Agreement" means the Stockholders' Agreement dated as of the
Closing Date among the Buyer, the Fleet Entities, the members of the Management
Group and certain other Persons in the form of Exhibit H attached hereto.
"Subsidiary" means any corporation, partnership, limited liability company
or other Person with respect to which a specified Person (or a Subsidiary
thereof) owns a majority of the common stock, partnership or membership
interests having voting rights or other voting equity interests therein or has
the power to vote or direct the voting of sufficient securities or interests to
elect a majority of the directors, general partners or managers thereof.
"Subsidiary Interests" has the meaning set forth in Section 3(b) below.
"Surviving Corporation" has the meaning set forth in Section 2(a) below.
"Taxes" means, with respect to any Person, all foreign, federal, state and
local taxes, imposts, duties, fees, assessments or charges (including
deficiencies, interest and penalties relating thereto) of any kind, including,
without limitation (x) all income, gross income,
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gross receipts, sales, use, ad valorem, transfer, franchise, profits, license,
withholding, payroll, employment, excise, severance, stamp, occupancy, social
security, Medicare, premium, property or windfall profits tax, customs, duty or
other taxes or governmental fees, assessments or charges of any kind whatsoever,
together with any interest and any penalties, additions to tax or additional
amounts, imposed by any taxing authority (domestic or foreign) upon such Person
and (y) all liabilities of any Person for the payment of any amount of the type
described in the immediately preceding clause (x).
"Tax Returns" means all returns, declarations, reports, estimated returns
and information returns and statements of any Person required to be filed or
sent by or with respect to it in respect of any Taxes.
"Total Funded Indebtedness" means with respect to any Person as of any date
consolidated total indebtedness for borrowed money and Capitalized Lease
Obligations of such Person, as of such date determined in accordance with GAAP,
consistently applied.
2. Basic Transaction.
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(a) THE MERGER. On and subject to the terms and conditions of this
Agreement, and in accordance with the Ohio Corporation Law, the Buyer will merge
with and into the Company (the "Merger") at the Effective Time. Following the
Merger, the separate corporate existence of the Buyer shall cease and the
Company shall continue as the surviving corporation (the "Surviving
Corporation").
(b) THE CLOSING. The closing of the transactions contemplated by this
Agreement (the "Closing") shall take place at the offices of Edwards & Angell in
Providence, Rhode Island, commencing at 9:00 a.m. local time on the second
business day following the satisfaction or waiver of all conditions to the
obligations of the Parties to consummate the transactions contemplated hereby
(other than conditions with respect to actions the respective Parties will take
at the Closing itself) set forth in Section 6 or such other place and date as
the Parties may mutually determine (the "Closing Date").
(c) ACTIONS AT THE CLOSING. At the Closing, (i) the Company will deliver to
the Buyer the various certificates, instruments, and documents referred to in
Section 6(a) below, (ii) the Buyer will deliver to the Company the various
certificates, instruments, and documents referred to in Section 6(b) below,
(iii) the Company and the Buyer will file with the Secretary of State of the
State of Ohio a Certificate of Merger in the form attached hereto as Exhibit A
(the "Certificate of Merger"), and (iv) the Buyer will cause the Surviving
Corporation to deliver the Payment Fund to the Paying Agent in the manner
provided below in this Section 2.
(d) Effect of Merger.
-----------------
(i) GENERAL. The Merger shall become effective at the time (the
"Effective Time") the Company and the Buyer shall have filed the Certificate of
Merger with the Secretary of State of the State of Ohio. The Merger shall have
the effect set forth in the Ohio Corporation Law. The Surviving Corporation may,
at any time after the Effective Time, take any action (including
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executing and delivering any document) in the name and on behalf of either the
Company or the Buyer in order to carry out and effectuate the transactions
contemplated by this Agreement.
(ii) ARTICLES OF INCORPORATION. The Articles of Incorporation of the
Surviving Corporation shall be amended and restated at and as of the Effective
Time to read as did the Articles of Incorporation of the Buyer immediately prior
to the Effective Time (except that the name of the Surviving Corporation will be
"Skyline Chili, Inc.), until duly amended. The Articles of Incorporation and
Code of Regulations of the Surviving Corporation shall not alter or impair any
exculpatory or indemnification provisions now existing in the Articles of
Incorporation or Code of Regulations of the Company for the benefit of any
individual who served as a director or officer of the Company at any time prior
to or at the Effective Time for actions or omissions to act of such director or
officer taken or omitted on or prior to the Effective Time.
(iii) CODE OF REGULATIONS. The Code of Regulations of the Surviving
Corporation shall be amended and restated at and as of the Effective Time to
read as did the Code of Regulations of the Buyer immediately prior to the
Effective Time (except that the name of the Surviving Corporation will be
"Skyline Chili, Inc."), until duly amended. The Articles of Incorporation and
Code of Regulations of the Surviving Corporation shall not alter or impair any
exculpatory or indemnification provisions now existing in the Articles of
Incorporation or Code of Regulations of the Company for the benefit of any
individual who served as a director or officer of the Company at any time prior
to or at the Effective Time with respect to actions or omissions to act of such
director or officer taken or omitted on or prior to the Effective Time.
(iv) DIRECTORS AND OFFICERS. The directors and officers of the Buyer
shall become the directors and officers of the Surviving Corporation at and as
of the Effective Time (retaining their respective positions and terms of
office), until the earlier of their resignation or removal or until their
respective successors are duly elected and qualified, as the case may be.
(v) CONVERSION OF COMPANY SHARES. At and as of the Effective Time,
(A) each Company Share outstanding at the Effective Time (other than any
Dissenting Share or Contributed Company Share) shall be converted, without any
action on the part of the holder thereof, into the right to receive an amount
(such amount per share being herein called the "Merger Consideration") equal to
$6.75 in cash (without interest), (B) each Dissenting Share shall be converted,
into the right to receive payment from the Surviving Corporation with respect
thereto in accordance with the provisions of the Ohio Corporation Law, and (C)
each Contributed Company Share shall be canceled, without any action on the part
of the holder thereof; provided, however, that the Merger Consideration shall be
subject to equitable adjustment in the event of any stock split, stock dividend,
reverse stock split, or other change in the number of Company Shares
outstanding. No Company Share shall be deemed to be outstanding or to have any
rights other than those set forth above in this Section 2(d)(v) after the
Effective Time. At and after the Effective Time, each Company Stockholder shall
cease to have any rights as a stockholder of the Company and, until surrendered
in accordance with the provisions of Section 2(e) below, each Certificate (other
than Certificates representing Dissenting Shares and Contributed Company
Shares), shall represent for all purposes only the right to receive the Merger
Consideration for each Company Share represented thereby (as may be adjusted
pursuant to the provisions of Section 2(d)(v) hereof).
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<PAGE> 16
(vi) CONVERSION OF CAPITAL STOCK OF THE BUYER. At and as of the
Effective Time, (A) each share of Class A Voting Common Stock, no par value per
share, of the Buyer shall be converted into one share of Class A Voting Common
Stock, no par value per share, of the Surviving Corporation (the "Class A Voting
Stock"), and (B) each share of Class B Nonvoting Common Stock, no par value per
share, of the Buyer shall be converted into one share of Class B Nonvoting
Common Stock, no par value per share, of the Surviving Corporation.
(vii) COMPANY OPTIONS. At and as of the Effective Time, each Company
Option shall terminate, and, if the exercise price per share under such Company
Option shall be less than the Merger Consideration, the holder thereof shall be
entitled to receive from the Surviving Corporation an amount (the "Option Merger
Consideration") equal to (A) the Merger Consideration (as may be adjusted
pursuant to the provisions of Section 2(d)(v) hereof) MINUS the exercise price
of such Company Option MULTIPLIED BY (B) the number of Company Shares that may
be acquired upon exercise of such Company Option, less any applicable
withholding taxes, and without any interest paid thereon.
(viii) RETAINED OPTIONS. At and as of the Effective Time, the Option
Plan Amendment shall be effected and each Retained Option shall remain
outstanding.
(e) Procedure for Payment of Merger Consideration.
----------------------------------------------
(i) Immediately after the Effective Time, the Buyer will cause the
Surviving Corporation to furnish to The Fifth Third Bank (the "Paying Agent") a
corpus (the "Payment Fund") consisting of cash sufficient in the aggregate for
the Paying Agent to make full payment of an amount equal to the sum of the
Merger Consideration to the holders of all of the outstanding Company Shares
(other than any Dissenting Shares and Contributed Company Shares) and the Option
Merger Consideration.
(ii) As soon as reasonably practicable after the Effective Time, the
Paying Agent shall mail to each holder of record as of the Effective Time of a
certificate or certificates (the "Certificates"), which immediately prior to the
Effective Time represented issued and outstanding Company Shares which were
converted into the right to receive the Merger Consideration, (A) a notice of
the effectiveness of the Merger, and (B) a form letter of transmittal (each, a
"Letter of Transmittal") for return to the Paying Agent, and instructions for
use in effecting the surrender and exchange of the Certificates for the Merger
Consideration. Each Letter of Transmittal shall specify that delivery shall be
effected, and risk of loss and title to the Certificates shall pass, only upon
delivery of the Certificates to the Paying Agent. Such notice, Letter of
Transmittal and instructions shall contain such provisions and be in such form
as Buyer reasonably specifies and as are consistent with the terms of this
Agreement.
(iii) The Surviving Corporation shall cause the Paying Agent to pay
to each holder of a Certificate, as soon as practicable following receipt of
such Certificate, together with a Letter of Transmittal, duly executed, and any
other items reasonably specified by the Letter of Transmittal, or compliance
with the provisions of Section 2(e)(iv) or (v), as applicable, a check in an
amount equal to the product of (A) the number Company Shares
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<PAGE> 17
represented by the Certificate so surrendered times (B) the Merger Consideration
less, in each case, any applicable withholding taxes. No interest shall be paid
or accrued on any cash payable upon or after the surrender of a Certificate.
Each Certificate surrendered in accordance with the provisions of this Section
2(e)(iii) shall forthwith be canceled.
(iv) In the event of a transfer of ownership of Company Shares which
is not registered in the transfer records of the Company, the Merger
Consideration with respect to such Company Shares may be paid to the transferee
only if (A) the Certificate representing such Company Shares surrendered to the
Paying Agent in accordance with Section 2(e)(iii) hereof is properly endorsed
for transfer or is accompanied by appropriate and properly endorsed stock powers
and is otherwise in proper form to effect such transfer, (B) the Person
requesting such transfer establishes to the satisfaction of the Paying Agent
that any transfer or other taxes payable by reason of such transfer have been
paid, and (C) such Person establishes to the satisfaction of the Paying Agent
that such transfer would not violate any applicable Federal or state securities
laws. Each Certificate surrendered in accordance with the provisions of this
Section 2(e)(iv) shall forthwith be canceled.
(v) If any Certificate shall have been lost, stolen, mislaid or
destroyed then upon receipt of (A) an affidavit of that fact from the holder
claiming such Certificate to be lost, mislaid, stolen or destroyed, (B) such
bond, security or indemnity, as Buyer or the Paying Agent may reasonably
require, and (C) any other documentation to evidence and effect the bona fide
exchange thereof, the Merger Consideration with respect to the Company Shares
represented by such Certificate may be paid. Each such lost, stolen, mislaid or
destroyed Certificate with respect to which any Merger Consideration shall be
paid in accordance with the provisions of this Section 2(e)(v) shall forthwith
be deemed surrendered and canceled.
(vi) The Paying Agent shall invest the Payment Fund in U.S.
government securities maturing in 30 days or less, or, if a prospectus therefor
which shall be acceptable to the Buyer shall have been delivered to the Buyer
prior to the Closing Date, the Paying Agent's "Fountain Square U.S. Treasury
Obligation Fund", and all interest which is earned thereon shall be retained by
the Paying Agent and added to the Payment Fund in accordance with the terms of
Paying Agent Agreement.
(vii) The Paying Agent shall pay over to the Surviving Corporation
any portion of the Payment Fund (including any earnings thereon) remaining one
year after the Effective Time, and thereafter, subject to applicable law, all
former Company Stockholders shall be entitled to look only to the Surviving
Corporation as general creditors thereof with respect to the cash payable upon
surrender of their respective Certificates or compliance with Section 2(e)(iv)
or (v), as applicable. None of the Buyer, the Surviving Corporation nor any
Consenting Stockholder shall be liable to any Person, including without
limitation a former Company Stockholder, for funds delivered to a public
official pursuant to any applicable abandoned property, escheat or similar law.
(viii) The Surviving Corporation shall pay all charges and expenses
of the Paying Agent.
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<PAGE> 18
(f) CLOSING OF TRANSFER RECORDS. From and after the Effective Time,
transfers of Company Shares shall not be made on the stock transfer books of the
Surviving Corporation. If after the Effective time any Certificates are
presented for transfer, they shall be canceled and exchanged for the
consideration determined in accordance with this Section 2.
(g) Procedure for Payment of Option Merger Consideration.
-----------------------------------------------------
(i) The Company shall use reasonable efforts to cause each holder of
Company Options to execute prior to the Effective Time an Option Relinquishment
and Release Agreement in the form attached hereto as Exhibit C (an "Option
Relinquishment and Release Agreement").
(ii) Each holder of Company Options who has executed and delivered to
the Company prior to the Effective Time an Option Relinquishment and Release
Agreement shall be entitled to receive a check for the Option Merger
Consideration with respect to such Company Options, less any required
withholding taxes, as promptly as practicable after the Effective Time. No
interest shall be paid or accrued on any cash payable upon or after the
execution and delivery of an Option Relinquishment and Release Agreement with
respect to any Company Option.
