<PAGE>
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED] FOR THE FISCAL YEAR ENDED DECEMBER 28, 1998
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from ____________________to _____________________
COMMISSION FILE NUMBER 1-9684
CHART HOUSE ENTERPRISES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 33-0147725
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
640 NORTH LASALLE, SUITE 295
CHICAGO, ILLINOIS 60610
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
Registrant's telephone number including area code: (312) 266-1100
Securities registered pursuant to Section 12(b) of the Act:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
------------------- -------------------
Common Stock, par value $.01 per share New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
INDICATE BY CHECK MARK WHETHER REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED TO
BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING
THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS
REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING
REQUIREMENTS FOR THE PAST 90 DAYS. YES [X] NO [_]
INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM 405
OF REGULATION S-K ((S) 229.405 OF THIS CHAPTER) IS NOT CONTAINED HEREIN, AND
WILL NOT BE CONTAINED, TO THE BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE
PROXY OR INFORMATION STATEMENTS INCORPORATED BY REFERENCE IN PART III OF THIS
FORM 10-K OR ANY AMENDMENT TO THIS FORM 10-K. [_]
The aggregate market value of the voting stock held by non-affiliates of the
registrant as of March 2, 1999 was $21,559,968.
The number of shares outstanding of common stock as of March 2, 1999 was
11,762,561.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Annual Report to Stockholders for the year ended
December 28, 1998 are incorporated by reference into Part I hereof.
Portions of the Registrant's Proxy Statement for the Annual Meeting to be held
May 18, 1999 are incorporated by reference into Part III hereof.
<PAGE>
PART I
ITEM 1. BUSINESS.
As of December 28, 1998, Chart House Enterprises, Inc. and its subsidiaries (the
"Company") operated 58 restaurants, consisting of 57 Chart Houses and one
Peohe's. In May 1996, the Company sold its Islands restaurant operations and in
October 1998, the Company sold Solana Beach Baking Company, a wholesale bakery
operated by the Company. The Company was incorporated in Delaware on July 25,
1985. The Company's principal executive offices are located at 640 North
LaSalle, Suite 295, Chicago, Illinois 60610, and its telephone number is (312)
266-1100.
The following discussion describes the Company's operations.
OPERATIONS
Chart House operations commenced in 1961 with the opening of the first Chart
House in Aspen, Colorado by a predecessor of the Company. As of December 28,
1998, there are 57 Chart House restaurants located in 21 states, Puerto Rico and
the U.S. Virgin Islands.
Chart House restaurants are full-service, casual dinner houses with a menu
featuring fresh fish, seafood, steaks, chicken and prime rib. Many of the Chart
House restaurants feature an elaborate salad bar where the customer prepares his
or her own salad and some Chart Houses have a seafood bar which offers various
appetizers.
The Company places great emphasis upon the location, exterior and interior
design of each Chart House restaurant. Each Chart House is unique and designed
<PAGE>
to fit within and complement its surroundings. The restaurant buildings are
environmentally sensitive and functional in design. Representative exteriors of
Chart House restaurants range from the restored 1887 Victorian boathouse on
Coronado Island in San Diego Bay to the modern three-tiered glass restaurant in
Philadelphia overlooking the Delaware River. With a few exceptions, Chart House
restaurants are freestanding buildings with dinner seating capacities ranging
from 92 to 350 and an average seating capacity of 196. The restaurant interiors
are casual in design and decor and are accentuated by nautical-themed and
action/adventure oriented artwork.
In 1998 the annual sales for each Chart House restaurant currently in operation
ranged from $0.9 million to $6.1 million with an average annual sales per Chart
House restaurant of $2.4 million. Historically, the Company's business is
seasonal in nature with revenues and net income for the first, second, and third
quarters greater than in the fourth quarter. The average dinner check was
approximately $33 per person. The operating hours for Chart House restaurants
are typically 5:00 p.m. to 11:00 p.m. on weekdays and 5:00 p.m. to 1:00 a.m. on
weekends. A few selected Chart Houses are open for lunch and/or brunch.
Alcoholic beverages are available at all Chart House locations. The sale of
alcoholic beverages accounted for approximately 22% of the revenues generated by
Chart House restaurants during each of the past three years.
Each Chart House restaurant is managed by one general manager and between one
and seven assistant managers, depending on the operating characteristics and
size of the restaurant. On average, general managers possess approximately seven
years experience with Chart House. The assistant managers generally are required
to participate in a comprehensive management development program with
<PAGE>
progressive management assignments. In addition, each general manager is
required to comply with an extensive operations manual which contains procedures
to ensure uniform operations, consistently high quality products and service,
and proper accounting for restaurant operations. The general manager and his or
her assistants are responsible for training restaurant employees under a
training program managed by the director of training.
There are eight Chart House regional directors of operations, each of whom is
responsible for five to nine Chart House restaurants in a given area. The
regional directors of operations report to one of two Regional Vice Presidents
of Operations, who report directly to the President and Chief Executive Officer
of the Company. The duties of the directors of operations include supervising
and assisting the managerial and staff employees of all Chart House restaurants.
Peohe's
The Company opened its Peohe's restaurant in January 1988 in Coronado,
California overlooking San Diego Bay and the San Diego city skyline. Although
similar to the Company's Chart House restaurants in many respects, Peohe's
opened under a different name in part to minimize confusion and competition with
nearby Chart House restaurants and also to provide Chart House management a
suitable vehicle for experimentation and development of different menu items,
restaurant design and operating concepts. Peohe's has a more extensive and
higher priced menu, higher level of service and greater variety of cooking
techniques than the typical Chart House restaurant.
<PAGE>
Solana Beach Baking Company
The Company previously operated a wholesale bakery in a leased facility located
in Carlsbad, California under the trade name "Solana Beach Baking Company." The
wholesale bakery supplied bread and other baked goods to Chart House restaurants
and also supplied muffins, croissants and other bakery products to other retail,
grocery and wholesale club accounts. The bakery was sold in October 1998.
Site Development
The cost of opening a Chart House restaurant varies significantly from
restaurant to restaurant, depending upon, among other things, the location of
the site and whether the land, building, furniture, fixtures and equipment are
purchased or leased. When identifying and developing restaurant sites,
particular emphasis is placed on a potential site's physical location, with a
preference for locations near water and within major metropolitan areas. Sales
and profit projections are then prepared to determine whether the proposed
restaurant will provide a targeted return on investment. The Company accords
great importance to the selection of and coordination with the architect to
ensure that the proposed restaurant structure fits the Chart House restaurant
image.
Strategic Plan
The Company's strategic plan focuses on the revitalization of the core Chart
House restaurants and the selective disposition of under-performing Chart
Houses. The Company is midway through the revitalization plan, focusing on
upgrading the facilities and completing implementation of a new, enhanced menu.
Currently, the new menu is in 30 of the Company's 58 restaurants with the
remaining restaurants, with the exception of Peohe's, implementing the new menu
during 1999. Six Chart House restaurants were remodeled in 1998; 20 are
scheduled for remodeling in 1999. The
<PAGE>
designs are intended to update the look of each Chart House restaurant and
create a more comfortable and enjoyable dining experience. The Company continues
to evaluate under-performing Chart House restaurants and has determined that up
to six restaurants will be disposed during 1999. During the first quarter of
1999 the Company signed an agreement to purchase a restaurant company located in
New York, New York. The potential acquisition is an operation that management
believes will enhance operating results in 1999 and will complement the current
restaurant group of Chart House Enterprises, Inc.
PROCUREMENT OF FOOD AND SUPPLIES
The Company's ability to maintain consistent quality throughout its restaurants
depends in part upon the ability to acquire food products and related items from
reliable sources in accordance with Company specifications. Suppliers are pre-
approved by the Company and are required to adhere to strict product
specifications to ensure that high quality food and beverage products are served
in the restaurants. Management believes that adequate alternative sources of
supply are readily available.
EMPLOYEES AND LABOR RELATIONS
As of December 28, 1998, the Company employed approximately 4,200 persons, of
whom approximately 3,900 were hourly restaurant or clerical employees and
approximately 300 were salaried, managerial employees engaged in administrative
and supervisory capacities. A majority of the hourly employees are employed on a
part-time basis to provide services necessary during peak periods of restaurant
operations. None of the Company's employees are covered by a collective
bargaining agreement. The Company has never experienced a work stoppage and
believes its labor relations to be good.
COMPETITION
<PAGE>
In general, the restaurant business is highly competitive and can be affected by
competition created by similar restaurants in a geographic area, changes in the
public's eating habits and preferences, and local and national economic
conditions affecting consumer spending habits, population trends and traffic
patterns. Key competitive factors in the industry are the quality and value of
the food products offered, quality of service, cleanliness, name identification,
restaurant locations, price and attractiveness of facilities. The Company's
strategy is to differentiate itself from its competitors by continually
upgrading the menu, updating the appearance of each Chart House with significant
remodeling, and efficient and friendly service in a unique setting.
MARKETING
The Company has developed a coordinated marketing communications program.
Efforts are concentrated on various local activities, print media, promotional
campaigns and support for "ViewPoints", its newly-implemented frequent diner
program.
GOVERNMENT REGULATION
Each of the Company's restaurants is subject to various federal, state and local
laws, regulations and administrative practices affecting its business and must
comply with provisions regulating health and sanitation standards, equal
employment, public accommodations for disabled patrons, minimum wages, worker
safety and compensation and licensing for the sale of food and alcoholic
beverages. Difficulties or failures in obtaining or maintaining required liquor
licenses, or other required licenses or approvals, could delay
<PAGE>
or prevent the opening of new restaurants or adversely affect the operations of
existing restaurants.
Federal and state environmental regulations have not had a material effect on
the Company's operations but more stringent and varied requirements of local
governmental bodies with respect to zoning, land use and environmental factors
could delay construction of new restaurants and add to their cost.
The Company is also subject to the Fair Labor Standards Act, which governs such
matters as minimum wages, overtime and other working conditions. A significant
number of the Company's food service personnel are paid at rates related to
federal and state minimum wage requirements and, accordingly, increases in the
minimum wage or decreases in the allowable tip credit will increase the
Company's labor cost. There can be no assurance that future legislation
covering, among other matters, mandated health insurance, will not be enacted
which could have a significant effect on the Company.
The Company believes it is operating in substantial compliance with applicable
laws and regulations governing its operations.
TRADEMARKS AND SERVICE MARKS
The original "Chart House" logo and trademark were registered with the United
States Patent and Trademark Office (the "USPTO") in 1972 and 1977, respectively.
The new corporate "Chart House" logo and trademark were registered with the
USPTO in August 1997. The "Peohe's" logo and trademark were registered with the
USPTO in 1988. Applications to register two new service marks in connection with
"ViewPoints", the Company's new frequent dining program, as well as three
additional service marks, are currently pending with the USPTO.
<PAGE>
The "Chart House" trademark and logo are licensed by the Company to the operator
of one Chart House restaurant located in Honolulu, Hawaii, and to the operator
of a Chart House restaurant in Queensland, Australia.
EXECUTIVE OFFICERS OF THE COMPANY
The following table sets forth certain information about the executive officers
of the Company. Unless otherwise indicated, all positions are with Chart House
Enterprises, Inc.
NAME AGE POSITIONS WITH THE COMPANY
- ---- --- --------------------------
Thomas J. Walters................. 40 President and Chief Executive
Officer
Cynthia T. Quigley................ 39 Vice President and Chief
Financial Officer
Executive officers of the Company are appointed annually by the Board of
Directors and serve at the Board's discretion.
Thomas J. Walters was promoted to Chief Executive Officer in November 1998. He
joined the Company as President and Chief Operating Officer and became a
director in February 1998. From March 1995 until February 1998, Mr. Walters was
President of Morton's of Chicago restaurants. He also held the positions at
Morton's of Vice President of Operations and Regional Manager from March 1993 to
March 1995. Prior to Mr. Walters' association with Morton's, he was Director of
Food and Beverage with the Ritz-Carlton Hotel Corporation for six years. He also
has held positions as Director of Food and Beverage for the La Costa Resort &
Spa, and Director of Catering and Banquet for the Hyatt
<PAGE>
Hotels Corporation.
Cynthia T. Quigley joined the Company as Vice President and Chief Financial
Officer in June 1998. Ms. Quigley previously served as Vice President of Finance
for Allied Domecq Retailing, USA (Dunkin' Donuts, Baskin Robbins & Togos) from
1996 to May 1998. She held the position of Senior Vice President of Strategic
Development for Daka International from 1994 to 1996. From 1991 to 1994 she was
a Consultant with Hewitt Associates. Prior to 1991 she held various consulting
and financial positions with Kraft General Foods, Arthur Andersen & Co., and
Northern Trust Company. Ms. Quigley will resign her position with the Company as
of March 26, 1999.
ITEM 2. PROPERTIES.
A majority of the restaurant properties used by the Company are leased from
others. The following table sets forth the number of restaurants owned, leased
and operated pursuant to ground leases and the average remaining lease term
(including renewal options) in years as of December 28, 1998.
<TABLE>
<CAPTION>
AVERAGE
REMAINING
GROUND LEASE
OWNED LEASED(1) LEASES(2) TOTAL TERM(3)
<S> <C> <C> <C> <C> <C>
Chart House....................... 10 31 16 57 26
Peohe's........................... -- 1 -- 1 27
--- -- --- --
Total............................. 10 32 16 58
=== == === ===
</TABLE>
(1) The Company leases restaurant properties (a) pursuant to standard lease or
sublease arrangements and (b) under "build-to-suit" arrangements pursuant to
which the landowner/landlord builds a restaurant to the Company's
<PAGE>
specifications. Each restaurant property is owned by the landowner/landlord and
at the expiration or termination of the lease term, the Company will have no
interest in the restaurant or any other material improvements constructed on the
real property.
(2) Under ground lease arrangements, the Company, as tenant, leases undeveloped
real property and is responsible for constructing all or substantially all
improvements on the real property. In a typical ground lease, the improvements
constructed by the Company are owned by the Company and the landowner/landlord
has no interest in the improvements constructed by the Company until the
expiration or termination of the lease, at which time the improvements become
the property of the landowner/landlord.
(3) Includes renewal options.
The amount of rent paid to lessors and the methods of computing rent vary
considerably from lease to lease. Most leases contain a provision for rent equal
to the greater of a fixed minimum amount or a percentage of restaurant sales at
the leased premises.
See Note 6 of the Notes to Consolidated Financial Statements as of December 28,
1998 for information with respect to assets pledged as collateral under the
Company's revolving credit agreement.
The Chart House restaurant located in Weehawken, New Jersey was destroyed by
fire in May 1998. The Company has entered a lease agreement with the owner of
the Weehawken property which commences upon complete construction of a new
restaurant. The Company anticipates that the Weehawken restaurant will reopen
during fiscal year 1999.
<PAGE>
Until June 1998 the Company's principal executive offices occupied approximately
20,400 square feet of office space in a building located in Solana Beach,
California, which the Company sold in 1997 and leased back through June 1998.
The Company's principal executive offices, since June 1998, occupy approximately
12,700 square feet of leased office space in a building located in Chicago,
Illinois.
ITEM 3. LEGAL PROCEEDINGS.
The Company periodically is a defendant in cases incidental to its business
activities. While any litigation or investigation has an element of uncertainty,
the Company believes that the outcome of any of these matters will not have a
materially adverse effect on its financial condition or operations.
In the second quarter of 1997, the Company became a party to a civil action
entitled The Edward Fineman Company, Inc. v. Chart House Enterprises, Inc. &
Chart House, Inc., and Does 1 to 50, Case Number 711373, Superior Court of the
State of California, San Diego County ("Court"). Plaintiff filed a complaint on
June 11, 1997, alleging breach of a 5-year exclusive service contract entered
into by the parties on or about July 5, 1995 ("Contract") and failure to pay for
goods delivered. Plaintiff's initial claim for breach of contract damages was
approximately $6,000,000 for lost profits, cover damages, and other non-
specified damages, including accrued interest, reasonable attorneys' fees and
costs. Plaintiff also sought approximately $200,000 for nonpayment of goods
delivered and other non-specified damages. In response, the Company filed a
cross-complaint against Plaintiff seeking a declaration that its termination of
the Contract in May 1997 was appropriately based on several Events of Default
set forth in the Contract and, therefore,
<PAGE>
did not constitute a breach thereof.
Following a ten-week bench trial during the fourth quarter of 1998, the Court
issued a Memorandum of Decision on December 18, 1998 finding that the
termination did not constitute a breach of the Contract and, therefore,
Plaintiff was not entitled to recover any breach of contract damages against the
Company. The Court further held that the Company was required to pay only
$72,000 to Plaintiff in connection with its claim for nonpayment of goods, after
allowing the Company to offset for certain professional auditing fees incurred
during the litigation.
Pursuant to local rules of civil procedure, the Company submitted a proposed
final judgment to the Court for entry in January 1999. To date, a final judgment
has not been entered because Plaintiff filed a Motion for New Trial with the
Court, which was subsequently denied. The Company is in the process of
resubmitting its proposed final judgment to the Court for entry.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year covered by this report.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS.
The information appearing under the caption "Common Stock Information" on page
24 of the Company's Annual Report to Stockholders for the year ended December
28, 1998 (the "Annual Report") is incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA.
The selected financial data for the Company and its subsidiaries on page 11 of
the Annual Report is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
<PAGE>
Management's Discussion and Analysis of Financial Condition and Results of
Operations appears on pages 6 through 11 of the Annual Report and is
incorporated herein by reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The Company is exposed to market risk from changes in interest rates on debt and
changes in commodity prices.
The Company's net exposure to interest rate risk consists of its revolving
credit agreement that is benchmarked to the LIBOR rate. The Company does not use
derivative instruments to manage borrowing costs or reduce exposure to adverse
fluctuations in the interest rate. The Company does not use derivative
instruments for trading purposes. The impact on the Company's results of
operations of a one-point interest rate change on the outstanding debt balance
as of December 28, 1998 would be immaterial.
The Company purchases certain commodities such as beef, seafood, chicken, and
cooking oil. These commodities are generally purchased based upon purchase
agreements established with vendors. These purchase agreements may contain
contractual features that fix the commodity price or define the price from an
agreed upon formula. The Company does not use financial instruments to hedge
commodity prices because these purchase arrangements help control the ultimate
cost paid and any commodity price fluctuations are generally short term in
nature.
These disclosures contain forward-looking statements. Actual results may
differ based upon general market conditions.
ITEM 8. FINANCIAL STATEMENTS.
The consolidated financial statements of the Company and its subsidiaries,
listed under Item 14, appear on pages 12 through 22 of the Annual Report and are
incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Directors. The information appearing under the caption "Election of Directors"
on pages 2 - 6 of the Company's Proxy Statement for its Annual Meeting of
Stockholders to be held on May 18, 1999 (the "Proxy Statement") is incorporated
herein by reference.
Executive Officers. The information with respect to executive officers appearing
under the caption "Executive Officers of the Company" is included in Item 1 of
this Annual Report on Form 10-K and is incorporated herein by reference pursuant
to general instruction G and instruction 3 to Item 401(b) of Regulation S-K.
Compliance with Section 16(a) of the Exchange Act. The information appearing
under the caption "Security Ownership of Management" on pages 12 and 13 of the
Proxy Statement is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION.
The information appearing under the caption "Executive Compensation" commencing
on page 6 of the Proxy Statement is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT.
The information appearing under the captions "Security Ownership of Certain
Beneficial Owners" on pages 10 - 12 and "Security Ownership of Management" on
pages 12 and 13 of the Proxy Statement is incorporated herein by reference.
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information appearing under the caption "Certain Relationships and Related
Transactions" on page 10 of the Proxy Statement is incorporated herein by
reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a)(1) Financial Statements:
Included in Part II of this report are the following financial statements
incorporated herein by reference to the following pages of the Annual Report.
<TABLE>
<CAPTION>
Page
<S> <C>
Consolidated Balance Sheets as of December 28, 1998 and December 29,
1997................................................................... 12
Consolidated Statements of Operations for the fiscal years 1998, 1997
and 1996................................................................... 13
Consolidated Statements of Stockholders' Equity for the fiscal years
1998, 1997 and 1996........................................................ 13
Consolidated Statements of Cash Flows for the fiscal years 1998, 1997
and 1996................................................................... 14
Notes to Consolidated Financial Statements................................. 15-22
Report of Independent Public Accountants................................... 23
</TABLE>
(2) Financial Statement Schedules:
All schedules have been omitted since the information required to be submitted
has been included in the consolidated financial statements or notes
<PAGE>
thereto or have been omitted as not applicable or not required.
(3) Exhibits
2.1 Asset Purchase Agreement by and among Chart House Acquisition, Inc.,
Diamond Jim's Steak House, L.L.C. Howard Levine, Richard Wolf, Marc
Packer and, solely for purposes of Section 8.16, the Company dated as
of March 17, 1999.
3.1 (1) Restated Certificate of Incorporation of the Company, as
amended.(1)
(2) Certificate of Amendment of Restated Certificate of Incorporation
of the Company.(2)
3.2 Amended and Restated Bylaws of the Company.(1)
4.1 Specimen Common Stock Certificate.(2)
4.2 Section 203 of the Delaware General Corporation Law.(2)
10.1 Second Amended and Restated Credit Agreement dated as of June 27, 1997
by and among Chart House, Inc. ("CHI"), as borrower, the Company and
Big Wave, Inc., as guarantors, the Banks party thereto BankBoston,
N.A, as agent, and Sumitomo Bank of California as Security Agent.(10)
10.2 First Amendment to Second Amended and Restated Credit Agreement dated
as of December 28, 1998 by and among CHI, the Company and Big Wave, as
guarantors, BankBoston N.A., as a Bank and Agent, and California Bank
& Security Trust, as a Bank and Security Agent.
10.3 Second Amendment to Second Amended and Restated Credit Agreement dated
as of December 28, 1998 by and among CHI, the Company, and Big Wave,
Inc., as guarantors, BankBoston N.A. as a Bank and Agent, and
California Bank & Trust, as Security Agent.
10.4 Asset Purchase Agreement dated September 29, 1998 by and among
Crestone Group, LLC, Solana Beach Baking Company, and the Company.
10.5(1) Registration Rights Agreement dated November 27, 1985 among the
Company and its stockholders.(1)
(2) First Amendment to Registration Rights Agreement dated as of April
<PAGE>
28, 1986.(1)
(3) Second Amendment to Registration Rights Agreement dated as of April
21, 1987.(1)
(4) Third Amendment to Registration Rights Agreement dated as of September
6, 1989.(3)
10.6 Stock Purchase Agreement dated October 22, 1998 by and among Inwood
Investors Partnership, L.P., the Company, Metropolitan Life Insurance
Company, Michael C. Jolley, Kirby Gorton, and Luther's Acquisition
Corp.
10.7 [Intentionally Omitted]
10.8 Marks Licensing Agreement and Settlement Agreement, each dated as of
June 30, 1987 between CHI and Cabell Enterprises, Inc.(1)
10.9 Compensatory Plans, Contracts and Agreements:
(1) 1998 Employee Stock Purchase Plan.(14)
(2)(a) 1989 Non-Qualified Stock Option Plan of the Company.(2)
(b) Form of 1989 Non-Qualified Stock Option Plan Agreement.(2)
(3)(a) 1992 Stock Option Plan.(4)
(b) Form of 1992 Stock Option Plan Agreement.(4)
(4) [Intentionally Omitted]
(5)(a) Chart House Enterprises, Inc. Corporate Employees 401(k) Plan,
amended and restated as of January 1, 1996.(8 )
(b) Chart House Enterprises, Inc. Restaurant Employees 401(k) Plan
dated as of January 1, 1996.(8)
(c) [Intentionally Omitted]
(d) Trust Agreement between Shearson Lehman Trust Company and the
Company, effective as of June 24, 1993.(5)
(6) Executive Benefit and Wealth Accumulation Plan of the
<PAGE>
Company, effective January 27, 1986.(1)
(7) [Intentionally Omitted]
(8) Form of Chart House Enterprises, Inc. Executive Severance
Agreement.(8)
(9)(a) 1996 Stock Option Plan.(12)
(b) Form of 1996 Stock Option Plan Agreement.(12)
(10) 1996 Nonemployee Director Stock Compensation Plan.(12)
(11)(a) Restaurant Management Bonus Compensation Plan dated October 1,
1996.(12)
(b) Corporate Management Bonus Compensation Plan dated January 1,
1997.(12)
10.10 [Intentionally Omitted]
10.11(1) Stock Purchase Agreement dated as of December 30, 1988 by and among
Luther's Acquisition Corporation, CHI and Luther's Bar-B-Que,
Inc.(2)
(2) Registration Rights Agreement dated as of December 30, 1988 between
Luther's Acquisition Corporation and certain shareholders, including
CHI.(2)
(3) Shareholders' Agreement dated as of December 30, 1988 by and among
Luther's Acquisition Corporation and certain shareholders, including
CHI.(2)
10.12 [Intentionally Omitted]
10.13 [Intentionally Omitted]
10.14 Management Agreement dated as of February 14, 1994 by and between
North Pier Associates and CHI.(6)
10.15(1) Asset Purchase Agreement dated December 20, 1994 among Cork `N
Cleaver, Inc., Seward's Folly, Inc., and Walter Seward.(6)
(2) Asset Purchase Agreement dated December 20, 1994 among
<PAGE>
Cork `N Cleaver of Kalamazoo, Inc., Seward's Folly Michigan,
Inc., and Walter Seward.(6)
(3) Management Agreement dated as of December 20, 1994 between Cork
`N Cleaver of Kalamazoo, Inc., Seward's Folly Michigan, Inc. and
Walter Seward.(6)
10.16 [Intentionally Omitted]
10.17 Stock Purchase Agreement dated as of December 14, 1995 by and among
Java Centrale, Inc., the Company and Paradise Bakery, Inc.(7)
10.18 [Intentionally Omitted]
10.19(1) Stock Purchase and Sale Agreement dated as of March 10, 1997 among the
Company, Chart House Investors, LLC and Alpha/ZFT Partnership. (9)
(2) Chart House Enterprises, Inc. Amended and Restated Standstill
Agreement dated October 1, 1997. (11)
10.20 Chart House Guaranty Agreement dated as of December 10, 1997 between
the Company and FINOVA Capital Corporation.(13)
13. Annual Report to Stockholders for the year ended December 28, 1998.
21. Subsidiaries of the Company.
23. Consent of Arthur Andersen LLP, Independent Public Accountants.
27. Financial Data Schedule (required for electronic filing only).
- --------
(1) Filed as an exhibit to the Company's Registration Statement on Form S-1
dated August 27, 1987 or amendments thereto dated October 6, 1987 and October
14, 1987 (Registration No. 33-16795).
(2) Filed as an exhibit to the Company's Registration Statement on Form S-1
<PAGE>
dated July 20, 1989 or amendment thereto dated August 25, 1989 (Registration No.
33-30089).
(3) Filed as an exhibit to Form 10-K for the fiscal year ended December 31,
1989.
(4) Filed as an exhibit to Form 10-K for the fiscal year ended December 31,
1991.
(5) Filed as an exhibit to Form 10-K for the fiscal year ended December 31,
1993.
(6) Filed as an exhibit to Form 10-K for the fiscal year ended December 31,
1994.
(7) Filed as an Exhibit to Form 8-K dated January 12, 1996, for the event
reported as of December 31, 1995.
(8) Filed as an exhibit to Form 10-Q for the quarterly period ended April 1,
1996.
(9) Filed as an exhibit to Form 10-Q for the quarterly period ended March 31,
1997.
(10) Filed as an exhibit to Form 10-Q for the quarterly period ended June 30,
1997.
(11) Filed as Exhibit 2.1 to Amendment No. 4 to a Schedule 13D of Chart House
Investors, LLC dated as of October 7, 1997.
(12) Filed as an exhibit to Form 10-K for the fiscal year ended December 30,
1996.
(13) Filed as an exhibit to Form 10-K for the fiscal year ended December 29,
1997.
(14) Filed as an exhibit to Form S-8 dated December 14, 1998.
(b) Reports on Form 8-K. No reports on Form 8-K have been filed by the Company
during the fiscal year covered by this report.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
<PAGE>
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
CHART HOUSE ENTERPRISES, INC.
Date: March 19, 1999 By THOMAS J. WALTERS
Thomas J. Walters
President and Chief Executive Officer;
Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities on the dates indicated.
NAME TITLE DATE
THOMAS J. WALTERS President and Chief Executive March 19, 1999
- ----------------------------
Thomas J. Walters Officer; Director
CYNTHIA T. QUIGLEY Vice President and Chief March 19, 1999
- ----------------------------
Cynthia T. Quigley Financial Officer
WILLIAM M. SULLIVAN Vice President and Controller March 19, 1999
- ----------------------------
William M. Sullivan
<PAGE>
BARBARA ALLEN Director March 19, 1999
- -------------------------
Barbara Allen
LINDA WALKER BYNOE Director March 19, 1999
- -------------------------
Linda Walker Bynoe
WILLIAM M. DIEFENDERFER, III Director March 19, 1999
- -------------------------
William M. Diefenderfer, III
F. PHILIP HANDY Director March 19, 1999
- -------------------------
F. Philip Handy
STEPHEN OTTMANN Director March 19, 1999
- -------------------------
Stephen Ottmann
SAMUEL ZELL Chairman of the March 19, 1999
- -------------------------
Samuel Zell Board, Director
<PAGE>
EXHIBIT 2.1
ASSET PURCHASE AGREEMENT
BY AND AMONG
CHART HOUSE ACQUISITION, INC.,
DIAMOND JIM'S STEAK HOUSE, L.L.C.,
HOWARD LEVINE,
RICHARD WOLF,
MARC PACKER
AND, SOLELY FOR PURPOSES OF SECTION 8.16,
CHART HOUSE ENTERPRISES, INC.
DATED AS OF MARCH 17, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE I - PURCHASE AND SALE OF ASSETS........................................................ 1
1.1 Sale............................................................................... 1
1.1.1 Included Assets............................................................ 2
1.1.2 Excluded Assets............................................................ 3
1.2 Purchase........................................................................... 4
1.3 The Purchase Price................................................................. 4
1.3.1 Purchase Price............................................................. 4
1.3.2 Payment at Closing......................................................... 4
1.3.3 Escrow..................................................................... 4
1.3.4 Payment Following Closing.................................................. 4
1.3.5 Closing Statement; Physical Inventory...................................... 5
1.3.6 Allocation of Purchase Price............................................... 5
1.4 Liabilities........................................................................ 5
1.4.1 Assumption of Liabilities.................................................. 5
1.4.2 Excluded Liabilities....................................................... 6
1.5 Prorations......................................................................... 8
ARTICLE II - CLOSING ITEMS TO BE DELIVERED, THIRD PARTY CONSENTS AND FURTHER ASSURANCES......... 8
2.1 Closing............................................................................ 8
2.2 Items to be Delivered at Closing................................................... 9
2.3 Third Party Consents............................................................... 10
2.4 Further Assurances................................................................. 11
ARTICLE III - REPRESENTATIONS AND WARRANTIES..................................................... 11
3.1 Representations and Warranties of Seller and the Managing Members.................. 11
3.1.1 Limited Liability Company Existence; Membership Interests.................. 11
3.1.2 Power; Authorization; Enforceable Obligations.............................. 11
3.1.3 No Interest in Other Entities.............................................. 12
3.1.4 Validity of Contemplated Transactions, Etc................................. 12
3.1.5 Financial Statements....................................................... 12
3.1.6 Absence of Undisclosed Liabilities......................................... 13
3.1.7 Tax and Other Returns and Reports.......................................... 13
3.1.8 Existing Condition......................................................... 14
3.1.9 Title to Properties........................................................ 15
3.1.10 Ownership of Tangible Assets............................................... 15
3.1.11 Compliance with Law; Authorizations........................................ 15
3.1.12 Litigation................................................................. 16
3.1.13 Insurance.................................................................. 16
3.1.14 Contracts and Commitments.................................................. 16
3.1.15 Additional Information..................................................... 18
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
3.1.16 Labor Matters.............................................................. 18
3.1.17 Employee Benefit Plans and Arrangements.................................... 18
3.1.18 Intellectual Property Matters.............................................. 19
3.1.19 Environmental, Safety and Health Matters................................... 19
3.1.20 Real Property.............................................................. 20
3.1.21 Conditions Affecting Seller................................................ 21
3.1.22 Completeness of Disclosure................................................. 21
3.2 Representations and Warranties of Purchaser and Parent............................. 21
3.2.1 Corporate Existence........................................................ 21
3.2.2 Corporate Power; Authorization; Enforceable Obligations.................... 21
3.2.3 Validity of Contemplated Transactions, Etc................................. 21
3.2.4 Funding.................................................................... 22
3.2.5 Union/Labor Matters........................................................ 22
3.3 Survival of Representations and Warranties and Other Obligations................... 22
ARTICLE IV - AGREEMENTS PENDING CLOSING......................................................... 23
4.1 Agreements of Seller and the Managing Members Pending the Closing.................. 23
4.1.1 Business in the Ordinary Course............................................ 23
4.1.2 Existing Condition......................................................... 23
4.1.3 Employees and Business Relations........................................... 23
4.1.4 Maintenance of Insurance................................................... 24
4.1.5 Compliance with Laws, etc.................................................. 24
4.1.6 Update Schedules........................................................... 24
4.1.7 Conduct of Business........................................................ 24
4.1.8 Access..................................................................... 24
4.1.9 Material Change............................................................ 25
4.1.10 Agreements................................................................. 25
4.1.11 Non-Disturbance............................................................ 25
4.2 Agreements of Purchaser Pending the Closing........................................ 25
4.3 Casualty........................................................................... 25
ARTICLE V - CONDITIONS PRECEDENT TO THE CLOSING................................................ 25
5.1 Conditions Precedent to Purchaser's Obligations.................................... 25
5.1.1 Representations and Warranties True as of the Closing Date................. 26
5.1.2 Compliance with this Agreement............................................. 26
5.1.3 No Injunctions or Restraints............................................... 26
5.1.4 Consents and Approvals..................................................... 26
5.1.5 Termination of Employees................................................... 26
5.1.6 Material Adverse Change.................................................... 26
5.1.7 Liquor and Tobacco Licenses................................................ 26
5.1.8 Consent and Estoppel....................................................... 27
5.1.9 Audited Financial Statements............................................... 27
5.1.10 Escrow Agreement........................................................... 27
5.1.11 Condition of Property...................................................... 27
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
5.2 Conditions Precedent to the Obligations of Seller and the
Managing Members................................................................... 27
5.2.1 Representations and Warranties True as of the Closing Date................. 27
5.2.2 Compliance with this Agreement............................................. 27
5.2.3 No Injunctions or Restraints............................................... 28
5.2.4 Consents and Approvals..................................................... 28
5.2.5 Escrow Agreement........................................................... 28
ARTICLE VI - INDEMNIFICATION.................................................................... 28
6.1 Indemnification by Seller and the Managing Members................................. 28
6.2 Indemnification by Purchaser....................................................... 29
6.3 Indemnification Procedures......................................................... 29
6.4 Limits on Indemnification.......................................................... 31
6.5 Compliance with Bulk Sales Laws.................................................... 32
6.6 Reduction of Losses................................................................ 32
6.7 Subrogation........................................................................ 32
6.8 Punitive, Consequential and Exemplary Damages...................................... 32
6.9 Exclusivity........................................................................ 32
ARTICLE VII - ADDITIONAL AGREEMENTS.............................................................. 33
7.1 Employee Benefits.................................................................. 33
7.2 Employment of Former Employees..................................................... 33
7.3 Discharge of Business Obligations.................................................. 33
7.4 Maintenance of Books and Records................................................... 33
7.5 Payments Received.................................................................. 34
7.6 Use of Name........................................................................ 34
7.7 Publicity.......................................................................... 34
7.8 Covenant Not to Compete............................................................ 34
7.9 Labor Claims....................................................................... 36
ARTICLE VIII - MISCELLANEOUS...................................................................... 36
8.1 Termination........................................................................ 36
8.2 Brokers' and Finders' Fees......................................................... 37
8.3 Sales, Transfer and Documentary Taxes, etc......................................... 37
8.4 Expenses........................................................................... 38
8.5 Contents of Agreement; Amendments.................................................. 38
8.6 Assignment and Binding Effect...................................................... 38
8.7 Waiver............................................................................. 38
8.8 Notices............................................................................ 38
8.9 Governing Law...................................................................... 39
8.10 No Benefit to Others............................................................... 39
8.11 Headings, Gender and "Person"...................................................... 39
8.12 Schedules and Exhibits............................................................. 40
8.13 Severability....................................................................... 40
</TABLE>
iii
<PAGE>
<TABLE>
<S> <C>
8.14 Counterparts; Facsimile Signatures................................................. 40
8.15 Managing Member Guarantee.......................................................... 40
8.16 Parent Guarantee................................................................... 40
8.17 No Strict Construction............................................................. 41
8.18 Jurisdiction and Service of Process................................................ 41
8.19 Trial.............................................................................. 41
8.20 Knowledge.......................................................................... 42
</TABLE>
iv
<PAGE>
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AND SALE AGREEMENT (the "Agreement"), is made and
entered into as of this 17/th/ day of March 1999, by and among Chart House
Acquisition, Inc., a Delaware corporation ("Purchaser"), Diamond Jim's Steak
House, L.L.C., a New York limited liability company ("Seller"), Howard Levine,
Richard Wolf and Marc Packer, the managing members of Seller (collectively, the
"Managing Members"), and solely for purposes of Section 8.16 hereof, Chart House
Enterprises, Inc., a Delaware corporation ("Parent").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, Seller has been and is engaged in the business of operating a
restaurant called Angelo and Maxie's, located at 233 Park Avenue South, New
York, New York (such business being referred to herein as the "Business" and
such location being referred to herein as the "Premises");
WHEREAS, Purchaser desires to acquire from Seller, and Seller desires to
sell to Purchaser, the Business and all of the assets of Seller, except for
certain Excluded Assets (as hereinafter defined), all upon and subject to the
terms and conditions hereinafter set forth; and
WHEREAS, the Managing Members own approximately 53% of the outstanding
ownership interests in and are the sole managing members of Seller and will
receive substantial benefit as a result of the performance by Purchaser of its
obligations under this Agreement.
NOW, THEREFORE, in consideration of the foregoing and of the respective
covenants, representations, warranties and agreements herein contained, and for
other good and valuable consideration, the receipt, adequacy and sufficiency of
which are hereby acknowledged, and intending to be legally bound hereby, the
parties hereto hereby agree as follows:
ARTICLE I
PURCHASE AND SALE OF ASSETS
1.1 Sale. At the Closing (as hereinafter defined) hereunder, and except
----
as otherwise specifically provided in this Section 1.1, Seller shall grant,
sell, convey, assign, transfer and deliver to Purchaser or its designee, upon
and subject to the terms and conditions of this Agreement, all right, title and
interest of Seller in and to (a) the Business as a going concern, (b) the names
"Angelo and Maxie's" and "Angelo and Maxie's Steakhouse" and all variations
thereof and all goodwill associated therewith, and (c) all of the assets,
properties and rights of Seller (except for the Excluded Assets), including
those assets, properties and rights constituting the Business or used therein,
of every kind and description, real, personal and mixed, tangible and
intangible, wherever situated (which Business, names, goodwill, assets,
properties and rights, other than the Excluded Assets, are herein sometimes
called the "Assets"), in all cases free and
<PAGE>
clear of all mortgages, liens, pledges, security interests, charges, claims,
restrictions and encumbrances of any nature whatsoever other than the liens set
forth on Schedule 1.1 hereto (such liens being the "Permitted Liens").
1.1.1 Included Assets. The Assets shall include, without limitation,
---------------
the following assets, properties and rights of Seller used in the conduct of, or
generated by or constituting, the Business, except as otherwise expressly set
forth in Section 1.1.2 hereof:
(a) all appliances, kitchen equipment, office equipment and other
equipment, tools, spare parts, vehicles, signage, decor items, furniture,
furnishings, leasehold improvements, dinnerware, glassware, flatware,
linens and other tangible personal property;
(b) all prepaid expenses and similar items;
(c) all food and beverages, including all wine and other liquor and
whether opened or unopened, cigars, all other raw materials and
ingredients, packing materials and all other inventories, including any
unused glassware, flatware, linens and similar items in boxes (together,
the "Inventory") and all office and other supplies;
(d) all rights of Seller under any written or oral contract,
agreement, lease, including the Lease (as hereinafter defined), instrument,
license agreement or other agreement (the "Contracts") relating to the
Business (all such Contracts, including, without limitation, the Material
Contracts (as hereinafter defined), but excluding the Excluded Contracts
(as hereinafter defined) and the matters listed on SCHEDULE 3.1.17, being
the "Assigned Contracts");
(e) All transferable governmental licenses, registrations,
certificates of occupancy or other permits or approvals of any nature, but
not including any liquor license or tobacco permit ("Permits");
(f) all rights under any trademark, service mark, trade dress,
trade name, copyright or slogan, whether registered or unregistered, and
any similar or equivalent rights to the foregoing anywhere in the world,
and any applications therefor including, without limitation, those items
set forth on SCHEDULE 3.1.18 hereto;
(g) all technologies, methods, data bases, trade secrets, know-how,
manufacturing and other processes, inventions, formulae, recipes, process
sheets and mixing instructions and other intellectual property used or
usable in the Business or under development;
(h) all computer hardware, software (including documentation and
related object and source codes), software licenses and peripherals;
2
<PAGE>
(i) all rights or choses in action arising out of occurrences
before or after the Closing including, without limitation all rights under
express or implied warranties relating to the Assets;
(j) all right, title and interest, if any, of Seller in artwork
held on consignment at the Business;
(k) all information, files, records, data, plans and recorded
knowledge, including customer, "VIP" and supplier lists, related to the
foregoing and all other books and records of Seller relating to the
Business;
(l) all rights to any current or planned web site of Seller,
including all information contained or to be contained therein, and all
uniform resource locators (e-mail addresses) related thereto;
(m) all sales, marketing, advertising and promotional materials and
plans and all business plans relating to the Business;
(n) all telephone numbers and telephone listings of Seller; and
(o) all goodwill of the Business.