(iii) If a holder of Company Options fails to deliver an Option
Relinquishment and Release Agreement prior to the Effective Time, each such
Company Option (collectively, the "Outstanding Options"), shall in accordance
with the terms and conditions of the applicable Employee Stock Option Plan and
such holder's agreement with respect to such Outstanding Options, be converted
without any action on the part of such holder into the right to receive an
amount equal to (A) the Merger Consideration less the exercise price of such
Outstanding Option MULTIPLIED BY (B) the number of Company Shares subject to
such Outstanding Option, upon the exercise by such holder of such Outstanding
Options in accordance with and within the time period prescribed by such
Employee Stock Option Plan and such holder's agreement with respect to such
Outstanding Options. The Surviving Corporation shall pay, or cause the Paying
Agent to pay by check (via U.S. mail, postage prepaid), to each holder of
Outstanding Options an amount with respect to such Outstanding Options
determined as provided in the preceding sentence, less any required withholding
taxes, as promptly as practicable, after receiving a valid exercise of such
Outstanding Options by such holder. No interest shall be paid or accrued on any
cash payable with respect to any Outstanding Option in accordance with the
provisions of this Section 2(g).
(H) Dissenters' Rights.
-------------------
(i) Notwithstanding anything in this Agreement to the contrary but
only to the extent required by Section 1701.85 of the Ohio Corporation Law, any
Company Shares that are issued and outstanding immediately prior to the
Effective Time and are held by holders who comply with all of the provisions of
the Ohio Corporation Law concerning the rights of such holders to dissent from
the Merger and to require appraisal of such Company Shares (the "Dissenting
Shares"), shall not be converted into the right to receive the Merger
Consideration but shall be converted into the right to receive such
consideration as may be determined to be due such holders with respect to such
Dissenting
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Shares pursuant to Ohio Corporation Law. If any holder of Dissenting Shares
shall, after the Effective Time, withdraw such holder's demand for appraisal of
such Dissenting Shares or waive or lose such holder's right of appraisal of such
Dissenting Shares, in either case pursuant to Ohio Corporation Law, such
holder's Dissenting Shares shall thereupon be deemed to have been converted, as
of the Effective Time into the right to receive the Merger Consideration with
respect to such Dissenting Shares in accordance with Section 2(e), without
interest.
(ii) The Company shall give the Buyer prompt notice of any demands
for appraisal, withdrawals of demands for appraisal and any other instruments
served in connection with such appraisal rights received by the Company. Prior
to the Effective Time, the Buyer shall have the right to participate in all
negotiations and proceedings with respect to demands for appraisal. Without the
prior written consent of the Buyer, the Company will not voluntarily make any
payment with respect to any demands for appraisal and will not settle or offer
to settle any such demands.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company represents
and warrants to the Buyer that the statements contained in this Section 3 are
correct and complete as of the date of this Agreement and will be correct and
complete as of the Closing Date (as though made then and as though the Closing
Date were substituted for the date of this Agreement throughout this Section 3),
except as set forth in the disclosure schedule accompanying this Agreement and
initialed by the Parties and as supplemented from time to time in accordance
with the terms and provisions of Section 5(h) below (the "Disclosure Schedule").
The Disclosure Schedule will be arranged in paragraphs corresponding to the
lettered and numbered paragraphs contained in this Section 3; provided that
disclosure of any item in any paragraph of the Disclosure Schedule shall be
deemed a disclosure as to all relevant paragraphs.
(a) ORGANIZATION, QUALIFICATION, AND CORPORATE POWER. Each of the Company
and its Subsidiaries (i) is a corporation duly organized, validly existing and
in good standing under the laws of the State of its incorporation, (b) has all
corporate power and authority and all Licenses to own and lease its properties
and assets and to carry on its business as presently conducted, and (c) is
qualified as a foreign corporation to do business and is in good standing under
the laws of each jurisdiction in which the conduct of its business or where the
ownership or leasing of its properties or assets requires such qualification,
except for such jurisdictions where the failure to be so qualified would not
have a Material Adverse Effect on the Company or any such Subsidiary. The
jurisdictions in which the Company or any of its Subsidiaries is qualified to do
business are set forth on the Disclosure Schedule.
(b) Capitalization; Subsidiaries.
-----------------------------
(i) The entire authorized capital stock of the Company is as set
forth in the Disclosure Schedule.
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<PAGE> 20
(ii) All of the issued and outstanding shares of capital stock,
partnership interests, joint venture interests or other outstanding equity
interests of any nature in each Subsidiary of the Company (the "Subsidiary
Interests") are owned of record and beneficially held by the Persons listed in
the Disclosure Schedule, free and clear of any Liens. There are no outstanding
contracts, demands, commitments, or other agreements or arrangements under which
any holder of Subsidiary Interests is or may become obliged to sell, transfer or
assign any Subsidiary Interests, except as disclosed in the Disclosure Schedule.
There are no Persons with any claims or rights to any Subsidiary Interests,
except as disclosed in the Disclosure Schedule.
(iii) All of the issued and outstanding Company Shares and Subsidiary
Interests have been duly authorized and are validly issued, fully paid, and
nonassessable and were authorized, offered, issued and sold in accordance with
all applicable securities and other laws and all rights of stockholders and
other Persons. There are no outstanding or authorized options, warrants,
purchase rights, subscription rights, conversion rights, exchange rights, or
other contracts or commitments pursuant to which any Person may acquire (or upon
exercise of any right may acquire) any of capital stock or equity interest in
the Company or any of its Subsidiaries, except for options to acquire no more
than 472,017 Company Shares at an average exercise price of $3.49 pursuant to
the Employee Stock Option Plans, true and correct copies of which have been
delivered to the Buyer. There are no outstanding or authorized stock or equity
appreciation, phantom stock or equity, profit participation, or similar rights
with respect to the Company or any of its Subsidiaries. The Persons listed on
Exhibit I hold no such options, warrants, purchase rights, subscription rights,
conversion rights, exchange rights, or other contracts or commitments pursuant
to which any such Persons may acquire (or upon exercise of any right may
acquire) any of capital stock or equity interest in the Company or any of its
Subsidiaries, except for the Retained Options. The number of Company Shares,
which may be acquired under, the average exercise price of and the date on which
exercisable of, the Retained Options held by such Persons are as set forth on
Exhibit I.
(iv) Except for the Stockholders' Agreement, there are no voting
trusts, proxies, or other agreements or understandings with respect to the
voting of any interest in or exercise of any control rights with respect to the
Company or any Subsidiary to which any Consenting Stockholder or any member of
the Management Group is a party.
(v) Neither the Company nor any Subsidiary is subject to any
obligation to repurchase or otherwise acquire or retire any equity interest
therein or has any liability for distributions or dividends declared or accrued,
but unpaid, with respect to its equity interests.
(vi) The Company has not purchased or redeemed any of its capital
stock, paid any dividend, or made any other distribution or payment in respect
of such stock to any Person since the Reference Date.
(vii) Each corporation, partnership, joint venture, limited liability
company, or other entity in which the Company holds directly or indirectly
(including through one or more other entities or a chain of entities) any stock,
partnership interest, joint venture
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<PAGE> 21
interest, or other equity interest or security or any investment is listed in
the Disclosure Schedule. The Disclosure Schedule also lists all the equity
owners of each such Person and the nature and amount of equity interest owned by
each such owner. Except as set forth in the Disclosure Schedule, the Company
does not, directly or indirectly, own or have any interest, direct or indirect,
or any commitment to purchase or otherwise acquire, any capital stock,
partnership interest, or other security, or other equity interest, direct or
indirect, in any other Person.
(c) AUTHORIZATION OF TRANSACTION. The Company has full power and authority
(including full corporate power and authority) to execute and deliver this
Agreement and to perform its obligations hereunder; provided, however, that the
Company cannot consummate the Merger unless and until it receives the Required
Statutory Stockholder Approval. The execution, delivery and performance of this
Agreement and the consummation by the Company of the transactions contemplated
hereby have been duly authorized by all requisite corporate actions on the part
of the Company, other than the Required Statutory Stockholder Approval. This
Agreement constitutes the valid and legally binding obligation of the Company,
enforceable in accordance with its terms and conditions.
(d) NONCONTRAVENTION; CONSENTS. Assuming compliance with the provisions of
the Hart-Scott-Rodino Act, the Ohio Corporation Law, the Securities Exchange
Act, the Securities Act, the regulations of the U.S. Department of Agriculture,
the state securities laws, or laws or regulations governing liquor licenses and
related approvals in the jurisdictions where the Restaurants are located and
that the Company obtains the consents of the Persons described in the Disclosure
Schedule, the execution and the delivery of this Agreement and the consummation
of the transactions contemplated hereby, will not (i) violate any constitution,
statute, regulation, rule, injunction, judgment, order, decree, ruling, charge,
or other restriction of any Governmental Authority to which any of the Company
and its Subsidiaries is subject or any provision of the charter, articles of
incorporation, bylaws or code of regulations, partnership agreement or
certificate, management agreement or other organizational document of any of the
Company and its Subsidiaries or (ii) conflict with, result in a breach of,
constitute a default under, result in the acceleration of, create in any party
the right to accelerate, terminate, modify, or cancel, or require any notice
under any agreement, contract, lease, license, instrument, or other arrangement
to which any of the Company and its Subsidiaries is a party or by which it is
bound or to which any of its assets is subject (or result in the imposition of
any Security Interest upon any of its assets), except where the violation,
conflict, breach, default, acceleration, termination, modification,
cancellation, failure to give notice, or Security Interest would not have a
Material Adverse Effect on the Company or such Subsidiary. Other than in
connection with the provisions of the Hart-Scott-Rodino Act, the Ohio
Corporation Law, the Securities Exchange Act, the Securities Act, the
regulations of the U.S. Department of Agriculture, the state securities laws, or
laws or regulations governing liquor licenses and related approvals in the
jurisdictions where the Restaurants are located, none of the Company or its
Subsidiaries needs to give any notice to, make any filing with, or obtain any
authorization, consent, or approval of any government or governmental agency in
order for the Parties to consummate the transactions contemplated by this
Agreement, except where the failure to give notice, to file, or to obtain any
authorization, consent, or approval would not have a Material Adverse Effect on
the Company and its
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<PAGE> 22
Subsidiaries or on the ability of the Parties to consummate the transactions
contemplated by this Agreement.
(e) FILINGS WITH THE SEC. The Company has made all filings with the SEC
that it has been required to make under the Securities Act, the Securities
Exchange Act and all rules and regulations thereunder, including all forms,
statements, reports, agreements and all documents, exhibits, amendments and
supplements appertaining thereto (collectively the "Public Reports"). Each of
the Public Reports has complied with the Securities Act and the Securities
Exchange Act in all material respects. None of the Public Reports, as of their
respective dates, contained any untrue statement of a material fact or omitted
to state a material fact necessary in order to make the statements made therein,
in light of the circumstances under which they were made, not misleading. The
Company has delivered to the Buyer a correct and complete copy of each Public
Report filed with the SEC since October 30, 1994.
(f) Financial Statements.
---------------------
(i) The Company has filed Quarterly Reports on Form 10-Q for the
fiscal quarters ended August 3, 1997 (the "Reference Date") and May 11, 1997,
and an Annual Report on Form 10-KSB for the fiscal year ended October 27, 1996.
The financial statements included in or incorporated by reference into these
Public Reports (including the related notes and schedules) have been prepared in
accordance with GAAP applied on a consistent basis throughout the periods
covered thereby (except as may be indicated in the Disclosure Schedule), present
fairly the financial condition of the Company and its Subsidiaries as of the
indicated dates and the results of operations of the Company and its
Subsidiaries for the indicated periods, in each case on a consolidated basis,
are correct and complete in all material respects, and are consistent with the
books and records of the Company and its Subsidiaries; provided, however, that
the interim statements are subject to normal year-end adjustments.
(ii) The Company has delivered to the Buyer balance sheets and
statements of income and cash flow dated as of and for the portion of its fiscal
year ending as of the end of each four week accounting period of its fiscal year
since the Reference Date for the Company and its Subsidiaries, in each case
prepared internally by the Company in accordance with GAAP applied on a
consistent basis throughout the periods covered thereby (except as may be
indicated in the Disclosure Schedule and subject to normal year-end
adjustments). Such financial statements present fairly the financial condition
of the Company and its Subsidiaries as of the indicated dates and the results of
operations of the Company and its Subsidiaries for the indicated periods, in
each case on a consolidated basis, and are correct and complete in all material
respects, and are consistent with the books and records of the Company and its
Subsidiaries.