1.1.2 Excluded Assets. Notwithstanding the foregoing, the Assets
---------------
shall not include any of the following (the "Excluded Assets"):
(a) the limited liability company seal, articles of organization,
operating agreement of Seller (the "Operating Agreement"), minute books,
tax returns, books of account or other records having to do with the
organization of Seller;
(b) the rights which accrue or will accrue to Seller under this
Agreement;
(c) any bank accounts or lock boxes of Seller;
(d) any cash or cash equivalents (including marketable securities
and short-term investments) and other securities held by Seller;
(e) all unbilled costs and fees, accounts, notes, credit card
receivables or other receivables;
(f) all insurance policies of Seller;
3
<PAGE>
(g) the rights of Seller under the Contracts, if any, listed on
SCHEDULE 1.1.2 (the "Excluded Contracts"); and
(h) the other assets, properties or rights, if any, set forth on
SCHEDULE 1.1.2.
1.2 Purchase. At the Closing hereunder, Purchaser shall purchase the
--------
Assets from Seller, upon and subject to the terms and conditions of this
Agreement and in reliance on the representations, warranties and covenants of
Seller and the Managing Members contained herein, in exchange for the Purchase
Price (as hereinafter defined). In addition, Purchaser shall assume at the
Closing and agree to pay, discharge or perform, as appropriate, certain
liabilities and obligations of Seller only to the extent and as provided in
Section 1.4 of this Agreement. Except as specifically provided in Section 1.4
hereof, Purchaser shall not assume and shall not be responsible for any
liabilities or obligations of the Business or Seller.
1.3 The Purchase Price.
------------------
1.3.1 Purchase Price. The Purchase Price shall be an amount equal
--------------
to:
(a) $11,800,000; plus
----
(b) the Working Capital Amount; less
----
(c) a $50,000 credit to Purchaser (subject to the last sentence of
Section 7.9 hereof), in consideration for Purchaser's
assumption of the Labor Claims (as hereinafter defined)
pursuant to Section 1.4.1(c).
For purposes of this Agreement, the "Working Capital Amount" shall be equal to :
(A) the sum of Seller's net Inventory (measured at cost on a FIFO basis) and
prepaid expenses, less (B) gift certificates payable, in each case, as
----
determined in accordance with Section 1.3.5.
1.3.2 Payment at Closing. On the Closing Date, Purchaser shall
------------------
pay to Seller the sum of $9,450,000 and the Working Capital Amount (the "Closing
Payment") by wire transfer to such bank account as shall be designated in
writing by Seller to Purchaser.
1.3.3 Escrow. On the Closing Date, Purchaser shall deliver
------
$500,000 of the Purchase Price to an escrow agent reasonably acceptable to
Purchaser and Seller (the "Escrow Agent") to be held and disposed of in
accordance with the terms of an escrow agreement in form reasonably acceptable
to Purchaser and Seller and containing substantive provisions substantially in
the form of Exhibit A hereto (the "Escrow Agreement").
1.3.4 Payment Following Closing. The remaining $1,800,000 of the
-------------------------
Purchase Price (the "Deferred Payment") shall be payable to Seller, without
notice or demand from Seller, in 36 monthly installments of $50,000, due and
payable commencing on the first day of the month following the month in which
the Closing occurs and continuing on the first day of
4
<PAGE>
each month thereafter for an additional 35 months. The obligation of Purchaser
to pay the Deferred Payment in accordance with this Section 1.3.4 is
unconditional and absolute and, without limiting the generality of the
foregoing, shall not be discharged or otherwise affected by the existence of any
claim, set-off or other rights which Purchaser may have at any time against
Seller, any of the Managing Members or any other person, whether or not arising
in connection therewith.
1.3.5 Closing Statement; Physical Inventory.
-------------------------------------
(a) On the day prior to the Closing Date, Seller shall submit to
Purchaser a closing statement as of the Closing Date (the "Closing
Statement") which shall identify by line item the prepaid expenses and gift
certificates payable of the Business. Purchaser and Seller shall
immediately seek in good faith to resolve any dispute regarding the Closing
Statement.
(b) Following the close of business on the day prior to the
Closing Date, Purchaser shall perform a physical inventory, and Seller
shall have the right to have one or more representatives present at all
times during such physical inventory, and Seller and Purchaser shall
together perform an Inventory valuation. Such physical inventory shall
exclude all items of Inventory which are not of merchantable quality or are
adulterated, contaminated or otherwise unusable in the ordinary course of
Business. Purchaser and Seller shall immediately seek in good faith to
resolve any dispute regarding the Inventory. All quantities and the value
thereof, as agreed to in accordance with this Section 1.3.5(b), shall be
conclusive and binding on all parties and no subsequent adjustments shall
be made with respect to Inventory.
1.3.6 Allocation of Purchase Price. The Purchase Price, the
----------------------------
liabilities assumed by Purchaser in accordance with Section 1.4 hereof and any
non-recourse liabilities to which any Asset is subject, as finally determined,
shall be allocated among the Assets acquired hereunder in accordance with the
requirements of Section 1060 of the Internal Revenue Code, and in accordance
with SCHEDULE 1.3.6 hereto. Seller, Purchaser and each of the Managing Members
hereby covenant and agree not to take a position on any income tax return,
before any governmental agency charged with the collection of an income tax, or
in any judicial proceeding that is in any way inconsistent with the terms of
this Section 1.3.6 or SCHEDULE 1.3.6.
1.4 Liabilities.
-----------
1.4.1 Assumption of Liabilities. At the Closing hereunder, subject
-------------------------
to Section 1.4.2 hereof, Purchaser shall assume and agree to pay, discharge or
perform, as appropriate, when due and payable and otherwise in accordance with
the relevant governing agreements, the following liabilities and obligations of
Seller (the "Assumed Liabilities"):
5
<PAGE>
(a) all gift certificates payable, but only if and to the extent
that the same are reflected on the Closing Statement and remain unpaid and
undischarged on the Closing Date;
(b) all liabilities and obligations of Seller in respect of the
Assigned Contracts which are listed on SCHEDULE 3.1.14 or are not required
to be listed thereon; and
(c) Losses (as hereinafter defined) arising or resulting from (i)
those matters set forth in SCHEDULE 1.4.1(C) (the "Labor Claims") and (ii)
those matters set forth in Schedule 3.1.16 (the "Labor Matters") (such
Losses being referred to collectively herein as the "Labor Losses").
1.4.2 Excluded Liabilities. Other than the Assumed Liabilities,
--------------------
Purchaser shall not assume, pay, discharge, perform or in any way be responsible
or liable for any liabilities or obligations of Seller, whether fixed or
unfixed, known or unknown, asserted or unasserted, choate or inchoate,
liquidated or unliquidated, secured or unsecured (the "Excluded Liabilities").
Without limiting the foregoing, none of the following liabilities or obligations
of Seller shall constitute Assumed Liabilities, and all of the same shall
constitute Excluded Liabilities:
(a) all accounts payable, accrued payroll and other expenses,
partners' distributions payable, sales tax payable and other accrued
liabilities existing as of the Closing Date which under generally accepted
accounting principles should have been accrued or reserved for as a
liability or obligation, whether or not the same were accrued or reserved
for as of the Closing Date;
(b) liabilities or obligations arising out of any breach by Seller
of any provision of any Contract including, without limitation, liabilities
or obligations arising out of Seller's failure to perform any Contract in
accordance with its terms prior to the Closing;
(c) any "Indebtedness" of Seller, which for purposes of this
Agreement shall mean and include (i) all obligations for borrowed money or
other extensions of credit, whether or not secured, absolute or contingent,
including, without limitation, matured or unmatured reimbursement
obligations arising from letters of credit or guarantees issued for the
account of or on behalf of Seller; (ii) all obligations representing the
deferred purchase price of property, whether secured or unsecured, other
than unsecured accounts payable arising in connection with the purchase of
inventory on terms customary in the trade of such person to the extent the
same are not overdue; (iii) all obligations evidenced by bonds, notes,
debentures or other similar instruments; (iv) all obligations secured by
any mortgage, pledge, security interest or other lien on property owned or
acquired by Seller whether or not the obligations secured thereby shall
have been assumed; (v) all obligations as lessee under capital leases; (vi)
all
6
<PAGE>
guarantees; and (vii) all obligations which are due and payable out of the
proceeds of, or production from, property now or hereafter owned or
acquired by Seller;
(d) any general liability or similar claim for bodily injury,
property damage or personal injury, regardless of when made or asserted,
which arises out of or is based upon any express or implied representation,
warranty, agreement or guarantee made by Seller, or alleged to have been
made by Seller, or which is imposed or asserted to be imposed by operation
of law, in connection with any services performed or food or beverages sold
or otherwise provided by Seller on or prior to the Closing including,
without limitation, any claim relating to any product delivered in
connection with the performance of such service and any claim seeking
recovery for consequential damage, lost revenue or income;
(e) any federal, state or local income, sales, franchise, use,
real property, personal property, payroll and employment or other tax (i)
payable with respect to the business, assets, properties or operations of
Seller or any of the Managing Members or any member of any affiliated group
of which any of them is a member for any period prior to the Closing Date,
or (ii) incident to or arising as a consequence of the negotiation or
consummation by Seller or any of the Managing Members or any member of any
affiliated group of which any of them is a member of this Agreement and the
transactions contemplated hereby;
(f) any liability or obligation under or in connection with any of
the Excluded Assets;
(g) subject to Section 1.4.1(c), any liability or obligation
arising prior to or as a result of the Closing to any employees, agents or
independent contractors of Seller, whether or not employed or engaged by
Purchaser after the Closing including, without limitation, (i) any bonus or
bonuses payable as the result of the consummation of the transactions
contemplated hereby, or under any benefit arrangement with respect to any
such employee, agent or independent contractor, or (ii) any employment
related claim of any kind, or any similar charges or claims and any
workers' compensation claims (the "Prior Claims");
(h) any liability or obligation representing or arising out of any
breach of any representation or warranty of Seller or any of the Managing
Members contained in this Agreement;
(i) subject to Section 1.4.1(c), any liability or obligation with
respect to any suit, proceeding, arbitration, claim or counterclaim arising
out of or based upon events or incidents occurring on or before the Closing
Date;
7
<PAGE>
(j) any fines or penalties imposed for any actions taken or
actions failed to be taken with respect to the Business prior to the
Closing Date;
(k) any liability or obligation arising out of any of the matters
described in SCHEDULES 3.1.7 OR 3.1.12(B) OR (C); or
(l) any liability or obligation of Seller or any of the Managing
Members arising or incurred in connection with the negotiation, preparation
and execution of this Agreement and the transactions contemplated hereby
including, without limitation, fees and expenses of counsel, accountants
and other experts.
1.5 Prorations. On the Closing Date all obligations and liabilities
----------
listed below relating to the Business and/or Assets will be prorated as of the
Closing Date, with Seller liable to Purchaser therefor to the extent such items
relate to any time period up to and including the day prior to the Closing Date
and Purchaser liable to Seller therefor to the extent such items relate to any
time period commencing on or after the Closing Date: personal property, real
estate, occupancy and water taxes, if any, on or with respect to the Business
and/or Assets; rents, taxes and other items payable by Seller under any Assigned
Contract; the amount of any license or registration fees with respect to any
Permits which are being assigned or transferred hereunder; the amount of sewer
rents and charges for water, telephone, electricity and other utilities and
fuel; and any other items which are normally prorated in connection with similar
transactions. Seller agrees to furnish Purchaser with such documents and other
records as Purchaser reasonably requests in order for Purchaser to calculate all
adjustments and prorations pursuant to this Section 1.5. The amount of such
prorations owed by Purchaser or Seller pursuant to this Section 1.5 shall be
paid to Purchaser by Seller or to Seller by Purchaser, as the case may be, on
the Closing Date and shall be treated as an adjustment to the Purchase Price
paid by Purchaser to Seller on the Closing Date. If current payments with
respect to items to be prorated pursuant to this Section 1.5 are not
ascertainable on the Closing Date, such payments shall be prorated on the basis
of the most recently ascertainable bill therefor and shall be reprorated between
Seller and Purchaser within 60 days after the Closing Date and a cash settlement
shall be made promptly thereafter on an item by item basis. Notwithstanding
anything in this Section 1.5 to the contrary, to the extent that there are any
supplemental taxes assessed with respect to the Business and/or Assets relating
to an event which occurred prior to the Closing Date, the portion of such taxes
for periods up to the Closing Date shall be paid by Seller when due,
notwithstanding the fact that such taxes are not assessed or known on the
Closing Date.
8
<PAGE>
ARTICLE II
CLOSING ITEMS TO BE DELIVERED, THIRD PARTY CONSENTS
AND FURTHER ASSURANCES
2.1 Closing. The closing (the "Closing") of the sale and purchase of the
-------
Assets shall take place on April 13, 1999, or upon the later satisfaction or
waiver of the conditions set forth in Article V of this Agreement, at the
offices of Seller's counsel in New York, New York, or on such other date and at
such other place as the parties may mutually agree. The date of the Closing is
sometimes herein referred to as the "Closing Date."
2.2 Items to be Delivered at Closing. At the Closing and subject to the
--------------------------------
terms and conditions herein contained:
(a) Seller shall deliver to Purchaser the following:
(i) a bill of sale in the form of Exhibit B; hereto, an
---------
assignment of United States Trademarks in the form of Exhibit C
---------
hereto, an assignment in the form of Exhibit D hereto, an assignment
---------
of the lease in respect of the Premises (the "Lease") in the form of
Exhibit E hereto (the "Lease Assignment"), and such other documents
---------
of conveyance and transfer as shall be necessary to transfer, assign
to and vest in Purchaser all of Seller's right, title and interest in
and to the Assets;
(ii) an undertaking whereby Purchaser assumes and agrees to
pay, discharge or perform, as appropriate, the Assumed Liabilities in
the form of Exhibit F hereto (the "Assignment and Assumption
---------
Agreement");
(iii) a counterpart original of the Escrow Agreement duly
executed by Seller and the Managing Members;
(iv) consulting and non-compete agreements, each in the form
of Exhibit G hereto and duly executed by Marc Packer and Richard
---------
Wolf, and a non-compete agreement, in the form of Exhibit H hereto
---------
and duly executed by Howard Levine;
(v) a duly executed opinion of Duane, Morris & Heckscher LLP,
counsel to Seller and the Managing Members, in the form of Exhibit I
---------
hereto with only such changes as shall be in form and substance
reasonably satisfactory to Purchaser and its counsel;
(vi) a duly executed certificate of a Managing Member dated the
Closing Date, certifying that the conditions specified in Sections
5.1.1 and 5.1.2
9
<PAGE>
hereof have been fulfilled and that Seller has obtained all consents
and approvals required with respect to it or the Business by Section
5.1.4 hereof;
(vii) a duly executed certificate of a Managing Member
certifying (A) resolutions of the Managing Members of Seller
approving this Agreement and the transactions contemplated hereby
(together with an incumbency and signature certificate regarding the
Managing Member signing on behalf of Seller), and (B) the articles of
organization of Seller and the Operating Agreement, in each case as
amended and restated;
(viii) all of the computer programs and software, databases
whether in the form of computer tapes or otherwise, related object
and source codes in Seller's possession, manuals and guidebooks,
price books and price lists, customer and subscriber lists, supplier
lists, sales records, files, correspondence, legal opinions, rulings
issued by governmental entities, and other documents, books, records,
papers, files, office supplies and data belonging to Seller which are
part of the Assets; and
(ix) any and all UCC-3 termination statements or amendments or
other documents needed to release or transfer any liens on, or other
security interests in, the Assets, other than the Permitted Liens,
including a UCC-3 termination statement signed on behalf of the
lessor of the Premises releasing the Landlord's Lien (as hereinafter
defined) provided that at least 5 days prior to Closing, Purchaser
shall have provided said lessor with cash security in the amount
required by Section 5 of the First Amendment to the Lease;
and simultaneously with such delivery, Seller shall take all such steps as
may be required to put Purchaser in actual possession and operating control
of the Assets.
(b) Purchaser shall deliver to Seller the following:
(i) the Closing Payment in accordance with Section 1.3.2
hereof;
(ii) a duly executed counterpart original of the Lease
Assignment;
(iii) a duly executed counterpart original of the Assignment
and Assumption Agreement;
(iv) a duly executed counterpart original of the Escrow
Agreement, with the required payment thereunder made to the Escrow
Agent;
10
<PAGE>
(v) a duly executed opinion of Seyfarth, Shaw, Fairweather &
Geraldson, counsel to Purchaser and Parent, dated the Closing Date,
in the form of Exhibit J hereto; and
---------
(vi) a duly executed certificate of an officer of Purchaser
dated the Closing Date, certifying in such detail as Seller may
reasonably request that the conditions specified in Sections 5.2.1
and 5.2.2 of this Agreement have been fulfilled.
2.3 Third Party Consents. To the extent that Seller's rights under any
--------------------
Assigned Contract or other Asset to be assigned to Purchaser hereunder may not
be assigned without the consent of another person which has not been obtained,
this Agreement shall not constitute an agreement to assign the same if an
attempted assignment would constitute a breach thereof or be unlawful, and
Seller, at its expense, shall use its commercially reasonable efforts to obtain
any such required consent(s) as promptly as possible. If any such consent shall
not be obtained or if any attempted assignment would be ineffective or would
impair Purchaser's rights under the Asset in question so that Purchaser would
not in effect acquire the benefit of all such rights, Seller, to the maximum
extent permitted by law and the Asset, shall act after the Closing as
Purchaser's agent in order to obtain for it the benefits thereunder and shall
cooperate, to the maximum extent permitted by law and the Asset, with Purchaser
in any other reasonable arrangement designed to provide such benefits to
Purchaser.
2.4 Further Assurances. Seller and the Managing Members from time to
------------------
time after the Closing, at Purchaser's request and expense, but without further
consideration, will execute, acknowledge and deliver to Purchaser such other
instruments of conveyance and transfer and will take such other actions and
execute and deliver such other documents, certifications and further assurances
as Purchaser may reasonably require in order to vest more effectively in
Purchaser, or to put Purchaser more fully in possession of, any of the Assets,
or to better enable Purchaser to complete, perform or discharge any of the
Assumed Liabilities. Each of the parties hereto will cooperate with the others
and execute and deliver to the other parties hereto such other instruments and
documents and take such other actions as may be reasonably requested from time
to time by any other party hereto as necessary to carry out, evidence and
confirm the intended purposes of this Agreement.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
3.1 Representations and Warranties of Seller and the Managing Members.
-----------------------------------------------------------------
Seller and the Managing Members hereby jointly and severally represent and
warrant to Purchaser as follows (provided that no Managing Member shall be
deemed to make any representation with respect to any other Managing Member):
11
<PAGE>
3.1.1 Limited Liability Company Existence; Membership Interests.
---------------------------------------------------------
Seller is a limited liability company duly organized, validly existing and in
good standing under the laws of the State of New York and has the limited
liability company power and authority to carry on the Business as presently
conducted and to own, operate and lease the Assets.
3.1.2 Power; Authorization; Enforceable Obligations. Each of
---------------------------------------------
Seller and the Managing Members has the power, authority and legal right to
execute, deliver and perform this Agreement. The execution, delivery and
performance of this Agreement by Seller and the Managing Members have been duly
authorized by all necessary limited liability company and member action,
including, without limitation, the affirmative vote of all of the Managing
Members, in accordance with the Operating Agreement and the Limited Liability
Company Law of the State of New York. This Agreement has been, and the other
agreements, documents and instruments executed and delivered by Seller or the
Managing Members in connection herewith (the "Seller's Documents"), when
executed and delivered at the Closing, will have been, duly executed and
delivered on behalf of Seller and by the Managing Members, as applicable, and
this Agreement constitutes, and the Seller's Documents, when so executed and
delivered, will constitute, the legal, valid and binding obligations of such of
Seller and the Managing Members as shall be a party thereto, enforceable against
such party in accordance with their respective terms.
3.1.3 No Interest in Other Entities. No shares of any corporation
-----------------------------
or any ownership or other investment interest, either of record, beneficially or
equitably, in any association, partnership, limited liability company, joint
venture or other legal entity are included in the Assets. Seller has no
subsidiaries.
3.1.4 Validity of Contemplated Transactions, Etc. The execution,
------------------------------------------
delivery and performance of this Agreement by Seller and the Managing Members do
not and will not violate, conflict with or result in the breach of any term,
condition or provision of, or require the consent of any other person under, (a)
any existing law, ordinance, or governmental rule or regulation to which Seller
or any of the Managing Members is subject, (b) any judgment, order, writ,
injunction, decree or award of any court, arbitrator or governmental or
regulatory official, body or authority which is applicable to Seller or any of
the Managing Members, (c) the organizational documents of Seller or any
membership interests issued by Seller, or (d) except as set forth on Schedule
3.1.4 or Schedule 3.1.14, any Material Contract, or give any person the right to
terminate, modify, accelerate or otherwise change the existing rights or
obligations of Seller or any of the Managing Members thereunder (the consents
listed on Schedules 3.1.4 and 3.1.14 being the "Required Consents"). Except as
listed on SCHEDULE 3.1.11, no authorization, approval or consent of, and no
registration or filing with, any governmental or regulatory official, body or
authority is required by Seller or the Managing Members in connection with the
execution, delivery or performance of this Agreement by Seller or any of the
Managing Members (the consents listed on Schedule 3.1.11 being the "Governmental
Consents").
12
<PAGE>
3.1.5 Financial Statements. Seller has delivered to Purchaser
--------------------
true and complete copies of the balance sheets of Seller as of December 31, 1997
and 1998 and the related statements of income, retained earnings and cash flows
for the fiscal years then ended, compiled by Arthur Yorkes & Company, certified
public accountants, and Joel Popkin & Company, P.C., independent certified
public accountants, respectively, all of which have been prepared in accordance
with generally accepted accounting principles applicable to compiled financial
statements. The balance sheets and related statements of income, retained
earnings and cash flows referred to in the preceding sentence are attached
hereto as SCHEDULE 3.1.5. Such balance sheets, including the related notes, are
accurate and complete in all material respects and fairly present the financial
position, assets and liabilities (whether accrued, absolute, contingent or
otherwise) of Seller at the dates indicated in accordance with generally
accepted accounting principles applicable to compiled financial statements and
such statements of income, retained earnings and cash flows, including the
related notes, are accurate and complete in all material respects and fairly
present the results of operations, changes in retained earnings and cash flows
of Seller for the periods indicated in accordance with generally accepted
accounting principles applicable to compiled financial statements. References
in this Agreement to the "Balance Sheet" shall mean the balance sheet of Seller
as of December 31, 1998 referred to above; and references in this Agreement to
the "Balance Sheet Date" shall be deemed to refer to December 31, 1998. There
have been no material changes in Seller's accounting practices since January 1,
1997.
3.1.6 Absence of Undisclosed Liabilities. Purchaser shall have no
----------------------------------
liabilities or obligations with respect to the Business or otherwise, either
direct or indirect, matured or unmatured, or absolute or contingent, except:
(a) liabilities in respect of gift certificates payable, to the
extent that the same are reflected on the Closing Statement and remain
unpaid and undischarged on the Closing Date;
(b) those liabilities arising after the Closing Date under any
Assigned Contract which is listed on SCHEDULE 3.1.14 or which is not
required to be listed thereon; and
(c) the Labor Losses.
3.1.7 Tax and Other Returns and Reports. All federal, state,
---------------------------------
local and foreign tax returns, reports, statements and other similar filings
required to be filed by Seller (the "Tax Returns") with respect to any federal,
state, local or foreign taxes, assessments, interest, penalties, deficiencies,
fees and other governmental charges or impositions (including, without
limitation, all income tax, unemployment compensation, social security, payroll,
sales and use, excise privilege, property, ad valorem, franchise, license,
school and any other tax or similar governmental charge or imposition under laws
of the United States or any state or municipal or political subdivision thereof
or any foreign country or political subdivision thereof) (the
13
<PAGE>
"Taxes") have been filed with the appropriate governmental agencies in all
jurisdictions in which such Tax Returns are required to be filed, and all such
Tax Returns properly reflect the liabilities of Seller for Taxes for the
periods, property or events covered thereby. All Taxes, including, without
limitation, those which are called for by the Tax Returns or which are
heretofore or hereafter claimed to be due by any taxing authority from Seller,
have been properly accrued or paid. Seller has not received any notice of
assessment or proposed assessment in connection with any Tax Returns and there
are no pending Tax examinations of or Tax claims asserted against Seller or any
of its assets or properties. Seller has not extended, or waived the application
of, any statute of limitations of any jurisdiction regarding the assessment or
collection of any Taxes. There are no Tax liens on any of the assets or
properties of Seller. To Seller's and each of the Managing Member's knowledge,
there is no basis for any additional assessment of any Taxes. Seller has made
all deposits required by law to be made with respect to employees' withholding
and other employment Taxes including, without limitation, the portion of such
deposits relating to Taxes imposed upon Seller.
3.1.8 Existing Condition. Since December 31, 1998, except as set
------------------
forth in SCHEDULE 3.1.8, Seller with respect to the Business has not:
(a) incurred any actual or contingent liabilities included in
the Assumed Liabilities, other than liabilities incurred in the ordinary
course of business consistent with past practice, or discharged or
satisfied any lien or encumbrance or paid any liabilities, other than in
the ordinary course of business consistent with past practice, or failed to
pay or discharge any liabilities, other than in the ordinary course of
business consistent with past practice;
(b) sold, encumbered, assigned or transferred any material
assets or properties which would have been included in the Assets if the
Closing had been held on the Balance Sheet Date or on any date since then,
except for the sale of inventory in the ordinary course of business
consistent with past practice;
(c) created, incurred, assumed or guaranteed any indebtedness
for money borrowed, or mortgaged, pledged or subjected any of its Assets to
any mortgage, lien, pledge, security interest, conditional sales contract
or other encumbrance of any nature whatsoever;
(d) made or suffered any material amendment to any Assigned
Contract or termination of any material Contract to which it is a party or
by which it is bound which, in the absence of termination, would have been
an Assigned Contract, or canceled, modified or waived any substantial
rights under any Assigned Contract, whether or not in the ordinary course
of business;
(e) suffered any damage, destruction or loss, whether or not
covered by insurance, (i) materially and adversely affecting the Business,
or (ii) of any item or items carried on its books of account individually
or in the aggregate at more than
14
<PAGE>
$12,000; or suffered any repeated, recurring or prolonged shortage,
cessation or interruption of supplies or utility or other services required
to conduct its business and operations;
(f) suffered any changes in its business, operations, assets,
properties or condition (financial or otherwise) which have been either
individually or in the aggregate materially adverse, excluding however (i)
any decrease in revenues or increase in expenses on a month to month basis,
(ii) any increase in rent in respect of the Premises requested by the
lessor in accordance with the Lease, and (iii) any condition described in
the Schedules to this Agreement, including, without limitation, SCHEDULE
3.1.16;
(g) made any material change in the customary methods used in
operating the Business (including its marketing, selling and pricing
practices and policies);
(h) made commitments or agreements for capital expenditures or
capital additions or betterments exceeding in the aggregate $12,000;
(i) except as set forth in Schedule 3.1.15, increased the
salaries or other compensation of, or made any advance or loan to, any of
its employees or made any increase in, or any addition to, other benefits
to which any of its employees may be entitled other than in the ordinary
course of business;
(j) changed any of the accounting principles followed by it or
the methods of applying such principles;
(k) entered into any material transaction other than in the
ordinary course of business consistent with past practice; or
(l) agreed, whether in writing or otherwise, to take any of the
actions set forth in this Section 3.1.8.
3.1.9 Title to Properties. Seller has good title to all of the
-------------------
tangible properties and assets, real, personal and mixed, included in the Assets
(other than artwork held on consignment), free and clear of all mortgages,
liens, pledges, security interests, licenses, charges, claims, restrictions and
other encumbrances other than the Permitted Liens and the security interest of
the lessor of the Premises described in SCHEDULE 3.1.9 hereto (the "Landlord's
Lien").
3.1.10 Ownership of Tangible Assets. No person other than Seller
----------------------------
owns any equipment or other material tangible assets or properties situated on
the Premises or used in the operation of the Business, except for items
disclosed on SCHEDULE 3.1.10 and items leased pursuant to the Assigned
Contracts.
15
<PAGE>
3.1.11 Compliance with Law; Authorizations. Seller has complied in
-----------------------------------
all material respects with each, and is not in violation in any material respect
of any, law, ordinance, or governmental or regulatory rule or regulation,
whether federal, state, local or foreign, to which Seller's business,
operations, assets or properties is subject ("Regulations"); provided that
Seller does not make any representation or warranty, express or implied, in this
Agreement or otherwise, with respect to any compliance or non-compliance of
Seller with any Regulations relating to employment or employment practices,
terms and conditions of employment or wages and hours, labor relations or
immigration. Seller owns, holds, possesses or lawfully uses in the operation of
its business all franchises, licenses, permits, easements, rights, applications,
filings, registrations and other authorizations ("Authorizations") which are in
any manner necessary for it to conduct its business as now conducted or for the
ownership and use of the assets owned or used by Seller in the conduct of the
Business, except for Authorizations the failure of which to have obtained would
not have a material adverse effect on Seller, free and clear of all liens,
charges, restrictions and encumbrances and in compliance with all Regulations.
All such Authorizations are listed and described on SCHEDULE 3.1.11 hereto.
Seller is not in default, nor has it received any notice of any claim of
default, with respect to any such Authorization. All such Authorizations are
renewable by their terms or in the ordinary course of business without the need
to comply with any special qualification procedures or to pay any amounts other
than routine filing fees, except for Seller's liquor license and tobacco permit.
None of such Authorizations, other than Seller's liquor license and tobacco
permit, will be adversely affected by consummation of the transactions
contemplated hereby. None of the Managing Members, nor any employee or former
employee of Seller or any Affiliate (as hereinafter defined) of Seller or any of
the Managing Members, or any other person, owns or has any proprietary,
financial or other interest (direct or indirect) in any Authorization which
Seller owns, possesses or uses in the operation of the Business of Seller as now
or previously conducted, other than through such person's interest in Seller.
3.1.12 Litigation. Except as set forth on SCHEDULES 1.4.1(C),
----------
3.1.12 and 3.1.16, no litigation, including any arbitration or other proceeding
of or before any court, arbitrator or governmental or regulatory official, body
or authority, is pending or threatened against Seller or which relates to the
assets of Seller, the Business or the transactions contemplated by this
Agreement and, to Seller's and each of the Managing Member's knowledge, there is
no investigation pending or threatened against Seller, nor does Seller or any of
the Managing Members know of any reasonably likely basis for any such
litigation, arbitration, investigation or proceeding, the result of which could
materially adversely affect the Assets, the Business or the transactions
contemplated hereby. Seller is not a party to nor subject to the provisions of
any judgment, order, writ, injunction, decree or award of any court, arbitrator
or governmental or regulatory official, body or authority which could materially
adversely affect Seller, the Assets, the Business or the transactions
contemplated hereby. Seller has no liability arising out of any injury or loss
to individuals or property in connection with the operation of the Business
except for routine matters covered by insurance.
16
<PAGE>
3.1.13 Insurance. The assets, properties and operations of Seller
---------
are insured under various policies of general liability and other forms of
insurance, all of which are in full force and effect in accordance with their
terms. Such policies are in amounts which are adequate in relation to the
business and assets of Seller and all premiums to date have been paid in full.
3.1.14 Contracts and Commitments. Except for matters listed on
-------------------------
SCHEDULE 3.1.17, the Excluded Contracts and the Contracts listed on SCHEDULE
3.1.14 hereto, Seller is not a party to any written or oral:
(a) Contract with any present or former employee or consultant
or for the employment or engagement of any person, including any
consultant, who is engaged in the conduct of the Business;
(b) Contract for the future purchase of, or payment for,
supplies or products, or for the performance of services by a third party,
which supplies, products or services are used in the conduct of the
Business involving, with respect to any obligation continuing after the
Closing, in any one case $12,000 or more;
(c) Contract to sell or supply products or to perform services
in connection with the Business involving, with respect to any obligation
continuing after the Closing, in any one case $12,000 or more;
(d) Contract relating to the Business not otherwise listed on
SCHEDULE 3.1.14 hereto, and continuing over a period of more than six
months from the date hereof and exceeding $12,000 in value;
(e) lease under which Seller is either lessor or lessee relating
to the Assets or any property at which the Assets are located;
(f) note, debenture, bond, equipment trust agreement, letter of
credit agreement, loan agreement or other Contract for the borrowing or
lending of money relating to the Business or agreement or arrangement for a
line of credit or guarantee, pledge or undertaking of the indebtedness of
any other person relating to the Business;
(g) Contract for any charitable or political contribution
relating to the Business;
(h) commitment or agreement for any capital expenditure or
leasehold improvement in excess of $12,000 relating to the Business;
(i) Contract limiting or restraining Seller, the Business or any
successor thereto from engaging or competing in any manner or in any
business, nor, to Seller's
17
<PAGE>
or any of the Managing Member's knowledge, is any employee of Seller
engaged in the conduct of the Business subject to any such Contract;
(j) license (other than licenses for off-the-shelf software),
franchise, distributorship or other agreement which relates in whole or in
part to any, trade secret, trademark, tradename, trade dress, service mark
or copyright or to any invention, ideas, technical assistance or other
know-how of or used by Seller in the conduct of the Business;
(k) Contract with any of the Managing Members, any member of
their immediate families, any officer or employee or Seller or any other
Affiliates (as hereinafter defined) of Seller or any of the Managing
Members; or
(l) Contract, option or right with, of or to any person to
acquire or use any of Seller's assets, properties or rights included in the
Assets or any interest therein.
For purposes of this Agreement, the term "Affiliate" shall have the meaning
given such term in Rule 12b-2 promulgated under the Securities Exchange Act of
1934, as amended. The Contracts and other documents, instruments and agreements
listed in clauses (a) through (l) above, other than the Excluded Contracts, are
referred to herein as the "Material Contracts." Each of the Material Contracts
is valid and enforceable in accordance with its terms; Seller is, and to
Seller's and each of the Managing Member's knowledge, all other parties thereto
are, in compliance in all material respects with the provisions thereof; and no
event has occurred which with or without the giving of notice or lapse of time,
or both, would constitute a material default thereunder by Seller or, to
Seller's and each of the Managing Member's knowledge, any other party thereto.
No Material Contract, in the reasonable opinion of Seller, contains any
contractual requirement with which there is a reasonable likelihood Seller or,
to Seller's and each of the Managing Member's knowledge, any other party
thereto, will be unable to comply. Except as set forth on SCHEDULE 3.1.14, no
Material Contract requires the consent of any party to its assignment in
connection with the transactions contemplated hereby.
3.1.15 Additional Information. SCHEDULE 3.1.15 hereto contains
----------------------
lists of the following, which lists are accurate in all material respects:
(a) a summary of all owned equipment, furniture and fixtures of
Seller included in the Assets as of December 31, 1997, specifying its
aggregate cost or original value and accumulated depreciation through
December 31, 1997; and
(b) the names and titles of and current annual base salary or
hourly rates for all employees of Seller engaged in the conduct of the
Business, together with a statement of the full amount and nature of any
other remuneration, whether in cash or kind (other than meals), paid to
each such person during the past or current fiscal year
18
<PAGE>
or payable to each such person in the future and the bonuses accrued for
each such person, and the vacation and severance benefits to which each
such person is entitled.
3.1.16 Labor Matters. Except as set forth on SCHEDULE 3.1.16,
-------------
Seller has not, within the last five years, suffered any strike, slowdown,
picketing or work stoppage by any of its employees or any union; Seller is not a
party to any collective bargaining agreement; no such agreement determines the
terms and conditions of employment of any employee of Seller; no collective
bargaining agent has been certified as a representative of any of the employees
of Seller; and no representation campaign or election is now in progress or, to
Seller's knowledge, threatened with respect to any of the employees of Seller.
3.1.17 Employee Benefit Plans and Arrangements.
---------------------------------------
(a) SCHEDULE 3.1.17 hereto identifies all employee benefit
plans, whether formal or informal, whether or not set forth in writing, and
whether covering one person or more than one person, sponsored or
maintained by Seller. For the purposes hereof, the term "employee benefit
plan" includes all plans, funds, programs, policies, arrangements,
practices, customs and understandings providing benefits of economic value
to any employee, former employee, or present or former beneficiary,
dependent or assignee of any such employee or former employee other than
regular salary, wages or commissions paid substantially concurrently with
the performance of the services for which paid. Without limitation, the
term "employee benefit plan" includes all employee welfare benefit plans
within the meaning of section 3(1) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), and all employee pension
benefit plans within the meaning of section 3(2) of ERISA. Each plan
providing benefits which is funded through a policy of insurance (if any)
is indicated by the word "insured" placed by the listing of the plan in
SCHEDULE 3.1.17.
(b) Seller has filed all Annual Reports (IRS Form 5500) for all
employee benefit plans listed on SCHEDULE 3.1.17 for which such Annual
Reports have been required to be filed.
(c) None of the employee benefit plans is a "multiemployer plan"
as defined in ERISA Section 3(37).
3.1.18 Intellectual Property Matters. Seller, in the conduct of
-----------------------------
the Business, did not and does not utilize or otherwise have any rights in any
patents (including patent applications), trademarks, tradenames, trade dress,
service marks, copyrights or trade secrets except for those listed on SCHEDULE
3.1.18 hereto (the items so listed being the "Intellectual Property") and,
except for computer software licenses, all of the Intellectual Property utilized
by Seller in connection with the Business is owned solely and exclusively by
Seller free and clear of any liens, claims, charges, assignments, covenants not
to sue, reversionary interests or encumbrances. To Seller's knowledge, neither
Seller, the Business nor any of the Assets
19
<PAGE>
infringes upon or unlawfully or wrongfully makes, uses or sells any invention
claimed in any intellectual property owned or claimed by another. Seller is not
in default under, and has not received any notice of any claim of infringement
or any other claim or proceeding relating to any of the Intellectual Property.
Neither Seller nor any of the Managing Members has granted any license or other
right in or with respect to any of the Intellectual Property which Seller owns,
possesses or uses in its operations as now or heretofore conducted.
3.1.19 Environmental, Safety and Health Matters.
----------------------------------------
(a) For purposes of this paragraph: (i) the term "Environmental,
Safety and Health Regulations," shall mean all federal, state and local
laws, regulations, statutes, ordinances, resolutions, orders, rules,
permits or licenses relating to the use, emission, discharge, or release or
threatened release into the environment (including without limitation,
ambient air, surface water, groundwater, or land), of Hazardous Substances,
including but not limited to the following statutes and any analogous state
or local statutes acting thereunder or relating thereto: the Comprehensive
Environmental Response Compensation and Liability Act of 1980 (42 USC (S)
9601 et seq., as amended by the Superfund Amendments and Reauthorization
-- ---
Act of 1986), the Hazardous Materials Transportation Act (49 USC (S) 1801
et seq.), the Resource Conservation and Recovery Act (42 USC (S) 6901 et
-- --- --
seq.), the Clean Air Act (42 USC (S) 7401 et seq.), the Clean Water Act (33
--- -- ---
USC (S) 1251 et seq.), the Toxic Substances Control Act (15 USC (S) 2601 et
-- --- --
seq.), the Federal Insecticide, Fungicide and Rodenticide Act (7 USC (S)
---
1361 et seq.), the Safe Drinking Water Act (42 USC (S) 300 et seq.), the
-- --- -- ---
Occupational Safety and Health Act (19 USC (S) 6251 et seq.), as these laws
-- ---
have been amended or supplemented and the regulations promulgated pursuant
thereto; and (ii) the term "Hazardous Substances" shall include any
chemical, pollutant, contaminant or waste regulated under any
Environmental, Safety and Health Regulation, and includes polychlorinated
biphenyls, asbestos and petroleum products.
(b) Seller is in compliance in all material respects in the
conduct of the Business with all Environmental, Safety and Health
Regulations.
(c) There are no underground storage tanks present on the
property, nor are there present on the property any Hazardous Substances,
except in compliance in all material respects with Environmental, Safety
and Health Regulations.
3.1.20 Real Property.
-------------
(a) Leased Real Property. The only real property leased by
--------------------
Seller is the Premises. Seller has previously delivered to Purchaser a true
and correct copy of the Lease. The Lease is in full force and effect and
has not been assigned, modified, supplemented or amended excepted as listed
on SCHEDULE 3.1.20 and neither Seller nor
20
<PAGE>
the lessor under the Lease has given the other party written notice of any
default under the Lease which remains outstanding.
(b) Owned Real Property. No real property is owned by Seller.
-------------------
(c) No Violations. Neither Seller nor any of the Managing
-------------
Members has received any written notice from any governmental body that the
Premises or any improvements erected or situate thereon, or the uses
conducted thereon or therein, violate in any material respect any
Regulation of any governmental body having jurisdiction over the Premises.
(d) Public Improvements. No written notice from any county,
-------------------
township or other governmental body has been served upon the Premises or
received by Seller requiring or calling attention to the need for any work,
repair, construction, alteration or installation on or in connection with
the Premises of a material nature which has not been complied with.
3.1.21 Conditions Affecting Seller. Except as set forth in
---------------------------
SCHEDULES 1.4.1(C) and 3.1.16, Seller has used its commercially reasonable
efforts to keep available for Purchaser the services of the employees, agents,
customers and suppliers of Seller active in the conduct of the Business and
Seller does not have any reason to believe that any loss of any employee or
supplier will result because of the consummation of the transactions
contemplated hereby.
3.1.22 Completeness of Disclosure. To the knowledge of Seller and
--------------------------
the Managing Members, no representation or warranty by Seller or any of the
Managing Members in this Agreement or any certificate, schedule, statement,
document or instrument required to be furnished to Purchaser pursuant hereto at
the Closing, contains or will contain any untrue statement of a material fact or
omits or will omit to state a material fact required to be stated herein or
therein or necessary to make any statement herein or therein not misleading. To
the knowledge of Seller and the Managing Members, all items and materials
delivered or made available to Purchaser in connection with its due diligence
investigation of Seller and the Managing Members including, without limitation,
all Contracts, historical financial statements, insurance policies, leases,
plans, instruments, undertakings, Authorizations, permits, licenses, patents,
trademarks, tradenames, service marks, registered copyrights and applications
therefor are true and accurate in all material respects.
3.2 Representations and Warranties of Purchaser and Parent. Purchaser and
------------------------------------------------------
Parent jointly and severally represent and warrant to Seller and the Managing
Members as follows:
3.2.1 Corporate Existence. Each of Purchaser and Parent is a
-------------------
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware.
21
<PAGE>
3.2.2 Corporate Power; Authorization; Enforceable Obligations.
-------------------------------------------------------
Each of Purchaser and Parent has the corporate power, authority and legal right
to execute, deliver and perform this Agreement. The execution, delivery and
performance of this Agreement by Purchaser and Parent have been duly authorized
by all necessary corporate action. This Agreement has been, and the other
agreements, documents and instruments executed and delivered by Purchaser in
connection herewith (the "Purchaser's Documents") when executed and delivered at
the Closing, will have been, duly executed and delivered by duly authorized
officers of Purchaser and Parent, and this Agreement constitutes, and the
Purchaser's Documents, when so executed and delivered, will constitute, the
legal, valid and binding obligations of such of Purchaser and Parent as shall be
a party thereto, enforceable against such party in accordance with their
respective terms.
3.2.3 Validity of Contemplated Transactions, Etc.. The execution,
-------------------------------------------
delivery and performance of this Agreement by Purchaser and Parent does not and
will not violate, conflict with or result in the breach of any term, condition
or provision of, or require the consent of any other party to, (a) any existing
law, ordinance, or governmental rule or regulation to which neither Purchaser or
Parent is subject, (b) any judgment, order, writ, injunction, decree or award of
any court, arbitrator or governmental or regulatory official, body or authority
which is applicable to Purchaser or Parent, (c) the charter documents or By-laws
of, or any securities issued by, Purchaser or Parent, or (d) any material
mortgage, indenture, agreement, contract, commitment, lease, plan or other
instrument, document or understanding, oral or written, to which Purchaser or
Parent is a party or by which Purchaser or Parent is otherwise bound. No
authorization, approval or consent of, and no registration or filing with, any
governmental or regulatory official, body or authority is required in connection
with the execution, delivery and performance of this Agreement by Purchaser or
Parent.
3.2.4 Funding. The Purchaser will have available at the Closing
-------
sufficient funds to consummate the transactions contemplated hereby.
3.2.5 Union/Labor Matters. Purchaser acknowledges the existence
-------------------
of and assumes the risks associated with the Labor Claims and the Labor Matters.
3.3 Survival of Representations and Warranties and Other Obligations.
----------------------------------------------------------------
(a) All representations and warranties made by the parties in
this Agreement or in any certificate, schedule, statement, document or
instrument required to be furnished hereunder or in connection herewith
shall survive the Closing, notwithstanding any investigation made by, or
knowledge of, the party or parties to whom such representations are made,
until the earlier to occur of (i) the receipt by Parent of its audited
financial statements for fiscal year 1999 and (ii) the first anniversary of
the Closing Date (except for representations and warranties set forth in
Sections 3.1.7 and 3.1.9, which shall remain in effect until such date and
thereafter
22
<PAGE>
until terminated in accordance with any applicable statute of limitations).
If written notice of a claim for a breach of a representation or warranty
has been given by a party prior to the applicable cut-off date, then the
relevant representation or warranty shall survive as to such claim until
the claim has been finally resolved.
(b) Notwithstanding the foregoing, if Purchaser has knowledge as of
the date hereof that any representation or warranty made by Seller is
incorrect as of the date hereof or will be incorrect as of the Closing,
Purchaser shall have no remedy or recourse to the extent that it has
knowledge that such representation or warranty is incorrect, whether before
or after the Closing, and, upon the Closing, Purchaser shall be
conclusively deemed to have waived all claims hereunder to the extent it
has knowledge that such representation or warranty is incorrect. If
Purchaser does not have knowledge as of the date hereof that any
representation or warranty made by Seller is incorrect in any material
respect as of the date hereof or will be incorrect in any material respect
as of the Closing, but prior to the Closing, Purchaser obtains the
knowledge that a representation or warranty made by Seller was incorrect in
any material respect as of the date hereof or will be incorrect in any
material respect as of the Closing, including, without limitation, any such
knowledge resulting from a supplement or amendment to any Schedule to this
Agreement by Seller in accordance with Section 4.1.6, Purchaser shall have
the option (i) to terminate this Agreement (upon providing 10 business
days' written notice to Seller, during which period Seller may cure such
misrepresentation or breach of warranty) and shall be entitled to seek the
remedies, if any, it may have for such breach, or (ii) to proceed with the
Closing and, upon the Closing, Purchaser shall be conclusively deemed to
have waived all claims hereunder to the extent of such misrepresentation or
breach of warranty. If Seller has knowledge as of the date hereof that any
representation or warranty made by Purchaser is incorrect as of the date
hereof or will be incorrect as of the Closing, Seller shall have no remedy
or recourse to the extent that it has knowledge that such representation or
warranty is incorrect, whether before or after the Closing and, upon the
Closing, Seller shall be conclusively deemed to have waived all claims
hereunder to the extent it has knowledge that such representation or
warranty is incorrect. If Seller does not have knowledge as of the date
hereof that any representation or warranty made by Purchaser is incorrect
in any material respect as of the date hereof or will be incorrect in any
material respect as of the Closing, but prior to the Closing, Seller
obtains the knowledge that a representation or warranty made by Purchaser
was incorrect in any material respect as of the date hereof or will be
incorrect in any material respect as of the Closing, Seller shall have the
option (i) to terminate this Agreement (upon providing 10 business days'
written notice to Purchaser, during which period Purchaser may cure such
misrepresentation or breach of warranty) and shall be entitled to seek the
remedies, if any, it may have for such breach, or (ii) to proceed with the
Closing and, upon the Closing, Seller shall be conclusively deemed to have
waived all claims hereunder to the extent of such misrepresentation or
breach of warranty.
23
<PAGE>
ARTICLE IV
AGREEMENTS PENDING CLOSING
4.1 Agreements of Seller and the Managing Members Pending the Closing.
-----------------------------------------------------------------
Seller and the Managing Members jointly and severally covenant and agree that,
pending the Closing and except as otherwise agreed to in writing by Purchaser
(such agreement not to be unreasonably withheld or delayed):
4.1.1 Business in the Ordinary Course. The Business shall be
-------------------------------
conducted solely in the ordinary course consistent with past practice.
4.1.2 Existing Condition. Seller shall not cause nor permit to occur
------------------
any of the events or occurrences described in Section 3.1.8 hereof, except for
subsection (e) thereof as to which Seller shall not cause any such event or
occurrence to occur, other than the Labor Claims or the Labor Matters.
4.1.3 Employees and Business Relations. Seller shall use its
--------------------------------
commercially reasonable efforts to keep available the services of the present
employees and agents of the Business and to maintain the relations and goodwill
with the suppliers, customers, distributors and any others having business
relations with the Business. The foregoing shall not require Seller to take any
action, or restrict Seller from taking any action, in respect of the Labor
Claims or the Labor Matters.
4.1.4 Maintenance of Insurance. Seller shall maintain in full force
------------------------
and effect, and at least at such levels as are in effect on the date hereof, all
insurance policies and binders.
4.1.5 Compliance with Laws, etc. Seller shall comply with all laws,
--------------------------
ordinances, rules, regulations and orders applicable to the Business, or
Seller's operations, assets or properties in respect thereof, the noncompliance
with which might materially adversely affect the Business or the Assets. The
foregoing shall not require Seller to take any action, or restrict Seller from
taking any action, in respect of the Labor Claims or the Labor Matters.
4.1.6 Update Schedules. Seller shall promptly disclose to Purchaser
----------------
any information contained in its representations and warranties herein or the
Schedules hereto which, because of an event occurring after the date hereof, is
incomplete or is no longer correct as of all times after the date hereof until
the Closing Date; provided, however, that, subject to Section 3.3(b) hereof,
none of such disclosures shall be deemed to modify, amend or supplement the
representations and warranties of Seller herein or the Schedules hereto for the
purposes of Article V hereof, unless Purchaser shall have expressly consented to
such modification in writing.
24
<PAGE>
4.1.7 Conduct of Business. Seller and each of the Managing Members
-------------------
shall use their commercially reasonable efforts to conduct the Business in such
a manner that on the Closing Date the representations and warranties of Seller
contained in this Agreement shall be true in all material respects, except as
specifically contemplated by this Article IV, as though such representations and
warranties were made on and as of such date, and will not knowingly take any
action which would result in a breach of any of their respective representations
or warranties hereunder. Furthermore, Seller shall cooperate with Purchaser and
use its commercially reasonable efforts to cause all of the conditions to the
obligations of Purchaser under this Agreement to be satisfied on or prior to the
Closing Date.
4.1.8 Access. Seller shall give to Purchaser's officers, employees,
------
counsel, accountants and other representatives free and full access during
normal business hours to and the right to inspect the Premises and all of the
properties, assets, records, Contracts and other documents relating to the
Business and shall permit them to consult with the officers, accountants,
counsel and agents of Seller for the purpose of making such investigation of the
Business as Purchaser shall desire to make, provided that such investigation
shall not unreasonably interfere with Seller's operation of the Business.
Furthermore, Seller shall furnish to Purchaser all such documents and copies of
documents and records and information with respect to the affairs of the
Business and copies of any working papers relating thereto as Purchaser shall
from time to time reasonably request and shall permit Purchaser and its agents
to make such physical inventories and inspections of the Assets as Purchaser may
reasonably request from time to time.
4.1.9 Material Change. From the date hereof through the Closing,
---------------
Seller shall promptly inform Purchaser, in writing, of any actual or threatened
change in the assets, business, operations or, properties of the Business which
are, or are expected to be, either individually or in the aggregate materially
adverse to the Business (a "Material Adverse Change").
4.1.10 Agreements. Seller shall not enter into any lease of real
----------
property, any agreement that would constitute a Material Contract, employee
benefit plan or Permit or amend or cancel any Material Contract, plan or Permit
in respect of the Assets of the Business.
4.1.11 Non-Disturbance. Seller shall request that the landlord under
---------------
the Lease request that its Mortgagee provide to Purchaser a duly executed non-
disturbance agreement as required by the Lease.
4.2 Agreements of Purchaser Pending the Closing. Purchaser covenants and
-------------------------------------------
agrees that, pending the Closing and except as otherwise agreed to in writing by
Seller, Purchaser shall not knowingly take any action which would result in a
breach of any of its representations and warranties hereunder. Furthermore,
Purchaser shall (a) cooperate with Seller and use its best efforts to cause all
of the conditions to the obligations of Seller under this Agreement to be
satisfied on or prior to the Closing Date, and (b) promptly after the date
hereof, submit its application for the temporary liquor license and tobacco
permit described in Section 5.1.7 (with
25
<PAGE>
all supporting documentation) and shall thereafter use its best efforts to cause
the conditions set forth in such Section to be satisfied on or prior to the
Closing Date.
4.3 Casualty. If prior to Closing any Assets which are material,
--------
individually or in the aggregate, are destroyed or become inoperable as a result
of any casualty, loss or damage (a "Material Casualty Loss"), Purchaser may, at
its election, exercised by written notice within 10 business days of Purchaser
becoming aware of such Material Casualty Loss, terminate this Agreement, without
any further obligation to Seller. If, notwithstanding a Material Casualty Loss,
Purchaser shall not have terminated this Agreement pursuant to this Section 4.3,
or if prior to Closing any Assets which are not material, individually or in the
aggregate, are destroyed or become inoperable as a result of any casualty, loss
or damage, the parties shall proceed with the Closing in accordance with this
Agreement (with no reduction in the Purchase Price), but at the Closing, Seller
shall assign all proceeds of insurance relating to such casualty, loss or damage
to Purchaser, and shall pay to Purchaser the amount of any deductible, co-pay or
self-insurance relating thereto.
ARTICLE V
CONDITIONS PRECEDENT TO THE CLOSING
5.1 Conditions Precedent to Purchaser's Obligations. The obligations on
-----------------------------------------------
the part of the Purchaser to consummate the transactions to be consummated by it
at the Closing pursuant to this Agreement are subject to the satisfaction at or
prior to the Closing of each of the conditions set forth in this Section 5.1,
any of which may be waived by the Purchaser in its sole discretion.
5.1.1 Representations and Warranties True as of the Closing Date.
----------------------------------------------------------
Subject to Section 3.3(b), the representations and warranties of Seller and the
Managing Members contained in this Agreement or in any list, certificate or
document delivered by Seller or any of the Managing Members to Purchaser
pursuant to the provisions hereof shall be true in all material respects on the
Closing Date with the same effect as though such representations and warranties
were made as of such date; provided, however, that any representations or
warranties which are qualified by materiality shall be true and correct in all
respects.
5.1.2 Compliance with this Agreement. Seller and each of the
------------------------------
Managing Members shall have performed and complied in all material respects with
all agreements and conditions required by this Agreement to be performed or
complied with by them prior to or at the Closing, including, without limitation,
delivery to Purchaser of all of the items to be delivered by Seller pursuant to
Section 2.2(a) of this Agreement. Notwithstanding anything in Section 8.1(b) to
the contrary, if as of any scheduled Closing Date all of the conditions in
Section 5.1 other than this Section 5.1.2 have been satisfied, Seller and the
Managing Members shall have an additional period of 30 days commencing on such
scheduled Closing Date in which to satisfy this Section 5.1.2.
26
<PAGE>
5.1.3 No Injunctions or Restraints. On the Closing Date, no
----------------------------
injunction, restraining order or other order or legal restraint or prohibition
issued by any governmental authority shall be in effect which would prevent the
consummation of the transactions contemplated by this Agreement or materially
interfere with the Purchaser's ability to own the Assets and operate the
Business.
5.1.4 Consents and Approvals. The parties shall have received the
----------------------
Required Consents and the Governmental Consents.
5.1.5 Termination of Employees. Contemporaneously with the Closing,
------------------------
Seller shall have terminated the employment of all of its employees.
5.1.6 Material Adverse Change. No Material Adverse Change shall have
-----------------------
occurred or shall be threatened; provided, however, that for purposes of this
Section 5.1.6, the term Material Adverse Change shall exclude (i) any decrease
in revenues or increase in expenses on a month to month basis, (ii) any increase
in rent in respect of the Premises requested by the lessor in accordance with
the Lease, and (iii) any condition described in the Schedules to this Agreement,
including, without limitation, the Labor Claims and the Labor Matters.
5.1.7 Liquor and Tobacco Licenses. Purchaser shall have received a
---------------------------
temporary liquor license and a tobacco permit necessary in connection with the
Business and the New York State Liquor Authority shall not have notified
Purchaser, either orally or in writing, that Purchaser will be unable to receive
a permanent liquor license within the time period customary therefor.
5.1.8 Consent and Estoppel. Purchaser shall have received a duly
--------------------
executed estoppel letter from the lessor of the Premises, together with a
consent of such lessor to the Lease Assignment, in a form reasonably
satisfactory to Purchaser and Seller.
5.1.9 Audited Financial Statements. Purchaser shall have received
----------------------------
copies of the audited balance sheets of Seller as of December 31, 1997 and 1998
and the related statements of income, retained earnings and cash flows for the
fiscal years then ended, accompanied by an unqualified opinion of Joel Popkin &
Company, P.C., independent certified public accountants, which shall not differ
in any material respect from the financial statements for the comparable periods
referred to in Section 3.1.5.
5.1.10 Escrow Agreement. The Escrow Agent shall have executed and
----------------
delivered to Purchaser a counterpart original of the Escrow Agreement.
5.1.11 Condition of Property. On the Closing Date, the improvements
---------------------
located on the Premises and all mechanical and other systems located therein
shall be in a condition at least as good, in all material respects, as the
condition they were in on the date of this Agreement,
27
<PAGE>
except for normal wear and tear, or casualty, loss or damage of the type
described in Section 4.3 hereof (subject to the provisions of such Section),
occurring after the date of this Agreement.
5.2 Conditions Precedent to the Obligations of Seller and the Managing
------------------------------------------------------------------
Members. The obligations on the part of the Seller and the Managing Members to
- -------
consummate the transactions to be consummated by it at the Closing pursuant to
this Agreement are subject to the satisfaction at or prior to the Closing of
each of the conditions set forth in this Section 5.2, any of which may be waived
by the Seller in its sole discretion.
5.2.1 Representations and Warranties True as of the Closing Date.
----------------------------------------------------------
Subject to Section 3.3(b), the representations and warranties of Purchaser and
Parent contained in this Agreement or in any list, certificate or document
delivered by Purchaser or Parent to Seller or any of the Managing Members
pursuant to the provisions hereof shall be true in all material respects on the
Closing Date with the same effect as though such representations and warranties
were made as of such date; provided, however, that any representations or
warranties which are qualified by materiality shall be true and correct in all
respects.
5.2.2 Compliance with this Agreement. Purchaser shall have performed
------------------------------
and complied in all material respects with all agreements and conditions
required by this Agreement to be performed or complied with by it prior to or at
the Closing including, without limitation, delivery to Seller of all of the
items to be delivered by Purchaser pursuant to Section 2.2(b) of this Agreement.
Notwithstanding anything in Section 8.1(b) to the contrary, if as of any
scheduled Closing Date all of the conditions in Section 5.2 other than this
Section 5.2.2 have been satisfied, Purchaser shall have an additional period of
30 days commencing on such scheduled Closing Date in which to satisfy this
Section 5.2.2.
5.2.3 No Injunctions or Restraints. On the Closing Date, no
----------------------------
injunction, restraining order or other order or legal restraint or prohibition
issued by any governmental authority shall be in effect which would prevent the
consummation of the transactions contemplated by this Agreement.
5.2.4 Consents and Approvals. The parties shall have received the
----------------------
Required Consents and the Governmental Consents.
5.2.5 Escrow Agreement. The Escrow Agent shall have executed and
----------------
delivered to Seller a counterpart original of the Escrow Agreement.
ARTICLE VI
INDEMNIFICATION
28
<PAGE>
6.1 Indemnification by Seller and the Managing Members. Except as
--------------------------------------------------
otherwise limited by this Article VI, Seller and the Managing Members, jointly
and severally, shall indemnify and hold harmless Purchaser and its officers,
directors, employees, agents, successors and assigns from any and all
liabilities, losses, damages, claims, costs and expenses, interest, awards,
judgments and penalties (including, without limitation, reasonable legal costs
and expenses) suffered or incurred by any of them (hereinafter a "Purchaser
Loss"), arising out of or resulting from:
(a) the breach of any representation or warranty by Seller or any of
the Managing Members contained herein or in any exhibit, schedule or
certificate delivered under this Agreement;
(b) the breach of any covenant or agreement by Seller or any of the
Managing Members contained herein or in any Seller's Document;
(c) the failure of Seller to pay or otherwise discharge the Excluded
Liabilities;
(d) any violation by Seller of, or failure by Seller to comply with,
the bulk transfer laws of any state or the fraudulent conveyance or
preferential transfer laws of the United States or any state, or any action
brought or levy made as a result thereof;
(e) except for the Assumed Liabilities, any liabilities arising from
the use or operation of any of the Assets or the Business or any other
actions or inactions of Seller or any of the Managing Members prior to the
Closing Date;
(f) any failure by Seller prior to the Closing Date to have any
required Authorization;
(g) any failure by Seller to comply with any law, rule, regulation or
ordinance respecting employment or employment practices, terms and
conditions of employment or wages and hours, including, without limitation,
any applicable immigration laws, but only to the extent Purchaser incurs or
suffers an actual out-of-pocket cost or expense as a result of such failure
and, in any event, excluding any Labor Losses;
(h) any of the matters described on SCHEDULES 3.1.7 OR 3.1.12(B).
6.2 Indemnification by Purchaser. Except as otherwise limited by this
----------------------------
Article VI, Purchaser shall indemnify and hold harmless Seller, each of the
Managing Members and Seller's officers, managers, members, employees, agents,
successors and assigns (in each case, a "Seller Indemnified Party") from any and
all liabilities, losses, damages, claims, costs and expenses, interest, awards,
judgments and penalties (including, without limitation, reasonable legal costs
29
<PAGE>
and expenses) suffered or incurred by any of them (hereinafter a "Seller Loss")
arising out of or resulting from:
(a) the breach of any representation or warranty by Purchaser or
Parent contained herein or in any exhibit, schedule or certificate
delivered under this Agreement;
(b) the breach of any covenant or agreement by Purchaser or Parent
contained herein or in any Purchaser's Document; or
(c) the failure of Purchaser to timely pay, perform or otherwise
discharge the Assumed Liabilities.
Nothing contained in this Agreement or otherwise shall obligate Purchaser
to indemnify and hold harmless any Seller Indemnified Party with respect to any
Seller Loss incurred or suffered prior to the Closing arising out of or
resulting from any Labor Loss, other than Seller Losses consisting of back pay
or other awards or settlement payments to employees, fines, penalties or other
similar payments arising out of or resulting from the Labor Claims or the Labor
Matters, incurred by such Seller Indemnified Party prior to the Closing, and
imposed or assessed against such Seller Indemnified Party subsequent to the
Closing.
6.3 Indemnification Procedures.
--------------------------
(a) For the purposes of this Section 6.3, the term "Indemnitee" shall
refer to the person indemnified, or entitled, or claiming to be entitled,
to be indemnified, pursuant to the provisions of Section 6.1 or 6.2, as the
case may be; the term "Indemnitor" shall refer to the person having the
obligation to indemnify pursuant to such provisions; and "Losses" shall
refer to the "Seller Losses" or the "Purchaser Losses," as the case may be.
(b) An Indemnitee shall give written notice (a "Notice of Claim") to
the Indemnitor within 30 days (or, to the extent possible, within such
shorter period as may be necessary to give the Indemnitor a reasonable
opportunity to respond to such claim) after the Indemnitee has knowledge of
any claim (including a Third Party Claim (as hereinafter defined) in which
case such Notice of Claim shall set forth the name of the party making such
Third Party Claim, to the extent known) which an Indemnitee has determined
has given or could give rise to a right of indemnification under this
Agreement. No failure to give such Notice of Claim shall affect the
indemnification obligations of the Indemnitor hereunder, except to the
extent such failure shall have prejudiced such Indemnitor's ability to
successfully defend the matter giving rise to the claim. The Notice of
Claim shall state the nature of the claim and the amount of the Loss, if
known, and the Indemnitor shall have a period of 30 days to reply to such
Notice of Claim.
30
<PAGE>
(c) The obligations and liabilities of an Indemnitor under this
Article VI with respect to Losses arising from claims of any third party
that are subject to the indemnification provisions provided for in this
Article VI ("Third Party Claims") shall be governed by the following
additional terms and conditions: The Indemnitee at the time it gives a
Notice of Claim to the Indemnitor of the Third Party Claim shall advise the
Indemnitor that the Indemnitor shall be permitted, at the Indemnitor's
option, to assume and control the defense of such Third Party Claim at the
Indemnitor's expense and through counsel of the Indemnitor's choice
reasonably acceptable to Indemnitee (it being agreed that Duane, Morris &
Heckscher LLP shall be reasonably acceptable to Purchaser and Seyfarth,
Shaw, Fairweather & Geraldson shall be reasonably acceptable to Seller and
the Managing Members) if the Indemnitor gives notice within the 30 day
period specified above of the Indemnitor's intention to do so to the
Indemnitee. If the Indemnitor agrees to defend any such claim, the
Indemnitor shall not be responsible for the legal fees and expenses of
counsel independently retained by the Indemnitee prior to or during the
continuance of such assumption. In the event the Indemnitor exercises the
Indemnitor's right to undertake the defense against any such Third Party
Claim as provided above, the Indemnitee shall cooperate with the Indemnitor
in such defense and make available to the Indemnitor all witnesses,
pertinent records, materials and information in the Indemnitee's possession
or under the Indemnitee's control relating thereto as is reasonably
required by the Indemnitor and the Indemnitee may participate by the
Indemnitee's own counsel and at the Indemnitee's own expense in defense of
such Third Party Claim; provided, however, that the Indemnitor shall
thereafter consult with the Indemnitee upon the Indemnitee's reasonable
request for such consultation from time to time with respect to such Third
Party Claim. Except for the settlement of a Third Party Claim which
involves the payment of money only which is to be paid in full by the
Indemnitor, no Third Party Claim for which the Indemnitor has elected to
defend may be settled by the Indemnitor without the prior written consent
of the Indemnitee, which consent shall not be unreasonably withheld or
delayed. If the Indemnitee does not receive written notice within said
period that the Indemnitor has elected to assume the defense of such Third
Party Claim, the Indemnitee may elect to assume such defense, assisted by
counsel of the Indemnitee's own choosing; provided however, the Indemnitee
shall thereafter consult with the Indemnitor upon the Indemnitor's
reasonable request for such consultation from time to time with respect to
such Third Party Claim. Whether or not Indemnitee elects to assume the
defense of such Third Party Claim, the Indemnitor shall not be relieved of
the Indemnitor's obligations hereunder. The Indemnitee will give the
Indemnitor at least 10 days notice of any proposed settlement or compromise
of any Third Party Claim it has elected to defend, during which time the
Indemnitor may assume the defense of, and responsibility for, such Third
Party Claim and if it does so the proposed settlement or compromise may not
be made. In the event the Indemnitee is, directly or indirectly,
conducting the defense against any such Third Party Claim, the Indemnitor
shall cooperate with the Indemnitee in such defense and make available to
the Indemnitee all such witnesses, records, materials and information in
the Indemnitor's possession or under the Indemnitor's control relating
thereto as is reasonably required by
31
<PAGE>
the Indemnitee and the Indemnitor may participate by the Indemnitor's own
counsel and at the Indemnitor's own expense in the defense of such Third
Party Action.
(d) Any claim by an Indemnitee with respect to Losses which do not
result from a Third Party Claim will be asserted in the same manner as
specified in Section 6.3(c) above. If the Indemnitor does not respond to
such claim within the 30 day period specified in Section 6.3(c), the
Indemnitor will be deemed to have rejected such claim, in which event the
Indemnitee will be free to pursue such remedies as may be available to the
Indemnitee under this Agreement.
6.4 Limits on Indemnification.
-------------------------
(a) No claim may be made against Seller or the Managing Members under
this Article VI for breach of a representation or warranty contained in
this Agreement or in any exhibit, schedule or certificate delivered under
this Agreement (i) unless and only to the extent the aggregate of all
Purchaser Losses incurred exceeds $200,000 and then only with respect to
that portion of Purchaser Losses which exceeds $200,000 and (ii) with
respect to that portion of Purchaser Losses which shall exceed $5,900,000;
provided, however, that such limitations shall not apply with respect to
Purchaser Losses (i) to the extent the same are incurred as the result of
any breach of a representation or warranty contained in Sections 3.1.2,
3.1.7, 3.1.9, 8.2(a) or to the extent Section 3.1.22 relates to any one of
the foregoing Sections, Section 3.1.22, or (ii) to the extent the same
result from the Prior Claims or from any fraud or intentional misstatement
or omission.
(b) No claim may be made against Purchaser under this Article VI for
any breach of a representation or warranty contained in this Agreement or
in any exhibit, schedule or certificate delivered under this Agreement (i)
unless and only to the extent the aggregate of all Seller Losses incurred
exceeds $200,000 and then only with respect to that portion of the Seller
Losses which exceeds $200,000 and (ii) with respect to that portion of
Purchaser Losses which shall exceed $5,900,000; provided, however, that
such limitations shall not apply with respect to Seller Losses to the
extent the same are incurred as the result of any breach of a
representation or warranty contained in Sections 3.2.2 or 8.2(b) or to the
extent the same result from any fraud or intentional misstatement or
omission.
6.5 Compliance with Bulk Sales Laws. Subject to the indemnification
-------------------------------
obligations otherwise specified in this Article VI, Purchaser and Seller hereby
waive compliance by Purchaser and Seller with the bulk sales law and any other
similar laws in any applicable jurisdiction in respect of the transactions
contemplated by this Agreement.
6.6 Reduction of Losses. To the extent any Losses of an Indemnitee are
-------------------
reduced by receipt of payment (a) under insurance policies which are not subject
to retroactive adjustment or other reimbursement to the insurer in respect of
such payment or (b) from third parties not
32
<PAGE>
affiliated with the Indemnitee, such payments (net of the expenses of the
recovery thereof) shall be credited against such Losses and, if indemnification
payments shall have been received prior to the collection of such proceeds, the
Indemnitee shall remit to the Indemnitor the amount of such proceeds (net of the
cost of collection thereof) to the extent of indemnification payments received
in respect of such Losses. All Losses shall be calculated net of any tax
benefits or tax detriments actually received or suffered relating to such
Losses.
6.7 Subrogation. The Indemnitor shall be subrogated to the Indemnitee's
-----------
rights of recovery to the extent of any Losses satisfied by the Indemnitor. The
Indemnitee shall permit the Indemnitor to use the name of the Indemnitee and the
names of the Indemnitee's Affiliates in any transaction or proceeding to enforce
such rights and shall use reasonable efforts to execute and deliver such
instruments and papers as are necessary to assign such rights and assist in the
exercise thereof, including access to books and records with respect to such
Losses.
6.8 Punitive, Consequential and Exemplary Damages. In no event shall
---------------------------------------------
either party be liable under this Article VI for punitive, consequential or
exemplary damages (provided that this Section 6.8 shall not limit an
Indemnitor's liability for amounts paid by an Indemnitee in respect of Third
Party Claims, including amounts payable with respect to Third Party Claims as
punitive, consequential or exemplary damages).
6.9 Exclusivity. The indemnification provided by this Article VI shall be
-----------
the sole remedy (other than termination of this Agreement pursuant to Section
8.1) for any of the matters referred to in this Article VI; provided that this
Section 6.9 shall not prohibit injunctive relief if available under applicable
law.
33
<PAGE>
ARTICLE VII
ADDITIONAL AGREEMENTS
7.1 Employee Benefits. Except for Assumed Liabilities, Seller shall pay
-----------------
directly to each employee of the Business that portion of all benefits which has
been accrued on behalf of that employee (or is attributable to expenses incurred
by that employee) as of the Closing Date, and Purchaser shall assume no
liability therefor. No portion of the assets of any plan, fund, program or
arrangement, written or unwritten, heretofore sponsored or maintained by Seller
(and no amount attributable to any such plan, fund, program or arrangement)
shall be transferred to Purchaser, and Purchaser shall not be required to
continue any such plan, fund, program or arrangement after the Closing Date.
The amounts payable on account of all benefit arrangements shall be determined
with reference to the date of the event by reason of which such amounts become
payable, without regard to conditions subsequent, and except for Assumed
Liabilities, Purchaser shall not be liable for any claim for insurance,
reimbursement or other benefits payable by reason of any event which occurs
prior to the Closing Date. All amounts payable directly to employees, or to any
fund, program, arrangement or plan maintained by Seller therefor shall be paid
by Seller within 30 days after the Closing Date to the extent that such payment
is not inconsistent with the terms of such fund, program, arrangement or plan.
All employees of Seller who are employed by Purchaser on or after the Closing
Date shall be new employees of Purchaser and any prior employment by Seller of
such employees shall not affect entitlement to, or the amount of, salary or
other cash compensation, current or deferred, which Purchaser may make available
to its employees.
7.2 Employment of Former Employees. As of the Closing Date, Purchaser
------------------------------
shall offer employment to, and Seller shall use its best efforts to assist
Purchaser in employing as new employees of Purchaser, all persons presently
engaged in the Business. Nothing contained in this Section 7.2 shall be deemed
to obligate the Purchaser to continue the employment of any employee offered
employment with Purchaser hereunder subsequent to the Closing Date.
7.3 Discharge of Business Obligations. From and after the Closing Date,
---------------------------------
Seller shall pay and discharge, in accordance with past practice, all
obligations and liabilities incurred prior to the Closing Date in respect of the
Business, its operations or the assets and properties used therein (except for
the Assumed Liabilities) including, without limitation, any liabilities or
obligations to employees, trade creditors and clients of the Business.
7.4 Maintenance of Books and Records. Each of Seller and Purchaser shall
--------------------------------
preserve until the seventh anniversary of the Closing Date all records possessed
or to be possessed by such party relating to any of the assets, liabilities or
business of the Business prior to the Closing Date. After the Closing Date,
where there is a legitimate purpose, such party shall provide the other parties
with access, upon prior reasonable written request specifying the need therefor,
during regular business hours, to (a) the officers, managers, accountants, and
employees of such party
34
<PAGE>
and (b) the books of account and records of such party, and the other parties
and their representatives shall have the right to make copies of such books and
records; provided, however, that the foregoing right of access shall not be
exercisable in such a manner as to interfere unreasonably with the normal
operations and business of such party; and further provided, that, as to so much
of such information as constitutes trade secrets or confidential business
information of such party, the requesting party and its officers, directors and
representatives will use due care to not disclose such information except (i) as
required by law, (ii) with the prior written consent of such party, which
consent shall not be unreasonably withheld, or (iii) where such information
becomes available to the public generally, or becomes generally known to
competitors of such party, through sources other than the requesting party, its
Affiliates or its officers, directors or representatives.
7.5 Payments Received. Seller and Purchaser each agree that after the
-----------------
Closing Date they will hold and will promptly transfer and deliver to the other,
from time to time as and when received by them, any cash, checks with
appropriate endorsements (using their best efforts not to convert such checks
into cash), or other property that they may receive on or after the Closing Date
which properly belongs to the other party including, without limitation any
insurance proceeds, and will account to the other for all such receipts.
7.6 Use of Name. From and after the Closing Date, Seller and the Managing
-----------
Members will sign such consents and take such other action as Purchaser shall
reasonably request in order to transfer to Purchaser Seller's right to the name
Angelo and Maxie's and variants thereof. From and after the Closing Date,
neither Seller nor any of the Managing Members or any of their respective
Affiliates will use the name Angelo and Maxie's, or any names similar thereto or
variants thereof.
7.7 Publicity. Neither Seller nor any of the Managing Members shall, nor
---------
shall any of them permit their respective employees, agents, representatives or
Affiliates to, make or cause to be made, any oral or written public disclosure
concerning the terms and conditions of the transactions contemplated by this
Agreement, without the prior written consent of Purchaser. This provision shall
not apply to any disclosure required to be made by law, except that the party
required to make such disclosure shall, wherever practicable, consult with the
other parties hereto concerning the timing and content of such disclosure before
such disclosure is made.
7.8 Covenant Not to Compete.
-----------------------
(a) Seller agrees that for a period of three years after the Closing
Date:
(i) Seller will not directly or indirectly as a partner, joint
venturer, employer, employee, consultant, shareholder, principal,
agent, or otherwise, own, manage, operate, render services to, become
interested in or associated with, join in, control, participate in, or
otherwise carry on any Competing Business (as hereinafter defined).
For purposes of this Agreement, the term "Competing
35
<PAGE>
Business" shall mean and include, as of any date of determination, (i)
any restaurant business which is located in the area in Manhattan
bounded by the south side of 23/rd/ Street to the north, the north
side of 14/th/ Street to the south, the west side of 3/rd/ Avenue to
the east and the east side of 5/th/ Avenue to the west; and (ii) any
restaurant business, if more than 40% of its entree items listed on
the menu consist of steaks, chops or prime rib of beef, or some
combination of such items, located, in the case of each restaurant
operated on the Closing Date by Purchaser or any of its Affiliates,
within the radius or other geographic region set forth for such
restaurant in SCHEDULE 7.8; provided, however, that in no event shall
an investment by Seller, or any entity which owns or controls, or is
owned or controlled by Seller, in up to 5% of the voting securities of
a publicly held company engaged in a business that competes with the
Business as it is presently conducted or conducted on the Closing Date
constitute a Competing Business; and provided further that, subject to
clause (i) of this definition, in no event shall any Harley Davidson
cafe, whether now existing or opened in the future, owned or managed,
in whole or in part, by any of the Managing Members constitute a
Competing Business.
(ii) Seller will not, without Purchaser's prior written consent,
directly or indirectly as a partner, joint venturer, employer,
employee, consultant, shareholder, principal, agent, or otherwise,
solicit, entice, persuade or induce any Employee (as hereinafter
defined) to: (A) terminate or refrain from renewing or extending his
or her employment with Purchaser; or (B) enter into any contractual
relationship with any Competing Business. For purposes of this
Agreement, the term "Employee" shall mean and include all persons
employed in connection with the Business at any time on or after the
Closing Date or during the one year period immediately preceding the
Closing Date.
(b) From and after the date of this Agreement, neither Seller nor any
of its controlled Affiliates shall, directly or indirectly, divulge,
disclose or communicate to any person, entity, firm, corporation or any
other third party (except as required by law (after first giving Purchaser
a reasonable opportunity to seek a protective order with respect to any
such disclosure)), or utilize for any of their personal benefit or for the
benefit of any person other than Purchaser, any Confidential Information.
For the purposes of this Agreement, the term "Confidential Information"
shall mean any technologies, methods, data bases, trade secrets, know-how,
manufacturing and other processes, inventions, formulas, recipes, process
sheets, or mixing instructions or other intellectual property relating to
Purchaser's business, including any such information relating to the
Business or Assets, in each case which is not generally known or available
to the public through legitimate origins and which is not learned by the
information recipient from a third party without breach of any
confidentiality obligations of such third party to Purchaser. For the
purposes of this Agreement, such information is "not generally known or
available to the public through legitimate origins" if it is not generally
known or available to third parties
36
<PAGE>
who can obtain economic value from its disclosure and use and is the
subject of efforts that are reasonable under the circumstances to maintain
its secrecy or confidentiality.
(c) Seller acknowledges that in view of the nature of the Business
and the business objectives of Purchaser in acquiring it, and the
consideration paid to Seller therefor, the territorial and time limitations
contained in subsection (a) of this Section 7.8 are reasonable and properly
required for the adequate protection of Purchaser and that in the event
that any such territorial or time limitation is deemed to be unreasonable
and is then reduced by a court of competent jurisdiction, then, as reduced,
the territorial and/or time limitation shall be enforced. Subsections (a)
and (b) of this Section 7.8 constitute independent and severable covenants
and if any or all of the provisions of either thereof are held to be
unenforceable for any reason whatsoever, it will not in any way invalidate
or affect the remainder of this Agreement, which will remain in full force
and effect. The parties intend for the covenants of subsections (a) and (b)
of this Section 7.8 to be enforceable to the maximum extent permitted by
law, and if any reviewing court deems any of such covenants to be
unenforceable or invalid, Purchaser, Seller and the Managing Members
authorize such court to reform (i) the unenforceable or invalid provisions
and to impose such restrictions as reformed and (ii) the remaining
provisions as it deems reasonable.
(d) The parties hereto specifically acknowledge that the remedy at
law for any breach of any provision of this Section 7.8 will be inadequate
and that Purchaser, in addition to any other relief available to it, shall
be entitled to temporary and permanent injunctive relief without the
necessity of proving actual damages.
7.9 Labor Claims. Following the Closing, Purchaser shall assume and
------------
control the defense of the Labor Claims through counsel of Purchaser's choice.
Seller and the Managing Members shall cooperate with Purchaser in such defense
and make available to Purchaser all witnesses, pertinent records, materials and
information in the possession of Seller or any of the Managing Members or under
the control of Seller or any of the Managing Members relating thereto as is
reasonably required by Purchaser in connection with the Labor Claims, provided
that Purchaser shall reimburse Seller and the Managing Members for reasonable
out-of-pocket costs incurred in connection therewith. In the event that
Purchaser settles all of the Labor Claims for an aggregate amount which is less
than $50,000, Purchaser shall remit to Seller, promptly following final
settlement of all of the Labor Claims, an amount equal to the difference between
$50,000 and the final aggregate settlement amount.