(g) EVENTS SUBSEQUENT TO REFERENCE DATE. Since the Reference Date, neither
the Company nor any of its Subsidiaries has:
(i) incurred any liabilities, other than liabilities incurred in the
Ordinary Course of Business, or discharged or satisfied any lien or encumbrance
or paid any liabilities, other than in the Ordinary Course of Business, or
failed to pay or discharge when due any liabilities of which the failure to pay
or discharge has caused or could
16
<PAGE> 23
reasonably be expected to have a Material Adverse Effect on the Company or any
of its Subsidiaries;
(ii) sold, assigned or transferred (or entered into any option,
arrangement or other Contract to sell, assign or transfer) any assets or
properties, except pursuant to the FFCA Commitment Letter and any sale/leaseback
transactions contemplated thereby, or materially reduced its level of inventory
or supplies, except for the sales of inventory or supplies in the Ordinary
Course of Business and for the disposition of assets in the Ordinary Course of
Business which are worn-out, in need of substantial repair, or are obsolete and
which do not have a market value in excess of $50,000 in the aggregate for all
such assets;
(iii) created, incurred, assumed or guaranteed any indebtedness for
borrowed money, or mortgaged, pledged or subjected any of its assets to any Lien
or otherwise permitted any Lien upon its assets to exist, other than Permitted
Liens;
(iv) made or suffered any amendment or termination of, or defaulted
under, any material Contract to which it is a party or by which it is bound, or
canceled, modified or waived any substantial debts or claims held by it or
waived any rights of substantial value, whether or not in the Ordinary Course of
Business;
(v) made or suffered any amendment or termination of, or defaulted
under, any Contract with any Franchisee, or canceled, modified or waived any
substantial debts of any Franchisee or claims against any Franchisee held by it
or waived any rights with respect to any Franchisee of substantial value, not in
the Ordinary Course of Business;
(vi) suffered any damage, destruction or loss, whether or not covered
by insurance, (A) materially and adversely affecting the Business or its
operations, assets, properties or prospects or (B) of any item or items carried
on its books of account individually or in the aggregate at more than $30,000 or
suffered any repeated, recurring or prolonged shortage, cessation or
interruption of supplies or utilities or other services required to conduct the
operations of its business;
(vii) to its knowledge, suffered any Material Adverse Effect;
(viii) received notice or had knowledge of any actual or threatened
labor trouble, strike, union organizing efforts, or other occurrence, event or
condition of any similar character which has had or might reasonably be expected
to have a Material Adverse Effect on the Company or such Subsidiary;
(ix) made any acquisition of substantial assets or any commitments or
agreements for capital expenditures or capital additions or betterments
exceeding $50,000 individually or $100,000 in the aggregate, except such as may
be involved in ordinary repair, maintenance or replacement of its assets in the
Ordinary Course of Business;
(x) increased the salaries or other compensation of, or made any
advance (excluding advances for business expenses in the Ordinary Course of
Business) or loan to,
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<PAGE> 24
any of its employees or made any increase in, or any addition to, other benefits
to which any of its employees may be entitled, except for the fiscal 1998 salary
increases and bonus potential for the Management Group and other key employees
described in the Disclosure Schedule, and salary or hourly wage increases for
other employees in the Ordinary Course of Business;
(xi) decreased the fees payable by any Franchisees to the Company or
increased the discounts available to any Franchisee for inventory, supplies or
services obtained by such Franchisee from it, except in the Ordinary Course of
Business;
(xii) changed any of the accounting principles followed by it or the
methods of applying such principles or any practice involving customer credit
terms or collection or payment of accounts;
(xiii) entered into or amended any Contract with any of its
Affiliates or any Consenting Stockholder, member of the Management Group or
holders of Retained Options or Affiliate thereof;
(xiv) made any dividends or other distributions or payments to the
Company Stockholders
(xv) increased the aggregate compensation to the Consenting
Stockholders;
(xvi) materially changed the number of employees or management
personnel, except as the result of the opening of new Restaurants; or
(xvii) entered into any material transaction other than in the
Ordinary Course of Business.
(h) UNDISCLOSED LIABILITIES. None of the Company and its Subsidiaries has
any material liability (whether known or unknown, whether asserted or
unasserted, whether absolute or contingent, whether accrued or uncapped, whether
liquidated or unliquidated, and whether due or to become due), including any
liability for taxes, except for (i) liabilities set forth on the face of the
balance sheet dated as of the Reference Date (rather than in any notes thereto)
and (ii) liabilities which have arisen after the Reference Date in the Ordinary
Course of Business (none of which results from, arises out of, relates to, is in
the nature of, or was caused by any breach of contract, breach of warranty,
tort, infringement, or violation of law).
(i) BROKERS' FEES. Except pursuant to the Equitable Securities Letter, none
of the Company, any of its Subsidiaries or any Consenting Stockholder has any
liability or obligation to pay any fees or commissions to any broker, finder, or
agent with respect to the transactions contemplated by this Agreement. The
Disclosure Schedule sets forth all fees, expenses or other amounts paid to
Equitable Securities through the date hereof and an estimate of any fees,
expense or other amounts to be paid to Equitable Securities following the date
hereof in connection with the Merger or otherwise.
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<PAGE> 25
(j) Disclosure.
-----------
(i) At the date that the Definitive Proxy Materials are mailed to the
Company Stockholders and, as the same may be amended or supplemented, the
Definitive Proxy Materials will comply with the Securities Exchange Act in all
material respects.
(ii) The Definitive Proxy Materials will not contain any untrue
statement of a material fact or omit to state a material fact necessary in order
to make the statements made therein, in the light of the circumstances under
which they will be made, not misleading; provided, however, that the Company
makes no representation or warranty with respect to any information that the
Buyer and the Fleet Entities will supply in writing specifically for use in the
Definitive Proxy Materials.
(iii) The audited consolidated financial statements and unaudited
interim financial statement of the Company included in the Public Reports
(collectively, the "Company Financial Statements") have been prepared, and the
audited consolidated financial statements and unaudited interim financial
statements of the Company as included in all forms, reports or other documents
filed with the SEC after the date hereof will be prepared, in each case in
accordance with GAAP, consistently applied (except as may be indicated therein
or in the notes thereto and except with respect to unaudited statements as
permitted by Form 10-Q) and fairly present in all material respects the
financial position of the Company as of the respective dates thereof or the
results of operations and cash flows for the respective periods then ended, as
the case may be, subject, in the case of the unaudited interim financial
statements, to normal year-end audit adjustments.
(k) COMPLIANCE WITH LAW. To its knowledge, neither the Company nor any of
its Subsidiaries is in default under, or in violation of, nor has it violated
(and not cured) any Law (including, without limitation, Laws relating to the
issuance or sale of securities, anti-trust, restraint of trade, or occupational
safety), or any Licenses granted by, or any judgment, decree, writ, injunction
or order of, any governmental or regulatory authority, applicable to the
Company, any of its Subsidiaries or any of their operations or the Business
which default or violation has had or is likely to have a Material Adverse
Effect on the Company or such Subsidiary. Except as set forth in the Disclosure
Schedule, neither the Company nor any of its Subsidiaries has received any
notification alleging any material violations of any of the foregoing within the
last five years, and has taken all necessary corrective action in respect of
each such notification.
(l) NECESSARY LICENSES AND PERMITS. The Company and its Subsidiaries
possess all franchises, licenses, permits, consents, concessions and other
authorizations of governmental, regulatory or administrative agencies or
authorities, whether foreign, federal, state, or local, required to own, operate
and maintain their properties and assets and to conduct the Business, as
presently conducted (each a "License" and collectively, the "Licenses"), except
where the failure to possess such License would not have a Material Adverse
Effect on the Company or any of its Subsidiaries. The Disclosure Schedule sets
forth a list of each such License. Except as set forth in the Disclosure
Schedule, no registrations, filings, applications, notices, transfers, consents,
approvals, audits, qualifications, waivers or other action of any kind is
required by virtue of the execution
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and delivery of this Agreement by the Company, or of the consummation of the
Merger (i) to avoid the loss or termination of any such License described in the
Disclosure Schedule or any asset, property or right used or useful pursuant to
the terms thereof, or the violation or breach of any Law by the Company or any
of its Subsidiaries applicable thereto, the loss, termination, violation or
breach of which would have a Material Adverse Effect on the Company or any of
its Subsidiaries, or (ii) to enable Surviving Corporation to acquire, hold and
enjoy the same after the Effective Time. The Company and its Subsidiaries hold
each of the Licenses described in the Disclosure Schedule free of any claims or
restrictions (other than any restrictions in existence at the time such Licenses
were issued) and have fulfilled and performed in all material respects all of
their obligations with respect to such Licenses and, to the Company's knowledge,
no event has occurred which allows, or after notice or lapse of time or both
would allow, revocation or early termination thereof or would result in any
other impairment of the rights of the holder of any such Licenses, which
revocation, termination or impairment would have a Material Adverse Effect on
the Company or any of its Subsidiaries.
(m) MATERIAL CONTRACTS AND OBLIGATIONS. The Disclosure Schedule sets forth
a true, complete and accurate list and general summary description, categorized
by subject matter, of all of the following contracts, agreements, arrangements,
covenants, plans, leases and commitments, whether written or oral, entered into
by the Company or any of its Subsidiaries or by which the Company or any of its
Subsidiaries is bound ("Contracts"):
(i) all purchase orders and other Contracts for the purchase of
materials, products or supplies which are for a term of more than three (3)
months, or which involve or are reasonably expected to involve aggregate
payments by the Company or any of its Subsidiaries of more than $150,000 during
the current or any future fiscal year of the Company, or which were entered into
other than in the Ordinary Course of Business;
(ii) all distribution agreements, dealer agreements, sales agreements
and sales orders and other Contracts for the sale of products or provision of
services which are for a term of more than three (3) months, or which involve or
are reasonably expected to obligate any Person to make aggregate payments to the
Company or any of its Subsidiaries of more than $50,000 during the current or
any future fiscal year of the Company, or which were entered into other than in
the Ordinary Course of Business;
(iii) all employment, consulting, noncompete or services agreements
and other Contracts with any officer, consultant, director or employee which are
not terminable on 30 days' notice or less without penalty or legal obligation to
make any payments to such Person after termination thereof;
(iv) all Contracts providing for stock options or stock purchases,
stock appreciation rights, bonuses, pensions, severance payments, deferred or
incentive compensation, retirement payments, profit-sharing, insurance or other
benefits (whether or not under a plan or program) for any employees, officers,
directors, consultants, representatives or Affiliates of the Company or any of
its Subsidiaries;
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(v) all Contracts for construction or for the purchase of real
estate, improvements, equipment, machinery and other items which under GAAP
constitute capital expenditures or which involve or are reasonably expected to
involve expenditures in excess of $50,000 during the current or any future
fiscal year of the Company;
(vi) all Contracts relating to the rental or use of equipment,
vehicles, other personal property or fixtures, or relating to the provision of
services, which involve or are reasonably expected to involve payment of rentals
or sums in excess of $25,000 during the current or any future fiscal year of the
Company;
(vii) all Contracts relating in any way to direct or indirect
indebtedness for borrowed money or evidenced by a bond, debenture, note or other
evidence of indebtedness (whether secured or unsecured) of or to the Company or
any of its Subsidiaries, including but not limited to, indebtedness by way of
capitalized lease or installment purchase arrangement, guarantee, reimbursement
obligations pertaining to letters of credit, repurchase agreements, purchase
price discount obligations, or other undertakings on which others rely in
extending credit, or otherwise, and all mortgages, pledges, conditional sales
contracts, chattel and purchase money mortgages and other security arrangements
with respect to any real estate, improvements, equipment, other personal
property or fixtures, including without limitation the FFCA Commitment Letter, a
copy of which is attached to the Disclosure Schedule;
(viii) all Contracts substantially limiting the freedom of the
Company or any of its Subsidiaries to engage in or to compete in the Business,
or with any Person or in any geographical area in connection therewith, or to
use or disclose any information relating to the Company or any of its
Subsidiaries or the Business in the possession of the Company or any of its
Subsidiaries;
(ix) all license agreements, either as licensor or licensee,
franchise agreements, either as franchisor or franchisee, and management
agreements;
(x) all Contracts with respect to joint ventures, whether or not
involving a sharing of profits;
(xi) all Contracts between the Company or any of its Subsidiaries, on
the one hand, and any Consenting Stockholder or any Affiliate or Franchisee of
the Company or any of its Subsidiaries or any Consenting Stockholder, on the
other hand;
(xii) all Contracts granting to others the right to manufacture or
distribute products, including without limitation trademarked products,
including sales agency agreements, licensing, distributorship agreements and
agreements with brokers, dealers or representatives;
(xiii) all Contracts involving purchase price discounts in excess of
$25,000 in any fiscal year of the Company offered by the Company or any of its
Subsidiaries based on purchase volume or otherwise;
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(xiv) all Contracts involving research and development efforts on
behalf of the Company or any of its Subsidiaries;
(xv) all Contracts for any charitable or political contribution in
excess of $10,000;
(xvi) all Contracts not made in the Ordinary Course of Business;
(xvii) all Contracts granting any Person an option to acquire assets
or equity of the Company or any of its Subsidiaries; and
(xviii) the Equitable Securities Letter, a copy of which is attached
to the Disclosure Schedule; and
(xix) all other Contracts, except those which are (i) cancelable on
30 days or less notice without any penalty or other financial obligation or (ii)
if not so cancelable, involve or are reasonably expected to involve aggregate
payments by or to the Company or any of its Subsidiaries of $50,000 or less
during the current or any future fiscal year of the Company.
Except as set forth on the Disclosure Schedule, all Contracts
required to be disclosed pursuant to this Section 3(m) are valid, binding and in
full force and effect and none of the Company, any of its Subsidiaries or, to
the Company's knowledge, any other party thereto, is in material breach or
violation of, or default under, nor, to the Company's knowledge, is there any
valid basis for a claim of breach or violation of, or default under, the terms
of any such Contract, and no event has occurred which constitutes or, with the
lapse of time or the giving of notice or both, would constitute, such a breach,
violation or default by the Company or any of its Subsidiaries thereunder. The
Company or its applicable Subsidiary has enforced, or attempted to enforce, all
material rights in favor of the Company or such Subsidiary with respect to the
Contracts described in the Disclosure Schedule. Furthermore, no such Contract
contains, to the Company's knowledge, any contractual requirement with which
there is a reasonable likelihood the Company, any of its Subsidiaries or any
other party thereto will be unable to comply.
(n) OBLIGATIONS WITH MATERIAL ADVERSE EFFECT. To the Company's knowledge,
there is no term or provision of any Contract required to be disclosed pursuant
to Section 3(m), nor any License to which the Company or any of its Subsidiaries
is a party or by which it or any of its properties or assets are bound, nor any
provision of any Law, or any judgment, writ, injunction, decree or order
applicable to or binding upon the Company or any of its Subsidiaries, which
would have a Material Adverse Effect on the Company or any of its Subsidiaries.