ARTICLE VIII
MISCELLANEOUS
8.1 Termination.
-----------
37
<PAGE>
Anything herein or elsewhere to the contrary notwithstanding, this
Agreement may be terminated by written notice of termination at any time before
the Closing Date only as follows:
(a) by mutual written consent of Purchaser and Seller; or
(b) subject to Section 5.1.2, by either party if the Closing shall
not have occurred by May 31, 1999, provided, however, that the right to
terminate this Agreement under this Section 8.1(b) shall not be available
to any party whose failure to perform any obligation under this Agreement
has been the cause of, or resulted in, the failure of the Closing to occur
on or before such date; or
(c) by either Purchaser or Seller, as provided in Section 3.3.
In the event of termination of this Agreement by either or both of the
parties pursuant to this Section 8.1, written notice thereof shall forthwith be
given to the other party specifying the provision hereof pursuant to which such
termination is made, and this Agreement shall forthwith become void and there
shall be no liability on the part of the parties hereto (or their respective
officers, directors or affiliates) except (a) as set forth in Section 8.2 or 8.4
hereof, and (b) nothing herein shall relieve any party hereto from liability for
any willful breach hereof.
8.2 Brokers' and Finders' Fees.
--------------------------
(a) Seller and the Managing Members represent and warrant to
Purchaser that all negotiations relative to this Agreement have been
carried on by them directly without the intervention of any person who may
be entitled to any brokerage or finder's fee or other commission in respect
of this Agreement or the consummation of the transactions contemplated
hereby, and Seller and the Managing Members jointly and severally agree to
indemnify and hold harmless Purchaser against any and all claims, losses,
liabilities and expenses which may be asserted against or incurred by it as
a result of Seller's or any of the Managing Members' dealings, arrangements
or agreements with any such person.
(b) Purchaser represents and warrants that all negotiations relative
to this Agreement have been carried on by it directly without the
intervention of any person who may be entitled to any brokerage or finder's
fee or other commission in respect of this Agreement or the consummation of
the transactions contemplated hereby, and Purchaser agrees to indemnify and
hold harmless Seller and the Managing Members against any and all claims,
losses, liabilities and expenses which may be asserted against or incurred
by them as a result of Purchaser's dealings, arrangements or agreements
with any such person.
8.3 Sales, Transfer and Documentary Taxes, etc. Seller shall pay all
------------------------------------------
federal, state and local sales, documentary and other transfer taxes, if any,
due as a result of the purchase, sale or transfer of the Assets in accordance
herewith whether imposed by law on Seller or Purchaser and
38
<PAGE>
Seller shall indemnify, reimburse and hold harmless Purchaser in respect of the
liability for payment of or failure to pay any such taxes or the filing of or
failure to file any reports required in connection therewith.
8.4 Expenses. Except as otherwise provided in this Agreement, each party
--------
hereto shall pay its own expenses incidental to the preparation of this
Agreement, the carrying out of the provisions of this Agreement and the
consummation of the transactions contemplated hereby.
8.5 Contents of Agreement; Amendments. This Agreement sets forth the
---------------------------------
entire understanding of the parties hereto with respect to the transactions
contemplated hereby. Any and all previous agreements and understandings between
or among the parties regarding the subject matter hereof, whether written or
oral, are superseded by this Agreement. This Agreement shall not be amended or
modified except by written instrument duly executed by each of the parties
hereto.
8.6 Assignment and Binding Effect. This Agreement may not be assigned
-----------------------------
prior to the Closing by any party hereto without the prior written consent of
the other parties, provided that Purchaser may assign this Agreement to an
Affiliate of Purchaser without obtaining such consent, provided further that no
such assignment shall relieve Purchaser or Parent of its obligations hereunder.
Subject to the foregoing, all of the terms and provisions of this Agreement
shall be binding upon and inure to the benefit of and be enforceable by the
successors and assigns of the Managing Members, Seller and Purchaser, provided
that the parties hereto shall continue to be obligated in accordance with the
terms of this Agreement.
8.7 Waiver. Any term or provision of this Agreement may be waived at any
------
time by the party entitled to the benefit thereof by a written instrument duly
executed by such party.
8.8 Notices. All notices required or permitted to be given hereunder
-------
shall be in writing and may be delivered by hand, by facsimile, by nationally
recognized private courier, or by United States mail. Notices delivered by mail
shall be deemed given three (3) business days after being deposited in the
United States mail, postage prepaid, registered or certified mail. Notices
delivered by hand, by facsimile, or by nationally recognized private carrier
shall be deemed given on the first business day following receipt; provided,
however, that a notice delivered by facsimile shall only be effective if such
notice is also delivered by hand, or deposited in the United States mail,
postage prepaid, registered or certified mail, on or before two (2) business
days after its delivery by facsimile. All notices shall be addressed as
follows:
(a) As to Seller and
the Managing Members: c/o Marc Packer
1370 Avenue of the Americas
New York, New York 10019
Attn: Marc Packer
Fax: (212) 399-3160
39
<PAGE>
and
Richard Wolf
161 Remsen Street
Brooklyn, New York 11201
with a copy to: Duane, Morris & Heckscher LLP
380 Lexington Avenue
New York, New York 10168
Attn: Stewart J. Stern
Fax: (212) 692-1020
(b) As to Purchaser: Chart House Acquisition, Inc.
640 N. LaSalle, Suite 295
Chicago, Illinois 60610
Attn: Thomas J. Walters
Fax: (312) 649-6940
with a copy to: Seyfarth, Shaw, Fairweather & Geraldson
55 East Monroe Street
Suite 4200
Chicago, Illinois 60603
Attn: Robert F. Weber
Fax: (312) 269-8869
or to such other address and to the attention of such other person as the party
to whom such notice is to be given may have theretofore designated in a notice
to the other party hereto.
8.9 Governing Law. This Agreement shall be governed by and interpreted
-------------
and enforced in accordance with the internal laws of the State of New York.
8.10 No Benefit to Others. The representations, warranties, covenants and
--------------------
agreements contained in this Agreement are for the sole benefit of the parties
hereto and, in the case of Article VI hereof, the other Indemnitees, and their
heirs, executors, administrators, legal representatives, successors and assigns,
and they shall not be construed as conferring any rights on any other persons.
8.11 Headings, Gender and "Person". All section headings contained in
-----------------------------
this Agreement are for convenience of reference only, do not form a part of this
Agreement and shall not affect in any way the meaning or interpretation of this
Agreement. Words used herein, regardless of the number and gender specifically
used, shall be deemed and construed to include any other number, singular or
plural, and any other gender, masculine, feminine, or neuter, as the context
requires. Any reference to a "person" herein shall include an individual, firm,
40
<PAGE>
corporation, partnership, trust, governmental authority or body, association,
unincorporated organization or any other entity.
8.12 Schedules and Exhibits. All schedules and exhibits referred to
----------------------
herein are intended to be and hereby are specifically made a part of this
Agreement.
8.13 Severability. Any provision of this Agreement which is invalid or
------------
unenforceable in any jurisdiction shall be ineffective to the extent of such
invalidity or unenforceability, and any such invalidity or unenforceability
shall not invalidate or render unenforceable the remaining provisions hereof,
and any such invalidity or unenforceability in any jurisdiction shall not
invalidate or render unenforceable such provision in any other jurisdiction.
8.14 Counterparts; Facsimile Signatures. This Agreement may be executed
----------------------------------
in any number of counterparts and any party hereto may execute any such
counterpart, each of which when executed and delivered shall be deemed to be an
original and all of which counterparts taken together shall constitute but one
and the same instrument. This Agreement shall become binding when one or more
counterparts taken together shall have been executed and delivered by the
parties. It shall not be necessary in making proof of this Agreement or any
counterpart hereof to produce or account for any of the other counterparts. The
parties hereto agree that facsimile transmission of original signatures shall
constitute and be accepted as original signatures.
8.15 Managing Member Guarantee. The Managing Members hereby jointly and
-------------------------
severally unconditionally guarantee to Purchaser and its Affiliates the full and
timely performance of all of the obligations and agreements of Seller in
accordance with the terms hereof. The foregoing guarantee shall include the
guarantee of the payment of all damages, costs and expenses which might become
recoverable as a result of the nonperformance of any of the obligations or
agreements so guaranteed or as a result of the nonperformance of this guarantee.
Any of Purchaser or its Affiliates may, at its option, proceed against any one
or more of the Managing Members for the performance of any such obligation or
agreement, or for damages for default in the performance thereof, without first
proceeding against any other party or against any of its properties. The
Managing Members further agree that their guarantee shall be an irrevocable
guarantee and shall continue in effect notwithstanding any extension or
modification of any guaranteed obligation, any assumption of any such guaranteed
obligation by any other party, or any other act or thing which might otherwise
operate as a legal or equitable discharge of a guarantor and the Managing
Members hereby waive all special suretyship defenses and notice requirements.
8.16 Parent Guarantee. Parent hereby jointly and severally
----------------
unconditionally guarantees to Seller and the Managing Members the full and
timely performance of all of the obligations and agreements of Purchaser in
accordance with the terms hereof. The foregoing guarantee shall include the
guarantee of the payment of all damages, costs and expenses which might become
recoverable as a result of the nonperformance of any of the obligations or
agreements so guaranteed or as a result of the nonperformance of this guarantee.
Any of Seller or the Managing
41
<PAGE>
Members may, at its option, proceed against Parent for the performance of any
such obligation or agreement, or for damages for default in the performance
thereof, without first proceeding against Purchaser or against any of its
properties. Parent further agrees that its guarantee shall be an irrevocable
guarantee and shall continue in effect notwithstanding any extension or
modification of any guaranteed obligation, any assumption of any such guaranteed
obligation by any other party, or any other act or thing which might otherwise
operate as a legal or equitable discharge of a guarantor and Parent hereby
waives all special suretyship defenses and notice requirements.
8.17 No Strict Construction. The language used in this Agreement shall be
----------------------
deemed to be the language chosen by the parties hereto to express their mutual
intent and agreement, and no rule of strict construction shall be applied
against any party.
8.18 Jurisdiction and Service of Process. SELLER, THE MANAGING MEMBERS,
-----------------------------------
PARENT AND PURCHASER HEREBY CONSENT TO THE JURISDICTION OF ANY STATE OR FEDERAL
COURT LOCATED WITHIN NEW YORK, NEW YORK AND IRREVOCABLY AGREE THAT, SUBJECT TO
THE OTHER PROVISIONS OF THIS AGREEMENT, ALL ACTIONS OR PROCEEDINGS ARISING OUT
OF OR RELATING TO THIS AGREEMENT WHICH MAY BE LITIGATED SHALL BE LITIGATED IN
SUCH COURTS. EACH OF SELLER, THE MANAGING MEMBERS, PARENT AND PURCHASER ACCEPTS
FOR SUCH PARTY AND IN CONNECTION WITH SUCH PARTY'S PROPERTIES, GENERALLY AND
UNCONDITIONALLY, THE NONEXCLUSIVE JURISDICTION OF THE AFORESAID COURTS AND
WAIVES ANY DEFENSE OF FORUM NON CONVENIENS, AND IRREVOCABLY AGREES TO BE BOUND
BY ANY JUDGMENT RENDERED THEREBY IN CONNECTION WITH THIS AGREEMENT.
8.19 Trial. EACH OF SELLER, THE MANAGING MEMBERS, PARENT AND PURCHASER
-----
HEREBY WAIVES SUCH PARTY'S RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF
ACTION BASED UPON OR ARISING OUT OF THIS AGREEMENT OR ANY DEALINGS BETWEEN THE
PARTIES HERETO RELATING TO THE SUBJECT MATTER HEREOF. EACH OF SELLER, THE
MANAGING MEMBERS, PARENT AND PURCHASER ALSO WAIVES ANY BOND OR SURETY OR
SECURITY UPON SUCH BOND WHICH MIGHT, BUT FOR THIS WAIVER, BE REQUIRED OF ANY
PARTY TO THIS AGREEMENT. THE SCOPE OF THIS WAIVER IS INTENDED TO BE ALL-
ENCOMPASSING OF ANY AND ALL DISPUTES THAT MAY BE FILED IN ANY COURT AND THAT
RELATE TO THE SUBJECT MATTER OF THIS TRANSACTION, INCLUDING WITHOUT LIMITATION,
CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW
AND STATUTORY CLAIMS. EACH OF SELLER, THE MANAGING MEMBERS, PARENT AND PURCHASER
ACKNOWLEDGES THAT THIS WAIVER IS A MATERIAL INDUCEMENT TO ENTER INTO A BUSINESS
RELATIONSHIP, THAT EACH HAS ALREADY RELIED ON THE WAIVER IN ENTERING INTO THIS
AGREEMENT AND THAT EACH WILL CONTINUE
42
<PAGE>
TO RELY ON THE WAIVER IN THEIR RELATED FUTURE DEALINGS. EACH OF SELLER, THE
MANAGING MEMBERS, PARENT AND PURCHASER FURTHER WARRANTS AND REPRESENTS THAT SUCH
PARTY HAS REVIEWED THIS WAIVER WITH SUCH PARTY'S LEGAL COUNSEL, AND THAT SUCH
PARTY KNOWINGLY AND VOLUNTARILY WAIVES SUCH PARTY'S JURY TRIAL RIGHTS FOLLOWING
CONSULTATION WITH LEGAL COUNSEL. THIS WAIVER IS IRREVOCABLE, MEANING THAT IT MAY
NOT BE MODIFIED EITHER ORALLY OR IN WRITING, AND THE WAIVER SHALL APPLY TO ANY
SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT.
IN THE EVENT OF LITIGATION, THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO
A TRIAL BY THE COURT.
8.20 Knowledge. As used in this Agreement, "knowledge" of Seller, to
---------
Seller's knowledge, or words of similar import shall mean the actual knowledge
as of the applicable date, after reasonable inquiry, of those persons listed in
Schedule 8.20(a). As used in this Agreement, "knowledge" of Purchaser or
Parent, to Purchaser's or Parent's knowledge, or words of similar import shall
mean the actual knowledge as of the applicable date, after reasonable inquiry,
of those persons listed in Schedule 8.20(b).
43
<PAGE>
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of
the day and year first above written.
CHART HOUSE ACQUISITION, INC.
By: /s/ Thomas J. Walters
-------------------------------------
Name: Thomas J. Walters
Title: President and CEO
DIAMOND JIM'S STEAK HOUSE, L.L.C.
By: /s/ Howard Levine
-------------------------------------
Name: Howard Levine
Title: Managing Member
By: /s/ Marc Packer
-------------------------------------
Name: Marc Packer
Title: Managing Member
By: /s/ Richard Wolf
-------------------------------------
Name: Richard Wolf
Title: Managing Member
MANAGING MEMBERS:
/s/ Howard Levine
-----------------------------------------
Howard Levine
/s/ Richard Wolf
-----------------------------------------
Richard Wolf
/s/ Marc Packer
-----------------------------------------
Marc Packer
CHART HOUSE ENTERPRISES, INC.
By: /s/ Thomas J. Walters
-------------------------------------
Name: Thomas J. Walters
Title: President and CEO
44
<PAGE>
EXHIBIT 10.2
FIRST AMENDMENT TO SECOND
AMENDED AND RESTATED CREDIT AGREEMENT
THIS FIRST AMENDMENT TO SECOND AMENDED AND RESTATED CREDIT AGREEMENT
(the "First Amendment") is made and dated as of the 28th day of December, 1998
by and among CHART HOUSE, INC. (the "Company"), CHART HOUSE ENTERPRISES, INC.
(the "Parent"), BIG WAVE, INC., formerly known as Islands Restaurants, Inc.
("Big Wave") (the Parent and Big Wave being sometimes referred to, collectively
and severally, as the "Guarantors"), BANKBOSTON, N.A., formerly known as the
First National Bank of Boston ("BankBoston"), CALIFORNIA BANK & TRUST, formerly
known as the Sumitomo Bank of California ("CB&T") (BankBoston and CB&T acting in
their capacities as "Banks" under the Credit Agreement described more
particularly below being referred to herein, collectively and severally, as the
"Banks"), BANKBOSTON, acting in its capacity as Agent and CB&T acting in its
capacity as Security Agent with respect to the credit facility evidenced by the
Credit Agreement described more particularly below (in such capacities, the
"Agent" and the "Security Agent," respectively).
RECITALS
A. Pursuant to that certain Second Amended and Restated Revolving
Credit Agreement dated as of June 27, 1997 by and among the Company, the
Guarantors, the Banks party thereto, BankBoston as the "Agent" thereunder and
CB&T as the Security Agent thereunder (as amended from time to time, the "Credit
Agreement," and with capitalized terms not otherwise defined herein used with
the meanings given such terms in the Credit Agreement) the Banks agreed to
extend credit to the Company on the terms and subject to the conditions set
forth therein.
B. CB&T has indicated that it desires to withdraw as a Bank under the
Credit Agreement. The parties have agreed, among other things, to permit CB&T to
withdraw as a Bank from the Credit Agreement and to amend the Credit Agreement
in certain respects, all as set forth more particularly below.
NOW, THEREFORE, in consideration of the above Recitals and for
other good and valuable consideration the receipt and adequacy of which are
hereby acknowledged, the parties hereto hereby agree as follows:
AGREEMENT
1. Withdrawal of CB&T as a Bank. The parties hereto agree that,
----------------------------
effective as of the First Amendment Effective Date (as such term is defined in
Paragraph 11 below), CB&T shall be permitted to, and shall, withdraw as a Bank
under the Credit Agreement and BankBoston, as the sole Bank under the Credit
Agreement upon the occurrence of the First Amendment Effective Date, shall on
the First Amendment Effective Date purchase and take from CB&T all outstanding
Obligations held by CB&T
<PAGE>
on such date such that CB&T shall have been paid in full. The Credit Agreement
and each of the other Loan Documents are hereby amended, effective as of the
First Amendment Effective Date, mutatis mutandis as appropriate to reflect the
------- --------
fact that CB&T is no longer a Bank thereunder and that BankBoston's Percentage
Share thereunder is one hundred percent (100%).
2. Return of Promissory Note. CB&T hereby agrees that on the First
-------------------------
Amendment Effective Date, it shall return that certain Replacement Note dated as
of June 27, 1997 and executed by the Company in favor of CB&T in connection with
the Credit Agreement (the "CB&T Replacement Note") to the Agent marked "Paid in
Full" on its face.
3. Continuance of CB&T as Security Agent. Notwithstanding the fact
-------------------------------------
that, effective as of the First Amendment Effective Date CB&T will no longer be
a Bank under the Credit Agreement, CB&T hereby agrees that it shall continue to
act as Security Agent under the Credit Agreement until notified in writing by
the Agent that it has been replaced by a successor Security Agent. CB&T further
agrees that, following the First Amendment Effective Date, it will take no
action in its capacity as Security Agent except at the written direction of the
Agent.
4. Continuing Protection of CB&T. Notwithstanding the occurrence of the
-----------------------------
First Amendment Effective Date, CB&T shall, following the First Amendment
Effective Date, continue to be entitled to all protections which the Credit
Agreement would accord a withdrawing Bank thereunder to the same extent as it
would have been entitled thereto if it had not withdrawn as a Bank thereunder.
5. Reduction of Commitment. To reflect the agreement of the parties to
-----------------------
reduce the Revolving Loan Credit Limit under the Credit Agreement, the parties
hereto hereby agree that, effective as of the First Amendment Effective Date,
the definition of the term "Revolving Loan Credit Limit" set forth in Paragraph
14 of the Credit Agreement is hereby amended to read in its entirety as follows:
"Revolving Loan Credit Limit" shall mean $15,000,000.00, as
---------------------------
such amount may be increased or decreased by written agreement of the
Agent, the Company and one hunder percent (100%) of the Banks."
6. Amendment of Interest Rates. To reflect the agreement of the parties
---------------------------
to amend the interest rates applicable to Revolving Loans made pursuant to the
Credit Agreement, effective as of the First Amendment Effective Date, the
parties hereto hereby agree as follows:
(a) Paragraph 1(c) of the Credit Agreement is hereby
amended to read in its entirety as follows:
"1(c) Calculation of Interest. The
-----------------------
Company shall pay interest on Revolving Loans outstanding hereunder
from the date disbursed to but not
2
<PAGE>
including the date of payment, at a rate per annum equal to, at the
option of and as selected by the Company from time to time (subject to
the provisions of Paragraphs 3(b), 3(c) and 3(d) below): (1) the daily
--------------- ---- ----
average Alternate Base Rate in effect during the applicable computation
period plus the Applicable Margin, and (2) the Applicable Eurodollar
Rate for the applicable Interest Period, said interest to be payable as
provided in Paragraph 3(a) below."
--------------
(b) The definition of the term "Applicable Eurodollar Spread"
----------------------------
set forth in Paragraph 14 of the Credit Agreement is hereby amended in its
entirety to read as follows:
"'Applicable Eurodollar Spread' shall mean with
----------------------------
respect to any Eurodollar Loan for the Interest Period applicable to
such Eurodollar Loan: (a) from the Effective Date to but not including
the date upon which the Compliance Certificate showing the calculation
of the Leverage Ratio for the fiscal quarter ending December 31, 1998
has been provided to the Agent and the Banks as required pursuant to
Paragraph 9(a)(3) above, 1.50% and (b) thereafter, that percentage
-----------------
determined in accordance with the following table:
Leverage Ratio Applicable Eurodollar Spread
-------------- ----------------------------
Less than 1.50:1.00 1.25%
Greater than or Equal to 1.50%
1.50:1.00 but Less
than 2.00:1.00
Greater than or Equal to 1.75%
2.00:1.00"
(c) Paragraph 14 of the Credit Agreement is hereby amended to
add, in correct alphabetical order, a new definition of the term "Applicable
Margin" as follows:
"'Applicable Margin' shall mean with respect to any
-----------------
Alternate Base Rate Loan, that percentage determined in accordance with
the following table:
Leverage Ratio Applicable Margin
-------------- -----------------
Less than 1.50:1.00 0.00%
Greater than or Equal to 0.25%
1.50:1.00 but Less than
2.00:1.00
Greater than or Equal to 0.50%
3
<PAGE>
2.00:1.00"
7. Expansion of Use of Proceeds. To reflect the agreement of the
parties to permit the Company to use the proceeds of Loans made under the Credit
Agreement for an additional purpose, effective as of the First Amendment
Effective Date, the parties hereto hereby agree that Paragraph 1(d) of the
Credit Agreement is hereby amended to insert the phrase ", including stock
repurchases" immediately prior to the period appearing at the end of that
Paragraph.
8. Amendment of Financial Covenants. To reflect the agreement of the
parties to amend certain of the financial covenants set forth in Paragraph 10 of
the Credit Agreement and to add certain new financial covenants thereto,
effective as of the First Amendment Effective Date, the parties hereto hereby
agree as follows:
(a) The Coverage Ration test set forth in Paragraph 10(l) of
the Credit Agreement is hereby amended to read in its entirety as follows:
"10(l) Coverage Ratio Test. Permit as of the last day
of any fiscal quarter the ration of (l) EBITDA of the Parent and its
consolidated Subsidiaries during such fiscal quarter and the
immediately preceding three fiscal quarters, less cash taxes paid (net
of refunds) and Maintenance Capital Expenditures, to (2) Interest
Expense and Required Principal Payments of Debt during such fiscal
quarter and the immediately preceding three fiscal quarters to be less
than 1.25:1:00."
(b) Paragraph 14 of the Credit Agreement is hereby amended to
add, in correct alphabetical order, a new definition of the term "Maintenance
Capital Expenditures" as follows:
"'Maintenance Capital Expenditures' shall mean
Capital Expenditures made in the ordinary course of the Company's
business with respect to existing Properties but excluding, in any
event, Capital Expenditures made in connection with restaurant
conversions and upgrades."
(c) Paragraph 10(m) of the Credit Agreement is hereby deleted
in its entirety and replaced with the following new financial covenant:
"10(m) Interest Coverage Ration Test. Permit as of
the last day of any fiscal quarter the ration of: (1) EBITDA of the
Parent and its consolidated Subsidiaries during such fiscal quarter and
the immediately preceding three fiscal quarters to (2) Interest Expense
to be less than 6.00:1.00."
(d) A new Paragraph 10(o) is hereby added to the Credit
Agreement as follows:
4
<PAGE>
"10(o) Capital Expenditures. Permit as of
--------------------
the last day of any fiscal year Capital Expenditures for such fiscal
year to exceed $16,000,000.00."
9. Reaffirmation of Loan Documents. Each of the company and each of the
-------------------------------
Guarantors hereby affirms and agrees that (a) the execution and delivery by such
Persons of, and the performance of their respective obligations under, this
First Amendment shall not in any way amend, impair, invalidate or otherwise
affect any of such Person's obligations or the rights, remedies and powers of
the Agent and the Banks under the Loan Documents, including, without limitation,
the Security Documents, as the same are amended hereby, and (b) all Loan
Documents remain in full force and effect.
10. Representations and Warranties. Each of the Company, the Parent and
------------------------------
Big Wave hereby, severally and independently as to itself only, represents and
warrants that at the date hereof and at and as of the First Amendment Effective
Date:
(a) Except to the extent such were by their terms made solely
as of a prior date, the representations and warranties of such Person contained
in the Loan Documents are accurate and complete in all material respects.
(b) The execution and delivery by such Person of this First
Amendment and the performance by such Person of its obligations hereunder are
within the corporate power of such Person, have been (or as of the First
Amendment Effective Date will be) duly authorized by all necessary corporate
action and do not and will not (1) contravene any provision of such Person's
charter, other incorporation papers, by-laws or any stock provisions, or any
amendment thereof, (2) conflict with, or result in a breach of any material
term, condition or provision of, or constitute a default under or result in the
creation of any mortgage, lien, pledge, charge, security interest or other
encumbrance upon any of the property of any of such parties under any agreement,
deed of trust, indenture, mortgage or other instrument to such Person is a party
or by which any of its properties are bound, (3) violate or contravene any
provision of any law, regulation, order, ruling or interpretation thereunder or
any decree, order or judgment of any court or governmental or regulatory
authority, bureau, agency or official, (4) require any waiver, consent or
approval of any Person other than such as have been obtained and copies of which
have been provided to the Agent and the Security Agent, or (5) require any
approval, consent, order, authorization or license by, or giving notice to, or
taking any other action with respect to, any governmental or regulatory
authority or agency under any provision of law, except those actions which have
been taken or will be taken prior to the First Amendment Effective Date.
(c) This First Amendment constitutes the legal, valid and
binding obligations of such Person enforceable against such Person in accordance
with their respective terms.
(d) No Default or Event of Default has occurred and is
continuing or will occur as a result of (1) the execution and delivery of this
First Amendment, or (2) the consummation of the transactions contemplated
hereby.
5
<PAGE>
11. Effective Date. This First Amendment shall be effective upon the
date (the "First Amendment Effective Date") upon which there shall have been
delivered to the Agent, in form and substance satisfactory to the Agent, each of
the following:
(a) The CB&T Replacement Note;
(b) A copy or counterpart copies of this First Amendment, duly
executed by each of the parties hereto; and
(c) An amendment fee in the amount of $43,750.00, to be paid
by the Company to the Agent upon execution of this First Amendment.
Following the Effective Date, but in no event later than January 20,
1999, the Company and each of the Guarantors will provide to the Agent certified
copies of such corporate resolutions and authorizations confirming the
representations and warranties set forth in Paragraph 10(b) herein as the Agent
may reasonably request.
12. Survival. The representations and warranties, covenants and
agreements of the Company, the Parent and Big Wave set forth herein shall
survive the First Amendment Effective Date.
13. Captions. Paragraph or other headings contained in this First
Amendment are for reference purposes only and shall not affect in any way the
meaning or interpretation of this First Amendment.
14. Governing Law. This First Amendment shall be governed by and
construed in accordance with the laws of the State of California.
15. Expenses. The Company shall pay upon demand all costs and expenses,
including, without limitation, legal fees of Morrison & Foerster, LLP, special
counsel to the Agent, in connection with the transactions contemplated hereby as
are required to be paid by the Company pursuant to Section 9(g) of the Credit
Agreement.
16. Counterparts. This First Amendment may be executed in counterparts
and such counterparts shall, when taken together, constitute one and the same
agreement.
6
<PAGE>
EXECUTED as of the day and year first above written.
The Company:
CHART HOUSE, INC.
By: /s/ Cynthia T. Quigley
Name: Cynthia T. Quigley
Title: Vice President & Treasurer
The Guarantors:
CHART HOUSE ENTERPRISES, INC.
By: /s/ Cynthia T. Quigley
Name: Cynthia T. Quigley
Title: Chief Financial Officer
BIG WAVE, INC.
By: /s/ Cynthia T. Quigley
Name: Cynthia T. Quigley
Title: Vice President & Treasurer
The Agent:
BANKBOSTON, N.A.
By: /s/ Debra Zurka
Name: Debra Zurka
Title: Director
7
<PAGE>
The Security Agent
CALIFORNIA BANK & TRUST
By:
Name:
Title:
8
<PAGE>
EXHIBIT 10.3
SECOND AMENDMENT TO SECOND
AMENDED AND RESTATED CREDIT AGREEMENT
THIS SECOND AMENDMENT TO SECOND AMENDED AND RESTATED CREDIT AGREEMENT
(the "Second Amendment") is made and dated as of the 28th day of December, 1998
by and among CHART HOUSE, INC. (the "Company"), CHART HOUSE ENTERPRISES, INC.
(the "Parent"), BIG WAVE, INC., formerly known as Islands Restaurants, Inc.
("Big Wave") (the Parent and Big Wave being sometimes referred to, collectively
and severally, as the "Guarantors"), BANKBOSTON, N.A., formerly known as The
First National Bank of Boston ("BankBoston") (BankBoston acting in its capacity
as a "Bank" under the Credit Agreement described more particularly below being
referred to herein, as the "Bank") and BANKBOSTON, acting in its capacity as
Agent and CALIFORNIA BANK & TRUST, formerly known as the Sumitomo Bank of
California ("CB&T) (CB&T acting in its capacity as Security Agent with respect
to the credit facility evidenced by the Credit Agreement described more
particularly below) (in each case, the "Agent" and the "Security Agent,"
respectively).
RECITALS
A. Pursuant to that certain Second Amended and Restated Revolving
Credit Agreement dated as of June 27, 1997 by and among the Company, the
Guarantors, the Banks party thereto, BankBoston as the "Agent" thereunder and
CB&T as the Security Agent thereunder (as amended to date, the "Credit
Agreement," and with capitalized terms not otherwise defined herein used with
the meanings given such terms in the Credit Agreement) the Banks agreed to
extend credit to the Company on the terms and subject to the conditions set
forth therein.
B. The parties have agreed to amend the Credit Agreement in certain
respects as set forth more particularly below.
NOW, THEREFORE, in consideration of the above Recitals and for other
good and valuable consideration the receipt and adequacy of which are hereby
acknowledged, the parties hereto hereby agree as follows:
AGREEMENT
1. Increase in Commitment. To reflect the agreement of the parties to
----------------------
increase the Revolving Loan Credit Limit under the Credit Agreement, the parties
HERETO hereby agree that, effective as of the Second Amendment Effective Date,
the definition of the term "Revolving Loan Credit Limit" set forth in Paragraph
14 of the Credit Agreement is hereby amended to read in its entirety as follows:
"Revolving Loan Credit Limit" shall mean $20,000,000.00, as
---------------------------
such amount may be increased or decreased by written agreement of the
Agent, the
<PAGE>
Company and one hundred percent (100%) of the Banks."
2. Modification of Pricing. To reflect the agreement of the parties to
-----------------------
modify the pricing provisions applicable to Revolving Loans made pursuant to the
Credit Agreement, effective as of the Second Amendment Effective Date, the
parties hereto hereby agree as follows:
(a) The defintion of the "Applicable Eurodollar Spread" set
forth in Paragraph 14 of the Credit Agreement is hereby amended in its entirety
to read as follows:
"'Applicable Eurodollar Spread" shall mean with respect to any
----------------------------
Eurodollar Loan for the Interest Paid applicable to such Eurodollar
Loan: (a) from the Effective Date to but not including the date upon
which the Compliance Certificate showing the calculation of the
Leverage Ratio for the fiscal quarter ending June 30, 1999 has been
provided to the Agent and the Banks as required pursuant to Paragraph
---------
9(a)(3) above, 1.75%, and (b) thereafter, that percentage determined in
-------
accordance with the following table:
Leverage Ratio Applicable Eurodollar Spread
-------------- ----------------------------
Less than 1.00:1.00 1.25%
Greater than or Equal to 1.50%
1.00:1.00 but Less
than 1.50:1.00
Greater than or Equal to 1.75%
1.50:1.00 but Less than
or Equal to 1.75:1.00
Greater than or Equal to 2.00%
1.75:1.00 but less than
or Equal to 2.00:1.00"
(b) The definition of the term "Applicable Margin" as set
forth in Paragraph 14 of the Credit Agreement is hereby amended to read in its
entirety as follows:
"'Applicable Margin' shall mean with respect to any
-----------------
Alternate Base Rate Loan, that percentage determined in accordance
with the following table:
Leverage Ratio Applicable Margin
-------------- -----------------
Less than 1.00:1.00 0.00%
2
<PAGE>
Greater than or Equal to 0.25%
1.00:1.00 but Less than
1.50:1.00
Greater than or Equal to 0.50%
1.50:1.00 but Less than
1.75:1.00
Greater than or Equal to 0.75%
1.75:1.00 but Less than
or Equal to 2.00:1.00"
3. Limitation of Use of Proceeds. To reflect the agreement of the
parties to limit the aggregate amount of stock that the Company may repurchase
with the proceeds of Loans made pursuant to the Credit Agreement, effective as
of the Second Amendment Effective Date, the parties hereto hereby agree that
Paragraph 1 (d) of the Credit Agreement is hereby amended to read in its
entirety as follows:
"1(d) Use of Proceeds. The proceeds of each Revolving Loan
shall be used for working capital and general corporate purposes,
including stock repurchases of up to $1,000,000.00 in the aggregate
during the period from December 28, 1998 to the Revolving Loan Maturity
Date (as the same may be extended from time to time)."
4. Amendment of Financial Covenant. To reflect the agreement of the
parties to reduce the maximum Leverage Ratio that the Company is permitted to
maintain, effective as of the Second Amendment Effective Date, the parties
hereto hereby agree as follows:
(a) The Leverage Ratio test set forth in Paragraph 10(k) of
the Credit Agreement is hereby amended to read in its entirety as follows:
"10(k) Leverage Ratio Test. Permit as of the last day of any
fiscal quarter the Parent's consolidated ratio of (1) Total Funded Debt
to (2) EBITDA of the Parent and its consolidated Subsidiaries during
such fiscal quarter and the immediately preceding three fiscal quarters
to be greater than 2.00:1.00; provided, however, that for the purpose
of calculating the Company's compliance herewith on the last day of the
calendar quarters ending March 31, 1999 and June 30, 1999, Total Funded
Indebtedness shall not include the maximum aggregate contingent
obligation under the Note Guaranties."
(b) Paragraph 14 of the Credit Agreement is hereby amended to
add, in correct alphabetical order, the following new definition:
"'Note Guaranties' shall mean those certain guaranties
described on Schedule 3 attached hereto."
3
<PAGE>
(c) The schedule attached hereto as Amendment Schedule 3 is
--------------------
hereby incorporated by this reference into the Credit Agreement as Schedule 3
----------
thereto.
5. Reaffirmation of Loan Documents. Each of the Company and each of the
-------------------------------
Guarantors hereby affirms and agrees that (a) the execution and delivery by such
Persons of, and the performance of their respective obligations under, this
Second Amendment shall not in any way amend, impair, invalidate or otherwise
affect any of such Person's obligations or the rights, remedies and powers of
the Agent and the Bank under the Loan Documents, including, without limitation,
the Security Documents, as the same are amended hereby, and (b) all Loan
Documents remain in full force and effect.
6. Representations and Warranties. Each of the Company, the Parent and
------------------------------
Big Wave hereby, severally and independently as to itself only, represents and
warrants that at the date hereof and at and as of the Second Amendment Effective
Date:
(a) Except to the extent such were by their terms made solely
as of a prior date, the representations and warranties of such Person contained
in the Loan Documents are accurate and complete in all material respects.
(b) The execution and delivery by such Person of this Second
Amendment and the performance by such Person of its obligations hereunder are
within the corporate power of such Person, have been (or as of the Second
Amendment Effective Date will be) duly authorized by all necessary corporate
action and do not and will not (1) contravene any provision of such Person's
charter, other incorporation papers, by-laws or any stock provisions, or any
amendment thereof, (2) conflict with, or result in a breach of any material
term, condition or provision of, or constitute a default under or result in the
creation of any mortgage, lien, pledge, charge, security interest or other
encumbrance upon any of the property of any of such parties under any agreement,
deed of trust, indenture, mortgage or other instrument to such Person is a party
or by which any of its properties are bound, (3) violate or contravene any
provision of any law, regulation, order, ruling or interpretation thereunder or
any decree, order or judgment of any court or governmental or regulatory
authority, bureau, agency or official, (4) require any waiver, consent or
approval of any Person other than such as have been obtained and copies of which
have been provided to the Agent and the Security Agent, or (5) require any
approval, consent, order, authorization or license by, or giving notice to, or
taking any other action with respect to, any governmental or regulatory
authority or agency under any provision of law, except those actions which have
been taken or will be taken prior to the Second Amendment Effective Date.
(c) This Second Amendment constitutes the legal, valid and
binding obligations of such Person enforceable against such Person in accordance
with its terms.
(d) No Default or Event of Default has occurred and is
continuing or will occur as a result of (1) the execution and delivery of this
Second Amendment, or (2) the consummation of the transactions contemplated
hereby.
7. Effective Date. This Second Amendment shall be effective,
--------------
retroactive to
4
<PAGE>
the date first above written, on the earliest date (the "Second Amendment
Effective Date") upon which there shall have been delivered to the Agent, in
form and substance satisfactory to the Agent, each of the following:
(a) A copy or counterpart copies of this Second
Amendment, duly executed by each of the parties hereto;
(b) Those fees required to be paid to the Agent pursuant to
that certain Agent's Fee Letter dated of even date herewith from the
Company to the Agent; and
(c) From the company and each of the Guarantors, certified
copies of such corporate resolutions, authorizations and incumbency
certificates as the Agent may reasonably request.
8. Survival. The representations and warranties, covenants and
--------
agreements of the Company, the Parent and Big Wave set forth herein shall
survive the Second Amendment Effective Date.
9. Captions. Paragraph or other headings contained in this Second
--------
Amendment are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Second Amendment.
10. Governing Law. This Second Amendment shall be governed by and
-------------
construed in accordance with the laws of the State of California without giving
effect to its choice of law rules.
11. Expenses. The Company shall pay upon demand all costs and expenses,
--------
including, without limitation, legal fees of Morrison & Foerster, LLP, special
counsel to the Agent, in connection with the transactions contemplated hereby as
are required to be paid by the Company pursuant to Section 9(g) of the Credit
Agreement.
12. Counterparts. This Second Amendment may be executed in counterparts
------------
and such counterparts shall, when taken together, constitute one and the same
agreement.
5
<PAGE>
EXECUTED as of the day and year first above written.
The Company:
------------
CHART HOUSE, INC.
By: ______________________________
Name: ____________________________
Title: _____________________________
The Guarantors:
---------------
CHART HOUSE ENTERPRISES, INC.
By: ______________________________
Name: ____________________________
Title: _____________________________
BIG WAVE, INC.
By: ______________________________
Name: ____________________________
Title: _____________________________
The Agent, and as a Bank:
-------------------------
BANKBOSTON, N.A.