(o) EMPLOYEES. The Company and each of its Subsidiaries has complied in all
material respects with all applicable Laws relating to the employment of labor,
including provisions thereof relating to wages, hours, equal opportunity,
collective bargaining, age, pregnancy,
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disability and sex discrimination and the payment and withholding of social
security and other Taxes due in respect thereof.
(p) Tax Matters.
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(i) All Tax Returns required to be filed by the Company or any of its
Subsidiaries with respect to any Taxes have been timely filed with the
appropriate governmental agencies in all jurisdictions in which such Tax Returns
are required to be filed, and all such Tax Returns are true, correct and
complete in all material respects;
(ii) All Taxes due in respect of all Tax periods ending on or before
the Closing Date, including without limitation those which are called for by the
Tax Returns, or heretofore claimed to be due by any taxing authority from the
Company or any of its Subsidiaries, have been paid;
(iii) The Company has established adequate accruals for Taxes and for
any liability for deferred Taxes in the Company Financial Statements in
accordance with GAAP;
(iv) Each of the federal Tax Returns of the Company or any of its
Subsidiaries have been audited from 1992 through the 1993 tax year. No audits of
the Tax Returns of the Company or any of its Subsidiaries have been conducted
since the 1993 tax year; moreover, the Company has not received any notice of
assessment or proposed assessment in connection with any such Tax Returns and
there are not pending Tax examinations of or Tax claims asserted against the
Company or any of its Subsidiaries or any of its assets or properties;
(v) Neither the Company nor any of its Subsidiaries has extended, or
waived the application of, any statute of limitations of any jurisdiction
regarding the assessment or collection of any Taxes;
(vi) There are no tax Liens (other than any Lien for current taxes
not yet due and payable) on any of the assets or properties of the Company or
any of its Subsidiaries;
(vii) None of the Company, any of its Subsidiaries or any predecessor
corporation thereto has been a member of an affiliated group of corporations for
federal income tax purposes; and
(viii) Neither the Company nor any of its Subsidiaries has requested
any extension of time within which to file any Tax Return, which Tax Return has
not since been filed.
(q) Real Property Owned and Leased.
-------------------------------
(i) Neither the Company nor any of its Subsidiaries owns real
property used or useful in the conduct of the Business, except as set forth in
the Disclosure Schedule.
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(ii) The Disclosure Schedule correctly identifies each parcel of real
estate currently leased by or to the Company or any of its Subsidiaries,
together in each case with an accurate street address, date of the lease and any
amendments, name of landlord, description of the use of such parcel and summary
of the term and annual rent payable in respect thereof. For purposes hereof the
real property owned or leased by the Company or any of its Subsidiaries
described on the Disclosure Schedule is herein called the "Real Estate".
(iii) The respective interest of the Company and its Subsidiaries in
the Real Estate is held free and clear of all Liens or other encumbrances of any
kind, except Permitted Liens. The Company and each of its Subsidiaries has good
and marketable title to all of the Real Property owned by it. The Company and
each of its Subsidiaries has all the right, title and interest of the lessee or
sublessee in each lease or sublease described on the Disclosure Schedule and
presently occupies the property leased or subleased by it under each such lease
or sublease and, except as set forth in the Disclosure Schedule, no consent
under any such lease or sublease is necessary for the consummation of the
Merger. No event has occurred which (with the giving of notice or passage of
time or both) would impair any right of the Company or any of its Subsidiaries
to exercise and obtain the benefits of any options contained in any such lease
or sublease and there is no default by the Company or any of its Subsidiaries or
basis for acceleration or termination by the lessor or sublessor thereunder, nor
has any event occurred which (with the giving of notice or passage of time or
both) would constitute a default by the Company or any of its Subsidiaries, or
result in or permit the acceleration of any obligation by the lessor or
sublessor, under any such lease or sublease, or, to Company's knowledge (without
inquiry), under any underlying ground or master lease, instrument, mortgage or
deed of trust of the lessor or sublessor, which default or acceleration would
materially and adversely affect any such lease or sublease or the Real Estate or
present use of the property covered thereby.
(iv) The improvements and fixtures located on the Real Estate are in
adequate condition and are structurally sound, and all mechanical and other
systems located therein are in adequate operating condition, subject to normal
wear and tear, and, to the Company's knowledge, no condition exists requiring
material repairs, alterations or corrections, except for ongoing maintenance and
scheduled remodels in the Ordinary Course of Business.
(v) The Company and its Subsidiaries have obtained, all easements,
authorizations and rights-of-way which are necessary to ensure reasonable
vehicular and pedestrian ingress and egress to and from the Real Estate, the
absence of which would have a Material Adverse Effect on the Company or any such
Subsidiary. To the Company's knowledge, there are (A) no restrictions on
entrance to or exit from the Real Estate to public streets, (B) no condition
which will result in the termination or limitation of access to the Real Estate
to public streets, (C) municipal improvements commenced or proposed in
connection with any of the Real Estate or any street or property adjacent
thereto which is likely to impede access to the Real Estate, or (D) no claims
affecting any of the Real Estate or interests therein pending or threatened
which might curtail or interfere with the use of the Real Estate for the purpose
for which it is now used, which in any case would have a Material Adverse Effect
on the Company or any such
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Subsidiary. Each Restaurant provides on or off-site parking sufficient to
satisfy any applicable Laws.
(vi) The water, electric, gas and sewer utility services and storm
drains currently available to the Restaurants are adequate for the conduct of
the Business, as currently conducted and, to the Company's knowledge, there is
no condition which will result in the termination or limitation of such services
or drains, which would have a Material Adverse Effect on the Company or any such
Subsidiary.
(vii) To the Company's knowledge, no structures on the Real Estate
fail to conform in any material respect with applicable ordinances,
requirements, regulations, zoning laws and restrictive covenants or, to the
Company's knowledge (without inquiry), encroach on property of others; and no
Real Estate is, to the Company's knowledge (without inquiry), encroached on by
structures of others.
(viii) No charges or violations have been filed, served, made or, to
the knowledge of the Company, threatened against or relating to any of the Real
Estate or structure thereon or any of the operations conducted at any such Real
Estate or in such structure, as a result of any violation or alleged violation
of any applicable ordinances, requirements, regulations, zoning laws or
restrictive covenants or as a result of any encroachment on the property of
others.
(ix) Neither the whole nor any portion of the Real Estate is subject
to any governmental decree or order to be sold or is being condemned,
expropriated or otherwise taken by any governmental body or other Person with or
without payment of compensation therefor, nor, to the Company's knowledge, has
any such condemnation, expropriation or taking been proposed.
(r) PERSONAL PROPERTY OWNED AND LEASED. The Company and its Subsidiaries
have good, valid and marketable title to all of their respective personal and
intangible properties and assets, including without limitation, all properties
and assets, free and clear of any and all Liens, except for Permitted Liens.
Such properties and assets, together with the Real Estate, constitute all of the
assets and properties, tangible or intangible, necessary to the conduct of the
Business, as currently conducted. All machinery, equipment and other material
items of tangible property and assets of the Company and its Subsidiaries are in
adequate operating condition and repair, subject to normal wear and tear and
maintenance, have been maintained and repaired so as to preserve their utility
and value, are usable in the Ordinary Course of Business, and conform to all
applicable Laws relating to their construction, use and operation, the
nonconformance with which would have a Material Adverse Effect on the Company or
any of its Subsidiaries. No Person other than the Company or its Subsidiaries
owns any machinery, equipment or other tangible assets or properties situated on
the Real Estate or at the Restaurants or used or useful in the Business except
for items of immaterial value and leased property set forth in the Disclosure
Schedule.
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(s) PROPRIETARY RIGHTS. All patents, trademarks, tradenames, service marks,
logos, copyrights, including applications therefor, inventions, formulae,
methods and processes, including without limitation secret recipe chili and
related food products (all such items being hereinafter referred to as
"Intellectual Property"), presently used or useful in the conduct of the
Business are described in the Disclosure Schedule. The Company owns or possesses
adequate licenses or other rights to use its Intellectual Property without any
conflict with the rights of others. Except as otherwise set forth in the
Disclosure Schedule, no royalties or fees are payable by the Company or any of
its Subsidiaries to any Person by reason of the ownership or use of any of their
Intellectual Property and all items of Intellectual Property are valid and in
good standing. Except as set forth in the Disclosure Schedule, the Company and
the Subsidiaries have the sole and exclusive right to use their Intellectual
Property and there are no licenses, sublicenses or agreements relating to the
use by any other Person of any of such Intellectual Property now in effect, and
the Company has no knowledge of any infringement upon such Intellectual Property
by any other Person. No charge or claim is pending or, to the Company's
knowledge, threatened, nor has any charge or claim been made within the past
five years, to the effect that, nor does the Company have any knowledge that,
the operation of the Business infringes upon or conflicts in any way with any
rights or properties of the type enumerated above owned or held by any other
Person. All patents, patent applications, registered trademarks, trademark
applications, trade names, service marks, logos, licenses and copyrights owned
by or licensed to the Company or any of its Subsidiaries are set forth in the
Disclosure Schedule and have been duly registered in, filed in, or issued by the
United States Patent and Trademark Office, United States Register of Copyrights
or the corresponding offices of any other country, state, or other jurisdiction
to the extent set forth in the Disclosure Schedule, and have been properly
maintained or renewed in accordance with all applicable provisions of Law and
administrative regulations in the United States and in each such other country,
state, or other jurisdiction. The Disclosure Schedule accurately sets forth with
respect to each patent, patent application, registered trademark, trademark
application, trade name, service mark, logo, license and copyright owned by or
licensed to the Company or any of its Subsidiaries, (i) the owner thereof, (ii)
the date of expiration, if any, (iii) whether such ownership or licensing rights
are exclusive, and (iv) to the Company's knowledge, any other licensee of such
rights. To the Company's knowledge, there is no patent application pending
which, if issued to any Person other than the Company or any of its
Subsidiaries, would have a Material Adverse Effect on the Company or any such
Subsidiary. The Disclosure Schedule describes the location of documents that
fully set forth the ingredients and processes constituting the secret recipes
for chili and related food products of the Business (the "Secret Recipe
Documentation") and each Person, including any bank, trust company or escrow
agent, with custody, responsibility or access thereto. The Company has full and
unrestricted access to the Secret Recipe Documentation and is the holder of each
safe deposit box identified in the Disclosure Schedule in which such Secret
Recipe Documentation is maintained and has the right to direct each trustee or
escrow agent identified in the Disclosure Schedule that holds such Secret Recipe
Documentation regarding the disposition of the Secret Recipe Documentation. No
present or former employee of the Company or any of its Subsidiaries and no
other Person owns or has any proprietary, financial or other interest, direct or
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indirect, in whole or in part, in any patent, trademark, tradename, service mark
or copyright, or in any application therefor, which the Company or any of its
Subsidiaries owns or possesses in the conduct of the Business as now or
heretofore conducted.
(t) Environmental.
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(i) For purposes of this Agreement, the following terms shall have
the following meanings: (A) the term "Hazardous Material" shall mean any
material, waste or substance, including, without limitation, petroleum or
petroleum products that, whether by their nature or use, are subject to
regulation under any Environmental Requirement; (B) the term "Environmental
Requirement" shall collectively mean the Comprehensive Environmental Response,
Compensation and Liability Act of 1980 (42 U.S.C. Section 9601, ET SEQ.), the
Hazardous Materials Transportation Act (49 U.S.C. Section 1801, ET SEQ.), the
Resource Conservation and Recovery Act (42 U.S.C. Section 6901, ET SEQ.), the
Toxic Substances Control Act (15 U.S.C. Section 2601, ET SEQ.), the Clean Air
Act (42 U.S.C. Section 7401, ET SEQ.), the Federal Water Pollution Control Act
(33 U.S.C. Section 1251, ET SEQ.), and any applicable state Environmental Laws,
any regulation pursuant thereto, or any other Law addressing environmental,
health or safety issues of or by any Governmental Authority; (C) the term
"Governmental Authority" shall mean the Federal government, or any state or
other political subdivision thereof, or any agency or body of the Federal
government, or any state or other political subdivision thereof, or any court
asserting jurisdiction over the Company or any of its Subsidiaries, which is
exercising executive, legislative judicial, regulatory or administrative
functions; and (D) the term "Offsite Facility" shall mean any offsite facility,
site or location for the disposal of waste which is utilized by or associated
with the Business.
(ii) Except as set forth in the Disclosure Schedule, (A) to the
Company's knowledge, no Hazardous Material has been or is currently located at,
in, on, under or about any Real Estate in a manner which violates any
Environmental Requirement, or which requires investigation, cleanup or
corrective action of any kind under any Environmental Requirement; (B) there has
been no release, emission, discharge, leaching, dumping or disposal of any
Hazardous Material by the Company or any of its Subsidiaries in the conduct of
the Business which has adversely affected the quality or quantity of groundwater
in a manner which is reasonably expected to form the basis of a claim, at law or
in equity, against the Company or any of its Subsidiaries nor is the Company or
any of its Subsidiaries aware of, nor has it received notice of, any such claim,
(C) to the Company's knowledge, no releasing, emitting, discharging, leaching,
dumping or disposing of any Hazardous Material at, in, on, under, to or from any
Real Estate has occurred, is occurring or, to the Company's knowledge, may
occur, whether in the conduct of its business or otherwise, in violation of any
Environmental Requirement; (D) the Company and its Subsidiaries have all
applicable federal, state and local permits, certifications, licenses or
approvals required for the conduct of its business and is in compliance with
such permits, certifications, licenses and approvals and is in compliance with
all applicable Environmental Requirements; (E) the Company is not aware of, nor
has the Company received, notice of any violation, Lien, complaint, claim,
notice, demand, suit, order or other obligation with respect to any past,
present or future event concerning the environmental condition of any Real
Estate or the Business; nor has any such notice been
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issued by any Governmental Authority which has not been fully satisfied and
complied with in all material respects in a timely fashion as required by
applicable Environmental Requirements; (F) to the Company's knowledge, there has
been no release or threatened release of Hazardous Material at, in, on or from
any Offsite Facility; (vii) neither the execution of this Agreement, nor the
consummation of the transactions contemplated hereby, will trigger any
obligation under any Environmental Requirement, or consent order or similar
agreement with any Governmental Authority, to perform any environmental
investigation or cleanup, or to install additional pollution control equipment
at any Real Estate, or to amend or modify its business and/or its operations and
equipment, or permits, certifications, licenses or approvals held by it; (G) to
the Company's knowledge, there has been no investigation, litigation, directive
or administrative enforcement proceeding, nor have any settlements been reached
by or with any Governmental Authority or public or private party alleging or
concerning the release, threatened release, disposal, storage or use of any
Hazardous Material at any Real Estate or any Offsite Facility; and (H) to the
Company's knowledge, there are no underground storage tanks, asbestos-containing
materials, polychlorinated biphenyls, lead paint or urea foam insulation present
at any Real Estate at levels or in a condition in violation of any Environmental
Requirement.