By: ______________________________
Name: ____________________________
Title: _____________________________
6
<PAGE>
The Security Agent:
CALIFORNIA BANK & TRUST
By: ______________________________
Name: __David W. Shaw____________
Title: ___ Vice President_____________
7
<PAGE>
AMENDMENT SCHEDULE 3
--------------------
SCHEDULE 3
NOTE GUARANTIES
Guarantor Maximum Favored Party Date of Guaranty
- --------- Contingent Liability ------------- ----------------
as of 12/28/98
--------------------
<PAGE>
Exhibit 10.4
ASSET PURCHASE AGREEMENT
by and among
CRESTONE GROUP, LLC,
A Delaware limited liability company ("Purchaser"),
SOLANA BEACH BAKING COMPANY,
a Delaware corporation ("Seller")
and
CHART HOUSE ENTERPRISES, INC.,
a Delaware Corporation ("CHE")
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE 1 DEFINITIONS 1
ARTICLE 2 PURCHASE AND SALE 4
2.1 Agreement of Purchase and Sale 4
2.2 Purchase Price 4
2.3 Assignment of Contracts 4
2.4 Accounts Payable; Other Liabilities 5
ARTICLE 3 CONDITIONS TO CLOSING 5
3.1 Purchaser's Conditions to Closing 5
3.2 Seller's Conditions to Closing 6
3.3 Inspection 7
3.4 Delivery of Documents 7
ARTICLE 4 CLOSING 7
4.1 The Closing 7
4.2 Actions at the Closing 7
4.3 Closing Costs; Taxes; Closing Adjustments 8
4.4 Delivery 9
4.5 Pre-Closing Matters 9
ARTICLE 5 REPRESENTATIONS AND WARRANTIES 10
5.1 Representations and Warranties of Seller 10
5.2 Representations and Warranties of Purchaser 12
ARTICLE 6 AS IS/WHERE IS SALE 12
ARTICLE 7 ADDITIONAL OBLIGATIONS 13
7.1 Removal of Excluded Assets 13
7.2 Confidentiality 13
7.3 Indemnification 13
7.4 Damage or Destruction 15
7.5 Employees 15
7.6 Survival 16
7.7 Operation of Business and Assets Prior to Closing 16
7.8 Prorations 16
ARTICLE 8 TERMINATION 17
ARTICLE 9 GENERAL PROVISIONS 17
9.1 Amendment 17
9.2 Assignment 17
9.3 Captions 17
9.4 Construction 18
9.5 Counterparts 18
9.6 Entire Agreement 18
9.7 Exhibits 18
9.8 Further Assurances 18
9.9 Governing Law; Venue; Compliance with Laws 18
9.10 No Third-Party Beneficiaries 18
-i-
<PAGE>
9.11 Notices 18
9.12 Remedies 19
9.13 Severability 19
9.14 Successors 19
9.15 Time Period Computation 20
9.16 Waiver 20
9.17 Attorneys' Fees 20
9.18 Escrow 20
9.19 Bulk Sales 20
9.20 Brokers and Brokers' Commissions 20
9.21 Advisory Fees 20
LIST OF EXHIBITS:
A Inventory of Assets
B Bill of Sale
C Assignment of Contracts
D Bread Supply Agreement
E Co-Packaging Agreement
F Escrow Instructions
G Financial Statements for Period Ended December 29, 1997
and June 29, 1998
-ii-
<PAGE>
ASSET PURCHASE AGREEMENT
This ASSET PURCHASE AGREEMENT ("Agreement") is entered into as
of this 29th day of September, 1998 ("Effective Date") by and among CRESTONE
GROUP, LLC, a Delaware limited liability company ("Purchaser"), SOLANA BEACH
BAKING COMPANY, a Delaware corporation ("Seller") and CHART HOUSE ENTERPRISES,
INC., a Delaware corporation ("CHE"), with reference to the following:
R E C I T A L S :
A. Seller owns certain assets in connection with the operation
of its baking company business (the "Business").
B. Purchaser desires to purchase the Assets (as defined
herein) from Seller and Seller desires to sell those Assets to Purchaser, on the
terms and conditions set forth in this Agreement.
C. Concurrently with the closing of the transactions
contemplated by this Agreement, the parties will enter into that certain
Co-Packaging Agreement ("Co-Pack Agreement") attached as Exhibit E; and that
certain Bread Supply Agreement ("Bread Supply Agreement") attached as Exhibit D;
providing for the right of Purchaser to sell identified products and for
Purchaser to supply CHE and its Affiliates (as defined herein) with specified
products from and after the closing of the Asset purchase provided for herein.
NOW, THEREFORE, in consideration of the recitals set forth
above and the representations and agreements contained herein, and for other
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties agree as follows:
ARTICLE 1
DEFINITIONS
The definitions of capitalized terms used herein are
identified below:
1.1 "Affiliates" means, applied to any Person, any other
Person directly or indirectly controlling, controlled by, or under common
control with, that Person. For purposes of this definition, "control" as applied
to any Person means the possession, directly or indirectly, of the power to
direct or cause the direction of the management and policies of that Person,
where through the ownership of voting securities, by contract, or otherwise.
1.2 "Assets" means all assets of Seller other than Excluded
Assets, including, without limitation, the following:
-1-
<PAGE>
(a) Equipment, machinery, apparatus, appliances,
and other articles of personal property owned or leased by Seller ("Equipment");
(b) All fixtures, furniture, furnishings, and
other tenant improvements ("Tenant Improvements") located on the premises and
owned or leased by Seller;
(c) All licenses and permits issued or required
by governmental authorities having jurisdiction over the Business in connection
with the use, ownership, operation, and maintenance of the Business;
(d) Miscellaneous business assets (including all
contract rights, leases, concessions, assignable warranties, phone numbers,
prepaid license and permit fees, and other items of intangible property owned by
Seller and relating to the ownership or operation of the Business);
(e) Miscellaneous contracts identified in
Exhibit A and Exhibit C, Schedule 1, as those which Purchaser shall assume,
including all service contracts, maintenance agreements, open purchase orders
and other contracts for the provision of labor, services, materials or
supplies to or for the benefit of the Business;
(f) Names and intellectual property, including
Seller's right, title and interest to all recipes owned by Seller and listed on
Exhibit A--Inventory of assets (subject to CHE Reserved Rights (as defined
below); and to the name "Solana Beach Baking Company" and any other names,
logos, and designs used in the ownership or operation of the Business; and
including all patents, trademarks, trade names, service marks, copyrights
and licenses registered in the name of Seller or its Affiliates in connection
with the operation of the Business, but specifically excluding any Excluded
Assets; and
(g) Inventories (including supplies of all
kinds, whether used, unused or held in reserve storage for future use in
connection with the normal operation of the Business) which are on hand as of
the Closing, subject to such depletions, resupplies, substitutions and
replacements in the normal course of business which, based upon the level of
inventories over the past twelve (12) months of operation for total raw goods,
finished goods and packaging inventory represents approximately $95,000 in total
inventories.
1.3 "Assignment of Contracts" is defined in Section 2.3 and
attached hereto as Exhibit C.
1.4 "Bill of Sale" is defined in Section 2.1, and the form is
attached as Exhibit B.
1.5 "Bread Supply Agreement" is defined in Recital C and
attached as Exhibit D.
1.6 "CHE Proprietary Rights" means all right, title and
interest in all items listed on Exhibit C to the Co-Pack Agreement.
-2-
<PAGE>
1.7 "CHE Reserved Rights" means a non-exclusive, royalty free,
perpetual right and license (including a right to grand sublicenses) to use
recipes and know-how related to the production of those specific products listed
on Exhibit A to the Bread Supply Agreement and/or on Exhibit A to the Co-Pack
Agreement. CHE is retaining the CHE Reserved Rights for the purpose of meeting
CHE'S requirements.
1.8 "Closing," "Closing Date" and "Closing Deadline" are
defined in Section 4.1.
1.9 "Co-Pack Agreement" is defined in Recital C and attached
as Exhibit E.
1.10 "Covenant not to Compete" means the agreement not to
compete contained in Section 1 of the Co-Pack Agreement to be executed upon
Closing by Purchaser and CHE in the form attached hereto as Exhibit E.
1.11 "Effective Date" is set forth in the preamble to this
Agreement
1.12 "Excluded Assets" means those assets specifically
excluded from the Assets to be purchased by Purchaser pursuant to this
Agreement. The Excluded Assets specifically include, and Seller or CHE shall
retain ownership of, the following assets, either as of the Effective Date or as
of the Closing Date:
(a) All cash on hand at Closing;
(b) All accounts receivable in existence at
Closing
(c) All motor vehicle leases; and
(d) All CHE Proprietary Rights.
1.13 "Good Funds" means lawful money of the United States in
immediately available funds, delivered by wire transfer to an account designated
by Seller or CHE.
1.14 "Operating Contracts" is defined in Section 2.3.
1.15 "Person" means and includes natural persons, limited
liability companies, corporations, limited partnerships, general partnerships,
joint ventures, trusts, or other organizations or entities.
1.16 "Proprietary Information" of a party means all
information relating to such party's technology, products, operations or
business, to the extent previously, currently or subsequently disclosed to the
other party.
1.17 "Purchase Price" is defined in Section 2.2.
-3-
<PAGE>
ARTICLE 2
PURCHASE AND SALE
2.1 Agreement of Purchase and Sale. Subject to the terms and
conditions of this Agreement, Seller agrees to sell, transfer, convey, assign
and delivery the Assets to Purchaser on the Closing Date (as defined in Section
4.1), and Purchaser agrees to purchase the Assets from Seller. The sale,
transfer, conveyance, assignment and delivery of the Assets shall be made by a
Bill of Sale ("Bill of Sale") in the form attached hereto as Exhibit B and the
assignment in the form attached as Exhibit C (the "Assignment").
2.2 Purchase Price. Purchaser shall pay a purchase price for
the Assets in the total amount of EIGHT HUNDRED SIXTY-FIVE THOUSAND DOLLARS
($865,000) ("Purchase Price"). The Purchase Price shall be adjusted upward by
the amount, if any, that actual inventory at the Closing Date exceeds $95,000
or, if actual inventory is less than $95,000 at the Closing Date the Purchase
Price will be adjusted downward by the amount the inventory at the Closing Date
is less than $95,000. The Purchase Price shall be paid in cash, in the form of
Good Funds, on the Closing Date. The portion of the Purchase price which is
allocated to each item of the Assets is set forth in Exhibit A. Concurrent with
the execution of this Agreement, Purchaser has deposited a non-refundable
earnest money deposit of ONE HUNDRED FIFITY THOUSAND DOLLARS ($150,000) (the
"Nonrefundable Deposit") with Mission Valley Escrow Company (the "Escrow
Agent"). At the Closing, the Nonrefundable Deposit will be applied against the
$865,000 Purchase Price; and the Purchaser shall deposit with the Escrow Agent
within two (2) business days prior to the Closing the balance of the Purchase
Price in the sum of SEVEN HUNDRED FIFTEEN THOUSAND DOLLARS ($715,000) adjusted
upward or downward depending on whether the inventory existing at the Closing
Date is greater than $95,000 or less than $95,000, plus the sum TWENTY FIVE
THOUSAND DOLLARS ($25,000) due at the execution of the Co-Pack Agreement paid in
cash, in the form of Good Funds. Upon Escrow Agent's receipt of fully executed
copies of the New Lease, the Assignment, the Sublease and the Consent, as
defined and referred to in Section 3.1(a) below, Escrow Agent shall deliver the
Nonrefundable Deposit to Seller. If the Escrow Agent shall not have received the
executed documents and agreements referred to in Section 3.1(a) on or prior to
October 6, 1998, then this Agreement shall be terminated without any further
action of Seller or Purchaser and the Nonrefundable Deposit shall be returned to
Purchaser by Escrow Agent.
2.3 Assignment of Contracts; Accounts Payable. Effective as of
the Closing Date, Seller shall assign to Purchaser, and Purchaser shall assume,
Seller's entire right, title and interest in and to the maintenance and
operating contracts which are identified on Schedule "1" to Exhibit C
("Operating Contracts") attached hereto, in the form of the "Assignment of
Contracts" attached hereto as Exhibit C. At or prior to Closing, Seller shall
deliver to Purchaser a written consent to the assignment to Purchaser from each
party to a Contract where such consent is required by the terms thereof, each
such consent to be in form and substance reasonably satisfactory to Purchaser.
In the event such consents cannot be obtained at or prior to the Closing, the
parties shall use their reasonable efforts to obtain such consents as soon as
practicable after the Closing so as to allow Purchaser the benefits and
obligations under such
-4-
<PAGE>
contracts. Seller has provided Purchaser with a copy of the acknowledgment
executed by Starbucks on September 14, 1998 to the letter of Purchaser dated
September 8, 1998, from Starbucks Coffee Company and Purchaser is satisfied with
such letter in all respects.
2.4 Accounts Payable; Other Liabilities. Except as set forth
in Section 2.3, Purchaser shall not assume and in no way shall be liable for,
any other Contract, liability, obligation or accounts payable of Seller related
to the Business prior to the Closing, whether known, unknown or whether due or
to become due. To enable Seller to make conveyance of the Assets as hereinafter
provided, Seller shall, at the Closing, use the purchase money or any portion
thereof to clear the title to the Assets of any or all encumbrances or interest.
All of such liabilities will be paid by the Escrow Agent from the proceeds at
Closing to the extent a payoff amount can be determined; otherwise, such
obligations and accounts payable will be paid by Seller or by CHE as such
amounts are determined in the ordinary course of its business; provided that all
instruments so procured are delivered simultaneously with the delivery of the
assignments and Bills of Sale or mutually satisfactory arrangements are made for
delivery thereafter in accordance with customary closing practices.
ARTICLE 3
CONDITIONS TO CLOSING
3.1 Purchaser's Conditions to Closing. Purchaser's obligation
to consummate this Agreement is subject to the satisfaction (unless waived by
Purchaser) on or prior to the Closing Date of each of the following conditions
precedent. If the conditions set forth in Section 3.1(a) below are not satisfied
or waived by Purchaser on or before the October 6, 1998, then this Agreement
shall be terminated and in such event the Nonrefundable Deposit shall be
refunded to Purchaser. If any other condition set forth below (other than
Section 3.1(a)) is not satisfied, or waived by the Purchaser on or before
Closing Date, then Purchaser shall be entitled to terminate this Agreement by
delivering written notice to Seller. In such event, the Nonrefundable Deposit,
shall be retained by Seller, and neither party shall have any further rights or
obligations hereunder, except for any liability or obligation of the parties
pursuant to Section 3.4 and/or those provisions of this Agreement which survive
termination pursuant to Section 7.6.
(a) On or prior to October 6, 1998: (i)
Purchaser shall have negotiated a new lease agreement ("New Lease") between
Purchaser (as Lessee) and Carlsbad Industrial Associates Ltd. (as Lessor) for
the property located at 2270 Camino Vida Roble, Carlsbad, California 92009, on
terms and conditions acceptable to Purchaser providing for a lease commencement
date of February 1, 1999; (ii) Carlsbad Industrial Associates, Ltd. Shall have
consented to the assignment of the existing lease between Seller (as Lessee) and
Carlsbad Industrial Associates Ltd. (as Lessor) for the property located at 2270
Camino Vida Roble, Carlsbad, California 92009 to Purchaser through January 31,
1999, and Purchaser and Seller shall have executed in assignment (the
"Assignment") of such lease; and (iii) CHE and Purchaser shall have entered into
a sublease (the "Sublease") of a portion of the existing lease (Suite B) between
Carlsbad Industrial Associates Ltd. (as Lessor) and CHE (as Lessee) through
January 31, 1999, and Carlsbad Industrial Associates, Ltd. Shall have executed
the consent (the "Consent") to such
-5-
<PAGE>
sublease and there shall have been deposited with Escrow Agent fully executed
copies of the New Lease, the Assignment, the Sublease and the consent;
(b) Execution as of the Closing Date, of the
Co-Pack Agreement and the Bread Supply Agreement between the parties;
(c) As of the Closing Date: (1) Seller is not
insolvent and has not made any arrangements with its creditors generally, or has
had a receiver appointed for all or a substantial part of its business or
assets; (2) no insolvency, bankruptcy or similar proceeding has been brought by
or against Seller as debtor, or, in the case of such a proceeding brought
against Seller, such proceeding has been dismissed within thirty (30) business
days after its institution; and (3) Seller has not gone into liquidation or has
otherwise ceased to function as a going concern;
(d) As of the Closing Date, Seller is not in
material default under this Agreement and Seller shall have delivered to
Purchaser sole and exclusive possession of all Seller's Assets purchased
hereunder and of the premises demised under the New Lease (excluding Suite B
which shall be subletted to Purchaser by CHE and CHE shall have delivered to
Purchaser sole and exclusive possession of the subleased premises);
(e) As of the Closing Date, the representations
and warranties of Seller set forth in Article 5 shall be true and correct in all
material respects as though made on and as of the Closing Date and no event
shall have occurred which materially adversely affects the Business;
(f) No investigation, suit, action,
administrative or other proceeding shall be pending or threatened which
materially and adversely affects the Seller's Business or Assets or which in the
opinion of Purchaser's counsel is likely to result in the restraint, prohibition
or the obtaining of damages or other relief in connection with the performance
of this Agreement; and
(g) As of the Closing Date, Seller shall have
delivered all documents required of Seller under this Agreement to complete the
Closing.
3.2 Seller's Conditions to Closing. The Closing shall be
contingent upon satisfaction of each of the following conditions precedent prior
to Closing. If any condition set forth below is not satisfied, or waived by the
Seller on or before the Closing Date, then Seller shall have the right to
terminate this Agreement by delivering written notice to the Purchaser. In such
event, the Nonrefundable Deposit will be retained by Seller, and neither party
shall have any further rights or obligations hereunder, except for any liability
or obligation of the parties pursuant to Section 3.4 and/or those provisions of
this Agreement which survive termination pursuant to Section 7.6.
(a) As of the Closing Date: (1) Purchaser is not
insolvent and has not made any arrangements with its creditors generally, or had
a receiver appointed for all or a substantial part of its business or assets;
(2) no insolvency, bankruptcy or similar proceeding has been brought by or
against Purchaser as debtor, or, in case of such a proceeding brought against
-6-
<PAGE>
Purchaser, such proceeding has been dismissed within thirty (30 business days
after its institution; and (3) Purchaser has not gone in liquidation or has
otherwise ceased to function as a going concern;
(b) As of the Closing Date, Purchaser is not in
material default under this Agreement;
(c) As of the Closing Date, the representations
and warranties of Purchaser set forth in Article 5 shall be true and correct in
all material respects as though made on and as of the Closing Date;
(d) Execution as of the Closing Date, of the
Co-Pack Agreement and the Bread Supply Agreement between the parties;
(e) As of the Closing Date, Purchaser shall have
delivered all documents required of Purchaser under this Agreement to complete
the Closing.
(f) No investigation, suit, action, or
administrative or other proceeding shall be pending or threatened which, in the
opinion of Seller's counsel, is likely to result in the restraint, prohibition
or the obtaining of damages or other relief in connection with the performance
of this Agreement.
3.3 Inspection. Purchaser has satisfied itself regarding the
physical condition of the Assets prior to the Effective Date, and no further
inspection or testing of the Assets is required as a condition to this
Agreement.
3.4 Delivery of Documents. If this Agreement is terminated for
nonsatisfaction of a condition, or for any other reason, each party shall
deliver to the other party, with five (5) days after such termination, all
Proprietary Information provided by the other party pursuant to this Agreement.
This provision shall survive termination of this Agreement.
ARTICLE 4
CLOSING
4.1 The Closing. The transactions contemplated by this
Agreement shall be consummated ("Closing") at the offices of Escrow Agent. The
date the Closing occurs is referred to herein as the "Closing Date". The Closing
shall occur on or before October 27, 1998 ("Closing Deadline") and the effective
time of the Closing shall be 12:01 a.m. on the Closing Date. A timely Closing
Deadline by the specified Closing has been expressly negotiated by the parties
and is a material term of this Agreement for the benefit of Seller and
Purchaser.
4.2 Actions at the Closing.
(a) Deliveries by Seller. At the Closing,
Seller shall deliver the following to Purchaser: the Bills of Sale executed by
Seller; the Co-Pack Agreement executed by
-7-
<PAGE>
CHE; the Bread Supply Agreement executed by CHE; Assignments of Contracts in the
form of Exhibit C, together with written consents to the assignments thereof to
Purchaser for all Operating Contracts where such consents are required; consent
to Purchaser for the use of the name and certificate of discontinuance of use of
trade name in forms satisfactory to the appropriate governmental officials duly
executed by Seller; all assignable licenses and permits for the conduct of
Seller's Business; all records and documents relating to Seller's employment
policies and safety training, all records and documents relating to Seller's
employees that are required by law or by state or federal authorities to be
maintained by Purchaser as a successor operator of the assets (excluding any
documents that constitute private medical records, confidential personal
information, or disciplinary records of individual employees, except to the
extent required by law or by state or federal authorities to be maintained by
Purchaser); and such other documents as Purchaser shall reasonably required to
carry out and effectuate the purposes and terms of this Agreement.
(b) Deliveries by Purchaser. At the Closing,
Purchaser shall deliver the following to Seller: the Bill of Sale executed by
Purchaser; the Co-Pack Agreement executed by Purchaser, the Bread Supply
Agreement executed by Purchaser; a certificate of good standing for Purchaser
issued by the State of Delaware; and a resolution indicating that the officer
signing this Agreement on behalf of Purchaser has the authority to do so.
Purchaser shall pay and remit to Seller, by wire transfer of Good Funds to such
bank account as is specified by Seller, the Purchase Price and any additional
amount required to satisfy Purchaser's obligations under the Agreement.
4.3 Closing Costs; Taxes; Closing Adjustments. Seller shall
pay costs and expenses associated with its ownership of the Assets prior to the
Closing Date, including, without limitation, all repair, maintenance and
improvements relating to the Assets for which Seller has contracted prior to the
Effective Date. Purchaser shall pay costs and expenses associated with its
ownership of the Assets on and after the Closing Date, inducing all applicable
sales, use, transfer and documentary taxes arising out of the transfer of the
Assets (but excluding any income taxes of Seller arising out of the sale).
Amounts payable under the Operating Contracts shall be prorated between Seller
and Purchaser as of the Closing Date. Seller and Purchaser shall each pay their
own respective legal and professional fees and costs incurred in connection with
this Agreement and the transactions contemplated hereby. All fees of Escrow
Agent shall be paid half by Seller and half by Purchaser. The following items
shall be separately apportioned and adjusted between Seller and Purchaser as of
midnight prior to the date of Closing ("Adjustment Date"):
(a) Fees for customary annual or other periodic
licenses and permits (assignable and assigned to Purchaser at the Closing);
(b) Charges or prepayments on Operating
Contracts assigned to and assumed by Purchaser hereunder;
(c) Recording charges consistent with standard
conveyancing practices in San Diego County;
(d) Seller will obtain final cut-off readings of
fuel, telephone, electricity, water and gas on the day preceding the Closing and
Seller shall pay the bills based
-8-
<PAGE>
upon such readings promptly after the same are rendered and provide proof of
such final payment within thirty (30 days after the Closing.
4.4 Delivery. The Assets, and all maintenance records,
operating manuals and parts lists relating thereto which are in Seller's
possession, shall be delivered to Purchaser upon Closing. All risk of loss or
damage to the Assets from whatever source shall be the sole responsibility of
Seller, up to the Closing Date. All risk of loss and damage to the Assets from
whatever source shall be the sole responsibility of Purchaser from and after the
Closing Date.
4.5 Pre-Closing Matters
(a) Conduct of Business. Seller agrees that
until the Closing or until this Agreement is terminated, whichever shall first
occur, Seller will continue to operate Seller's Business in the ordinary course
in a manner consistent with past practices, and Seller agrees:
(1) To continue to perform its
obligations under existing contracts and new contracts entered into in the
normal course of business and use its reasonable efforts to keep the Business
intact, to preserve for the benefit of Purchaser all sources of supply available
to Seller and all of its good will for the benefit of Purchaser.
(2) Not to enter into any employment or
labor contracts, contracts for the purchase or lease of any fixed assets or any
Operating Contracts without the prior written consent of Purchaser.
(3) To maintain the Business and Assets
in good repair, working order, condition and efficiency in accordance with past
practices and will not sell any such property or assets except Inventory in the
ordinary course of business and at all times carry on Seller's Business in
accordance with past practice and in an efficient manner exercising the use of
good business judgment; and
(4) To promptly advise Purchaser of any
change in facts which arise prior to the conclusion of the Closing which could
make any representation or warranty set forth in this Agreement untrue, in any
material respect.
(b) Access. From the Effective Date until the
Closing Date, Purchaser and its authorized representatives shall, subject to
prior notice to Seller's authorized representative, have access, during
manufacturing hours, to the premises of the Business and to all properties,
books, records, contracts and documents of Seller relating to the Seller's
Assets or Seller's Business for the purpose of preparing to take over the
operation of the Business.
(c) Due Diligence. The parties hereto agree
that, as of the Effective Date, Purchaser has completed its due diligence.
-9-
<PAGE>
ARTICLE 5
REPRESENTATIONS AND WARRANTIES
5.1 Representations and Warranties of Seller. Seller
represents and warrants to Purchaser, as of the Effective Date and as of the
Closing Date, as follows:
(a) Authority. Seller is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware and is qualified to do business and in good standing under the laws of
the State of California. All corporate acts required to execute and deliver this
Agreement have been duly taken by Seller, and the execution, delivery and
performance hereof by Seller has been duly authorized by all necessary corporate
action.
(b) Title to Assets. Seller owns the Assets and,
after giving effect to the provisions of this Agreement, shall convey to
Purchaser good and marketable title to the Assets, free and clear of all liens
and encumbrances.
(c) Permits. To the best knowledge of Seller
(i) all of the permits identified in Exhibit A hereto (the "Permits") are in
full force and effect and, to the extent that the Permits are transferable to
the Purchaser, the Permits will be transferred without further payment or
consent or will be reissued to Purchaser in the ordinary course of business upon
payment by Purchaser of customary fees; (ii) no written notification has been
received by Seller concerning any material outstanding violation, cancellation
or suspension of any of the Permits from any governmental authority having
jurisdiction over the Permits, and (iii) no written notification has been
received by Seller concerning any material outstanding violation of any material
fire, building or health codes or similar governmental or Food and Drug
Administration regulation.
(d) Litigation. To the best knowledge of Seller
and except for the Citations and Notifications of Penalty issued January 5, 1998
by the California Department of Industrial Relations Division of Occupational
Safety and Health, copies of which have been provided to Purchaser (the "OSHA
Claims Matter") and the "Application for Penalty Award for Worker's Compensation
Benefits for Serious and Willful Misconduct of Employer" filed in the Workers
Compensation Appeals Board by Estrella Rico (the "Worker's Com. Claim"), copies
of which have been provided to Purchaser, there is no (i) outstanding or pending
or threatened litigation related to or affecting the Assets or the Business;
(ii) any unsatisfied orders or judgments, proceedings or governmental
investigations pending with respect to the Assets or the Business; or (iii) any
mechanic's or materialman's liens with respect to work or materials furnished
for the benefit of Seller with respect to the Assets or the Business. As of the
Closing Date, there is not any factual basis known to Seller for any such suit,
action or proceeding.
(e) Operating Contracts. The Operating
Contracts which are identified on Schedule "1" to Exhibit C are the only
contracts which Purchaser has agreed to assume and which Seller will assign to
Purchaser at the Closing. A true and exact copy of each of the Operating
Contracts, which is in writing, has been furnished to Purchaser and neither
Seller nor any other contracting party is in material default in the performance
of any of its obligations under
-10-
<PAGE>
any of the Operating contracts. If consent of the contracting party to the
Operating Contracts is required, Seller will secure such consent prior to the
Closing Date, and those whose duration extends beyond the Closing Date will, as
of the Closing, be in full force and effect in all material respects and
unimpaired by any acts or omissions of the Seller or its agents or employees and
such Operating Contracts will not be modified prior to the Closing Date without
Purchaser's written consent.
(f) Taxes. Seller has filed with the
appropriate governmental agencies all tax returns required to be filed by it,
and has paid, or made provision for payment of, all taxes which may become due
pursuant to such returns or any assessment received by Seller.
(g) Financial Statements. The statements of
income and balance sheets of the Seller for the year ended December 29, 1997 and
June 29, 1998 which Seller has delivered to Purchaser and which are attached
hereto as Exhibit G (the "Financial Statements") are true and correct in all
material respects and present fairly the financial condition and results of
operation of the Seller and Seller's' business for the respective periods then
ended. Purchaser acknowledges that such Financial Statements do not contain
footnotes and Purchaser acknowledges that the Financial Statements are
unaudited. Except to the extent reflected or reserved against in the Financial
Statements, the Seller as of such date, had no liabilities or obligations of any
material nature, whether accrued, absolute, contingent, or otherwise, including
without limitation tax liabilities, due or to become due.
(h) Without limiting the generality of the
foregoing, since June 29, 1998, the Seller has not:
(1) Except for the consumption or sale
of its Inventory and supplies in the ordinary course of business and consistent
with past practice, sold, leased or otherwise disposed of any of its Assets;
(2) Disposed of or permitted to lapse
any license or permit;
(3) Disposed of, or granted to anyone
the right to use any trade name of the Seller;
(4) Agreed, whether in writing or
otherwise, to take any action described in this Subsection 5.1(h) unless
previously approved in writing by Purchaser.
(i) No material purchase commitments extending beyond
the Closing Date by Seller are in excess of the normal, ordinary and usual
requirements of the operation of the Seller's Business or at any excessive
price;
(j) Seller is not a party to any collective
bargaining agreement of any type;
(k) Seller has not committed either orally or in
writing to any type of pension or fringe benefit plan to which Purchaser might
be obligated to contribute;
-11-
<PAGE>
(l) Seller will continue to maintain until the
Closing Date its existing insurance coverage to protect, indemnify and reimburse
it for all loss or damage arising from fire, theft or other casualties,
liability for injury to or death of any person, and for damage to any property,
product liability, worker's compensation and in general such other insurance as
may be customary in the Seller's business;
(m) No Other Representations or Warranties. The
representations and warranties set forth in this Section 5.1 above constitute
the only representations and warranties made by Seller with respect to the
transactions contemplated hereby and the Assets being transferred pursuant
hereto, and such representations and warranties supersede all representations
and warranties and words of description (which, although not representations or
warranties, might be subject to interpretation as such), written or oral, made
by Seller at any time.
5.2 Representations and Warranties of Purchaser. Purchaser
represents and warrants to Seller, as of the Effective Date and as of the
Closing Date, as follows: Purchaser is a limited liability company duly
organized, validly existing and in good standing under the laws the State of
Delaware. All acts required to execute and deliver this Agreement have been duly
taken by Purchaser, and the execution, delivery and performance hereof by
Purchaser has been duly authorized by all necessary action. Purchaser has
obtained all funds and the financing necessary to consummate the transactions
contemplated by the Agreement.
ARTICLE 6
AS IS/WHERE IS SALE
EXCEPT AS PROVIDED IN SECTIONS 4.3 AND 7.7, SELLER SHALL HAVE
NO OBLIGATION TO PERFORM ANY REPAIRS, REPLACEMENTS, TESTING OR MAINTENANCE OF
THE ASSETS PRIOR TO THE CLOSING. PURCHASER IS ACQUIRING THE ASSETS "AS IS AND
WHERE IS, WITH ALL FAULTS, IF ANY", IN THE CONDITION THEY ARE IN AS OF THE
CLOSING DATE, AND EXCEPT AS PROVIDED IN ARTICLE 5, NO WARRANTIES, EXPRESS OR
IMPLIED, HAVE BEEN MADE BY SELLER REGARDING THEIR PHYSICAL CONDITION, CAPACITY,
QUALITY, VALUE, WORKMANSHIP, OPERATING CAPABILITY OR PERFORMANCE, OR THEIR
COMPLIANCE WITH APPLICABLE LAWS, OR THEIR FITNESS OR SUITABILITY FOR PURCHASER'S
PURPOSES. NO WARRANTIES, EXPRESS OR IMPLIED, CONTAINED IN THE UNIFORM COMMERCIAL
CODE OR OTHERWISE (INCLUDING, WITHOUT LIMITATION, THE IMPLIED WARRANTY OF
MERCHANTABILITY AND THE IMPLIED WARRANTY OF FITNESS FOR A PARTICULAR PURPOSE)
SHALL APPLY TO THE TRANSACTIONS CONTEMPLATED HEREBY OR THE ASSETS BEING
TRANSFERRED PURSUANT HERETO, AND PURCHASER HEREBY DISCLAIMS AND NEGATES THE
RIGHT TO ANY SUCH WARRANTIES.
-12-
<PAGE>
ARTICLE 7
ADDITIONAL OBLIGATIONS
7.1 Removal of Excluded Assets. Seller reserves the right, in
its sole discretion, to remove and/or dispose of the Excluded Assets: (a) at any
time prior to the Closing Date; and (b) during a period of ninety (90) days
after the Closing Date.
7.2 Confidentiality. Unless otherwise agreed to in writing by
Seller and Purchaser, each party shall keep confidential all Proprietary
Information, confidential documents, financial statements, reports or other
information provided to, or generated by the other party (including, but not
limited to all information about the use, design, specifications, costs, profit
margins or price of Seller's products; and no disclosure of such information
shall be made to any person other than those employees, professional advisors
and agents of Seller or Purchaser who are actively and directly participating in
the evaluation of the Assets and the negotiation and execution of this Agreement
or in connection with the operation of the business after Closing and who are
aware of the parties' confidentiality obligations hereunder. Each party shall
take all reasonable measures necessary to protect the secrecy and
confidentiality of and avoid disclosure or use of such confidential information,
including the highest degree of care that such party utilizes to protect its own
confidential information. Each party shall promptly notify the other party in
writing of any misuse or misappropriation of confidential information which may
come to its attention. The obligations of confidentiality shall not apply to
information which has entered into the public domain, except where such entry is
the result of a party's breach of this Agreement, or to any information which
was independently developed by either party without use or reference to the
other party's confidential information, or to any information disclosed with the
prior written permission of the party to which the confidential information
relates. The provisions of this Section 7.2 shall survive the termination of
this Agreement.
7.3 Indemnification.
(a) By Purchaser. Purchaser shall indemnify,
protect, hold harmless and defend (by counsel reasonably acceptable to Seller)
Seller and CHE and their respective subsidiaries and Affiliates, and their
respective shareholders, officers, directors, employees and agents, and the
successors and assigns of any of the foregoing, from and against any and all
liabilities, liens, claims, damages, costs, expenses, suits, proceedings or
judgments (including attorneys' fees to consider, advise and defend, and any
damages, penalties, settlements, costs or expenses awarded or incurred), that
may be incurred by or asserted against Seller, to the extent arising from or
directly relating to: (i) any damage or deficiency resulting from any breach of
any warranty, the inaccuracy of any representation, or the material
non-fulfillment or non-performance by Purchaser of any agreement, covenant or
obligation of Purchaser under this Agreement; (ii) liabilities arising by reason
of the failure of Purchaser to hire any former employees of Seller or by reason
of the Purchaser's employment or subsequent termination of such former employees
of Seller or any other employees of Purchaser on or after the Closing Date;
(iii) any damage, demands, assessments, liabilities and obligations of Purchaser
or claims against Seller with respect to Purchaser's ownership, operation or use
of the Assets on or after the Closing Date, including,
-13-
<PAGE>
but not limited to, any personal injury or property damage arising from
Purchaser's use or operation of the Assets or Business on or after the Closing
Date; and (iv) all demands, assessments, judgments, costs and reasonable legal
and other expenses arising from or in connection with any action, suit,
proceeding, or claim incident to any of the foregoing. Purchaser shall not have
any indemnification obligation or responsibility for any liabilities, liens,
claims, damages, costs, expenses, suits, proceedings or judgments (including
attorneys' fees) for any other matter other than as specified in Section
7.3(a)(i), (ii), (iii), or (iv), or in any other section of this Agreement.
(b) By Seller. CHE and Seller, and each of
them, shall indemnify, protect, hold harmless and defend (by counsel reasonably
acceptable to Purchaser) Purchaser and its subsidiaries and Affiliates, and
their respective members, shareholders, officers, directors, employees and
agents, and the successors and assigns of any of the foregoing, from and against
any and all liabilities, liens, claims, damages, costs, expenses, suits,
proceedings or judgments (including attorneys' fees to consider, advise and
defend, and any damages, penalties, settlements, costs or expenses awarded or
incurred), that may be incurred by or asserted against Purchaser, to the extent
arising from or directly relating to: (i) any damage or deficiency resulting
from any breach or inaccuracy of any warranty or representation of Seller under
Section 5.1(a), (b), (d), and (f) of this Agreement; (ii) any and all damage,
demands, assessments, and liabilities arising from any claims of federal taxing
authorities, arising prior to the Closing Date which may result in liens,
encumbrances or claims against the Assets; (iii) any matter relating to a past
or current employee of Seller concerning acts or omissions by Seller occurring
before the Closing Date, including any claims that have not yet been asserted by
the Closing Date, and including costs, damages, or liabilities arising by reason
of the termination of any employees by Seller, such as liabilities for payment
of accrued vacation, sick pay obligations and fringe benefit plan obligations up
to and including the Closing Date with respect to all Seller's current
employees, regardless of whether the employee is hired by Purchaser; (iv) any
and all fines, penalties, costs and expenses relating to the currently pending
OSHA Claims Matter and the currently pending Worker's Comp. Claim but only
insofar as such fines, penalties, costs or expenses directly relate to acts or
omissions of Seller occurring prior to the Closing Date or acts or omissions of
Seller occurring pursuant to its obligations under this Agreement whether before
or after the Closing Date; (v) except as otherwise set forth or provided in this
Agreement, any damage, demands, assessments, liabilities and obligations of
Seller or claims against Purchaser with respect to Seller's ownership, operation
or use of the Assets prior to the Closing Date; and (vi) all demands,
assessments, judgments, costs, and reasonable legal and other expenses arising
from or in connection with any action, suit, proceeding or claim incident to any
of the foregoing. Purchaser understands, acknowledges and agrees that CHE and
Seller shall have the right to employ counsel (reasonably acceptable to
Purchaser) and control the defense and any settlement or compromise of the OSHA
Claims Matter and the Worker's Comp. Claim or any aspect thereof; provided,
however, to the extent that any settlement or compromise of the OSHA Claims
Matter and the Worker's Comp. Claim may materially adversely affect the
operation of the Assets by Purchaser, Seller agrees to give Purchaser reasonable
advance notice of that fact and to obtain Purchaser's prior written approval of
such settlement or compromise, which approval by Purchaser shall not be
unreasonably withheld. Further, neither CHE nor Seller shall have any
indemnification obligation or responsibility for any liabilities, liens, claims,
damages, costs, expenses, suits,
-14-
<PAGE>
proceedings or judgments (including attorneys' fees) for any other matter other
than as specified in Section 7.3(b)(i), (ii), (iii), (iv), (v) or (vi), or in
any other section of this Agreement.
7.4 Damage or Destruction. If, prior to the Closing, any
material portion of the Assets is damaged by fire or other casualty
("Casualty"), Seller shall promptly give notice thereof to Purchaser. Seller
shall elect, at its option, by delivering written notice to Purchaser, either:
(a) to repair such Assets prior to the Closing Deadline, in which event the
parties shall continue performance of this Agreement without any adjustment in
the Purchase Price; (b) to exclude the damaged Assets from the list of Assets,
in which event the Purchase Price shall be reduced by the value allocated to
such excluded Assets, as set forth on Exhibit A; or (c) to terminate this
Agreement. If Seller elects the option in (b) above with respect to any Assets,
and if such damage renders the Assets unsuitable for the operation of
Purchaser's business, as reasonably determined by Purchaser after giving effect
to such election by Seller, then Purchaser may elect, by delivering written
notice to Seller within three (3) days after Purchaser's receipt of Seller's
notice, to terminate this Agreement. If this Agreement is terminated pursuant to
this Section 7.4, neither party shall have any further rights or obligations
hereunder (except for any liability or obligation which survives termination of
this Agreement pursuant to the terms hereof). The Closing Deadline shall be
extended for the duration of the foregoing three (3) day period. If this
Agreement is not terminated by Purchaser or Seller following such a Casualty,
the parties shall continue performance under this Agreement, without
modification of any of its terms (except for extension of the Closing Date as
set forth above) and without any reduction in the Purchase Price. Purchaser
shall have no other remedies against Seller as a result of such damage or
destruction of the assets excepts as set forth in this section.
7.5 Employees. Seller agrees that the Purchaser shall have the
right to interview and to solicit any current employees of Seller prior to the
Closing and, in its sole discretion, to hire such employees after Closing.
Seller agrees to cooperate and assist the Purchaser in its efforts to hire such
employees. Seller and Purchaser acknowledge that notwithstanding the Purchaser's
efforts, certain of such employees may refuse to accept the Purchaser's offer of
employment. Except as required by law or as otherwise set forth or provided in
this Agreement, Seller shall have no liability to the Purchaser as a result of
any employees of Seller declining to accept an offer of employment with the
Purchaser. Seller agrees to bear all costs and expenses relating to accrued
vacation and sick pay obligations and fringe benefit plan obligations up to and
including the Closing Date with respect to all of Seller's then current
employees, whether or not such employees are hired by Purchaser. The Purchaser
shall have no liability for any termination costs or liabilities arising by
reason of the termination of any employees by Seller, including payment of
accrued vacation, regardless of whether they are hired by the Purchaser.
After any former employees of Seller have been hired by
Purchaser and after the Closing Date, Purchaser shall have sole responsibility
for any notices required to be given for termination and employee compensation
relating to such employees after the Closing Date. Effective on the Closing
Date, Seller shall terminate all of its then current employees regardless of
whether the employees, or any of them, have been hired by Purchaser. The parties
do not anticipate that either will have any obligation to send notices to Seller
and Purchaser's employees
-15-
<PAGE>
and governmental agencies pursuant to the Worker Adjustment and Retraining
Notification Act ("WARN"), 29 U.S. ss. 2102, et seq., as a result of the
transactions contemplated hereby. Nevertheless, if circumstances arise which
necessitate implementing WARN notification procedures, Seller shall be
responsible for providing notice of any "plant closing" or "mass layoff" which
takes place as a result of any action taken by Seller at or before the Closing,
and Purchaser shall be responsible for providing any such notice which takes
place as a result of any action taken by Purchaser after the Closing.