(u) LITIGATION. Except as set forth in the Disclosure Schedule, there is no
suit, claim, action, proceeding or investigation pending or, to the Company's
knowledge, threatened against or affecting the Company, any of its Subsidiaries
or the Business, or the consummation of the Merger, at law or in equity or
before any Governmental Authority or before any arbitrator of any kind, and to
the Company's knowledge, there is no valid basis for any such suit, claim,
action, proceeding or investigation, which if adversely determined would have a
Material Adverse Effect on the Company or any of its Subsidiaries. Except as set
forth in the Disclosure Schedule, neither the Company nor any of its
Subsidiaries has been a party to any such suit, claim, action, proceeding or
investigation since the date of the Company's initial public offering. No
pending or known threatened suit, claim, action, proceeding or investigation
could reasonably be expected to have a Material Adverse Effect on the Company or
any such Subsidiary. Neither the Company nor any of its Subsidiaries is a party
or, to the Company's knowledge, subject to any judgment, order, writ, injunction
or decree.
(v) LABOR MATTERS. Neither the Company nor any of its Subsidiaries is a
party to any collective bargaining or similar agreement covering any of its
employees. Except as set forth in the Disclosure Schedule, no labor organization
or group of employees of the Company or any of its Subsidiaries has made a
demand for recognition, has filed a petition seeking a representation proceeding
or given the Company or any of its Subsidiaries notice of any intention to hold
an election of a collective bargaining representative. Neither the Company nor
any of its Subsidiaries has suffered any strike, slowdown, picketing or work
stoppage by any group of employees affecting the Business during the past five
years.
(w) EMPLOYEE BENEFITS AND ARRANGEMENTS. Except as set forth in the
Disclosure Schedule, neither the Company nor any of its Subsidiaries maintains
or contributes to, or has an obligation to contribute to, any pension or
retirement plan, profit sharing plan,
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deferred compensation plan, compensation bonus plan, stock option plan, stock
bonus plan, stock appreciation rights plan, restricted stock plan, performance
unit plan, saving plan, severance, termination pay, welfare plan or other
benefit plan, policy, practice, or procedure or contract concerning employee
benefits or fringe benefits (including, but not limited to, post-retirement
benefits) of any kind (collectively, "Employee Benefit Plans"), whether or not
governed by the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), for the benefit of its employees or former employees. Except as set
forth in the Disclosure Schedule, neither the Company nor any of its
Subsidiaries is a party to any employment contract. None of the Company, any of
its Subsidiaries or any Controlled Group Member maintains or contributes to, or
ever maintained or contributed to, an Employee Benefit Plan subject to Title IV
of ERISA or Section 302 of ERISA or Section 412 or 4971 of the Code. The term
"Controlled Group Member" means any trade or business (whether or not
incorporated) which is, or was at any relevant time, aggregated with the Company
pursuant to Section 414(b), (c), (m) or (o) of the Code. None of the Company,
any of its Subsidiaries or any Controlled Group Member has participated in or
contributes to or was obligated to contribute to any "multiemployer plan" as
defined in Section 3(37) of ERISA. Neither the Company nor any of its
Subsidiaries has any current or projected liability in respect of
post-employment or post-retirement welfare benefits for employees or other
persons, except as required under Section 4980B of the Code, Part 6 of Title I
of ERISA or by any other federal or state law. No Employee Benefit Plan or other
agreement of the Company or any of its Subsidiaries entitles any employee or
other person to any bonus, retirement, severance, job security or similar
benefit or any enhanced benefit of such type solely as a result of the
transaction contemplated by this Agreement. The Company has furnished Buyer with
true, complete and accurate copies of all Employee Benefit Plans and related
trust agreements as in effect on the date hereof, all summary plan descriptions,
and the latest annual reports (Form 5500 series, including all schedules
thereto) filed with the Department of Labor or the Internal Revenue Service.
Each of the Employee Benefit Plans is in compliance in all material
respects with all applicable requirements of ERISA, the Code, and other
applicable law. Each of the Employee Benefit Plans has been administered in all
material respects in accordance with its terms and with applicable legal
requirements. All "employee pension plans", which are intended to be qualified
under Section 401(a) of the Code (within the meaning of Section 3(2) of ERISA),
have been determined by the Internal Revenue Service to be qualified under
Section 401(a) of the Code, and no action or proceeding has been instituted, is
pending or, to the Company's knowledge (without inquiry), threatened which would
affect the qualification of any employee pension plan of the Company or any of
its Subsidiaries or give rise to any liability on the part of the Company or any
of its Subsidiaries. No unfunded liabilities, based upon the Pension Benefit
Guarantee Corporation (the "PBGC") rates currently in effect for plan
terminations, exist with respect to any Employee Benefit Plan which is a
"defined benefit plan" (within the meaning of Section 3(35) of ERISA). There has
not been any reportable event with respect to any pension plan of the Company or
any of its Subsidiaries. Neither the Company nor any of its Subsidiaries has
engaged in a "prohibited transaction" or breach of fiduciary responsibility with
respect to any Employee Benefit Plan which could subject the Surviving
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Corporation to a penalty tax or other liability under ERISA or the Code. None of
the Company, any of its Subsidiaries or any Controlled Group Member has ever
incurred any liability under Title IV of ERISA to the PBGC or to a multiemployer
pension plan.
The Disclosure Schedule sets forth the amounts payable to each employee of
the Company or any of its Subsidiaries with respect to the Company's 1997 fiscal
year under the Company's compensation bonus plans.
(x) ARMS LENGTH TRANSACTIONS; CONFLICTS OF INTEREST. All transactions by
the Company or any of its Subsidiaries are and have been conducted on an arms
length basis, and, except as set forth in the Disclosure, there is no
transaction, and no transaction has been proposed, between the Company or any of
its Subsidiaries or Franchisees, on the one hand, and any Consenting
Stockholder, officer and director of the Company or an Affiliate of any such
Person. The Company has no knowledge of any favorable pricing, purchase or lease
arrangements which will not continue to be available to the Surviving
Corporation after the Merger on substantially equivalent terms. Except as set
forth in the Disclosure Schedule, no Consenting Stockholder, director, officer
or employee of the Company or any of its Subsidiaries or of any Affiliate or
Franchisee of the Company or any of its Subsidiaries or any such Person, has any
interest in (i) any property, real or personal, tangible or intangible,
including, but not limited to, any Intellectual Property, used or useful in
connection with or pertaining to the Business or (ii) any creditor, supplier,
manufacturer, dealer, distributor or representative of the Company or any of its
Subsidiaries.
(y) GOVERNMENTAL REGULATIONS. Neither Company nor any or its Subsidiaries
is a "holding company", or a "subsidiary company" of a "holding company", or an
"affiliate" of a "holding company", as such terms are defined in the Public
Utility Holding Company Act of 1935; nor is any of them a "registered investment
company", or an "affiliated person" or a "principal underwriter" of a
"registered investment company", as such terms are defined in the Investment
Company Act of 1940, as amended.
(z) SMALL BUSINESS CONCERN. The Company, together with its "affiliates" (as
defined in 13 CFR 121.401), has a net worth of less than $18,000,000 and average
net income after federal income taxes (excluding any carry-over losses) for the
preceding two completed fiscal years of less than $6,000,000.
(aa) D&O INSURANCE. Each insurance policy maintained by the Company for the
benefit of its directors and officers (collectively, the "D&O Policies") is
described on the Disclosure Schedule. The Company has provided true, correct and
complete copies of all of the D&O Policies to the Buyer, including all
endorsements and supplements thereto.
(bb) INSURANCE. There is in full force and effect one or more policies of
insurance issued by financially sound and reputable insurance companies insuring
the Company and its Subsidiaries, their properties and the Business against such
losses and risks, and in such amounts, as are customary in the case of
corporations of established reputation engaged in the same or similar businesses
of similar size and similarly situated. All insurance policies
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<PAGE> 37
and programs maintained by or on behalf of the Company and the Subsidiaries are
separately identified and disclosed on the Disclosure Schedule. The Company and
its Subsidiaries have not been refused any insurance coverage, and the Company
and its Subsidiaries have no reason to believe that they will be unable to renew
their existing insurance coverage upon terms at least as favorable as those
presently in effect. The Disclosure Schedule describes each claim incurred since
January 1, 1994 and each potential loss under such policies in excess of
$10,000.
(cc) RESTAURANTS. All Restaurants owned or operated by the Company or any
of its Franchisees are listed in the Disclosure Schedule.
(dd) ALL MATERIAL INFORMATION. No representation or warranty made herein by
the Company, and no statement contained in any certificate or other instrument
furnished, or to be furnished, by the Company to the Buyer described or required
by this Agreement or any other Related Agreement, contains any untrue statement
of a material fact or omits to state any material facts necessary in order to
make any statement therein not misleading.
3A. Representations and Warranties of the Consenting Stockholders.
--------------------------------------------------------------
Each Consenting Stockholder, severally and not jointly, for himself
or herself and not with respect to any other Consenting Stockholder, represents
and warrants to the Buyer that the statements contained in this Section 3A are
true and correct, except as set forth in the Disclosure Schedule.
(a) AUTHORITY. The Consenting Stockholder has the capacity to enter
into this Agreement and, assuming the Required Statutory Stockholder Approval is
obtained, to consummate the transactions contemplated by this Agreement. This
Agreement has been duly executed and delivered by the Consenting Stockholder and
constitutes the valid and binding obligation of such Consenting Stockholder,
enforceable in accordance with its terms, subject to applicable bankruptcy,
insolvency, reorganization, moratorium, or other similar laws affecting the
rights of creditors generally and general principles of equity.
(b) NONCONTRAVENTION. Except as set forth in the Disclosure Schedule
or as contemplated pursuant to provisions hereof, the execution and delivery of
this Agreement by the Consenting Stockholder does not, and the consummation of
the transactions contemplated by this Agreement will not, conflict with, result
in a breach of or the acceleration of any obligation under, or constitute a
default or event of default (or event which with notice or lapse of time or both
would constitute a default) under, any provision of any indenture, mortgage,
lien, lease, license, agreement, contract, permit, instrument, order, judgment,
decree, ordinance or regulation, or any restriction to which any property of
such Consenting Stockholder is subject or by which such Consenting Stockholder
is bound, the effect of which would result in a Material Adverse Effect on such
Consenting Stockholder, the Company or any of its Subsidiaries. Except as set
forth in the Disclosure Schedule, the Consenting Stockholder is not in violation
of any rule or regulation promulgated or judgment entered by any Governmental
Authority relating to or affecting the operation, conduct or ownership of the
property or business of such Consenting
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<PAGE> 38
Stockholder or the Business, which violation would have a Material Adverse
Effect on such Consenting Stockholder, the Company or any of its Subsidiaries.
(c) TITLE. All of the Company Shares in the name of the Consenting
Stockholder are owned of record and beneficially and held by such Consenting
Stockholder, free and clear of any Liens. Other than the Stockholders' Agreement
there are no outstanding contracts, demands, commitments, or other agreements or
arrangements under which such Consenting Stockholder is or may become obligated
to sell, transfer, or assign any of such Company Shares. To the Consenting
Stockholder's knowledge, there are no Persons with any claims or rights to any
such Company Shares, except as disclosed in the Disclosure Schedule.
(d) CONSENTS. No consent, approval, order, or authorization of, or
registration, declaration, or filing with, any Governmental Authority is
required by or with respect to the Consenting Stockholder in connection with the
execution and delivery by such Consenting Stockholder of this Agreement or any
other Related Agreement or the consummation of the transactions contemplated
hereby or thereby, except as described in Section 3(d).
4. REPRESENTATIONS AND WARRANTIES OF THE BUYER. The Buyer represents and
warrants to the Company and the Consenting Stockholders that the statements
contained in this Section 4 are correct and complete as of the date of this
Agreement and will be correct and complete as of the Closing Date (as though
made then and as though the Closing Date were substituted for the date of this
Agreement throughout this Section 4), except as set forth in the Disclosure
Schedule. The Disclosure Schedule will be arranged in paragraphs corresponding
to the numbered and lettered paragraphs contained in this Section 4; provided
that disclosure of any item in any paragraph of the Disclosure Schedule shall be
deemed a disclosure as to all relevant paragraphs.
(a) ORGANIZATION. The Buyer is a corporation duly organized, validly
existing, and in good standing under the laws of the jurisdiction of its
incorporation.
(b) AUTHORIZATION OF TRANSACTION. The Buyer has full power and authority
(including full corporate power and authority) to execute and deliver this
Agreement and to perform its obligations hereunder. The execution, delivery and
performance of this Agreement and the consummation by the Buyer of the
transactions contemplated hereby have been duly authorized by all requisite
corporate actions on the part of the Buyer. This Agreement constitutes the valid
and legally binding obligation of the Buyer, enforceable in accordance with its
terms and conditions.
(c) NONCONTRAVENTION. Assuming compliance with the provisions of the
Hart-Scott-Rodino Act, the Ohio Corporation Law, the Securities Exchange Act,
the Securities Act, the regulations of the U.S. Department of Agriculture, the
state securities laws, or laws or regulations governing liquor licenses and
related approvals in the jurisdictions where the Restaurants are located and
that the Company obtains the consents of the Persons described in the Disclosure
Schedule, the execution and the delivery of this Agreement, and the consummation
of the transactions contemplated hereby, will not (i) violate any constitution,
statute, regulation, rule, injunction, judgment, order, decree, ruling, charge,
or other restriction of any Governmental Authority to
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<PAGE> 39
which the Buyer is subject or any provision of the Articles of Incorporation or
code of regulations of the Buyer or (ii) conflict with, result in a breach of,
constitute a default under, result in the acceleration of, create in any party
the right to accelerate, terminate, modify, or cancel, or require any notice
under any agreement, contract, lease, license, instrument, or other arrangement
to which the Buyer is a party or by which it is bound or to which any of its
assets is subject (or result in the imposition of any Security Interest upon any
of its assets), except where the violation, conflict, breach, default,
acceleration, termination, modification, cancellation, or failure to give notice
or Security Interest would not have a Material Adverse Effect on the ability of
the Parties to consummate the transactions contemplated by this Agreement. Other
than in connection with the provisions of the Hart-Scott-Rodino Act, the Ohio
Corporation Law, the Securities Exchange Act, the Securities Act, the
regulations of the U.S. Department of Agriculture, the state securities laws or
laws or regulations governing liquor licenses and related approvals in the
jurisdictions where the Restaurants are located, the Buyer does not need to give
any notice to, make any filing with, or obtain any authorization, consent, or
approval of any government or governmental agency in order for the Parties to
consummate the transactions contemplated by this Agreement, except where the
failure to give notice, to file, or to obtain any authorization, consent, or
approval would not have a Material Adverse Effect on the ability of the Parties
to consummate the transactions contemplated by this Agreement.
(d) BROKERS' FEES. Except pursuant to the Equitable Securities Letter, the
Buyer has no liability or obligation to pay any fees or commissions to any
broker, finder, or agent with respect to the transactions contemplated by this
Agreement.
(e) DISCLOSURE. None of the information that the Buyer will supply in
writing specifically for use in the Definitive Proxy Materials will contain any
untrue statement of a material fact or omit to state a material fact necessary
in order to make the statements made therein, in the light of the circumstances
under which they will be made, not misleading.
(f) Capitalization.
---------------
(i) The entire authorized capital stock of the Buyer as of the date
of this Agreement, and substantially as it will be as of the Effective Time, is
as set forth in the Disclosure Schedule.
(ii) The Buyer has no Subsidiaries.
(iii) All of the issued and outstanding shares of the capital stock
of the Buyer have been duly authorized and are validly issued, fully paid, and
nonassessable and were authorized, offered, issued and sold in accordance with
all applicable securities and other laws and all rights of stockholders and
other Persons. There are no outstanding or authorized options, warrants,
purchase rights, subscription rights, conversion rights, exchange rights, or
other contracts or commitments pursuant to which any Person may acquire (or upon
exercise of any right may acquire) any of capital stock or equity interest in
the Buyer. There are no outstanding or authorized stock or equity appreciation,
phantom stock or equity, profit participation, or similar rights with respect to
the Buyer.
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(iv) Except for the Stockholders' Agreement, there are no voting
trusts, proxies, or other agreements or understandings with respect to the
voting of any interest in or exercise of any control rights with respect to the
Buyer.
(v) The Buyer is not subject to any obligation to repurchase or
otherwise acquire or retire any equity interest therein or has any liability for
distributions or dividends declared or accrued, but unpaid, with respect to its
equity interests.
(vi) The Buyer has not purchased or redeemed any of its capital
stock, paid any dividend, or made any other distribution or payment in respect
of such stock to any Person since its date of organization.
(viii) Other than pursuant to this Agreement, the Buyer does not hold
any stock, partnership interest, joint venture interest, or other equity
interest or security or any investment in any corporation, partnership, joint
venture, limited liability company, or other entity in which the. Other than
pursuant to this Agreement, the Buyer does not, directly or indirectly, own or
have any interest, direct or indirect, or any commitment to purchase or
otherwise acquire, any capital stock, partnership interest, or other security,
or other equity interest, direct or indirect, in any other Person.
(g) FINANCING. Assuming satisfaction of the conditions specified in
Section 6(a)(iii) and (vii) and the consummation of the transactions
contemplated by the Investment Agreement, if the funds were provided pursuant
to or as described in the Financing Commitment, there would be sufficient
financing to satisfy the condition set forth in Section 6(a)(xii) hereof.
(h) NO PRIOR ACTIVITIES. The Buyer has not incurred, and will not incur,
directly or through any Subsidiary, any liabilities or obligations, except those
incurred in connection with its organization or with the negotiation of the
Related Agreements and the Financing Commitment. Except as contemplated by the
Related Agreements and the Financing Commitment or in connection with the
negotiation, execution and delivery thereof or the organization of the Buyer,
the Buyer has not engaged in any business activities of any type or kind
whatsoever, or entered into any agreements or arrangements with any person or
entity, or become subject to or bound by any obligation or undertaking.
(i) LITIGATION. There is no material suit, claim, proceeding or
investigation pending, or, to the Buyer's knowledge, threatened against or
affecting the Buyer, or the consummation of the Merger, at law or in equity or
before any Governmental Authority or before any arbitrator of any kind, and to
the Buyer's knowledge, there is no valid basis for any such material suit,
claim, action, proceeding, or investigation. The Buyer has not been a party to
any such material, suit, claim, action, proceeding or investigation been
threatened. No pending or known threatened suit, claim, action, proceeding or
investigation could reasonably be expected to have a Material Adverse Effect on
the Buyer. The Buyer is not a party, or, to Buyer's knowledge, subject to any
judgment, order, writ, injunction or decree.
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5. COVENANTS. The Parties agree as follows with respect to the period from
and after the execution of this Agreement.
(a) GENERAL. Each of the Parties will use its reasonable efforts to take
all action and to do all things necessary, proper, or advisable in order to
consummate and make effective the transactions contemplated by this Agreement
(including satisfaction, but not waiver, of the closing conditions set forth in
Section 6 below).
(b) NOTICES AND CONSENTS. The Company will give any notices (and will cause
each of its Subsidiaries to give any notices) to third parties, and will use its
reasonable efforts to obtain (and will cause each of its Subsidiaries to use its
reasonable efforts to obtain) any third party consents, that the Buyer
reasonably may request in connection with the matters referred to in Section
3(d) above; provided that in order to obtain such consents, neither the Company
nor any of the Consenting Stockholders shall be required to (i) amend, waive or
release any material rights, other than as contemplated by this Agreement or any
other Related Agreement, or (ii) provide any guarantee or post additional
collateral.
(c) REGULATORY MATTERS AND APPROVALS. Each of the Parties will (and the
Company will cause each of its Subsidiaries to) give any notices to, make any
filings with, and use its reasonable efforts to obtain any authorizations,
consents, and approvals of governments and governmental agencies in connection
with the matters referred to in Section 3(d) and Section 4(d) above. Without
limiting the generality of the foregoing:
(i) SECURITIES ACT, SECURITIES EXCHANGE ACT AND STATE SECURITIES
LAWS. The Company will prepare and file with the SEC preliminary proxy materials
under the Securities Exchange Act relating to the Special Meeting. The Company
will use its reasonable efforts to respond to the comments of the SEC thereon
and will make any further filings (including amendments and supplements) in
connection therewith that may be necessary, proper, or advisable. The Buyer will
provide the Company with whatever information and assistance in connection with
the foregoing filings that the Company reasonably may request.
(ii) OHIO CORPORATION LAW. The Company will call a special meeting of
the Company Stockholders (the "Special Meeting"), as soon as reasonably
practicable, and in all events at a time sufficient to close the transactions
contemplated hereby prior to the Exclusivity Termination Date, in order that the
Company Stockholders may consider and vote upon the adoption of this Agreement
and the approval of the Merger in accordance with the Ohio Corporation Law. The
Company will mail the Definitive Proxy Materials to its stockholders as soon as
reasonably practicable. The Company will engage a proxy solicitor reasonably
acceptable to the Buyer to seek the approval of all of the Company Stockholders
of the Merger. The Definitive Proxy Materials will contain the affirmative
recommendation of the board of directors of the Company in favor of the adoption
of this Agreement and the approval of the Merger; provided, however, that no
director or officer of the Company shall be required to violate any fiduciary
duty or other requirement imposed by law in connection therewith.
Contemporaneously with the execution of this Agreement, the Buyer will deliver
to the Company an acquiring person statement complying in all material respects
with the requirements of Section 1701.831 (B) of the Ohio Corporation Law. At
the Company's
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reasonable request, the Buyer will agree that the Special Meeting may be held 50
days or more after the date of the Company's receipt of such acquiring person
statement.
(iii) HART-SCOTT-RODINO ACT. Each of the Parties will file (and the
Company will cause each of its Subsidiaries to file) any Notification and Report
Forms and related material that it may be required to file with the Federal
Trade Commission and the Antitrust Division of the United States Department of
Justice under the Hart-Scott-Rodino Act, will use its reasonable efforts to
obtain (and the Company will cause each of its Subsidiaries to use its
reasonable efforts to obtain) an early termination of the applicable waiting
period, and will make (and the Company will cause each of its Subsidiaries to
make) any further filings pursuant thereto that may be necessary, proper, or
advisable.
(d) FAIRNESS OPINION AND COMFORT LETTER. The Company will deliver to the
Buyer on or before the date the Definitive Proxy Materials is mailed to the
stockholders of the Company (i) a copy of an opinion of Equitable Securities
addressed to the Board of Directors of the Company as to the fairness of the
Merger to the Company Stockholders from a financial point of view (the "Fairness
Opinion") and (ii) a letter of Ernst & Young, LLP stating their conclusions as
to the accuracy of certain information derived from the financial records of the
Company and its Subsidiaries and contained in the Definitive Proxy Materials
(the "Company Comfort Letter"). Each of the Fairness Opinion and the Company
Comfort Letter shall be reasonably satisfactory to the Buyer in form and
substance.
(e) FINANCING. The Company and the Buyer will use reasonable efforts to
enter into definitive agreements (the "Definitive Financing Agreements") as soon
as reasonably practicable on terms and conditions substantially in accordance
with the Financing Commitment and reasonably satisfactory to the Buyer. The
Company will furnish correct and complete copies of the Definitive Financing
Agreements to the Buyer.
(f) OPERATION OF BUSINESS. The Company will not (and will not cause or
permit any of its Subsidiaries to) engage in any practice, take any action, or
enter into any transaction outside the Ordinary Course of Business. Without
limiting the generality of the foregoing, except with the Buyer's prior written
consent:
(i) none of the Company and its Subsidiaries will authorize or effect
any change in its charter, articles of incorporation, bylaws or code of
regulations, partnership agreement or certificate, management agreement or other
organization document;
(ii) none of the Company and its Subsidiaries will grant any options,
warrants, or other rights to purchase or obtain any of its capital stock or
partnership, membership or other equity interest or issue, sell, or otherwise
dispose of any of its capital stock or equity interests (except upon the
conversion or exercise of options, warrants, and other rights currently
outstanding);
(iii) none of the Company and its Subsidiaries will declare, set
aside, or pay any dividend or distribution with respect to its capital stock
(whether in cash or in kind), or redeem, repurchase, or otherwise acquire any of
its capital stock;
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(iv) none of the Company and its Subsidiaries will issue any note,
bond, or other debt security or create, incur, assume, or guarantee any
indebtedness for borrowed money or capitalized lease obligation outside the
Ordinary Course of Business;
(v) none of the Company and its Subsidiaries will impose any Security
Interest upon any of its assets outside the Ordinary Course of Business, except
with respect to any sale/leaseback transactions with Franchise Finance
Corporation of America as described in a commitment letter dated July 16, 1997
of Franchise Finance Corporation of America to the Company (the "FFCA Commitment
Letter");
(vi) none of the Company and its Subsidiaries will make any capital
investment in, make any loan to, or acquire the securities or assets of any
other Person outside the Ordinary Course of Business;
(vii) none of the Company and its Subsidiaries will make any change
in employment terms for any of its directors, officers, and employees outside
the Ordinary Course of Business;
(viii) none of the Companies and its Subsidiaries will materially
amend or modify the form of franchise agreement with, the procedures or rules
and regulations applicable to or the nature of its relationship with, its
Franchisees and
(ix) none of the Company and its Subsidiaries will commit to any of
the foregoing.
(g) FULL ACCESS. The Company will (and will cause each of its Subsidiaries
to) permit representatives of the Buyer to have full access at all reasonable
times, and in a manner so as not to interfere with the normal business
operations of the Company and its Subsidiaries, to all premises, properties,
personnel, books, records (including tax records), financial statements,
contracts, and documents of or pertaining to each of the Company and its
Subsidiaries. The Buyer will treat and hold as such any Confidential Information
it receives from any of the Company and its Subsidiaries in the course of the
reviews contemplated by this Section 5(g), will not use any of the Confidential
Information except in connection with this Agreement, and, if this Agreement is
terminated for any reason whatsoever, agrees to return to the Company all
tangible embodiments (and all copies) thereof which are in its possession.