7.6 Survival. The rights and obligations of the parties
pursuant to Sections 4.4, 5.1(a), (b), (d) and (f), 5.2, 7.1, 7.2, 7.3(a),
7.3(b)(i), (ii), (iv), (v) and (vi), 7.4, 7.5 and 7.8 and Articles 6 and 9 (to
the extent necessary to apply the foregoing) shall survive the Closing and
transfer of the Assets, and the rights and obligations of the parties pursuant
to Sections 3.4, 9.9 and 9.12 shall survive the termination of this Agreement
without consummation of the Closing. The representations and warranties of the
Seller pursuant to subsections of Section 5.1 not listed in the preceding
sentence, shall not survive the Closing. The indemnification obligation of
Seller set forth in Section 7.3(b)(iii) shall survive the Closing for a period
of one (1) year.
7.7 Operation of Business and Assets Prior to Closing. From
the Effective Date of this Agreement until the Closing ("Pre-Closing Period"),
Seller will operate the Business in a manner consistent with the operation of an
ongoing full service food manufacturing facility, taking into consideration the
nature and quality of the operation previously conducted by Seller. During the
Pre-Closing Period, all equipment and inventories will be acquired, procured and
maintained to replenish normal inventory levels required in connection with
normal operations or necessary for customary services performed or to be
performed at the Business based upon historical operations, and all services
with respect to the Business that have been historically provided will continue
to be provided during the Pre-Closing Period in connection with the operation of
the Business. During the Pre-Closing Period, Seller will use reasonable efforts
to maintain all material existing customer accounts at the level at which they
have been maintained in the six (6) months prior to the Effective Date of this
Agreement.
7.8 Prorations. Any and all taxes (other than sales, use,
excise or similar taxes incurred as a result of the transactions contemplated by
this Agreement which shall be the sole responsibility of Purchaser), property
rental or lease payments, common area maintenance charges, water, gas,
electricity and other utilities, interest or other finance charges and other
recurring payments (collectively "Prorations") shall be apportioned between
Seller and Purchaser such that Seller shall be responsible for, and/or receive
payment of, as applicable, all such Prorations incurred or earned through and
including the Closing Date and Purchaser shall be responsible for, and/or
receive payment of, as applicable, all such Prorations incurred or earned after
the Closing Date. This section shall survive the Closing.
-16-
<PAGE>
ARTICLE 8
TERMINATION
This Agreement may be terminated prior to the Closing Date by
either party, by delivering at least five (5) days' prior written notice to the
other party or, in the case of subsection (d) below, immediately upon written
notice if:
(a) Any condition is not timely satisfied, as provided in
Section 3.1 or Section 3.2, as applicable;
(b) The other party is in material breach of any of its
representations, warranties or obligations under this Agreement and fails to
cure such breach within three (3) days after receipt of written notice thereof;
(c) Such party is insolvent or makes any arrangement with its
creditors generally, or has a receiver appointed for all or a substantial part
of its business or assets; or an insolvency, bankruptcy or similar proceeding is
brought by or against such other party as debtor, and, in the case of such a
proceeding brought against such other party, is not dismissed within thirty (30)
business days after its institution; or such other party goes in liquidation or
otherwise ceases to function as a going concern; or
(d) The Closing has not occurred by the Closing Deadline.
In the event the conditions in Section 3.1(a) shall not have
been satisfied on or before the October 6, 1998, then this Agreement shall be
immediately terminated without further action of Seller or Purchaser and the
Purchaser shall be entitled to have the Nonrefundable Deposit returned to it. In
the event this Agreement is terminated at any time for any other reason, Seller
shall be entitled to retain the Nonrefundable Deposit.
ARTICLE 9
GENERAL PROVISIONS
9.1 Amendment. This Agreement may be amended only by a writing
signed by duly authorized representatives of both parties.
9.2 Assignment. No party to this Agreement shall have the
right to assign any of its rights or obligations under this Agreement without
the prior written consent of the other parties hereto.
9.3 Captions. The captions and paragraph headings used in this
Agreement are inserted for convenience of reference only and are not intended to
define, limit or affect the construction or interpretation of any term or
provision hereof.
-17-
<PAGE>
9.4 Construction. The provisions of this Agreement and the
documents referred to herein have been examined, negotiated, drafted and revised
by counsel for each party hereto, and no implication shall be drawn or
construction made against any party by virtue of the drafting of this Agreement
or any such document.
9.5 Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall be deemed an original, but all of which
shall constitute but one and the same document.
9.6 Entire Agreement. This Agreement, together with the
Co-Pack Agreement and the Bread Supply Agreement, contains the entire agreement
between the parties with respect to the subject matter hereof and supersede any
and all prior agreements, understandings and commitments, whether oral or
written, including, but not limited to, the July 22, 1998 Term Sheet. No course
of prior dealings or future dealings between the parties and no usage of trade
shall be relevant or admissible to supplement, explain or vary any of the terms
of this Agreement.
9.7 Exhibits. All exhibits referred to herein are attached
hereto and incorporated herein by reference.
9.8 Further Assurances. The parties agree to perform such
further acts and to execute and deliver such additional documents and
instruments as may be reasonably required in order to carry out the provisions
of this Agreement and the intentions of the parties.
9.9 Governing Law; Venue; Compliance with Laws. This Agreement
shall be governed by, construed and enforced in accordance with the laws of the
State of California without regard to conflict of law rules and principles. Any
dispute regarding the interpretation, validity or enforcement of, or otherwise
arising out of, this Agreement shall be subject to the exclusive jurisdiction of
the California State Courts or, in the event of federal jurisdiction, the United
States District Court for the Southern District of California; and each party
hereby agrees to submit to the personal and exclusive jurisdiction and venue of
such courts and not to seek the transfer of any case or proceeding out of such
courts. Each party agrees to comply with all federal, state and local laws,
regulations and ordinances of the United States applicable to such party's
performance contemplated hereunder.
9.10 No Third-Party Beneficiaries. Nothing contained in this
Agreement shall be construed to give any person other than the parties any legal
or equitable right, remedy or claim under or with respect to this Agreement.
9.11 Notices. Notice to either party shall be in writing and
either personally delivered, or sent by an overnight courier service which
provides a receipt of delivery (such as Airborne, Federal Express or Purolator),
or sent by first-class mail, registered or certified mail, postage prepaid,
return receipt requested, addressed to the party to be notified at the address
specified herein. Any such notice shall be deemed received on the date of
receipt if personally delivered, or on the date of receipt evidenced by the
receipt provided by the courier service or the U.S. mail, as the case may be.
-18-
<PAGE>
Seller or CHE's Address for Notice:
-----------------------------------
Chart House Enterprises, Inc.
640 N. LaSalle Street
Suite 295
Chicago, IL 60610
Attention: Cynthia Quigley
With a copy to:
Allen, Matkins, Leck
Gamble & Mallory LLP
501 W. Broadway
Suite 900
San Diego, CA 92101
Attention: Joe M. Davidson, Esq.
Purchaser's Address for Notice:
-------------------------------
Crestone Group, LLC
3525 Del Mar Heights Road
Suite 423
San Diego, CA 92130
Attention: David S. Wells
Either party may change its address for notice by delivering
written notice to the other party as provided herein.
9.12 Remedies. The remedies of either party upon breach of
this Agreement by the other party, to the extent set forth herein, are in
addition to any other remedies available to the non-breaching party at law or in
equity. The exercise of any remedy provided by the provisions of this Agreement
or at law or in equity shall not exclude any other remedy, unless it is
expressly excluded. The remedy at law, if any, of the non-breaching party shall
be conclusively presumed not to be adequate in view of the irreparable and
continuing damage which any breach would cause. The non-breaching party shall be
entitled to injunctive relief against any continuation of such breach, without
the posting of any bond or other security, in addition to any other remedies,
whether legal or equitable, otherwise available to the non-breaching party.
9.13 Severability. If any term, provision, covenant or
condition of this Agreement is held to be invalid, void or otherwise
unenforceable, to any extent, by any court of competent jurisdiction, the
remainder of this Agreement shall not be affected thereby, and each term,
provision, covenant or condition of this Agreement shall be valid and
enforceable to the fullest extent permitted by law.
9.14 Successors. Subject to the restriction on assignment
contained herein, all terms of this Agreement shall be binding upon, inure to
the benefit of, and be enforceable by the parties hereto and their respective
heirs, legal representatives, successors, and assigns.
-19-
<PAGE>
9.15 Time Period Computation. All periods of time referred to
in this Agreement shall include all Saturdays, Sundays and state or national
holidays, unless the period of time specifies business days. The term "business
days" means days other than Saturdays, Sundays and state or national holidays.
If the date or last date to perform any act or give any notice or approval shall
fall on a Saturday, Sunday or state or national holiday, such act or notice
shall be deemed to have been timely performed or given on the next business day.
9.16 Waiver. Either party hereto may specifically waive any
breach of this Agreement by the other party, but no such waiver shall be deemed
to have been given unless such waiver is in writing, is signed by the waiving
party and specifically designates the breach waived. No such waiver shall
constitute a continuing waiver of similar or other breaches.
9.17 Attorneys' Fees. In the event of any legal action or
proceeding between the parties arising out of this Agreement, the losing party
shall pay the prevailing party's legal costs and expenses, including, but not
limited to reasonable attorneys' fees as determined by the court.
9.18 Escrow. Escrow Agent will administer the escrow according
to this Agreement. Purchaser and Seller will execute such additional
instructions Escrow Agent may require provided they are consistent with the
terms of this Agreement and will promptly return all documents to Escrow Agent
requiring execution by the parties and in no event later than five (5) business
days of such parties' receipt of same from Escrow Agent. Escrow Agent's
obligations are limited to those matters set forth in the additional escrow
instructions attached hereto as Exhibit F provided by Escrow Agent and Escrow
Agent shall have no obligation or liability under or with respect to this
Agreement except as provided therein. All fees and costs incurred by Escrow
Agent shall be equally apportioned between Purchaser and Seller. Escrow Agent
shall not be liable for any of its acts or omissions unless such acts or
omissions constitute negligence or willful misconduct.
9.19 Bulk Sales. The parties contemplate that the sale of the
Assets is a bulk sale as that term is defined in Commercial Code Section
6102(a)(3) and that the parties must comply with the provisions of the
Commercial Code relating to bulk transfers of business assets. In accordance
with such provisions, Escrow Agent will publish and file a Notice of Intended
Transfer to Creditors of Bulk Sale with the appropriate entities and shall
thereafter receive any claims against Seller.
9.20 Brokers and Brokers' Commissions. Purchaser and Seller
each warrant and represent that it has not contracted or otherwise obligated
itself or any other party to any sums as either commissions, finders' fees or
other claims of a similar nature arising out of this Agreement or the
contemplated sale of Assets. Each of the parties agrees to hold the other
parties harmless with respect to any breach on its part of this warranty and
representation.
9.21 Advisory Fees. CHE shall be responsible for the
payment of all advisory fees payable to David B. Duval.
-20-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Asset
Purchase Agreement as of the Effective Date first above written.
Seller: SOLANA BEACH BAKING COMPANY
a Delaware corporation
By: /s/ Cynthia T. Quigley
-----------------------------------
Name: Cynthia T. Quigley
---------------------------------
Title: Vice President and Treasurer
--------------------------------
Purchaser: CRESTONE GROUP, LLC
a Delaware limited liability company
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
CHE: CHART HOUSE ENTERPRISES, INC.
a Delaware corporation
By: /s/ Cynthia T. Quigley
-----------------------------------
Name: Cynthia T. Quigley
---------------------------------
Title: Vice President and Chief
Financial Officer
--------------------------------
-21-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Asset Purchase Agreement
as of the Effective Date first above written.
Seller: SOLANA BEACH BAKING COMPANY
a Delaware corporation
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
Purchaser: CRESTONE GROUP, LLC
a Delaware limited liability company
By: /s/ David Wells
-----------------------------------
Name: David Wells
---------------------------------
Title: Managing Partner
--------------------------------
CHE: CHART HOUSE ENTERPRISES, INC.
a Delaware corporation
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
-21-
<PAGE>
EXHIBIT A
INVENTORY OF ASSETS
AND ALLOCATION OF PURCHASE PRICE
Purchase Price
I. Equipment and Small Wares Inventory $ 165,000
<TABLE>
<CAPTION>
Item # Qty Description
------ ------ --------------
General Production Equipment
- ----------------------------
<S> <C> <C>
1 1 Conico rounder
2 1 Over head proofer, 320 pockets
3 1 Rondo 2 door pass through proofer
4 1 Cleveland tilt kettle, electric, 5 gallon
5 1 Crouton slicer
6 1 Rondo sheeter
7 1 Rondo Vertical Sheeter, small
8 1 Goring Kerr metal detector
9 1 Guyon 36 part divider
10 1 Veitlay Cookie Depositor
11 1 6' conveyor
12 1 UBE slicer, with kwik lock bagger
13 1 Rondo Sheeters (#28 & #29)
14 1 Rondo sheeter 60" belt
15 1 Oliver Slicer - Model 797
16 1 Hinds-Bock Depositor
17 1 30" Conveyor
18 2 Benier Dividers
19 1 Rondo croissant cutter/folder, 400lb
20 1 Benier baguette moulder
21 1 A.M. Rounder
22 1 Rondo 3 door proofer
23 1 Hoshizaki ice maker. 1200 lbs with ice bin
24 1 Hobart buffalo chopper
25 1 Benier Finger roll maker
26 2 Benier moulders
27 1 Food Tool brownier cutter
28 3 Enclosed wire storm
</TABLE>
EXHIBIT A - PAGE 1
<PAGE>
<TABLE>
<CAPTION>
Item # Qty Description
------ ------ --------------
Sinks & Accessories
- -------------------
<S> <C> <C>
29 2 3 compartment sink, pot & pan
30 2 Grease traps
31 1 Douglas pan washer
32 1 Universal pan & rack washer
Packaging Equipment
- -------------------
33 1 Belco Bar Sealer and Tunnel
34 2 Box Tapers
Scales & Storage
- ----------------
35 1 Accuweight Scale, 125lbs
36 1 125lb scale
37 35 White brutes
38 1 Cooking Oil Tank
39 1 32g scale
40 2 Bakers Scales
41 7 Ingredient Bins
Warehouse Equipment
- -------------------
42 1 Yale sit-down fork lift
43 1 Walk Behind Fork Lift
44 3 Big lights
45 1 Battery Charger
46 4 large fans
47 1 Graco Floor scrubber
48 1 Forklift Battery Charger
49 2 Step ladders on wheels
50 2 Air compressors
51 1 Walk Along Pallet Jack
52 1 60" air fan
Mixers
- ------
53 1 Hobart 20qt mixer
54 1 Sancassiano 3 sack mixer
55 1 Stephan VCM 25
56 1 Hobart 60qt mixer
57 1 Rondo SPI mixer, with S/S Bowl, whip, hook
58 1 Benier 2 sack mixer
59 1 Hobart 8qt mixer
60 1 Hobart 140qt mixer, with S/S Bowl (2), whip, hook
</TABLE>
EXHIBIT A - PAGE 2
<PAGE>
<TABLE>
<CAPTION>
Item # Qty Description
------ ------ --------------
<S> <C> <C>
Ovens
- -----
<S> <C> <C>
61 6 Revent Double Rack Ovens
62 1 Hobart convection oven, electric
63 1 Rondo/Dahlen double rack oven
64 1 Pizza Oven
65 100 S/S oven racks
Refrigeration
- -------------
66 1 Utility 2 door cooler
67 1 Retard box w/coil and compressor,
20x17x8, 1 ea 5' door
68 1 Freezer, 30x20x16, with coil and compressor
69 1 Utility 1 door cooler
70 1 Traulsen 2 door cooler
71 1 Blast Freezer Coil & Compressor
72 1 8x8 cooler, 2 door, with coil and compressor
73 1 Freezer, 18x50x16, 6' door, with coil and
compressor
74 1 Batch Water Chiller
75 1 Cooler box, 20x10x8, 2 door, pass thru, w/coil &
compressor
Pans
- ----
76 100 Sheet Pans
77 37 Sheet pan racks
78 40 Mini Muffin Pans - 36
79 36 Muffin Pans
80 72 Muffin Pans
81 144 Exco/GLCO Model Baguette Pans
82 1 French Baguette Pans
83 288 18 x 26 Perf Sheets
84 288 Aluminum Baking Sheets
85 300 Baking Pans
86 2216 Baking Trays
87 1 Aluminum Screens
88 200 Bread Pans
89 250 Chicago Mtn. Model Hearth
Tables, Racks, & Shelves
- ------------------------
90 1 36" dunnage rack
91 1 S/S 3 x 10 table
92 1 4' S/S wall shelf
93 8 4' dunnage racks
</TABLE>
EXHIBIT A - PAGE 3
<PAGE>
<TABLE>
<CAPTION>
Item # Qty Description
------ ------ --------------
<S> <C> <C>
94 2 21x48 4 tier shelf
95 1 S/S table 3x5
96 1 3 tier racks with shelving, 18x36
97 7 Union Steel bread cooling racks
98 1 4 tier 24x48
99 5 2 tier 8' pallet racks
100 1 10' Wood bench, coved
101 1 4 tier 18x60 racks with castors
102 1 6 tier, 24x72, shelving with castors
103 2 10' S/S table
104 1 4 tier 24x48 racks with castors
105 1 8 tier 18x72
106 16 Pallet shelving, 3 tier, 8' long
107 150 Perforated Sheet Pan
108 20 Quiche Pans
109 1 10' S/S wall shelf
110 1 8' S/S wall shelf
111 3 8' wood table
112 1 6 tier 18 x 60 shelf
113 1 6' S/S table
114 1 4 tier racks with shelving, 18x30
115 8 4 tier 24x72 racks with castors
116 6 8' wood benches
Office Equipment
- ----------------
117 Various Locks
118 2 Time Clock
119 Various Lockers
120 6 Chairs
121 1 Table
122 Various Keys
123 2 60 x 30 Oak Desks
124 Various Office Cabinets
125 2 Exec Chairs
126 2 Cof Arm Chairs
127 2 60 inch Oak Credenzas
128 2 3 Drawer Lateral Cabinets
129 1 Elec Compt Hookup
130 1 Phone System
131 1 3 Drawer Lateral File
</TABLE>
EXHIBIT A - PAGE 4
<PAGE>
<TABLE>
<CAPTION>
Item # Qty Description
------ ------ --------------
<S> <C> <C>
132 1 Lockers
133 1 Coat Rack
134 1 HP 3P Laser Printer
135 1 36 x 72 Lt. Oak Radius Desk
136 1 Right Return Desk Light Oak
137 [INTENTIONALLY OMITTED)
138 1 Phone System
139 Various Fire Extinguishers
140 Various Warning Signs
141 1 Computer System
142 1 Sextant System
143 1 Computer System
144 1 Thermal Printer
145 Various Back-up Tapes
146 1 HP 5SI Printer
147 1 HP 3P Printer
148 1 HP 6P Printer
149 Various Computer Software
150 1 PC Anywhere 32
151 2 Backroom Systems
152 1 Computer Cabinet
153 1 Canon Laser 5500 Fax Machine
154 1 Safe
155 1 Copier
156 1 Canon NP 2120 Copier
157 1 HP Laserjet
158 1 Prosignia 200
</TABLE>
Purchase Price
--------------
II. Licenses and permits $ -0-
III. Contracts $ 10,000
General Mills Sales, Inc. confirmation of sale dated as of September 9,
1998;
CK Construction Preventative Maintenance Contract dated March 24, 1998
Hold Harmless Agreement between SBBC and Sweet Illusions dated June 25,
1998
EXHIBIT A - PAGE 5
<PAGE>
Product Secrecy Agreement with Angel City Food Co. Inc. dated June 17,
1998
Letter Agreement with Abbye Freiman regarding Trader Joe's dated August
12, 1998
General Contract for Services between SBBC and Preferable Sales &
Distribution dated as of August 1, 1998
Software Support invoice dated June 10, 1998 with Datapax, Inc.
Los Angeles Paper Box & Board Mills folding order dated July 9, 1998
Apricot and Peach Contract with Evergreen Research and Development
Dated August 8, 1998
Walnut Sale Contract dated April 20, 1998 between SBBC and Dadant &
Company
Starbucks Corporation Supplier Agreement dated November 15, 1994
IKON Office Equipment Agreement dated December 8, 1997
<TABLE>
<CAPTION>
<S> <C> <C>
IV. Recipes as described on Schedule "1" hereto $ 300,000
V. Solana Beach Baking Company name and logo; all patents, trademarks, $ 290,000
tradenames, service marks, copyrights and licenses registered
in the name of Solana Beach Baking Company in connection with the
operation of the Business (excluding any Excluded Assets)
VI. Inventories including raw goods, finished goods and packaging inventory $ 95,000
on hand as of the Closing Date.
VII. Miscellaneous business assets $ 5,000
TOTAL PURCHASE PRICE $ 865,000
Plus/less inventory adjustments as provided in =========
Section 2.2 of the Asset Purchase Agreement
</TABLE>
EXHIBIT A - PAGE 6
<PAGE>
SCHEDULE "1" TO EXHIBIT A
RECIPES
<TABLE>
<CAPTION>
Ref Recipe Name Ref Recipe Name Ref Recipe Name
--- ----------- --- ------------- --- -----------
<S> <C> <C> <C> <C> <C>
1 8-Grain/Sand/R.F 2 Egg Bread 3 Jalapeno Cheese Brd
4 Jalapeno Corn Bread 5 Cinnamon Raisin Bd 6 Solana Beach Squaw
7 French Bread 8 Honey BK French BD. 9 Marble Rye
10 Jalapeno Corn Muffin 11 Blue/Banana Muffins 12 Pepper Cheese Bread
13 Banana Nut Muffin 14 Honey Bran Muffin 15 Oat Bran Muffin
16 Blueberry Muffin 17 Apple Oat Bran 18 Bran Muffins
19 Corn Muffin 20 Choc. Chip Muffins 21 Rasp. NoChl.Muf.18#
22 Cranberry Orange Muf 23 No-Fat Choc. Cookie 24 Pumpkin Pie
25 Choc. Chip Banana Muf 26 Zucchini Muf 27 Choc. Choc Muffin
28 Peohe's Hawaiian Bd 29 Squaw Sandwich Bd 30 C.H.B. Squaw
31 Island's Bread Stick 32 NoFat Peach/Cran Muf 33 NoFat Blue Muf
34 NoFat Apple Muf. 35 NoFat Peach Muf. 36 California Blondies
37 French Round 38 Honey Smear CHE 39 Chocolate Ecstacy
40 CHE Country Bread 41 P.B. Scones 42 Raspberry Scone
43 Blueberry Scone 44 Cranberry Scone 45 Chocolate Chip Scone
46 Rum Raisin 47 Lemon Poppy 48 Apple Cinnamon
49 Cherry Almond 50 Chocolate Chunk 51 Short Bread Cookie
52 Hawaiian Delite STBK 53 Oatmeal Raisin Cooki 54 Peanut Butter Cookie
55 Sugar Cookie 56 Pizza Dough 57 Lemon Cookie
58 Snickerdoodle 59 Country Style Bread 60 Macadamia Nut Cookie
61 Pecan Pie 62 Hallah Bread 63 Garlic Parm. Crouton
64 Maple Donut 65 Chocolate Donut 66 Peanut Butter Cookie
67 Whole Wheat Maple 68 PB XMAS Cookie 69 Hi-Fiber Choc. Chip
70 Choc Chip Cookie 71 Choc Chip Nut Cookie 72 Carrot Cake Icing
73 Danish Topping 74 Carrot Cake Glaze 75 Scones (raisin)
76 Scones (plain) 77 Scones (Rasberry) 78 Strawberry Croissant
79 Lemon Poppy Cake L 80 Ginger Molasses L 81 Chocolate Chip L
82 Nutty Wheat, X 83 Isl. Hamb. Bun 84 Isl. Wheat Hamb
85 SD Crustini 86 Short Dough, STR 87 Cranberry, STR
88 Rasp. Bear Claw 89 Blueberry Cresent PC 90 Strawberry Cornu PC
91 Apple Turnover PC 92 Macaroon, Coc. PC 93 Raspberry Croissant
95 Fudge Icing 96 Mandarine Orange Muf 97 Brownies
98 Carrot Cake 99 Oat Raisin Soft Chew 100 SB Blueberry Muffin
101 SB Cran Orange Muffn 102 Lemon Poppy Cake 103 SB Morning Glory
105 Focaccia 106 Buttermilk Spice, STR 105 Espresso Chip, STR
113 Apricot Blue STBK 114 Cran Peach STBK 115 Oat Choc Nugget Cook
116 Oat/Rais PF STBK 120 Italian Herb Bread 121 Pumpkin Pie
122 Flax & Honey X 123 Light Wheat 124 PC Oat Raisin Cookie
125 Rye Bread HB 151 Crois Butter Plain 152 Crois BTR Blu/Berry
153 Crois Apple Raisin 154 Croiss Cream Cheese 155 Crois Spinach Cheese
156 Rye Rolls 157 W/W Croutons 158 Dark Rye B&S 1.5
159 Croutons 160 Cinnamon Rolls 161 Sourdough
162 Sour Rye 163 Sourdough Sandwich 164 Italian Bread
165 Crois Chocolate 166 French Rolls 1.5 167 Rosemary Din Rolls
168 D&D W/W Croutons 169 D&D Croutons 170 Onion Rolls 1.5
171 Soft Pretzels 172 Wheat Kaiser Roll 48 173 Country Bread CHE
174 CrCrois Rsn 175 Lemon Bars STBK 176 Date Bar
177 Chop Chop Cheese Br 178 Baby Cakes 179 HH Chocolate Cake
180 Chocolate Croissant 181 Chocolate Croissant 182 Olive Bread
183 Cranberry Bread 184 Bread Sticks Chart 185 Cran Peach STBK
186 Brioche Buns 187 Brioche Loaf 188 Caesar Crouton
189 Butter Crumb Cake 190 Mocha Crumb Cake 191 Fat-Free Choc. Cake
194 Croissant Dough 195 Croissant Dough Mrg 196 S.D. Crouton Bread
197 Whole Wheat Crois 198 Honey Smear 199 Rye Bread
200 Lemon Poppy Muffin 201 Orange Streusel 202 Raisin Bran Muffin
</TABLE>
SCHEDULE "1" TO EXHIBIT A - PAGE 1
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
203 Apple Tort 204 Peach Tort 205 Cherry Tort
206 Blueberry Tort 207 W/W Southdough 208 Babycakes
209 Walnut Cranberry 210 WholeWheatCiabatta 211 Heart Cookie STBK
212 Cranberry Walnut 213 Whole Grain, 100% 214 Chipper Dough
215 Fudge Nut Dough 216 PB X-MAS Cookie Dgh 217 Whole Wheat Bread
218 Focaccia Italian 219 Iced Brownie STBK 220 Strawberry STBK
221 Blueberry Muffin 222 Brownie Low Fat 223 Peanut Butter STBK
224 Cheesecake Brownie 225 Mac Nut STBK 226 Unseasoned Crouton
227 Snickerdoodle STBK 228 Oat Raisin Cook ST 229 Choc Chip Cook STB
230 Squaw HB 231 Brownie No Fat 232 Onion Bread
233 Generic Choc. Chip 234 Generic Oat/Rsn Cke 235 Cran Peach Low Fat
236 Blueberry STBK 237 Mixed Berry STBK 238 Raisin Bran STBK
239 Morning Glory STBK 240 Cinnamon Rolls STBK 241 Carrot Muffin STBK
242 Cinnamon Rolls Chart 243 Blueberry Hughes 244 Banana Bran STBK
245 Ginger Snap MA 246 Chocolate MA 247 Oatmeal MA
248 Peanut Butter MA 249 Snickerdoodle MA 250 Choc Choc Muffin
251 Mocha Bean Truff MA 252 Cinnamon & Raisin 253 Pumpkin Cookie
254 Pumpkin Muffin 255 SB Apple Raisin Muff 256 Cherry Croissant
257 Apple Croissant 258 Blueberry Crois 259 Almond Croissant
260 Squaw Crustini 261 Apple Cinn. Hughes 262 Lemon Poppy STBK
263 Blueberry Muff LF CC 264 Orange Streusel 265 PC Brownie Low Fat
266 Cran/Apple Muffin LF 267 Variety pk. Stbk 268 Brownie-Walnut
269 Miltons Bread 270 Tomato Rosemary 271 Rosemary Bread
272 Ciabatta 273 Cinnamon Rolls, L 274 Frnch Roll Sesame
275 Marble Rye HB 276 Orange Streusel SB 277 Hawaiian Dlte STBK
278 Carrot Low Fat STB 279 Apricot Blue STBK 280 Hawaiian Dlte LFat
281 Ginger Molasses 282 Apricot Blue Lfat 283 Blueberry CC
284 Cranberry CC 285 Oatmeal Raisin CC 286 Banana CC
287 Chocolate Chip CC 288 Peanut Butter CC 289 Chcolate Eclip CC
290 Short Bread 291 Muffin Mix, Dark 292 Date Muffin STBK
293 X-MAX Sugar STBK 294 Hamburger Bun, New 295 Christmas Bell STR
296 Christmas Trees STR 297 Rosemary Bread Dough 298 Onion Bread Croutons
299 Toscano Bread 300 Gingerbread xmas STR 301 Plum Almond, Str
302 Banana Maple, STR 303 Espresso Cookie 304 Peanut Crunch
305 Chocolate Chunk, STR 306 Chocolate Walnut, STR 321 Choc Mint Shortbread
375 Need to Use 376 Rustic Mini Baguette 389 Blueberry Bar Lowfat
394 Lemon Shortdough 395 Lime Shortbread 396 Orange Shortbread
397 Pear Ginger, STR 399 Lemon Orange, STR 401 Croissant Dough
402 Croissant Dough Mrg 403 Blu/Ber Cheese Filng 404 Apple Raisin Filling
405 Cream Cheese Filling 406 Spinach Cheese Filng 407 Bread Stick Dough
408 Bread Stick Smoosh 409 S.D. Crouton Bread 410 Crouton Spices
411 Cinn. Roll Dough 412 Cinnamon Sugar 413 Whole Wheat Crois
414 Sourdough Sponge 415 Honey Smear 416 Rye Bread
417 Pumpernickel Bread 418 Chipper Dough 419 Fudge Nut Dough
420 Streusel Topping 421 PB X-MAS Cookie Dgh 422 Whole Wheat Bread
423 W/W Crouton Spice 424 Focaccia Italian 425 Island Bread St. Dgh
426 Island Bd. St Smoosh 427 Iced Brownie STBK 428 Strawberry STBK
429 Morning Glory Muffin 430 Cinn Streusel STBK 431 Raisin Pecan
432 R.P Topping 433 Apple Wal Bran 434 Streusel STBK
435 Banana Bran 436 Low Fat Muffin 437 Cinn Roll Icing ST
438 Blueberry Muffin 439 Fudge Icing STBK 440 Cran Peach base
441 Mixed Berry Muffin 442 Bran Muffin SBBC 443 Cinn Sug Honey Sme
444 Cinn Sugar STBK 445 Brownie Low Fat 446 Peanut Butter STBK
447 Mac Nut STBK 448 Snickerdoodle STBK 449 Oat Raisin Cook ST
450 Choc Chip Cook STB 451 Short Dough 452 Rye Bread HB
453 Squaw HB 454 Brownie No Fat 455 Brownie Icing LFat
456 Apple Raisin Tpng 457 Egg Wash 458 Onion Bread
459 Generic Choc. Chip 460 Generic Oat/Rsn Cke 461 CR. Crois RSN
462 CHE Brownie 463 Sponge Two Ferments 464 Brioche Sponge
465 WWCiabatta Sponge 466 Cran Peach Low Fat 467 WW Ciabatta Sponge
</TABLE>
SCHEDULE "1" TO EXHIBIT A - PAGE 2
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
468 Blueberry STBK 469 Lemon Bar Dough 470 Mixed Berry STBK
471 Milts Topping 472 Raisin Bran STBK 473 Morning Glory STBK
474 Banana Bran STBK 475 Lemon Bar Filling 476 Pumpkin Cookie
477 Pumpkin Muffin 478 Lemon Poppy STBK 479 Orange Streusel SB
480 Hawaiian Dlte STBK 481 Carrot Low Fat STB 482 Apricot Blue STBK
483 Hawaiian Dlte Lfat 484 Ginger Molasses 485 Apricot Blue LFat
486 Blueberry CC 487 Cranberry CC 488 Oatmeal Raisin CC
489 Banana CC 490 Chocolate Chip CC 491 Low Fat Muffin Two
492 Peanut Butter CC 493 Chocolate Eclip CC 494 Walnut Sugar STBK
495 Oat Brown Sug STBK 496 Date Bar Dough 497 Date Bar Filling
498 Baby Cakes Filling 499 Baby Cakes Filling 500 Cinn Roll Dgh CHE
501 Cake Mix, HH 502 Frosting, HH 503 Pecan Smear
504 Butter Streusel, Br 505 Muffin Batter, Pln 506 Short Bread
507 Cinn. Rolls 508 Muffin Mix, Dark 509 Mocha Crumb Cake
510 Butter Streusel 512 Tomato Sauce T/R 513 Chocolate Chunk, S
525 Crustini Topping 526 Squaw Sand-Crust 530 NOT USED
535 Almond Filling H 540 Date Muffin STBK 541 Orange Streusel Muff
546 Gingerbread 547 Do Bash 549 X-MAS Sugar STBK
550 Sugar STBK 551 Bread Sponge 552 Hamburger Bun, New
553 Rosemary Butter 555 Sponge C & R 556 Second Mix C & R
557 Sponge Flax & Hny 558 Second Mix F & H 559 Sponge Mix-Lt. Wht
560 Second Mix-Lt Wht 561 Sponge Mix 100%WG 562 Second Mix 100%WG
563 Sponge Mix- NWht 564 Second Mix - NWht 565 use
589 Buttermilk Spice, S 590 Plum Almond Batter 591 French Bread
592 Plum Almond Top 593 Banana Maple Bat 594 Banana Maple Top
595 Oat/Brownsugar, STR 596 Filling, EspChip, S 597 Esp Chip Dough, STR
598 Chocolate Walnut, S 599 Cranberry Batter, S 600 Cranberry Top, STR
</TABLE>
SCHEDULE "1" TO EXHIBIT A - PAGE 3
<PAGE>
EXHIBIT B
BILL OF SALE
This BILL OF SALE, effective as of October ____, 1998
("Effective Date"), is executed by SOLANA BEACH BAKING COMPANY., a Delaware
corporation ("Seller"), and CRESTONE GROUP, LLC., a Delaware limited liability
company ("Purchaser"), pursuant to an Asset Purchase Agreement ("Purchase
Agreement") dated as of October ___, 1998 between Seller and Purchaser.
IN CONSIDERATION of the payment of the Purchase Price
specified in Section 2.2 of the Purchase Agreement and the mutual covenants set
forth therein, and for other valuable consideration, the receipt and sufficiency
of which are hereby acknowledge, Seller hereby sells, assigns and transfers to
Purchaser all of the assets more particularly described on Schedule 1 attached
hereto and made a part hereof ("Assets"), subject to the following terms and
conditions:
EXCEPT AS PROVIDED IN SECTIONS 4.3 AND 7.7 OF THE PURCHASE
AGREEMENT, PURCHASER ACKNOWLEDGES THAT PURCHASER IS ACQUIRING THE ASSETS "AS IS
AND WHERE IS, WITH ALL FAULTS, IF ANY", IN THE CONDITION THEY ARE IN AS OF THE
EFFECTIVE DATE, AND NO WARRANTIES, EXPRESS OR IMPLIED, HAVE BEEN MADE BY SELLER
REGARDING THEIR PHYSICAL CONDITION, CAPACITY, QUALITY, VALUE, WORKMANSHIP,
OPERATING CAPABILITY OR PERFORMANCE, OR THEIR COMPLIANCE WITH APPLICABLE LAWS,
OR THEIR FITNESS OR SUITABILITY FOR PURCHASER'S PURPOSES. NO WARRANTIES, EXPRESS
OR IMPLIED, CONTAINED IN THE UNIFORM COMMERCIAL CODE OR OTHERWISE (INCLUDING,
WITHOUT LIMITATION, THE IMPLIED WARRANTY OF MERCHANTABILITY AND THE IMPLIED
WARRANTY OF FITNESS FOR A PARTICULAR PURPOSE) SHALL APPLY TO THE SALE OF THE
ASSETS, AND PURCHASER HEREBY DISCLAIMS AND NEGATES THE RIGHT TO ANY SUCH
WARRANTIES.
As of the Effective Date, Seller represents that: (a) Seller
is lawfully possessed of good title to the Assets; (b) Seller has the right and
authority to convey the Assets; and (c) the Assets shall be conveyed and
delivered to Purchaser free and clear of all security interests, liens and
encumbrances.
Possession of the Assets shall be delivered to Purchaser on
the Effective Date set forth below. No Excluded Assets (as defined in the
Purchase Agreement) are being transferred or sold to Purchaser.
All applicable sales, use, transfer and documentary taxes
arising out of the transfer of the Assets shall be paid by Purchaser.
This Bill of Sale shall be governed, construed and enforced in
accordance with the laws of the State of California.
EXHIBIT B - PAGE 1
<PAGE>
IN WITNESS WHEREOF, this Bill of Sale has been executed in the
city of Solana Beach, State of California, to be effective on the Effective Date
first set forth above.