(h) NOTICE OF DEVELOPMENTS; SUPPLEMENTS TO DISCLOSURE SCHEDULE. Each Party
will give prompt written notice to the others of any material adverse
development causing a breach of any of its own representations and warranties in
Section 3, Section 3A or Section 4 above. No disclosure by any Party pursuant
to this Section 5(h), however, shall be deemed to amend or supplement the
Disclosure Schedule or to prevent or cure any misrepresentation, breach of
warranty, or breach of covenant; provided, that each Party shall have the right
to supplement the Disclosure Schedule in writing from time to time to describe
or specify any fact, circumstance or development (i) occurring after the date
of this Agreement, or (ii) discovered after the date of this Agreement with
respect to changes to facts, circumstances or developments contemplated or
permitted hereby or which are represented or warranted to a Party's knowledge;
in either case causing a breach of its representations and warranties in
Section 3, 3A or Section 4, as originally made hereunder.
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(i) EXCLUSIVITY. Until February 15, 1998 (the "Exclusivity Termination
Date"), neither the Company nor any Consenting Stockholder will (nor will either
the Company or any Consenting Stockholder cause or permit any of the Company's
Subsidiaries or any officer, director, employee, advisor, representative or
agent of the Company or any of its Subsidiaries to) solicit, initiate,
negotiate, pursue or encourage the submission of any inquiry, proposal or offer
from any Person relating to the acquisition of any portion of the capital stock,
partnership, membership or other equity interests or the assets of any of the
Company and its Subsidiaries or the Business whether structured as a merger,
consolidation, share exchange, transaction involving an employee stock ownership
plan or recapitalization (an "Alternative Transaction"); provided, however,
that, in the good faith exercise of their fiduciary responsibilities, the Board
of Directors of the Company may furnish information with respect to the Company
and the Business and may negotiate with any Person concerning an Alternative
Transaction in response to any unsolicited inquiry, proposal or offer. The
Company shall notify the Buyer immediately if any Person makes any proposal,
offer, inquiry, or contact with respect to any Alternative Transaction.
(j) Break-up Fee.
-------------
In the event that the conditions set forth in either (i) or (ii) have
occurred (the "Break-up Fee Trigger"), the Company shall pay to the Buyer a fee
(the "Break-up Fee") equal to $1,500,000, payable in cash by wire transfer of
immediately available funds to the Buyer within thirty (30) days after the
earliest to occur of any Break-up Fee Trigger:
(i) on or before the Exclusivity Termination Date, the Company
shall enter into a letter of intent or other agreement for, or
otherwise shall accept an offer for, an Alternative Transaction; or
(ii)(A) the Buyer shall deliver to the Company written notice
prior to the Exclusivity Termination Date that they shall be prepared
to perform its obligations under this Agreement and consummate the
Merger subject to the satisfaction of the conditions set forth in
Section 6(a); (B) the Company or the Consenting Stockholders shall
have failed to perform subject to the satisfaction of the conditions
set forth in Section 6(b) their respective obligations under this
Agreement and consummate the Merger or the Company or the Consenting
Stockholders have failed to perform their respective obligations
hereunder so as to satisfy the conditions set forth in Section 6(a)
and (C) within fifteen (15) months after the Exclusivity Termination
Date, the Company shall enter into a letter of intent or other
agreement for, or otherwise shall accept an offer for, an Alternative
Transaction.
(k) D&O Insurance; Indemnification.
-------------------------------
(i) D&O INSURANCE. The Surviving Corporation will use its best
efforts to provide each individual who served as a director or officer of the
Company prior to or as of the Effective Time with liability insurance for a
period of forty-eight (48) months after the Effective Time no less favorable in
coverage and amount than the D&O Policies as in effect immediately prior to the
Effective Time with respect to actions or omissions to act of such director or
officer taken or
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omitted on or prior to the Effective Time. The Surviving Corporation will
provide each such director and officer, whose has provided the Surviving
Corporation with notice of his or her mailing address, with prompt written
notice of the continuation or cancellation of any such insurance and, upon
written request therefor, a copy of any applicable insurance policies.
(ii) NO AMENDMENT OF INDEMNIFICATION PROVISIONS. Subject to
applicable law, the Surviving Corporation will continue to indemnify each
individual who served as a director or officer of the Company prior to or as of
the Effective Time, to the extent provided in the Company's Articles of
Incorporation and Code or Regulations in effect on the date of this Agreement,
with respect to actions or omissions to act of such director or officer taken or
omitted on or prior to the Effective Time. The Buyer will not take any action to
alter or impair any exculpatory or indemnification provisions now existing in
the Articles of Incorporation or Code of Regulations of the Company for the
benefit of any individual who served as a director or officer of the Company at
any time prior to the Effective Time.
(iii) INDEMNIFICATION BY SURVIVING CORPORATION. Subject to applicable
law and to the extent provided in the Company's Articles of Incorporation and
Code of Regulations in effect as of the date of this Agreement, the Surviving
Corporation will indemnify each individual who served as a director or officer
of the Company as of the Effective Time from and against any and all actions,
suits, proceedings, hearings, investigations, charges, complaints, claims,
demands, injunctions, judgments, orders, decrees, rulings, damages, dues,
penalties, fines, costs, amounts paid in settlement, liabilities, obligations,
taxes, liens, losses, expenses, and fees, including all court costs and
reasonable attorneys' fees and expenses, resulting from, arising out of,
relating to, in the nature of, or caused by this Agreement or any of the
transactions contemplated herein; provided that, on or prior to the sixth
anniversary of the Effective Time, such Persons shall have notified the Company
in writing of a claim for such indemnification.
(iv) INDEMNIFICATION BY PARTIES. In the event this Agreement shall be
terminated pursuant to Section 7(a)(ii)(A) or Section 7(a)(iii)(A), each Party
hereby agrees to indemnify, exonerate and hold each of the other Parties and
their respective general and limited partners, members, shareholders, officers,
directors, managers, employees and agents (collectively, "Indemnitees") free and
harmless from and against (a) any and all losses, liabilities, damages and
expenses, including, without limitation, reasonable attorneys' fees and
disbursements (collectively, "Damages") arising in connection with any material
breach of such Party's agreements, covenants, obligations, representations or
warranties set forth herein or in any of the Related Agreements (after giving
effect to any supplement to the Disclosure Schedule permitted by Section 5(h));
provided that any claim for indemnity for a breach of a Party's agreements,
covenants, obligations, representations or warranties under this Agreement shall
be made on or before the first anniversary of such termination, and (b)
notwithstanding any disclosures made in the Disclosure Schedule, any and all
actions, causes of action, or suits brought against any of the Indemnitees by
third parties ("Third Party Claims") as a result of or in connection with the
execution, delivery, performance or enforcement of this Agreement, the other
Related Agreements or any other agreement contemplated hereby or thereby except
where such Damages are caused directly by the actions of an Indemnitee in
violation of its obligations under such agreements or which constitute gross
negligence, illegal conduct or willful misconduct of the Indemnitees.
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<PAGE> 46
(v) INDEMNIFICATION BY CONSENTING STOCKHOLDERS. On or after the
Effective Time, each Consenting Stockholder hereby agrees, severally and not
jointly with the other Consenting Stockholders, to indemnify, exonerate and hold
each of other Parties and their respective general and limited partners,
members, shareholders, officers, directors, managers, employees and agents
(collectively, "Stockholder Indemnitees") free and harmless from and against any
and all Damages arising in connection with (i) a knowing or intentional
misrepresentation or omission by the Company (if but only if such Consenting
Stockholder had knowledge of such misrepresentation or omission by the Company)
or such Consenting Stockholder hereunder or under any other Related Agreement,
(ii) a knowing or intentional breach of any covenant or agreement by the Company
(if but only if such Consenting Stockholder had knowledge of such breach by the
Company) or such Consenting Stockholder hereunder or under any other Related
Agreement, or (iii) a fraudulent action or omission to act by the Company (if
but only if such Consenting Stockholder had knowledge of such action or omission
by the Company) or such Consenting Stockholder; provided that any claim for
indemnity for a breach of a Party's agreements, covenants, obligations,
representations or warranties under this Agreement shall be made on or before
fourth anniversary of the Effective Time; provided that in no event shall the
aggregate amount required to be paid by a Consenting Stockholder to indemnify,
exonerate or hold harmless the Stockholder Indemnitees for Damages pursuant to
this Section 5(k)(v) exceed an amount equal to: (A) that portion of the Merger
Consideration and the Option Merger Consideration received by such Consenting
Stockholder, if any, or (B) in the case of Mr. McDonnell, the market value of
the Retained Options, options granted under the Management Option Plan and
capital stock of the Company or the Surviving Corporation beneficially owned by
Kevin McDonnell or his spouse, parent, sibling, child, grandchild, cousin or
other lineal descendent thereof and a trust created for the exclusive benefit of
one or more of such Persons or Mr. McDonnell.
(1) EMPLOYEE BENEFITS. For a period of at least two years after the
Effective Time, officers and employees of the Company and its Subsidiaries who
remain as employees of the Surviving Corporation and its Subsidiaries following
the Merger shall continue to be provided with employee benefits, including
without limitation profit sharing and retirement benefits, health and welfare
benefits, life and disability insurance and vacation, which are substantially
comparable to the employee benefits which were provided by the Company to its
officers and employees since June 1, 1997. An officer or employee of the Company
or its Subsidiaries who becomes a participant in any new employee benefit plan,
program, policy or arrangement, which is intended to provide such comparable
employee benefits, shall be given credit under such plan, program, policy or
arrangement for all prior services with the Company for purposes of eligibility,
vesting and benefit accrual. All required payments under the Company's three
compensation bonus plan that were in effect during the Company's 1997 fiscal
year shall be timely paid in full to the respective participants (and all
expenses related to the negotiation, execution and delivery of the Related
Agreements and the consummation of the transaction contemplated thereby shall be
excluded for purposes of determining the bonus payments required under such
plans).
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<PAGE> 47
(m) VOTING AGREEMENT OF CONSENTING STOCKHOLDERS. From and after the date
hereof and until the termination of this Agreement pursuant Section 7 or the
Effective Time, each Consenting Stockholder agrees to vote all of the Company
Shares over which such Consenting Stockholder has or exercises voting control
and shall take all other necessary or desirable actions within his control,
including, without limitation, attendance at meetings in person or by proxy for
purposes of obtaining a quorum, in favor of the Merger and the other
transactions contemplated by the Related Agreements.
(n) COMPLIANCE WITH LAW. The Company will comply with (a) all applicable
laws and regulations wherever its business is conducted, the non-compliance with
which would have a Material Adverse Effect, including without limitation the
timely filing of all reports, forms or other documents with the SEC required
pursuant to the Securities Act or the Securities Exchange Act.
6. Conditions to Obligation to Close.
----------------------------------
(a) CONDITIONS TO OBLIGATION OF THE BUYER. The obligation of the Buyer to
consummate the transactions to be performed by it in connection with the Closing
is subject to satisfaction of the following conditions:
(i) this Agreement and the Merger shall have received the Requisite
Stockholder Approval and the number of Dissenting Shares shall not exceed three
percent (3%) of the number of outstanding Company Shares;
(ii) the Company and its Subsidiaries shall have procured all of the
third party consents specified in Section 5(b) above;
(iii) the representations and warranties set forth in Section 3 and
Section 3A above shall be true and correct in all material respects as of the
date of this Agreement and shall be true and correct in all material respects at
and as of the Closing Date without giving effect to any supplement to the
Disclosure Schedule;
(iv) each of the Company, each member of the Management Group and
each Consenting Stockholder shall have performed and complied with all of its
covenants hereunder and under each other Related Agreement in all material
respects through the Closing;
(v) no action, suit, or proceeding shall be pending or threatened
before any court or quasi-judicial or administrative agency of any federal,
state, local, or foreign jurisdiction or before any arbitrator wherein an
unfavorable injunction, judgment, order, decree, ruling, or charge would (A)
prevent consummation of any of the transactions contemplated by this Agreement,
(B) cause any of the transactions contemplated by this Agreement to be rescinded
following consummation, (C) affect adversely the right of the Buyer to own the
capital stock of the Surviving Corporation and to control the Surviving
Corporation and its Subsidiaries, or (D) affect adversely the right of any of
the Surviving Corporation and its Subsidiaries to own its assets and to operate
its businesses (and no such injunction, judgment, order, decree, ruling, or
charge shall be in effect);
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<PAGE> 48
(vi) no Material Adverse Effect on the Company or any of its
Subsidiaries shall have occurred since the Reference Date;
(vii) as of the Closing Date, (A) the Net Worth of the Company shall
be at least $12,500,000, (B) the Net Working Capital of the Company shall be at
least $2,000,000, (C) Total Funded Indebtedness of the Company shall be no more
than $5,700,000, and (D) Cash and Cash Equivalents of the Company shall be at
least $1,000,000, in each case prior to and without making provision for the
payment or accrual of expenses of the Company relating to the transactions
contemplated by the Related Agreements and determined based upon the Company's
internal financial statements as of the end of the four week accounting period
preceding the Closing Date;
(viii) the Company shall have delivered to the Buyer a certificate to
the effect that each of the conditions specified above in Section 6(a)(i)-(vii)
is satisfied in all respects;
(ix) all applicable waiting periods (and any extensions thereof)
under the Hart-Scott-Rodino Act shall have expired or otherwise been terminated
and the Parties shall have received all other authorizations, consents, and
approvals of Governmental Authorities referred to in Section 3(d) and Section
4(d) above;
(x) the Buyer shall have received from counsel to the Company an
opinion in form and substance as set forth in Exhibit E attached hereto,
addressed to the Buyer, and dated as of the Closing Date;
(xi) the Buyer shall have received the resignations, effective as of
the Closing, of each director and officer of the Company and its Subsidiaries
other than those whom the Buyer shall have specified in writing at least five
business days prior to the Closing;
(xii) the Buyer (or the Company) shall have obtained all of the
financing it will require in order to consummate the Merger and fund the working
capital needs of the Surviving Corporation and its Subsidiaries after the
Closing on terms and conditions substantially in accordance with the Financing
Commitments and reasonably satisfactory to the Buyer;
(xiii) the Consenting Stockholders, the Company, the Management Group
and each other Person who is a party thereto (other than the Buyer and the Fleet
Entities) shall have executed and delivered each of the Related Agreements to
which it is a party to the Buyer and each of the obligations contemplated
thereby to be performed by the Consenting Stockholders, the Company or any such
other Person on or prior to the Effective Time shall have been performed;
(xiv) the Buyer shall have received adequate assurances satisfactory
to it in all respects as to the condition of the following three properties:
10625 Harrison Avenue, Harrison, Ohio, Fishinger Boulevard, Hilliard, Ohio, and
Powell Road, Delaware, Ohio relating to Environmental Requirements provided that
unless the Buyer shall have given written notice to the Company on or prior to
December 26, 1997 that this condition shall not have been satisfied, this
condition shall be deemed waived as of such date;
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<PAGE> 49
(xv) all actions to be taken by the Company in connection with
consummation of the transactions contemplated hereby and all certificates,
opinions, instruments, and other documents required to effect the transactions
contemplated hereby will be reasonably satisfactory in form and substance to the
Buyer.