Seller: SOLANA BEACH BAKING COMPANY
a California corporation
By:
--------------------------------
Name:
---------------------------
Title:
--------------------------
Purchaser: CRESTONE GROUP, LLC
a Delaware limited liability company
By:
--------------------------------
Name:
---------------------------
Title:
--------------------------
EXHIBIT B - PAGE 2
<PAGE>
SCHEDULE 1
INVENTORY OF ASSETS
Purchase Price
--------------
I. Equipment and Small Wares Inventory $ 165,000
<TABLE>
<CAPTION>
Item # Qty Description
------ ----- ------------
<S> <C> <C>
General Production Equipment
- ----------------------------
1 1 Conico rounder
2 1 Over head proofer, 320 pockets
3 1 Rondo 2 door pass through proofer
4 1 Cleveland tilt kettle, electric, 5 gallon
5 1 Crouton slicer
6 1 Rondo sheeter
7 1 Rondo Vertical Sheeter, small
8 1 Goring Kerr metal detector
9 1 Guyon 36 part divider
10 1 Veitlay Cookie Depositor
11 1 6' conveyor
12 1 UBE slicer, with kwik lock bagger
13 1 Rondo Sheeters (#28 & #29)
14 1 Rondo sheeter 60" belt
15 1 Oliver Slicer - Model 797
16 1 Hinds-Bock Depositor
17 1 30" Conveyor
18 2 Benier Dividers
19 1 Rondo croissant cutter/folder, 400lb
20 1 Benier baguette moulder
21 1 A.M. Rounder
22 1 Rondo 3 door proofer
23 1 Hoshizaki ice maker. 1200 lbs with ice bin
24 1 Hobart buffalo chopper
25 1 Benier Finger roll maker
26 2 Benier moulders
27 1 Food Tool brownier cutter
28 3 Enclosed wire storm
Sinks & Accessories
- -------------------
29 2 3 compartment sink, pot & pan
30 2 Grease traps
</TABLE>
SCHEDULE 1 TO BILL OF SALE
<PAGE>
<TABLE>
<CAPTION>
Item # Qty Description
------ ----- ------------
<S> <C> <C>
31 1 Douglas pan washer
32 1 Universal pan & rack washer
Packaging Equipment
- -------------------
33 1 Belco Bar Sealer and Tunnel
34 2 Box Tapers
Scales & Storage
- ----------------
35 1 Accuweight Scale, 125lbs
36 1 125lb scale
37 35 White brutes
38 1 Cooking Oil Tank
39 1 32g scale
40 2 Bakers Scales
41 7 Ingredient Bins
Warehouse Equipment
- -------------------
42 1 Yale sit-down fork lift
43 1 Walk Behind Fork Lift
44 3 Big lights
45 1 Battery Charger
46 4 large fans
47 1 Graco Floor scrubber
48 1 Forklift Battery Charger
49 2 Step ladders on wheels
50 2 Air compressors
51 1 Walk Along Pallet Jack
52 1 60" air fan
Mixers
- ------
53 1 Hobart 20qt mixer
54 1 Sancassiano 3 sack mixer
55 1 Stephan VCM 25
56 1 Hobart 60qt mixer
57 1 Rondo SPI mixer, with S/S Bowl, whip, hook
58 1 Benier 2 sack mixer
59 1 Hobart 8qt mixer
60 1 Hobart 140qt mixer, with S/S Bowl (2), whip, hook
Ovens
- -----
61 6 Revent Double Rack Ovens
62 1 Hobart convection oven, electric
63 1 Rondo/Dahlen double rack oven
64 1 Pizza Oven
65 100 S/S oven racks
</TABLE>
SCHEDULE 1 TO BILL OF SALE
<PAGE>
<TABLE>
<CAPTION>
Item # Qty Description
------ ----- ------------
<S> <C> <C>
Refrigeration
- -------------
66 1 Utility 2 door cooler
67 1 Retard box w/coil and compressor,
20x17x8, 1 ea 5' door
68 1 Freezer, 30x20x16, with coil and compressor
69 1 Utility 1 door cooler
70 1 Traulsen 2 door cooler
71 1 Blast Freezer Coil & Compressor
72 1 8x8 cooler, 2 door, with coil and compressor
73 1 Freezer, 18x50x16, 6' door, with coil and
compressor
74 1 Batch Water Chiller
75 1 Cooler box, 20x10x8, 2 door, pass thru, w/coil &
compressor
Pans
- ----
76 100 Sheet Pans
77 37 Sheet pan racks
78 40 Mini Muffin Pans - 36
79 36 Muffin Pans
80 72 Muffin Pans
81 144 Exco/GLCO Model Baguette Pans
82 1 French Baguette Pans
83 288 18 x 26 Perf Sheets
84 288 Aluminum Baking Sheets
85 300 Baking Pans
86 2216 Baking Trays
87 1 Aluminum Screens
88 200 Bread Pans
89 250 Chicago Mtn. Model Hearth
Tables, Racks, & Shelves
- ------------------------
90 1 36" dunnage rack
91 1 S/S 3 x 10 table
92 1 4' S/S wall shelf
93 8 4' dunnage racks
94 2 21x48 4 tier shelf
95 1 S/S table 3x5
96 1 3 tier racks with shelving, 18x36
97 7 Union Steel bread cooling racks
98 1 4 tier 24x48
99 5 2 tier 8' pallet racks
</TABLE>
SCHEDULE 1 TO BILL OF SALE
<PAGE>
<TABLE>
<CAPTION>
Item # Qty Description
------ ----- ------------
<S> <C> <C>
100 1 10' Wood bench, coved
101 1 4 tier 18x60 racks with castors
102 1 6 tier, 24x72, shelving with castors
103 2 10' S/S table
104 1 4 tier 24x48 racks with castors
105 1 8 tier 18x72
106 16 Pallet shelving, 3 tier, 8' long
107 150 Perforated Sheet Pan
108 20 Quiche Pans
109 1 10' S/S wall shelf
110 1 8' S/S wall shelf
111 3 8' wood table
112 1 6 tier 18 x 60 shelf
113 1 6' S/S table
114 1 4 tier racks with shelving, 18x30
115 8 4 tier 24x72 racks with castors
116 6 8' wood benches
Office Equipment
- ----------------
117 Various Locks
118 2 Time Clock
119 Various Lockers
120 6 Chairs
121 1 Table
122 Various Keys
123 2 60 x 30 Oak Desks
124 Various Office Cabinets
125 2 Exec Chairs
126 2 Cof Arm Chairs
127 2 60 inch Oak Credenzas
128 2 3 Drawer Lateral Cabinets
129 1 Elec Compt Hookup
130 1 Phone System
131 1 3 Drawer Lateral File
132 1 Lockers
133 1 Coat Rack
134 1 HP 3P Laser Printer
135 1 36 x 72 Lt. Oak Radius Desk
136 1 Right Return Desk Light Oak
137 [INTENTIONALLY OMITTED)
138 1 Phone System
</TABLE>
SCHEDULE 1 TO BILL OF SALE
--------------------------
<PAGE>
<TABLE>
<CAPTION>
Item # Qty Description
------ ----- ------------
<S> <C> <C>
139 Various Fire Extinguishers
140 Various Warning Signs
141 1 Computer System
142 1 Sextant System
143 1 Computer System
144 1 Thermal Printer
145 Various Back-up Tapes
146 1 HP 5SI Printer
147 1 HP 3P Printer
148 1 HP 6P Printer
149 Various Computer Software
150 1 PC Anywhere 32
151 2 Backroom Systems
152 1 Computer Cabinet
153 1 Canon Laser 5500 Fax Machine
154 1 Safe
155 1 Copier
156 1 Canon NP 2120 Copier
157 1 HP Laserjet
158 1 Prosignia 200
</TABLE>
Purchase Price
--------------
II. Licenses and permits $-0-
III. Contracts $10,000
General Mills Sales, Inc. confirmation of sale
dated as of September 9, 1998;
CK Construction Preventative Maintenance Contract
dated March 24, 1998
Hold Harmless Agreement between SBBC and Sweet
Illusions dated June 25, 1998
SCHEDULE 1 TO BILL OF SALE
<PAGE>
Product Secrecy Agreement with Angel City Food Co. Inc.
dated June 17, 1998
Letter Agreement with Abbye Freiman regarding Trader
Joe's dated August 12, 1998
General Contract for Services between SBBC and
Preferable Sales & Distribution dated as of
August 1, 1998
Software Support invoice dated June 10, 1998 with
Datapax, Inc.
Los Angeles Paper Box & Board Mills folding order
dated July 9, 1998
Apricot and Peach Contract with Evergreen Research and
Development Dated August 8, 1998
Walnut Sale Contract dated April 20, 1998 between SBBC
and Dadant & Company
Starbucks Corporation Supplier Agreement dated
November 15, 1994
IKON Office Equipment Agreement dated December 8, 1997
IV. Recipes as described on Schedule "1" hereto $300,000
V. Solana Beach Baking Company name and logo; all $290,000
patents, trademarks, Tradenames, service marks,
copyrights and licenses registered in the name of
Solana Beach Baking Company in connection with the
operation of the Business (excluding any Excluded
Assets)
VI. Inventories including raw goods, finished goods and
packaging inventory on hand as of the Closing Date. $ 95,000
VII. Miscellaneous business assets $ 5,000
TOTAL PURCHASE PRICE $865,000
Plus/less inventory adjustments as ========
provided in Section 2.2 of the Asset
Purchase Agreement
SCHEDULE 1 TO BILL OF SALE
<PAGE>
SCHEDULE "1" TO EXHIBIT A
RECIPES
<TABLE>
<CAPTION>
Ref Recipe Name Ref Recipe Name Ref Recipe Name
--- ----------- --- ------------- --- -----------
<S> <C> <C> <C> <C> <C>
1 8-Grain/Sand/R.F 2 Egg Bread 3 Jalapeno Cheese Brd
4 Jalapeno Corn Bread 5 Cinnamon Raisin Bd 6 Solana Beach Squaw
7 French Bread 8 Honey BK French BD. 9 Marble Rye
10 Jalapeno Corn Muffin 11 Blue/Banana Muffins 12 Pepper Cheese Bread
13 Banana Nut Muffin 14 Honey Bran Muffin 15 Oak Bran Muffin
16 Blueberry Muffin 17 Apple Oat Bran 18 Bran Muffins
19 Corn Muffin 20 Choc. Chip Muffins 21 Rasp. NoChl.Muf.18#
22 Cranberry Orange Muf 23 No-Fat Choc. Cookie 24 Pumpkin Pie
25 Choc. Chip Banana Muf 26 Zucchini Muf 27 Choc. Choc Muffin
28 Peohe's Hawaiian Bd 29 Squaw Sandwich Bd 30 C.H.B. Squaw
31 Island's Bread Stick 32 NoFat Peach/Cran Muf 33 NoFat Blue Muf
34 NoFat Apple Muf. 35 NoFat Peach Muf. 36 California Blondies
37 French Round 38 Honey Smear CHE 39 Chocolate Ecstacy
40 CHE Country Bread 41 P.B. Scones 42 Raspberry Scone
43 Blueberry Scone 44 Cranberry Scone 45 Chocolate Chip Scone
46 Rum Raisin 47 Lemon Poppy 48 Apple Cinnamon
49 Cherry Almond 50 Chocolate Chunk 51 Short Bread Cookie
52 Hawaiian Delite STBK 53 Oatmeal Raisin Cooki 54 Peanut Butter Cookie
55 Sugar Cookie 56 Pizza Dough 57 Lemon Cookie
58 Snickerdoodle 59 Country Style Bread 60 Macadamia Nut Cookie
61 Pecan Pie 62 Hallah Bread 63 Garlic Parm. Crouton
64 Maple Donut 65 Chocolate Donut 66 Peanut Butter Cookie
67 Whole Wheat Maple 68 PB XMAS Cookie 69 Hi-Fiber Choc. Chip
70 Choc Chip Cookie 71 Choc Chip Nut Cookie 72 Carrot Cake Icing
73 Danish Topping 74 Carrot Cake Glaze 75 Scones (raisin)
76 Scones (plain) 77 Scones (Rasberry) 78 Strawberry Croissant
79 Lemon Poppy Cake L 80 Ginger Molasses L 81 Chocolate Chip L
82 Nutty Wheat, X 83 Isl. Hamb. Bun 84 Isl. Wheat Hamb
85 SD Crustini 86 Short Dough, STR 87 Cranberry, STR
88 Rasp. Bear Claw 89 Blueberry Cresent PC 90 Strawberry Cornu PC
91 Apple Turnover PC 92 Macaroon, Coc. PC 93 Raspberry Croissant
95 Fudge Icing 96 Mandarine Orange Muf 97 Brownies
98 Carrot Cake 99 Oat Raisin Soft Chew 100 SB Blueberry Muffin
101 SB Cran Orange Muffn 102 Lemon Poppy Cake 103 SB Morning Glory
105 Focaccia 106 Buttermilk Spice, STR 105 Espresso Chip, STR
113 Apricot Blue STBK 114 Cran Peach STBK 115 Oat Choc Nugget Cook
116 Oat/Rais PF STBK 120 Italian Herb Bread 121 Pumpkin Pie
122 Flax & Honey X 123 Light Wheat 124 PC Oat Raisin Cookie
125 Rye Bread HB 151 Crois Butter Plain 152 Crois BTR Blu/Berry
153 Crois Apple Raisin 154 Croiss Cream Cheese 155 Crois Spinach Cheese
156 Rye Rolls 157 W/W Croutons 158 Dark Rye B&S 1.5
159 Croutons 160 Cinnamon Rolls 161 Sourdough
162 Sour Rye 163 Sourdough Sandwich 164 Italian Bread
165 Crois Chocolate 166 French Rolls 1.5 167 Rosemary Din Rolls
168 D&D W/W Croutons 169 D&D Croutons 170 Onion Rolls 1.5
171 Soft Pretzels 172 Wheat Kaiser Roll 48 173 Country Bread CHE
174 CrCrois Rsn 175 Lemon Bars STBK 176 Date Bar
177 Chop Chop Cheese Br 178 Baby Cakes 179 HH Chocolate Cake
180 Chocolate Croissant 181 Chocolate Croissant 182 Olive Bread
183 Cranberry Bread 184 Bread Sticks Chart 185 Cran Peach STBK
186 Brioche Buns 187 Brioche Loaf 188 Caesar Crouton
189 Butter Crumb Cake 190 Mocha Crumb Cake 191 Fat-Free Choc. Cake
194 Croissant Dough 195 Croissant Dough Mrg 196 S.D. Crouton Bread
197 Whole Wheat Crois 198 Honey Smear 199 Rye Bread
200 Lemon Poppy Muffin 201 Orange Streusel 202 Raisin Bran Muffin
</TABLE>
SCHEDULE "1" TO EXHIBIT A - PAGE 1
<PAGE>
<TABLE>
<CAPTION>
Ref Recipe Name Ref Recipe Name Ref Recipe Name
--- ----------- --- ------------- --- -----------
<S> <C> <C> <C> <C> <C>
203 Apple Tort 204 Peach Tort 205 Cherry Tort
206 Blueberry Tort 207 W/W Southdough 208 Babycakes
209 Walnut Cranberry 210 WholeWheatCiabatta 211 Heart Cookie STBK
212 Cranberry Walnut 213 Whole Grain, 100% 214 Chipper Dough
215 Fudge Nut Dough 216 PB X-MAS Cookie Dgh 217 Whole Wheat Bread
218 Focaccia Italian 219 Iced Brownie STBK 220 Strawberry STBK
221 Blueberry Muffin 222 Brownie Low Fat 223 Peanut Butter STBK
224 Cheesecake Brownie 225 Mac Nut STBK 226 Unseasoned Crouton
227 Snickerdoodle STBK 228 Oat Raisin Cook ST 229 Choc Chip Cook STB
230 Squaw HB 231 Brownie No Fat 232 Onion Bread
233 Generic Choc. Chip 234 Generic Oat/Rsn Cke 235 Cran Peach Low Fat
236 Blueberry STBK 237 Mixed Berry STBK 238 Raisin Bran STBK
239 Morning Glory STBK 240 Cinnamon Rolls STBK 241 Carrot Muffin STBK
242 Cinnamon Rolls Chart 243 Blueberry Hughes 244 Banana Bran STBK
245 Ginger Snap MA 246 Chocolate MA 247 Oatmeal MA
248 Peanut Butter MA 249 Snickerdoodle MA 250 Choc Choc Muffin
251 Mocha Bean Truff MA 252 Cinnamon & Raisin 253 Pumpkin Cookie
254 Pumpkin Muffin 255 SB Apple Raisin Muff 256 Cherry Croissant
257 Apple Croissant 258 Blueberry Crois 259 Almond Croissant
260 Squaw Crustini 261 Apple Cinn. Hughes 262 Lemon Poppy STBK
263 Blueberry Muff LF CC 264 Orange Streusel 265 PC Brownie Low Fat
266 Cran/Apple Muffin LF 267 Variety pk. Stbk 268 Brownie-Walnut
269 Miltons Bread 270 Tomato Rosemary 271 Rosemary Bread
272 Ciabatta 273 Cinnamon Rolls, L 274 Frnch Roll Sesame
275 Marble Rye HB 276 Orange Streusel SB 277 Hawaiian Dlte STBK
278 Carrot Low Fat STB 279 Apricot Blue STBK 280 Hawaiian Dlte LFat
281 Ginger Molasses 282 Apricot Blue Lfat 283 Blueberry CC
284 Cranberry CC 285 Oatmeal Raisin CC 286 Banana CC
287 Chocolate Chip CC 288 Peanut Butter CC 289 Chcolate Eclip CC
290 Short Bread 291 Muffin Mix, Dark 292 Date Muffin STBK
293 X-MAX Sugar STBK 294 Hamburger Bun, New 295 Christmas Bell STR
296 Christmas Trees STR 297 Rosemary Bread Dough 298 Onion Bread Croutons
299 Toscano Bread 300 Gingerbread xmas STR 301 Plum Almond, Str
302 Banana Maple, STR 303 Espresso Cookie 304 Peanut Crunch
305 Chocolate Chunk, STR 306 Chocolate Walnut, STR 321 Choc Mint Shortbread
375 Need to Use 376 Rustic Mini Baguette 389 Blueberry Bar Lowfat
394 Lemon Shortdough 395 Lime Shortbread 396 Orange Shortbread
397 Pear Ginger, STR 399 Lemon Orange, STR 401 Croissant Dough
402 Croissant Dough Mrg 403 Blu/Ber Cheese Filng 404 Apple Raisin Filling
405 Cream Cheese Filling 406 Spinach Cheese Filng 407 Bread Stick Dough
408 Bread Stick Smoosh 409 S.D. Crouton Bread 410 Crouton Spices
411 Cinn. Roll Dough 412 Cinnamon Sugar 413 Whole Wheat Crois
414 Sourdough Sponge 415 Honey Smear 416 Rye Bread
417 Pumpernickel Bread 418 Chipper Dough 419 Fudge Nut Dough
420 Streusel Topping 421 PB X-MAS Cookie Dgh 422 Whole Wheat Bread
423 W/W Crouton Spice 424 Focaccia Italian 425 Island Bread St. Dgh
426 Island Bd. St Smoosh 427 Iced Brownie STBK 428 Strawberry STBK
429 Morning Glory Muffin 430 Cinn Streusel STBK 431 Raisin Pecan
432 R.P Topping 433 Apple Wal Bran 434 Streusel STBK
435 Banana Bran 436 Low Fat Muffin 437 Cinn Roll Icing ST
438 Blueberry Muffin 439 Fudge Icing STBK 440 Cran Peach base
441 Mixed Berry Muffin 442 Bran Muffin SBBC 443 Cinn Sug Honey Sme
444 Cinn Sugar STBK 445 Brownie Low Fat 446 Peanut Butter STBK
447 Mac Nut STBK 448 Snickerdoodle STBK 449 Oat Raisin Cook ST
450 Choc Chip Cook STB 451 Short Dough 452 Rye Bread HB
453 Squaw HB 454 Brownie No Fat 455 Brownie Icing LFat
456 Apple Raisin Tpng 457 Egg Wash 458 Onion Bread
459 Generic Choc. Chip 460 Generic Oat/Rsn Cke 461 CR. Crois RSN
462 CHE Brownie 463 Sponge Two Ferments 464 Brioche Spone
465 WWCiabatta Sponge 466 Cran Peach Low Fat 467 WW Ciabatta Sponge
</TABLE>
SCHEDULE "1" TO EXHIBIT A - PAGE 2
----------------------------------
<PAGE>
<TABLE>
<CAPTION>
Ref Recipe Name Ref Recipe Name Ref Recipe Name
- --- ----------- --- ------------- --- -----------
<S> <C> <C> <C> <C> <C>
468 Blueberry STBK 469 Lemon Bar Dough 470 Mixed Berry STBK
471 Milts Topping 472 Raisin Bran STBK 473 Morning Glory STBK
474 Banana Bran STBK 475 Lemon Bar Filling 476 Pumpkin Cookie
477 Pumpkin Muffin 478 Lemon Poppy STBK 479 Orange Streusel SB
480 Hawaiian Dlte STBK 481 Carrot Low Fat STB 482 Apricot Blue STBK
483 Hawaiian Dlte Lfat 484 Ginger Molasses 485 Apricot Blue LFat
486 Blueberry CC 487 Cranberry CC 488 Oatmeal Raisin CC
489 Banana CC 490 Chocolate Chip CC 491 Low Fat Muffin Two
492 Peanut Butter CC 493 Chocolate Eclip CC 494 Walnut Sugar STBK
495 Oat Brown Sug STBK 496 Date Bar Dough 497 Date Bar Filling
498 Baby Cakes Filling 499 Baby Cakes Filling 500 Cinn Roll Dgh CHE
501 Cake Mix, HH 502 Frosting, HH 503 Pecan Smear
504 Butter Streusel, Br 505 Muffin Batter, Pln 506 Short Bread
507 Cinn. Rolls 508 Muffin Mix, Dark 509 Mocha Crumb Cake
510 Butter Streusel 512 Tomato Sauce T/R 513 Chocolate Chunk, S
525 Crustini Topping 526 Squaw Sand-Crust 530 NOT USED
535 Almond Filling H 540 Date Muffin STBK 541 Orange Streusel Muff
546 Gingerbread 547 Do Bash 549 X-MAS Sugar STBK
550 Sugar STBK 551 Bread Sponge 552 Hamburger Bun, New
553 Rosemary Butter 555 Sponge C & R 556 Second Mix C & R
557 Sponge Flax & Hny 558 Second Mix F & H 559 Sponge Mix-Lt. Wht
560 Second Mix-Lt Wht 561 Sponge Mix 100%WG 562 Second Mix 100%WG
563 Sponge Mix- NWht 564 Second Mix - NWht 565 use
589 Buttermilk Spice, S 590 Plum Almond Batter 591 French Bread
592 Plum Almond Top 593 Banana Maple Bat 594 Banana Maple Top
595 Oat/Brownsugar, STR 596 Filling, EspChip, S 597 Esp Chip Dough, STR
598 Chocolate Walnut, S 599 Cranberry Batter, S 600 Cranberry Top, STR
</TABLE>
SCHEDULE "1" TO EXHIBIT A - PAGE 3
----------------------------------
<PAGE>
EXHIBIT C
ASSIGNMENT AND ASSUMPTION OF CONTRACTS
This Assignment and Assumption of Contracts ("Assignment"),
effective as of October ___, 1998 ("Effective Date"), is executed by SOLANA
BEACH BAKING COMPANY, a Delaware corporation ("Assignor"), and CRESTONE GROUP,
LLC, a Delaware limited liability company ("Assignee"), with reference to the
following facts:
RECITALS
A. Pursuant to an Asset Purchase Agreement ("Purchase
Agreement") dated as of October _____, 1998, Assignor has contracted to sell and
Assignee has contracted to purchase certain equipment and other personal
property owned by Assignor and used in connection with the business conducted by
Assignor ("Assets").
B. As a condition to such purchase and sale, Assignor has
agreed to transfer and assign, and Assignee has agreed to assume, certain
contractual obligations of Assignor relating to the operation, management and
maintenance of the Assets.
NOW, THEREFORE, in consideration of the mutual covenants set
forth in the Purchase Agreement and the mutual covenants set forth herein, and
for other valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties agree as follows:
1. Assignment of Contracts. Assignor hereby assigns and
transfers to Assignee all its right, title and interest in and to the contracts
listed on Schedule "1" attached hereto and made a part hereof ("Contracts").
2. Assumption of Contracts. Assignee hereby accepts said
assignment, expressly assumes Assignor's interest in the Contracts and agrees to
be bound by all the terms, conditions and covenants thereof, and agrees to
perform all the obligations imposed on Assignor thereunder.
3. Effective Date. The assignment and assumption shall take
effect on the Effective Date first set forth above, which is the date of the
Bill of Sale transferring the Assets from Assignor to Assignee.
4. Payment. Assignor represents and warrants that, as of the
Effective Date, all sums due and payable to Assignor under the Contracts for
work and services performed or materials delivered prior to the Effective Date
have been paid in full.
5. Release of Liability. As of the Effective Date, Assignor
shall be fully and unconditionally released and discharged from all further
liabilities and obligations arising under the Contracts; provided, however, that
this Assignment shall not be construed to release Assignor from any liability or
obligation arising before the Effective Date.
EXHIBIT C - PAGE 1
<PAGE>
6. Indeminity. Assignee shall indemnify, protect, hold
harmless and defend (by counsel reasonably approved by Assignor) Assignor and
its subsidiary and affiliated entities, and their respective officers,
directors, shareholders, employees, representatives and Agents, and the
successors and assigns of any of the foregoing, from and against any and all
losses, liabilities, claims, demands, damages, costs or other expenses,
including reasonable attorneys' fees, arising from or relating to any breach or
default or obligation under the contracts occurring on or after the Effective
Date. Assignor shall indemnify, protect, hold harmless and defend (by counsel
reasonably approved by Assignee) Assignee from and against any and all losses,
liabilities, claims, demands, damages, costs or other expenses, including
reasonable attorneys' fees, arising from or relating to any breach or default or
obligation under the Contracts occurring prior to the Effective Date.
7. Consent of Contracting Parties. This Assignm,ent is
contingent upon the consent of other parties to the Contracts, where required by
the terms of said contracts, in the form reasonably acceptable to Assignee.
8. General Provisions.
(a) Attorneys' Fees. In the event of any legal
action or proceeding between the parties arising out of this Assignment, the
losing party shall pay the prevailing party's legal costs and expenses,
including, but not limited to, reasonable attorneys' fees as determined by the
court.
(b) Authority. Each party represents and
warrants that it has full power and authority to execute and fully perform its
obligations under this Assignment pursuant to its governing instruments, without
the need for any further action and that the person(s) executing this Assignment
on behalf of such party are duly designated agents and are authorized to do so.
(c) Counterparts. This Assignment may be
executed in one or more counterparts, each of which shall be deemed an original,
but all of which shall constitute one and the same agreement after each party
has executed such a counterpart.
(d) Governing Law. The Assignment shall be
governed, construed and enforced in accordance with the laws of the State of
California.
(e) Notice. Notice to either party shall be in
writing, addressed to the party to be modified at the address specified herein,
and either (1) personally delivered, or (2) sent by a recognized national
overnight courier service such as Airborne or Federal Express which provides a
receipt upon delivery, or (3) sent by registered or certified first-class U.S.
mail, postage prepaid, return receipt request. Any such notice shall be deemed
received on the date of receipt if personally delivered, or on the date of
delivery evidenced by the receipt provided by the courier service or the
registered or certified mail receipt, as the case may be.
EXHIBIT C - PAGE 2
<PAGE>
Assignor's Address:
Chart House Enterprises, Inc.
640 N. LaSalle Street
Suite 295
Chicago, IL 60610
Attention: Cynthia Quigley
With a copy to:
Allen, Matkins, Leck
Gamble & Mallory LLP
501 W. Broadway
Suite 900
San Diego, CA 92101
Attention: Joe M. Davidson, Esq.
Assignee's Address:
Crestone Group, LLC
3525 Del Mar Heights Road
Suite 423
San Diego, CA 92130
Attention: David S. Wells
Either party may change its address for notice by delivering written notice to
the other party as provided herein.
(f) Successors. This Assignment shall inure to
the benefit or and be binding upon the parties and their respective legal
representatives, heirs, successors and assigns.
EXHIBIT C - PAGE 3
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Assignment
and Assumption of Contracts to be effective on the Effective Date first set
forth above.
ASSIGNOR:
SOLANA BEACH BAKING COMPANY
a Delaware corporation
By:
----------------------------------
Name:
-----------------------------
Title:
----------------------------
ASSIGNEE:
CRESTONE GROUP, LLC
a Delaware limited liability company
By:
----------------------------------
Name:
-----------------------------
Title:
----------------------------
EXHIBIT C - PAGE 4
<PAGE>
SCHEDULE "1"
TO
EXHIBIT C
OPERATING CONTRACTS
-------------------
<TABLE>
<CAPTION>
<S> <C>
1. General Mills Sales, Inc. confirmation of sale dated as of September 9, 1998;
2. CK Construction Preventative Maintenance Contract dated March 24, 1998;
3. Hold Harmless Agreement between SBBC and Sweet Illusions dated June 25, 1998;
4. Product Secrecy Agreement with Angel City Food Co. Inc. dated June 17, 1998;
5. Letter Agreement with Abbye Freiman regarding Trader Joe's dated August 12, 1998;
6. General Contract for Services between SBBC and Preferable Sales & Distribution dated as of August 1,
1998;
7. Software Support invoice dated June 10, 1998 with Datapax, Inc.
8. Los Angeles Paper Box & Board Mills folding order dated July 9, 1998;
9. Apricot and Peach Contract with Evergreen Research and Development dated August 8, 1998;
10. Walnut Sale Contract dated April 20, 1998 between SBBC and Dadant & Company;
11. Starbucks Corporation Supplier Agreement dated November 15, 1994
12. IKON Office Equipment Agreement dated December 8, 1997
</TABLE>
<PAGE>
BREAD SUPPLY AGREEMENT
This BREAD SUPPLY AGREEMENT ("Supply Agreement") made as of
this _____ day of October, 1998 (the "Effective Date"), between CHART HOUSE
ENTERPRISES, INC., a Delaware corporation ("CHE") and CRESTONE GROUP, LLC, a
Delaware limited liability company ("Crestone"), is made in consideration of the
mutual covenants hereinafter contained.
WHEREAS, concurrent with the execution of this Supply
Agreement, Crestone is acquiring substantially all of the assets of Solona Beach
Baking Company, Inc., a Delaware corporation ("SBBC") pursuant to an Asset
Purchase Agreement (the "Acquisition Agreement"); and
WHEREAS, in conjunction with the Acquisition Agreement,
Crestone desires to supply to CHE and CHE desires to purchase from Creststone a
selection of bred products for use at CHE's restaurants.
NOW, THEREFORE, in consideration of the mutual promises herein
contained, the parties hereto agree as follows:
1. Supply of Products. Crestone agrees to supply CHE, during
the term of the Agreement, the bread products identified in Exhibit "A" hereto
("Products") as CHE, its subsidiaries and affiliates (collectively, "Chart
House") may request from time to time at the prices set forth on Exhibit "A" and
such additional products as may be mutually agreed upon between CHE and
Crestone. The parties agree to supplement Exhibit "A" to reflect such additional
agreed upon Products. If Crestone utilizes CHE designated distributors then
Crestone shall pay all freight costs, shipping and other charges incurred for
delivery of Products to such distributors and charge the CHE designated
distributors such prices as listed on Exhibit A. If Crestone does not utilize a
CHE designated distributor as provided in Section 3 below, then Crestone may,
subject to CHE's prior written approval, which approval shall not be
unreasonably withheld, designate another distributor and shall pay all freight
costs, shipping and other charges incurred for delivery to the Chart House
restaurant locations; however, in no event shall the prices charged by the
Crestone designated distributor exceed the Delivered Cost to the Chart House
Restaurants Through Aprpoved Distributors other than CHE Designated Distributors
as set forth in Exhibit A.
2. Product Warranty and Quality Standards. Crestone warrants
that the Products will be manufactured by Crestone at the SBBC manufacturing
facility and sold to Chart House in compliance with all applicable federal,
state and local laws. Crestone warrants that the Products will conform in all
material respects with the specifications and quality assurance standards set
forth on Exhibit "B" hereto. Further, Crestone will utilize the same quality
ingredients in producting Products for purchase by Chart House hereunder as were
utilized by SBBC prior to the Effective Date unless directed otherwise in
writing by Chart House and mutually agreed to by Crestone.
3. Shipment of Products. Crestone will ship Products to
CHE through the use of CHE designated distributors ("Distributors") on, or as
soon as reasonably practicable prior
EXHIBIT D - PAGE 1
<PAGE>
to the tenth business day following Crestone's receipt of the Distributors'
written purchase orders. CHE will be under no obligation to provide any forecast
of its expected Product requirements during the term of this Agreement. For
purposes of this Agreement, a "business day" shall mean a day other than
Saturday, Sunday or other day on which commercial banks in the State of
California are authorized or required by law to close. In the event, during the
term of this Agreement, any CHE designated Distributor is in default of its
payment obligations to Crestone for a period in excess of 90 days. Crestone may,
subject to CHE's prior written approval, which approval shall not be
unreasonably withheld by CHE, designate another Distributor for purchase and
delivery of Products to the Chart House restaurants.
4. Minimum Purchase Requirements. Subject to Section 5 below.
Chart House agrees to purchase, in the aggregate, a minimum of supply of
Products, exclusive of shipping and freight charges ("Minimum Purchase
Requirements"), in accordance with the following schedule:
(a) Between the Effective Date and the date
which is six (6) months after the Effective Date (the "First Determination
Date") Chart House shall have purchased an aggregate of not less than Seven
Hundred Fifty Thousand Dollars ($750,000.00) of Products from Crestone;
(b) Between the Effective Date and the date which is
nine (9) months after the Effective Date (the "Second Determination Date") Chart
House shall have purchased an aggregate of not less than One Million Fifty
Dollars ($1,050,000.00) of Products from Crestone; and
(c) Between the Effective Date and the date which is
twelve (12) months after the Effective Date (the "Third Determination Date"),
Chart House shall have purchased an aggregate of One Million Two Hundred
Thousand Dollars ($1,200,000.00) of Products from Crestone.
In the event Chart House fails to purchase the Minimum
Purchase Requirements by the applicable Determination Date, for each dollar of
actual purchases of Product below the Minimum Purchase Requirement during such
period, CHE agrees to pay an amount equal to $0.426 (the "Shortfall Amount").
The Shortfall Amount shall be calculated as of each Determination Date by
Crestone and shall be due and payable by CHE, if at all, in cash or immediately
available funds, within ten (10) business days of written notification by
Crestone to CHE of such Shortfall Amount as calculated by Crestone together with
supporting documentation regarding such calculation. In the event CHE pays the
Shortfall Amount at either the First Determination Date or Second Determination
Date, or both, and subsequently satisfies the cumulative Minimum Purchase
Requirement by the next Determination Date, CHE shall be entitled to a credit
against future payment obligations on Product purchases equal to the total
Shortfall Amount actually paid.
5. Manufacturing Priority. For a period of twelve (12) months
from the Effective Date (the "Priority Period"), Crestone agrees to provide
Chart House with manufacturing priority for Products in order to meet Chart
House's requirements. In the event
EXHIBIT D - PAGE 2
<PAGE>
Crestone cannot for any reason, manufacture the Products and deliver such
Products to Chart House's Distributors in sufficient quantities or delivery
schedules (as set forth in Section 3 above) to meet Chart House's needs or in
accordance with the quality standards set forth herein then, and in each such
event, Chart House shall have the non-exclusive, royalty free, perpetual right
and license (including a right to grand sublicenses) to use recipes and know-how
related to the product of those specific products listed on Exhibit "A" (the
"CHE Reserved Rights") for the period of such inability during the Priority
Period on the part of Crestone, and all amounts directly expended by CHE in
connection with remedying Crestone's inability shall be credited in full towards
the Minimum Purchase Requirement set forth in Section 4 above. In the event
Crestone fails to manufacture the Products and deliver such Products to Chart
House's Distributors in sufficient quantities or delivery schedules to meet
Chart House's reasonable needs or in accordance with the quality standards set
forth herein on more than one (1) occasion during any three (3) month period,
and provided that the written purchase orders relating to such failure were
provided to Crestone in accordance with the ten (10) business day requirement
specified in Section 3 above, then CHE shall be entitled to cancel this
Agreement upon no less than (10) business days' prior written notice to
Crestone, and CHE shall be under no obligation to purchase any minimum quantity
of Products.
6. Shipping Terms. Chart House's Distributors shall place
orders using their standard written purchase order forms specifying the amount
and type of Product ordered and the requested delivery date(s) for such
Products. Crestone will prepay all outbound freight charges in connection with
its shipments of the Products to Chart House's Distributors.
7. Term. The initial term of this Agreement shall be from
October ____, 1998 until October _____, 1999 (the "Initial Term"), unless sooner
cancelled in accordance with the provisions hereof. After the Initial Term of
this Agreement, CHE may continue to purchase Products from Crestone at prices to
be mutually agreed upon by Crestone and CHE and provided that CHE shall be under
no obligation to purchase any minimum quantity of Products after the Initial
Term.
8. Indemnification and Insurance. Crestone hereby agrees to
indemnify, defend, and hold CHE harmless from and against any claims, suits,
losses or damages, including reasonable attorneys' fees, arising out of the
manufacture, sale or use of the Products and breach of any representation,
warranty, covenant or agreement of Crestone contained in this Agreement.
Crestone shall obtain and maintain at its own expense, product liability
insurance naming CHE as an insured party from a qualified insurance carrier in
the amount of at least One Million Dollars ($1,000,000.00) per person/Two
Million Dollars ($2,000,000.00) in the aggregate for personal injury and Five
Hundred Thousand Dollars ($500,000.00) per incident, One Million Dollars
($1,000,000.00) in the aggregate for property damage, which policy shall not be
canceled or modified during the term of this Agreement except after thirty (30)
days prior written notice to CHE and Crestone shall provide CHE with a copy of
such policy. For purposes of this Section, the parties indemnified and insured
shall include the stockholders, officers, directors, agents and employees of CHE
and its Affiliates.
EXHIBIT D - PAGE 3
<PAGE>
9. Cancellation.
-------------
A. Cancellation for Breach. Violation by
------------------------
Crestone of its covenants or agreements contained herein shall be cause for
cancellation by CHE upon giving Crestone not less than thirty (30) days written
notice thereof, such notice to be effective upon mailing. If said breach shall
not have been rectified to CHE's reasonable satisfaction with thirty (30) days,
acting in good faith, then this Agreement shall be deemed canceled on the date
immediately following the thirty (30) day period.
B. Cancellation for Bankruptcy, Failure to Meet
--------------------------------------------
Manufacturing Priority, Discontinuation of Business, Etc. In the event (i)
- ---------------------------------------------------------
Crestone shall file a petition for bankruptcy or be adjudicated as bankrupt or
become insolvent or make any assignment for the benefit of creditors, or be
placed in the hands of a receiver, (ii) CHE shall exercise its rights pursuant
to Section 5 above, or (iii) Crestone discontinues its business including, but
not limited to, the business previously operated by SBBC (but specifically
excluding changes in customer or product mix based upon the ordinary course of
business), then, in any such event, CHE may cancel this Agreement by written
notice, by mail, to Crestone, its receiver, trustees, or assignees.
C. Effect of Cancellation. Upon cancellation
-----------------------
of this Agreement, CHE shall have no duty to purchase additional Products from
Crestone and the Minimum Purchase Requirements set forth herein shall be of no
further force or effect; provided, however, that any amounts owed to Crestone by
CHE at the time of cancellation for Conforming Products delivered in accordance
with the terms of this Agreement will be promptly paid and further provided that
any cancellation by Crestone due to a breach of this Agreement by CHE will
nonetheless require payment of any unpaid Minimum Purchase Requirements.
D. All Rights Reserved. Cancellation of the
--------------------
Agreement under this provision shall be without prejudice to any rights which
CHE otherwise has against Crestone or Crestone otherwise has against CHE.
Notwithstanding any cancellation of this Agreement and notwithstanding any other
provision of this Agreement, the Acquisition Agreement or the Co-Packaging
Agreement (referred to in the Acquisition Agreement) to the contrary, Chart
House shall retain the CHE Reserved Rights for the purpose of meeting Chart
House's requirements.
E. Cancellation by Crestone. Crestone may
-------------------------
cancel this Agreement after the Initial Term, for any or for no reason, in its
sole and absolute discretion, by providing CHE with not less than sixty (60)
days' prior written notice.
10. No Waiver. Failure by CHE or Crestone to enforce any
----------
rights under this Agreement shall not be construed as a waiver of such rights
nor shall a waiver or default in one or more instances be construed as
constituting a continuing waiver or as a waiver in other instances.
11. Notices.
--------
A. All notices to be given to CHE pursuant to
this Agreement shall be given or made at the address set forth below, and the
date of mailing by prepaid, express or certified mail, return receipt requested,
shall be deemed the date the notice is given:
EXHIBIT D - PAGE 4
<PAGE>
Chart House Enterprises, Inc.
640 N. LaSalle Street
Suite 295
Chicago, IL 60610
Attention: Cynthia Quigley
with a copies to:
Allen, Matkins, Leck, Gamble & Mallory LLP
501 W. Broadway
Suite 900
San Diego, CA 92101
Attention: Joe M. Davidson, Esq.
B. All notices to be given to Crestone pursuant
to this Agreement shall be given or made at the address set forth below, and the
dates of mailing by prepaid, express or certified mail, return receipt request,
shall be deemed the date the statement is given to:
Crestone Group, LLC
3525 Del Mar Heights Road
Suite 423
San Diego, CA 92130
Attention: David S. Wells
12. Prohibition of Assignment by Crestone. This Agreement and
all rights and duties hereunder are personal to Crestone and shall not, without
the written consent of CHE be assigned or transferred by Crestone or by
operation of law, and any attempt to do so will be null and void. CHE, in
addition to all other rights and remedies, including CHE's right to damages,
shall have the right, on written notice to Crestone, to cancel this Agreement on
the occurrence of FA Industries Inc. and/or its principals and affiliates
(determined as of the Effective Date) owning any less than fifty-one percent
(51%) of the membership interest or other evidence of ownership of Crestone. In
the event of such cancellation by CHE, CHE shall nonetheless retain the CHE
Reserved Rights for the purpose of meeting CHE's requirements.
13. Governing Law; Arbitration. This Agreement shall be
governed by and construed in accordance with, the laws of the State of
California, regardless of the law of choice of law or conflict of law of that or
any other jurisdiction. In connection with any legal action or proceeding
relating to this Agreement, including claims of fraud, each party hereby submits
itself and its property to the exclusive jurisdiction of the courts of the State
of California located in the City of San Diego and the courts of the United
States of America for the Southern District of California for the purpose of
enforcement of any arbitration judgment. Any controversy shall be settled by
binding arbitration at San Diego, California, in accordance with the rules of
the American Arbitration Association and judgment entered upon the award
rendered may be enforced by appropriate judicial action. The parties hereto
agree that an arbitrator shall be deemed qualified to serve hereunder only if
the arbitrator is a retired federal judge or an attorney who has engaged in the
private practice of law for at least 15 years, specializing in corporate,
EXHIBIT D - PAGE 5
<PAGE>
commercial or business law matters. A "qualified" arbitrator shall not be
affiliated with any of the parties not have any past material relationship with
any of the parties to the arbitration. The arbitration shall be conducted by one
qualified arbitrator agreed to by both parties within thirty (30) days following
notice by one party that it desires that the matter be arbitrated. If the
parties are unable to agree upon a qualified arbitrator, then one qualified
arbitrator shall be selected by the San Diego Office of the American Arbitration
Association. If awarded in the discretion of the arbitrator, the losing party
shall bear any fees and expenses of the arbitrator, reasonable attorneys' fees
of both parties, and other reasonable costs and expenses incurred by it or the
prevailing party.
14. Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall be an original and all of which taken
together shall constitute one and the same instrument.
15. Entire Agreement. This Agreement, the Acquisition
Agreement, the Co-Packaging Agreement and the Exhibits and other documents
referred to herein or therein, contain the entire understanding of the parties
hereto with respect to the subject matter contained herein and therein. This
Agreement supersedes all prior agreements and understandings (oral or written)
between the parties with respect to such subject matter.
16. Amendments; Wavers. No provision of this Agreement may be
amended or waived unless such amendment or waiver is in writing and signed by
each of the parties hereto. Neither the failure nor any delay by any party in
exercising any right hereunder will operate as a waiver of such right, and no
single or partial exercise of any such right will preclude any other or further
exercise of such right or the exercise of any other right.
17. Severability. In case any provision of this Agreement
shall be held invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions hereof will not in any way be
affected or impaired thereby. Any provision held invalid, illegal or
unenforceable in part will remain in full force and effect to the extent no held
invalid, illegal or unenforceable.
18. Rules of Construction. The normal rules of construction
which require the terms of this Agreement may be construed most strictly against
the drafter of such agreement are hereby waived since each party has been
represented by counsel in the drafting and negotiation of this Agreement.