The Buyer may waive any condition specified in this Section 6(a) if they execute
a writing so stating at or prior to the Closing.
(b) CONDITIONS TO OBLIGATION OF THE COMPANY. The obligation of the Company
and the Consenting Stockholders to consummate the transactions to be performed
by it in connection with the Closing is subject to satisfaction of the following
conditions:
(i) the representations and warranties set forth in Section 4 above
shall be true and correct in all material respects as of the date of this
Agreement and shall be true and correct in all material respects at and as of
the Closing Date without giving effect to any supplement to the Disclosure
Schedule;
(ii) the Buyer and each Fleet Entity shall have performed and
complied with all of its covenants hereunder and under each other Related
Agreement in all material respects through the Closing;
(iii) no action, suit, or proceeding shall be pending or threatened
before any court or quasi-judicial or administrative agency of any federal,
state, local, or foreign jurisdiction or before any arbitrator wherein an
unfavorable injunction, judgment, order, decree, ruling, or charge would (A)
prevent consummation of any of the transactions contemplated by this Agreement,
(B) cause any of the transactions contemplated by this Agreement to be rescinded
following consummation, (C) affect adversely the right of the Buyer to own the
capital stock of the Surviving Corporation and to control the Surviving
Corporation and its Subsidiaries, or (D) affect adversely the right of any of
the Surviving Corporation and its Subsidiaries to own its assets and to operate
its businesses (and no such injunction, judgment, order, decree, ruling, or
charge shall be in effect);
(iv) the Buyer shall have delivered to the Company a certificate to
the effect that each of the conditions specified above in Section 6(b)(i)-(iii)
is satisfied in all respects;
(v) this Agreement and the Merger shall have received the Required
Statutory Stockholder Approval;
(vi) all applicable waiting periods (and any extensions thereof)
under the Hart-Scott-Rodino Act shall have expired or otherwise been terminated
and the Parties shall have received all other authorizations, consents, and
approvals of governments and governmental agencies referred to in Section 3(d)
and Section 4(d) above;
(vii) the Company and the Consenting Stockholders shall have received
from counsel to the Buyer an opinion in form and substance as set forth in
Exhibit E attached hereto, addressed to the Company and the Consenting
Stockholders, and dated as of the Closing Date;
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<PAGE> 50
(viii) the Buyer, each of the Fleet Entities and each other Person
who is a party thereto (other than the Consenting Stockholders, members of the
Management Group, employees or officers of the Company or any of its
Subsidiaries or the Company) shall have executed and delivered each of the
Related Agreements to which it is a party to the Consenting Stockholders and the
Company and each of the obligations contemplated thereby to be performed by the
Buyer, the Fleet Entities or any such other Persons on or prior to the Effective
Time shall have been performed; and
(ix) all actions to be taken by the Buyer in connection with
consummation of the transactions contemplated hereby and all certificates,
opinions, instruments, and other documents required to effect the transactions
contemplated hereby will be reasonably satisfactory in form and substance to the
Company and the Consenting Stockholders.
The Company may waive any condition specified in this Section 6(b) if it
executes a writing so stating at or prior to the Closing.
7. Termination.
------------
(a) TERMINATION OF AGREEMENT. Any of the Parties may terminate this
Agreement with the prior authorization of its board of directors (whether before
or after stockholder approval) as provided below:
(i) the Parties may terminate this Agreement by mutual written
consent at any time prior to the Effective Time;
(ii) the Buyer may terminate this Agreement by giving written notice
to the Company at any time prior to the Effective Time in the event (A) the
Company or any Consenting Stockholder has breached any material representation,
warranty, or covenant contained in this Agreement in any material respect, the
Buyer has notified the Company of the breach, and the breach has continued
without cure for a period of 30 days after the notice of breach, or (B) the
Closing shall not have occurred on or before February 28, 1998, by reason of the
failure of any condition precedent under Section 6(a) hereof (unless the failure
results primarily from the Buyer breaching any representation, warranty, or
covenant contained in this Agreement);
(iii) the Company may terminate this Agreement by giving written
notice to the Buyer at any time prior to the Effective Time (A) in the event the
Buyer has breached any material representation, warranty, or covenant contained
in this Agreement in any material respect, the Company has notified the Buyer of
the breach, and the breach has continued without cure for a period of 30 days
after the notice of breach or (B) the Closing shall not have occurred on or
before February 28, 1998, by reason of the failure of any condition precedent
under Section 6(b) hereof (unless the failure results primarily from the Company
breaching any representation, warranty, or covenant contained in this
Agreement);
(iv) any Party may terminate this Agreement by giving written notice
to the other Parties at any time prior to the Effective Time in the event the
Fairness Opinion is withdrawn or is materially or adversely modified;
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<PAGE> 51
(v) the Buyer may terminate this Agreement by giving written notice
to the other Parties at any time after the Special Meeting in the event this
Agreement and the Merger fail to receive the Requisite Stockholder Approval; or
(vi) the Company may terminate this Agreement by giving written
notice to the other Parties at any time after the Special Meeting in the event
this Agreement and the Merger fail to receive the Required Statutory Stockholder
Approval.
(b) EFFECT OF TERMINATION. If any Party terminates this Agreement pursuant
to Section 7(a) above, all rights and obligations of the Parties hereunder shall
terminate without any liability of any Party to any other Party (except for any
liability of any Party then in breach); provided, however, that the
confidentiality provisions contained in Section 5(g) above, the provisions of
Section 5(j) above concerning the Break-up Fee, the provisions of Section 5(k)
above concerning indemnification and the provisions of Section 8(l) concerning
expenses shall survive any such termination. Notwithstanding anything to the
contrary contained herein each Party shall retain all of its rights and
remedies, at law or in equity, following any termination hereof arising from (i)
a knowing or intentional misrepresentation or omission by any other Party
hereunder or under any other Related Agreement, (ii) a knowing or intentional
breach of any covenant or agreement by any other Party hereunder or under any
other Related Agreement, or (iii) a fraudulent action or omission to act by any
other Party.
8. Miscellaneous.
--------------
(a) SURVIVAL. Only those agreements and covenants of the Parties that are
applicable in whole or in part following the Effective Time shall survive the
Effective Time, including the provisions in Section 2 above concerning payment
of the Merger Consideration, the provisions of Section 3A(c) concerning title to
the Company Shares owned by the Consenting Stockholders and the provisions in
Section 5(j) and (k) above concerning the Break-up Fee and insurance and
indemnification). All representations and warranties and other agreements and
covenants shall be deemed to be conditions to this Agreement and shall not
survive the Effective Time.
(b) PRESS RELEASES AND PUBLIC ANNOUNCEMENTS. No Party shall issue any press
release or make any public announcement relating to the subject matter of this
Agreement without the prior written approval of the other Parties; provided,
however, that any Party may make any public disclosure it believes in good faith
is required by applicable law or any listing or trading agreement concerning its
publicly-traded securities (in which case the disclosing Party will use
reasonable efforts to advise the other Party prior to making the disclosure).
(c) NO THIRD-PARTY BENEFICIARIES. This Agreement shall not confer any
rights or remedies upon any Person other than the Parties and their respective
successors and permitted assigns; provided, however, that (i) the provisions in
Section 2 above concerning payment of the Merger Consideration and the Retained
Options are intended for the benefit of the Company Stockholders and holders of
the Company Options, and (ii) the provisions in Section 5(k) above concerning
insurance and indemnification are intended for the benefit of the individuals
specified therein and their respective legal representatives.
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(d) ENTIRE AGREEMENT. This Agreement (including the documents referred to
herein) constitutes the entire agreement among the Parties and supersedes any
prior understandings, agreements, or representations by or among the Parties,
written or oral, to the extent they related in any way to the subject matter
hereof.
(e) SUCCESSION AND ASSIGNMENT. This Agreement shall be binding upon and
inure to the benefit of the Parties named herein and their respective successors
and permitted assigns. No Party may assign either this Agreement or any of its
rights, interests, or obligations hereunder without the prior written approval
of the other Parties.
(f) COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument.
(g) HEADINGS. The section headings contained in this Agreement are inserted
for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
(h) NOTICES. All notices, requests, demands, claims, and other
communications hereunder will be in writing. Any notice, request, demand, claim,
or other communication hereunder shall be deemed duly given if (and then two
business days after) it is sent by registered or certified mail, return receipt
requested, postage prepaid, and addressed to the intended recipient as set forth
below:
If to the Company:
Skyline Chili, Inc.
4180 Thunderbird Lane
Fairfield, OH 45014
Attention: Kevin R. McDonnell, President
Copy to:
Mark J. Zummo, Esq.
Kohnen & Patton LLP
1400 Carew Tower
441 Vine Street
Cincinnati, OH 45202
If to the Buyer:
c/o Fleet Venture Resources, Inc.
50 Kennedy Plaza, Suite 1200
Providence, RI 02903
Attention: Bernard V. Buonanno, III, Vice President
Copy to:
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<PAGE> 53
Richard G. Small, Esq.
Edwards & Angell
2700 Hospital Trust Plaza
Providence, RI 02903
Any Party may send any notice, request, demand, claim, or other communication
hereunder to the intended recipient at the address set forth above using any
other means (including personal delivery, expedited courier, messenger service,
telecopy, telex, ordinary mail, or electronic mail), but no such notice,
request, demand, claim, or other communication shall be deemed to have been duly
given unless and until it actually is received by the intended recipient. Any
Party may change the address to which notices, requests, demands, claims, and
other communications hereunder are to be delivered by giving the other Parties
notice in the manner herein set forth.
(i) GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the domestic laws of the State of Ohio without giving effect to
any choice or conflict of law provision or rule (whether of the State of Ohio or
any other jurisdiction) that would cause the application of the laws of any
jurisdiction other than the State of Ohio.
(j) AMENDMENTS AND WAIVERS. The Parties may mutually amend any provision of
this Agreement at any time prior to the Effective Time with the prior
authorization of their respective boards of directors; provided, however, that
any amendment effected subsequent to stockholder approval will be subject to the
restrictions contained in the Ohio Corporation Law. No amendment of any
provision of this Agreement shall be valid unless the same shall be in writing
and signed by all of the Parties. No waiver by any Party of any default,
misrepresentation, or breach of warranty or covenant hereunder, whether
intentional or not, shall be deemed to extend to any prior or subsequent
default, misrepresentation, or breach of warranty or covenant hereunder or
affect in any way any rights arising by virtue of any prior or subsequent such
occurrence.
(k) SEVERABILITY. Any term or provision of this Agreement that is invalid
or unenforceable in any situation in any jurisdiction shall not affect the
validity or enforceability of the remaining terms and provisions hereof or the
validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction.
(l) EXPENSES. Each of the Parties will bear its own costs and expenses
(including legal fees and expenses) incurred in connection with this Agreement
and the transactions contemplated hereby. The Company agrees that it shall not,
nor shall it agree to, reimburse any other Person for any of its costs and
expenses incurred in connection with such transactions; provided that the
Company may reimburse the Persons designated in Exhibit K up to a total amount
of $900,000 for actual reasonable expenses incurred in connection with such
transactions in amounts not exceeding the amounts specified in such Exhibit.
(m) CONSTRUCTION. The Parties have participated jointly in the negotiation
and drafting of this Agreement. In the event an ambiguity or question of intent
or interpretation arises, this Agreement shall be construed as if drafted
jointly by the Parties and no presumption or burden of
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<PAGE> 54
proof shall arise favoring or disfavoring any Party by virtue of the authorship
of any of the provisions of this Agreement. Any reference to any federal, state,
local, or foreign statute or law shall be deemed also to refer to all rules and
regulations promulgated thereunder, unless the context otherwise requires. The
word "including" shall mean including without limitation.
(n) INCORPORATION OF EXHIBITS AND SCHEDULES. The Exhibits and Schedules
identified in this Agreement are incorporated herein by reference and made a
part hereof.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of
the date first above written.
SKYLINE CHILI, INC.
By: /s/ Joseph E. Madigan
---------------------------------
Title: Chairman Special Committee
---------------------------------
/s/ Lambert N. Lambrinides
----------------------------------
(LAMBERT N. LAMBRINIDES)
/s/ Christie N. Lambrinides
----------------------------------
(CHRISTIE N. LAMBRINIDES)
/s/ William N. Lambrinides
----------------------------------
(WILLIAM N. LAMBRINIDES}
/s/ Kevin R. McDonnell
----------------------------------
(KEVIN R. McDONNELL)
<PAGE> 56
SKYLINE ACQUISITION CORP.
By: /s/ Bernard V. Buonanno, III
-------------------------------
Title: Vice President
-------------------------------