19. Force Majeure Events and Excusable Delays. Except to the
extent otherwise provided herein, no liability shall result to any party to this
Agreement from default, delay in performance or for non-performance caused
directly or indirectly by act of God, fire, flood, explosion, war, embargo,
public disorders, acts of public enemies, and prohibitions or restrictions by
law and government regulations; provided, however, that a strike, labor dispute,
picketing, refusal of Crestone's employees to work, commercial impracticability,
or similar conditions or causes shall not excuse Crestone's performance of its
obligations hereunder. The party experiencing the excusable delay or force
majeure event shall give notice in writing immediately of the cause relied on
and shall use of its best efforts in taking all measures and
EXHIBIT D - PAGE 6
<PAGE>
precautions to reduce the effect of such delay on that party's performance of
its obligations hereunder.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement by officer(s) thereunto duly authorized as of the date first written
above.
CHE:
CHART HOUSE ENTERPRISES, INC. a
Delaware corporation
By:
--------------------------------------
Its:
----------------------------------
Crestone:
CRESTONE GROUP, LLC
a Delaware limited liability company
By:
--------------------------------------
Its:
----------------------------------
EXHIBIT D - PAGE 6
<PAGE>
EXHIBIT "A"
-----------
PRODUCT AND PRICE LIST
<TABLE>
<CAPTION>
DELIVERED COST TO THE CHART HOUSE RESTAURANTS DELIVERED
THROUGH APPROVED DISTRIBUTORS COST TO THE CHE
OTHER THAN CHE DESIGNATED DISTRIBUTORS DESIGNATED DISTRIBUTORS
------------------------------------------------------------ ------------------------
Southern
California Hawaii Chart All Other F.O.B.
Chart House House Chart House Solana To To To
Item Pack Size Restaurants Restaurants Restaurants Beach G&G Cal-Hano SYSCO
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Squaw Bread 24/1.5 $34.50 $45.63 $41.30 $30.00 $30.00 $32.00 $38.65
Country 20/2# $26.26 $37.42 $33.05 $21.75 $21.75 $32.75 $30.40
Bread
Sour Dough 240 ea./case $25.00 --- $31.80 $20.50 $20.50 $22.50 $29.15
1.5 oz. Rolls
Squaw Rolls 240 ea./case $24.50 --- $31.30 $20.00 $20.00 $22.00 $28.65
1.5 oz.
Squaw Mini 72 ea./case $20.35 $32.00 $27.15 $15.85 $15.85 $17.85 $24.50
Loaf 5 oz.
Rustic Mini 72 ea./case $15.30 $26.00 $22.10 $10.80 $10.80 $12.80 $19.45
Loaf 5
French 20 ea./case $19.65 $32.00 $26.45 $15.15 $15.15 $17.15 $23.80
Baguette
Pulman Loaf 15 ea./case $30.30 $40.00 $37.10 $25.80 $25.80 $27.80 $34.45
Seasoned 15#/case $22.50 $26.26 $29.30 $18.00 $18.00 $20.00 $26.65
Croutons
Sourdough 30/1#/case $30.00 --- $36.80 $25.50 $25.50 --- $34.15
Sliced
Challah 12/2#/case $20.85 --- --- $16.35 $16.35 --- ---
</TABLE>
EXHIBIT "A" TO BREAD SUPPLY AGREEMENT
<PAGE>
EXHIBIT "B"
SPECIFICATIONS AND QUALITY ASSURANCE STANDARDS
INGREDIENTS USED:
- -----------------
For the products defined in Exhibit "A" of the Bread Supply Agreement, Crestone
must use the raw materials specified below:
1. All Trump Flour (General Mills)
2. Harvest King Bread Flour (General Mills)
3. Whole Wheat Flour (General Mills
4. Fancy Duran Flour (General Mills
5. Bakers Bran (General Mills)
6. Dark Brown Sugar (Spreckles or C&H)
7. Eight Grain Mix (from Ener-G Foos, Inc.,
Seattle, Washington, procured from General
Mills)
8. Cracked Wheat (ConAgra, Inc.)
9. Red Star Dry Malt
10. Bakels Natural Dough Conditioner (NBI)
11. Molasses: Code #647 (International Molasses Corp.)
12. Carmel Color: Sethness BC145 Carmel Color (Van
Waters and Rogers)
13. Red Star Yeast (Universal Food Corp.)
14. Garlic, minced (G&G Produce Company)
15. Cayenne Pepper Sauce (Trail Hand by Ventura Foods)
16. Worcestershire Sauce (Wisley)
FOOD HANDLING PRACTICES:
- ------------------------
Crestone will handle product in accordance with generally accepted food handling
practices, as defined by USDA, as well as state and local health agencies.
Systems must be in place and in use to ensure products are handled in a safe,
organized, clean and sanitary manner.
EXHIBIT "B" TO BREAD SUPPLY AGREEMENT
<PAGE>
CO-PACKAGING AGREEMENT
----------------------
This CO-PACKAGING AGREEMENT (the "Agreement"), made as of this
_____day of October, 1998 (the "Effective Date"), among CHART HOUSE ENTERPRISES,
INC. a Delaware corporation ("CHE") and CRESTONE GROUP, LLC, a Delaware limited
liability company ("Crestone"), is made in consideration of the mutual covenants
hereinafter contained.
WHEREAS, concurrent with the execution of this Agreement
Crestone is acquiring substantially all the assets of SOLANA BEACH BAKING
COMPANY, INC., a Delaware corporation ("SBBC") pursuant to an Asset Purchase
Agreement (the "Acquisition Agreement"); and
WHEREAS, Crestone desires to obtain from CHE pursuant to this
Agreement the right to manufacture and sell certain existing Chart House branded
bread products identified in Exhibit "A" hereto (the "Co-Pack Products") solely
to the existing cusstomers identified in Exhibit "B" hereto (the "Customers")
and soley within the geographic territory described in Exhibit "B" (the
"Territory") as set forth in this Agreement;
WHEREAS, CHE desires, subject to the terms of this Agreement,
to permit Crestone to produce, distribute and sell the Co-Pack Products to the
Customers within the Territory;
NOW, THEREFORE, in consideration of the mutual promises herein
contained, the parties hereto agree as follows:
1. CO-PACKAGING RIGHTS
CHE hereby grants to Crestone the exclusive revocable (but
revocable only under the terms set forth in this Agreement), nontransferable
right to manufacture, sell and distribute the Co-P:ack Products solely to
existing Customers and only within the Territory, all other rights relating to
the CHE Proprietary Rights (as defined below) being expressively reserved by
CHE. CHE, its subsidiaries and affiliates agree not to compete, directly or
indirectly, with Crestone in connection with the sale of Co-Pack Products to
existing Customers within the Territory. This shall in no way preclude CHE, its
subsidiaries or affiliates at any time from selling or providing unbranded bread
products in its restaurants or the Co-Pack Products in its restaurants or
branded or unbranded products outside the Territory.
2. TERM; RETAINED RIGHTS
(i) The initial term (hereunder the "Initial
Term") of this Agreement shall be from October _____, 1998 until October _____,
2000, unless sooner cancelled in accordance with the provisions hereof.
EXHIBIT E - PAGE 1
<PAGE>
(ii) After the Initial Term, provided that
Crestone is not in default and subject to mutual agreement of the parties, this
Agreement may be extended for successive periods of one (1) year, commencing
upon expiration of the Initial Term, upon mutual written agreement of the
parties at least thirty (30) days prior to expiration of the Initial Term or any
renewed term.
(iii) Notwithstanding the provisions of this or
any other section of this Agreement, CHE shall retain the non-exclusive, royalty
free, perpetual right and license (including a right to grant sublicenses) to
use recipes and know-how related to the production of those specific products
listed on Exhibit "A" ("CHE Reserved Rights") for the purpose of meeting CHE's
requirements during the term of this Agreement and following the cancellation of
this Agreement and in the event Crestone fails to meet its obligations under
this Agreement. The parties understand, acknowledge and agree that in connection
with the Acquisition Agreement CHE has retained all right, title and interest in
and to the CHE Proprietary Rights identified in Exhibit "C", and none of such
CHE Proprietary Rights or any interest therein are transferred or conveyed in
any respect to Crestone.
3. PAYMENT BY CRESTONE
In consideration of the rights granted by CHE to Crestone
hereunder, Crestone shall pay CHE $25,000.00 concurrent with the execution of
this Agreement by cashier's check and no other payment of any nature shall be
required during the term of this Agreement.
4. DUTIES OF CHE AND CRESTONE
A. Except as set forth in Section 8.B below, CHE shall have no
duty, obligation or responsibility of any type or nature with respect to the
Co-Pack Products.
B. All manufacturing responsibilities, customers relations,
broker arrangements and payment obligations relating to, arising out of or
resulting from the Co-Pack Products or this Agreement will be the sole
responsibility of Crestone.
5. REPRESENTATIONS AND WARRANTIES OF CRESTONE
A. Crestone is a limited liability company duly organized,
validly existing and in good standing under the laws of the State of Delaware
and is qualified to do business in the State of California. Crestone has the
power and authority to execute, deliver and perform its obligations under this
Agreement and to consummate the transaction contemplated hereby.
B. No consent, authorization or waiver by, or filing with, any
governmental agency or any other person is required to be obtained or made by
Crestone in connection with the execution or performance of this Agreement or
the taking of any action contemplated hereby.
6. REPRESENTATIONS AND WARRANTIES OF CHE
A. CHE is corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware. CHE has the power and
authority to execute, deliver
EXHIBIT E - PAGE 2
<PAGE>
and perform its obligations under this Agreement and to consummate the
transaction contemplated hereby.
B. No consent, authorization or waiver by, or filing with, any
governmental agency or any other person is required to be obtained or made by
CHE in connection with the execution or performance of this Agreement or the
taking of any action contemplated hereby.
7. TITLE AND PROTECTION OF CHART HOUSE PROPRETARY RIGHTS
A. Title to CHE Proprietary Rights. Crestone acknowledges and
agrees that the CHE Propretary Rights identified in Exhibit "C" hereto, and all
rights therein and goodwill associated therewith, are the exclusive property of
CHE and/or its subsidiaries and affiliates. Crestone agrees that it shall not,
during the term of this Agreement or at any time thereafter, attack the title or
any right of CHE in or to the CHE Proprietary Rights. Crestone agrees that it
has not and shall not for its benefit, directly or indirectly, register(ed) or
apply(ied) for registration of any of the CHE Proprietary Rights any portion of
the labeling or packaging of the Co-Pack Products or any mark which is, in CHE's
sole opinion, the same as or confusingly similar to any of the CHE Proprietary
Rights existing presently or hereafter. No marketing, advertising or promotional
material utilized by Crestone of any nature shall utilize any of the CHE
Proprietary Rights; provided, however, that any "point of sale" merchandising
and marketing materials used by SBBC or CHE prior to the Effective Date is
hereby approved for use and reproduction by Crestone after the Effective Date of
this Agreement. In addition, any "point of sale" merchandising and marketing
materials proposed to be utilized by Crestone in the future will be submitted
for CHE's prior written approval which may be withheld in the sole discretion of
CHE. For purposes of this Agreement, the term CHE Proprietary Rights means CHE's
logos, trademarks and other proprietary rights identified in Exhibit "C" hereto
and all rights therein and goodwill associated therewith.
B. Protection of CHE Proprietary Rights. Crestone shall notify
CHE in writing of any imitation by others of the CHE Proprietary Rights of which
Crestone becomes aware and CHE shall notify Crestone in writing of any imitation
by others of the CHE Proprietary Rights of which CHE becomes aware. CHE shall,
in its sole discretion, determine the appropriateness and nature of any action
to be taken in response thereto, CHE shall bear the full cost and expenses
associated therewith, and CHE shall be entitled to sole enjoyment of any
proceeds resulting from such action. Crestone agrees to cooperate fully with CHE
in the protection of the CHE Proprietary Rights, and shall be reimbursed for all
its reasonable expenses related thereto, including costs and expenses, including
attorneys' fees.
8. INDEMNIFICATION AND INSURANCE
A. Crestone hereby agrees to indemnify, defend and hold CHE
harmless from and against any claims, suits, losses or damages, including
attorney's fees, arising out of: (i) the manufacture, sale, distribution or use
of the Co-Pack Products, or out of use of any process, method or device used by
Crestone in connection with the manufacture, sale or distribution of the Co-Pack
Products, and (ii) breach of any representation, warranty, covenant or agreement
of Crestone contained in this Agreement. Crestone shall obtain and maintain and
its own expense,
EXHIBIT E - PAGE 3
<PAGE>
commencing at least thirty (30) days prior to the date of commencement of
distribution of the Co-Pack Products, product liability insurance naming CHE as
an insured party from a qualified insurance carrier in the amount of at least
$1,000,000 per person/$2,000,000 in the aggregate for personal injury and
$500,000.00 per incident/$1,000,000.00 in the aggregate for property damage,
which policy shall not be canceled or modified except after thirty (30) days
prior written notice to CHE and prior to selling or distributing any of the
Co-Pack Products, Crestone shall provide CHE with a copy of such policy. For
purposes of this Section, the parties indemnified and insured shall include the
stockholders, officers, directors, agents and employees of CHE and its
affiliates ("CHE Affiliates").
B. CHE hereby agrees to indemnify, defend and hold Crestone
harmless from and against any and all claims, suits, losses or damages,
including attorneys' fees, suffered by Crestone arising out of any claim that
the CHE Proprietary Rights infringe any patent, copyright, trademark or other
proprietary right of a third party.
9. QUALITY OF CO-PACK PRODUCTS - WRITTEN APPROVAL - SAMPLES
A. Warranty. Crestone warrants that the Co-Pack Products will
be manufactured, sold and distributed in compliance with all applicable Federal,
State and local laws.
B. Packaging. All uses of the CHE Proprietary Rights, and
other designs, logos and artwork, in connection with the packaging and labeling
of and the containers for the Co-Pack Products shall be subject to the prior
written approval of CHE, which may be withheld in the sole and absolute
discretion of CHE. All existing packaging, labeling and containers for the
Co-Pack Products in existence as of the Effective Date are hereby approved by
CHE. Crestone agrees to maintain not more than a 45-day supply of printed bags
and labels without prior notification to and written approval by CHE.
Inasmuch as the packaging, labeling and containers for the
Co-Pack Products cannot be incorporated into Crestone's normal inventory by
virtue of the uniqueness of the packaging, labeling and containers, CHE agrees
that it will either: (i) allow Crestone to continue to utilize existing
pre-approved packaging, labeling and/or containers on Co-Pack Products in the
event of a change by CHE in its logos, designs or artwork or, (ii) at CHE's
election, CHE will purchase from Crestone, at Crestone's documented
out-of-pocket cossts, not more than a 45-day supply of packaging, labeling and
containers containing the former CHE logos, designs or artwork relating to the
following items:
Chart House Squaw Sandwich Bread
Chart House Molasses Wheat Squaw Bread
Chart House Gourmet Croutons
Nutritional Label for Chart House Gourmet Croutons
C. Samples and Approvals; Product Quality. Upon CHE's written
request, Crestone shall furnish CHE not more often than once a month, free of
cosst, for its approval, at least three (3) samples of each Co-Pack Products,
its cartons, containers, and packaging and wrapping material. Crestone warrants
that the Co-Pack Products will be manufactured by
EXHIBIT E - PAGE 4
<PAGE>
Crestone at the SBBC manufacturing facility. Crestone warrants that the Co-Pack
Products will conform in all material respects with the specifications and
quality assurance standards listed on Exhibit "D" attached hereto and will
utilize the same quality ingredients in producing Co-Pack Products as were
utilized by SBBC prior to the Effective Date. CHE shall notify Crestone in
writing of its disapproval of any samples within a reasonable time after
sampling, and CHE and Crestone hereby agree to use their best efforts to jointly
develop a plan to cure any defect(s) specifically identified by CHE.
D. Facility. From time to time during the term of this
Agreement, Crestone shall allow represnetatives of CHE to inspect the
manufacturing facility, at reasonable times, and upon CHE's prior written
request, for compliance with this Agreement. CHE shall notify Crestone in
writing of its disapproval of the condition of the manufacturing facility within
a reasonable time after inspection, and CHE and Crestone hereby agree to use
their best efforts to jointly develop a plan to cure any defect(s) specifically
identified by CHE. CHE hereby approves the condition of the manufacturing
facility as of the date the facility is delivered to Crestone pursuant to the
Acquisition Agreement, and acknowledges that so long as the manufacturing
facility is maintained in this condition, that Crestone will be in compliance
with this provision of this Agreement as to the facility's condition.
E. Limitation upon Approvals. Any approval under this section
shall not constitute a waiver of CHE's rights or Crestone's duties under any
other provisions of this Agreement. Approval by CHE shall not involve or
constitute acceptance by CHE of any particular use or be deemed approval of the
quality or safety of the Co-Pack Products, or be construed to create, in any
way, any guaranty or warranty on the part of CHE as to the fitness, quality,
workmanship, or character of the Co-Pack Products, or to authorize any liability
for indebtedness or claims of damage whatsoever by any third party against CHE,
or to impose any obligation on CHE or any of its Affiliates with respect to any
of the Co-Pack Products.
F. Notice of Ownership of and Exclusive Rights in CHE
Proprietary Rights. Crestone agrees that it will cause to appear on or within
each of the Co-Pack Products appropriate notice of registration or a claim of
ownership of and/or exclusive rights (or other such notice as required by CHE)
in all of the CHE Proprietary Rights utilized in the packaging thereof. In the
event any of the Co-Pack Products are marketed or sold in packaging and/or a
container bearing any of the CHE Proprietary Rights, such notice shall also
appear on the packaging and/or contained in such form as shall be prescribed by
CHE. All materials bearing such notices shall first be submitted to CHE for its
written approval, which may be withheld in the sole discretion of CHE. The
notices appearing on all existing packaging, labeling and containers for the
Co-Pack Products as of the Effective Date are hereby approved by CHE.
G. Notice of Defects. In the event Crestone has failed to
comply with any provision of this Section 9, or any defect(s) remain(s) uncured
ten (10) days after written notice of the defect(s) from CHE (or within a longer
period of time as CHE may deem appropriate), CHE may, in its sole discretion,
take all remedial action to cure the defect(s) unilaterally, including, but not
limited to, the immediate exercise of its right and license to use the CHE
Reserved Rights and to secure alternate suppliers.
EXHIBIT E - PAGE 5
<PAGE>
10. RECORDS
A. Records of Account and Access to All Records. Crestone
agrees to keep accurate books of account and records covering all transactions
relating to the Co-Pack Products sold by it during the term of this Agreement
(the "Co-Pack Records"), and upon five (5) days written notice, CHE, or its duly
authorized representatives, shall have the right during business hours (9:00
a.m. to 5:00 p.m.) of the day to an examination of those books of accounts and
records and all other documents and materials in the possession or under the
control of Crestone with respect to the subject matter and terms of this
Agreement, and shall have access thereto for those purposes and for the purpose
of making extracts therefrom at CHE's cost. It is understood that information
acquired from Crestone is for the purposes of examination and for the
enforcement of the terms of this Agreement only. All Co-Pack Records shall be
kept available for at least two (2) years after the cancellation of this
Agreement. CHE and its representatives will keep all information obtained during
any such review strictly confidential.
B. Manufacturing, Processing and Packaging Records. Crestone
agrees that it will keep accurate manufacturing, processing, and packaging
records showing the history of each grouping of Co-Pack Products, i.e., the
number of items, sizes and lot numbers, dates of production, and quality control
records, permitting identification and tracing of each lot, batch, unit,
production run, or any other identifiable grouping of, Co-Pack Products, and
will forward one (1) counterpart of such records to CHE (Attn: Cynthia Quigley)
by mail upon written request at Crestone's expense unless CHE makes requests
more than once a month in which event any request made by CHE in excess of once
a month shall be at CHE's expense.
11. CANCELLATION
A. Cancellation of Breach. Violation by Crestone of its
covenants or agreements contained in Sections 1, 8 or 10 shall be cause for
immediate cancellation by CHE upon giving Crestone written notice thereof, such
notice to be effective upon receipt by Crestone. In the event Crestone breaches
any other provision of this Agreement, CHE may initiate cancellation of this
Agreement by giving Crestone written notice by mail, specifying the particulars
of the breach, and providing a period of thirty (30) days to correct the breach.
If said breach shall not have been rectified to CHE's satisfaction within thirty
(30) days, then this Agreement shall be deemed canceled on the date immediately
following the thirty (30) day period.
B. Cancellation of Bankruptcy, Discontinuation of Business,
Etc. In the event Crestone shall file a petition for bankruptcy or be
adjudicated as bankrupt or become insolvent or make any assignment for the
benefit of creditors, or be placed in the hands of a receiver, or if Crestone
discontinues its business including, but not limited to the business previously
operated by SBBC (but specifically excluding changes in customer or product mix
based upon the ordinary course of business), then CHE may cancel this Agreement
by written notice by mail, to Crestone, its receiver, trustees, or assignees.
Upon cancellation of this Agreement, except as otherwise provided herein.
Crestone shall have no right to manufacture, sell or distribute any Co-Pack
Products, including Co-Pack Products in its inventory.
EXHIBIT E - PAGE 6
<PAGE>
C. Effect of Cancellation. Crestone acknowledges that its
failure to cease the distribution of the Co-Pack Products or any class or
category thereof, at the cancellation of this Agreement or any portion thereof,
will result in irreparable damage to CHE. Crestone acknowledges and agrees that
there is not an adequate remedy at law for such failure to cease manufacture,
sale and/or distribution, and Crestone agrees that in the event of such failure,
CHE shall be entitled to equitable relief by way of temporary and permanent
injunction and such other future relief as any court may deem just and proper.
D. Final Statement and Disposal. Fifteen (15) days before the
expiration of this Agreement, or upon demand in case of cancellation for
Crestone's breach, Crestone shall furnish to CHE a statement showing the number
and description of Co-Pack Products on hand or in process. CHE shall have the
right to take a physical inventory at reasonable times during business hours
(9:00 a.m. to 5:00 p.m.) and upon reasonable advance written notice to ascertain
or verify such inventory and statement, and unreasonable refusal by Crestone to
submit to such physical inventory by CHE shall forfeit Crestone's right to
dispose of such inventory and CHE shall retain all other legal and equitable
rights it may have in the circumstances. For fifteen (15) days after the
effective date of cancellation of this Agreement, Crestone may dispose of the
Co-Pack Products that are on hand at the time of cancellation or, at CHE's
election, CHE may repurchase at Crestone's documented cost, the packaging,
labeling and containers identified in Section 9.B above that cannot be
incorporated in Crestone's normal inventory. Thereafter, Crestone shall not be
entitled to utilize the CHE packaging and shall remove all bread products from
existing packaging and return all remaining packaging to CHE at Crestone's sole
cost and expense.
E. Cancellation by Crestone. Crestone may cancel this
Agreement for any reason or for no reason, in its sole and absolute discretion,
by providing CHE with thirty (30) days prior written notice. Thereafter,
Crestone shall not be entitled to utilize the CHE packaging and shall remove all
bread products from existing packaging and return all remaining packaging to CHE
at Crestone's sole cost and expense.
F. All Rights Reserved. Cancellation of the Agreement under
this provision shall be without prejudice to any rights which CHE otherwise has
against Crestone or Crestone otherwise has against CHE.
12. NO WAIVER
Failure by CHE or Crestone to enforce any rights under this
Agreement shall not be construed as a waiver of such rights nor shall a waiver
or default in one or more instances be construed as constituting a continuing
waiver or as a waiver in other instances.
13. NOTICES
A. All notices to be given to CHE pursuant to this Agreement
shall be given or made at the address set forth below, and the date of mailing
by prepaid, express or certified mail, return receipt requested, shall be deemed
the date the notice is given:
EXHIBIT E - PAGE 7
<PAGE>
Chart House Enterprises, Inc.
640 N. LaSalle Street
Suite 295
Chicago, IL 60610
Attention: Cynthia Quigley
with a copies to:
Allen, Matkins, Leck, Gamble & Mallory LLP
501 W. Broadway
Suite 900
San Diego, CA 92101
Attention: Joe M. Davidson, Esq.
B. All notices to be given to Crestone pursuant to
this Agreement shall be given or made at the address set forth below, and the
dates of mailing by prepaid, express or certified mail, return receipt request,
shall be deemed the date the statement is given to:
Crestone Group, LLC
3525 Del Mar Heights Road
Suite 423
San Diego, CA 92130
Attention: David S. Wells
14. PROHIBITION OF ASSIGNMENT BY CRESTONE
This Agreement and all rights and duties hereunder
are personal to Crestone and shall not, without the written consent of CHE be
assigned, transferred or otherwise encumbered, in whole or in part, by Crestone
or by operation of law, and any attempt to do so will be null and void. CHE, in
addition to all other rights and remedies, including CHE's right to damages,
shall have the right, on written notice to Crestone, to cancel this Agreement on
the occurrence of FA Industries Inc. and its principals and affiliates
(determined as of the Effective Date) owning any less than fifty-one percent
(51%) of the membership interest or other evidence of ownership of Crestone.
15. GOVERNING LAW; ARBITRATION
This Agreement shall be governed by and construed in
accordance with, the laws of the State of California, regardless of the law of
choice of law or conflict of law of that or any other jurisdiction. In
connection with any legal action or proceeding relating to this Agreement,
including claims of fraud, each party hereby submits itself and its property to
the exclusive jurisdiction of the courts of the State of California located in
the City of San Diego and the courts of the United States of America for the
Southern District of California for the purpose of enforcement of any
arbitration judgment. Any controversy shall be settled by binding arbitration at
San Diego, California, in accordance with the rules of the American Arbitration
Association and judgment entered upon the award rendered may be enforced by
appropriate judicial action.
EXHIBIT E - PAGE 8
<PAGE>
The parties hereto agree that an arbitrator shall be deemed qualified to serve
hereunder only if the arbitrator is a retired federal judge or an attorney who
has engaged in the private practice of law for at least 15 years, specializing
in corporate, commercial or business law matters. A "qualified" arbitrator shall
not be affiliated with any of the parties not have any past material
relationship with any of the parties to the arbitration. The arbitration shall
be conducted by one qualified arbitrator agreed to by both parties within thirty
(30) days following notice by one party that it desires that the matter be
arbitrated. If the parties are unable to agree upon a qualified arbitrator, then
one qualified arbitrator shall be selected by the San Diego Office of the
American Arbitration Association. If awarded in the discretion of the
arbitrator, the losing party shall bear any fees and expenses of the arbitrator,
reasonable attorneys' fees of both parties, and other reasonable costs and
expenses incurred by it or the prevailing party.
16. COUNTERPARTS
This Agreement may be executed in one or more
counterparts, each of which shall be an original and all of which taken together
shall constitute one and the same instrument.
17. ENTIRE AGREEMENT
This Agreement, including the Exhibits and other
documents referred to herein which form a part hereof, contains the entire
understanding of the parties hereto with respect to the subject matter contained
herein and therein. This Agreement supersedes all prior agreements and
understandings (oral or written) between the parties with respect to such
subject matter.
18. AMENDMENTS; WAVERS
No provision of this Agreement may be amended or
waived unless such amendment or waiver is in writing and signed by each of the
parties hereto. Neither the failure nor any delay by any party in exercising any
right hereunder will operate as a waiver of such right, and no single or partial
exercise of any such right will preclude any other or further exercise of such
right or the exercise of any other right.
19. SEVERABILITY
In case any provision of this Agreement shall be held
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions hereof will not in any way be affected or impaired
thereby. Any provision held invalid, illegal or unenforceable in part will
remain in full force and effect to the extent no held invalid, illegal or
unenforceable.
20. RULES OF CONSTRUCTION
The normal rules of construction which require the
terms of this Agreement may be construed most strictly against the drafter of
such agreement are hereby waived since each party has been represented by
counsel in the drafting and negotiation of this Agreement.
EXHIBIT E - PAGE 9
<PAGE>
21. FORCE MAJEURE
Except to the extent otherwise provided herein, no
liability shall result to any party to this Agreement from default, delay in
performance or for non-performance caused directly or indirectly by act of God,
fire, flood, explosion, war, embargo, public disorders, acts of public enemies,
and prohibitions or restrictions by law and government regulations; provided,
however, that a strike, labor dispute, picketing, refusal of Crestone's
employees to work, commercial impracticability, or similar conditions or causes
shall not excuse Crestone's performance of its obligations hereunder. The party
experiencing the excusable delay or force majeure event shall give notice in
writing immediately of the cause relied on and shall use its best efforts in
taking all measures and precautions to reduce the effect of such delay on that
party's performance of its obligations hereunder.
CHE:
CHART HOUSE ENTERPRISES, INC. a
Delaware corporation
By:
-----------------------------------
Its:
-------------------------------
Crestone:
CRESTONE CAPITAL CORPOATION, a
Delaware limited liability company
By:
-----------------------------------
Its:
-------------------------------
EXHIBIT E - PAGE 10
<PAGE>
EXHIBIT "A"
-----------
CO-PACK PRODUCTS
----------------
ITEM:
o Chart House Squaw Bread, sandwich sliced
o Chart House Country Bread
o Chart House Seasoned Croutons
o Chart House Rustic Mini Loaf
o Chart House Squaw Mini Loaf
EXHIBIT "A" TO CO-PACKAGING AGREEMENT
<PAGE>
EXHIBIT "B"
-----------
CUSTOMERS AND TERRITORY
-----------------------
CUSTOMERS:
- ----------
Costco
Sam's Club
Certified Grocers
Cardiff Seaside Market
Harvest Ranch Market
TERRITORY: The Following Counties in California:
- -------------------------------------------------
San Diego County
Imperial County
Orange County
Riverside County
San Bernardino County
Los Angeles County
Ventura County
Kern County
EXHIBIT "B" TO CO-PACKAGING AGREEMENT
<PAGE>
EXHIBIT "C"
-----------
CHE TRADEMARKS, LOGOS, ETC.
---------------------------
The parties acknowledge and agree that the term "CHE
Proprietary Rights" as used in the Agreement shall include:
1. The trademark and service marks THE CHART HOUSE and CHART HOUSE, all
applications and registrations therefor and all common law rights therein,
including:
MARK U.S. TM REG. NO. ISSUE DATE
- ---- ---------------- ----------
Boat Design N/A N/A
CHART HOUSE 1,061,033 03/08/77
CHART HOUSE and Boat Design N/A N/A
CHART HOUSE and Flag Design 2,086,009 08/05/97
CHART HOUSE MOLASSES SQUAW BREAD N/A N/A
CHART HOUSE RESTAURANTS N/A N/A
CHART HOUSE RESTAURANTS and Boat N/A N/A
Design
CHART HOUSE RESTAURANTS and Flag N/A N/A
Design
CHART HOUSE SQUAW BREAD N/A N/A
Flag Design N/A N/A
THE CHART HOUSE N/A N/A
CHART HOUSE and Boat Design 944,243 10/03/72
THE CHART HOUSE and Flag Design N/A N/A
2. Copyrights in packaging, menus, and advertising, including, but not limited
to, the wrappers and packaging for CHART HOUSE SQUAW BREAD and CHART HOUSE
MOLASSES SQUAW BREAD; and
EXHIBIT "C" TO CO-PACKAGING AGREEMENT
<PAGE>
3. All other present and future patents, registered and unregistered
trademarks, trade names, trade dress, domain names, service marks and
copyrights, trade secrets and all information relating to the technology,
products, operations or business of Chart House Enterprises, Inc.,
including, without limitation, all licenses, logos, designs and the goodwill
associated therewith, as well as all similar rights owned or controlled by
Chart House Enterprises, Inc., and other indicia of origin associated
therewith, but specifically excluding any of the foregoing which are
currently owned by Solana Beach Baking Company, as a subsidiary of Chart
House Enterprises, Inc., which are transferred to Crestone Group, LLC
pursuant to the Acquisition Agreement.
EXHIBIT "C" TO CO-PACKAGING AGREEMENT
<PAGE>
MISSION VALLEY ESCROW
2565 Camino del Rio South
San Diego, CA 92108-3779
(619) 295-7400
FAX # (619) 295-2536
PERSONAL PROPERTY ESCROW INSTRUCTIONS
Bess Michas ESCROW NO: 98-40640-G
Certified Escrow Officer DATE: July 23, 1998
PAGE: 1
<TABLE>
<CAPTION>
<S> <C>
1
2 FOR THE PURPOSE OF COMPLETING THIS TRANSACTION IN ACCORDANCE WITH SECTIONS 6101-6107 OF THE
3 UNIFORM COMMERCIAL CODE OF CALIFORNIA, or such other law as may be applicable to the subject matter of this
4 Escrow, the buyer(s) agrees to buy and the seller(s) agrees to sell
5
6 THAT CERTAIN BUSINESS KNOWN AS: SOLANA BEACH BAKING COMPANY
7 located at: 2270 CAMINO VIA ROBLE, UNIT U, CARLSBAD, CA 92009
8
9 UPON THE FOLLOWING TERMS AND CONTIONS:
10
11 BUYER(s) CRESTONE GROUP, LLC,
12
13 whose address is: 3525 DEL MAR HEIGHTS ROAD, SUITE 423, SAN DIEGO, CA 92130
14 Phone No.: (619) 259-2441
15
16 Initial deposit in the amount of $40,000.00
17 Additional deposit in the amount of 40,000.00
18 Balance of cash prior to closing 785,000.00
19
20 TOTAL CONSIDERATION $865,000.00
21 Plus co-pack fee in the amount of $25,000.00 to be deposited with escrow holder at closing
22
23 SELLER(s) SOLANA BEACH BAKING COMPANY
24
25 whose address is: 2270 CAMINO VIA ROBLE - UNIT U, CARLSBAD, CA 92009
26 Phone No.:
27
28 Will hand you or cause to be handed you the following
29
30 1. Bill of Sale, covering: business, furniture, fixtures and equipment, machinery, appliances, inventory of stock,
31 leasehold improvements, goodwill and tradename.
32 2. Assignment and assumption of contracts
33 3. Notice to creditors of bulk sale
34
35
36 Will give possession to buyer(s) on advertised date of sale, provided all required funds are on deposit and provided
37 all conditions have been met.
38
39 THE FURTHER TERMS OF THIS TRANSACTION BEING AS FOLLOWS:
40
41 INITIAL DEPOSIT: $40,000.00 deposted herewith
42
43 ADDITIONAL DEPOSIT: $40,000.00 TO BE DEPOSIT ON EXECUTION OF ASSET PURCHASE AGREEMENT
44
45 CASH TO COME: $785,000.00 cashier's check plus closing costs and prorates, to be deposited prior to close of
46 escrow. The parties acknowledge that they have been advised that to expedite the closing of this escrow, closing
47 funds must be deposited by CASHIER'S CHECK drawn on a California Bank or Savings and Loan or by WIRE
48 TRANSFER. Your escrow holder is prohibited from disbursing any funds against uncollected funds. Checks drawn
49 on banks or savings and loans OUTSIDE OF SAN DIEGO, must be sent as a collection item and could delay the closing
50 of your escrow by as much as 10 days. If the closing funds are to be by wire transfer, your escrow officer will give
51 you the necessary information.
52
53 THESE ESCROW INSTRUCTIONS ARE INTENDED TO INCORPORATE THE TERMS AND CONDITIONS OF THAT
54 CERTAIN "ASSET PURCHASE AGREEMENT" BY AND BETWEEN THE PARTIES HERETO, COPIES OF WHICH HAVE
55 BEEN FORWARDED TO ALL PARTIES HERETO. THESE ESCROW INSTRUCTIONS ARE IN NO WAY INTENDED TO
56 AMEND OR SUPERSEDE SAID ASSET PURCHASE AGREEMENT AND IN THE EVENT ANY CONFLICT SHOULD ARISE
57 BETWEEN THESE ESCROW INSTRUCTIONS AND THE ASSET PURCHASE AGREEMENT, PARTIES AGREE THAT THE
58 ASSET PURCHASE AGREEMENT SHALL PREVAIL. SAID AGREEMENT AND ESCROW INSTRUCTIONS MAY ONLY
59 BE AMENDED BY THE SUBSEQUENT WRITTEN INSTRUCTION DULY EXECUTED BY BOTH PARTIES.
60
</TABLE>
(CONTINUED)
<PAGE>
Date: July 23, 1998 Escrow No. 98-40640-G
PAGE 2 of 5: Additional instructions made a part of subsequent pages as fully
incorporated therein.
<TABLE>
<CAPTION>
<S> <C>
1 Seller agrees to deposit into this escrow, prior to close of escrow, a corporate resolution authorizing the SALE of the
2 Business assets described herein.
3
4 Buyer and seller to approve the itemized inventory of all fixtures and equipment being conveyed herein. A list of same
5 approved in writing by both parties is to be attached to the Bill of Sale.
6
7 Escrow holder is authorized and instructed to process the within escrow, including but not limited to: the publishing
8 and recording of the Notice of Bulk Transfer, on the basis of the probability of any contingency set forth herein being
9 satisfied. In the event said contingency(ies) have not been satisfied and the escrow is cancelled, Seller and buyer
10 shall pay the cancellation costs and charges incurred and escrow holder shall be handed further instructions executed
11 by the parties concerning the contingency and any cancellation instructions.
12
13 The parties herein acknowledge and understand that the personal property tax bill will be required to be paid to the
14 tax collector's office prior to the close of escrow. Upon receipt of such tax bill, seller shall immediately pay same
15 and submit the tax bill showing receipt of such payment into escrow. Upon delivery of said paid bill, escrow holder
16 shall charge buyer for said amount and credit seller through escrow. In the event seller has not received said tax bill
17 by the close of escrow, seller shall, immediately upon receipt of same, deliver the bill to buyer for buyer's payment
18 outside of escrow. In such event, escrow holder shall not be concerned, responsible nor liable in any manner
19 whatsoever regarding the personal property tax bill.
20
21 The allocation of the total consideration shall be determined and approved by the parties and provided escrow holder
22 Prior to the close of this escrow.
23
24
25 TAX CLEARANACES: The Seller agrees to obtain the sales tax clearance from the State Board of Equalization and
26 certificate releasing Buyer from the Employment Development Department and a Certificate of Release from the
27 Franchise Tax Board, and to deposit or cause them to be deposited with you herein.
28
29 CLOSE OF ESCROW: Close of escrow shall be deemed to be the sales consummation date set forth in the Notice to
30 Creditors of Bulk Sale. You are to proceed with the closing of this escrow PROVIDED all conditions of the escrow
31 have been met and there is sufficient money in escrow available to pay all approved claims, agents commission, if
32 any, prorations, your costs and charges, and the amount required by law to be withheld for unapproved claims. In
33 the event there are insufficient funds and this sale does not involve the transfer of a liquor license, you agree to delay
34 the close of escrow in accordance with the Addendum attached hereto.
35
36 PRORATES AND ADJUSTMENTS: Buyer agrees to reimburse seller through escrow the sum of $ TO BE DETERMINED
37 being 7 3/4% sales tax and use tax on fixtures and equipment valued at $TO BE DETERMINED which amount is
38 subject to final adjustment by State Board of Equalization.
39
40 PRORATE the following items with SELLER chargeable to DATE OF POSSESSION. The BUYER assumes beginning
41 DATE OF POSSESSION. Compute on a basis of 30 day months.
42
43 Prorate as of Close of Escrow
44 o Personal Property Taxes for Current fiscal year.
45
46 Each party will hand you additional funds, inventories and/or instruments from him to enable you to comply with these
47 Instructions, and compute prorates as hereinabove described.
48
49 NOTICE TO CREDITORS OF BULK SALE: You will be handed a Notice to Creditors of Bulk Sale. Said Notice shall
50 Provide for the sale, transfer and assignment of the personal property involved on or after EARLIEST DATE POSSIBLE,
51 at your Office. You are instructed to file for record and publish such Notice, and deliver an executed copy of such
52 Notice to the Office of the County Tax Collector in the County in which subject business is located, all as required
53 by law. You are hereby authorized to change the consummation date to accommodate the recording or publication
54 requirements, or conditions or provision of this escrow and the parties authorize escrow holder, as agent, to execute
55 said Notice, in the event the escrow holder deems it necessary for the timely processing of this escrow. Escrow holder
56 reserves the option of requiring that the buyer sign instead.
57
58 FULFILLMENT OF ESCROW CONDITIONS: In the event the conditions of this escrow have not been complied with
59 at the expiration of the time provided for herein, you are instructed nevertheless to complete the same at any time
60 thereafter as soon as the conditions (except as to time) have been complied with and without recording or publishing
61 a new Notice to Creditors of Bulk Sale, UNLESS, any one of the parties shall have made written demand upon you
62 for cancellation and/or return of money and documents. In such event, you may stop all further proceedings until you
63 are in receipt of mutual written instructions or settlement of the controversy as herein provided.
64
65 NOTICE OF CHANGE: Any notice, demand or change of instructions herein shall be in writing, signed by all parties
66 Affected thereby, and delivered to you before any such shall be in any way effective
67
68
</TABLE>
(CONTINUED)
<PAGE>
Date: July 23, 1998 Escrow No. 98-40640-G
PAGE 3 of 5: Additional instructions made a part of subsequent pages as fully
incorporated therein.
<TABLE>
<CAPTION>
<S> <C>
1 SEARCHES: Notwithstanding anything contained herein to the contrary, the buyer instructs the Escrow holder upon
2 these escrow instructions being signed, to request copies of any currently existing filed liens against the seller and
3 the business being sold hereunder from the Secretary of State, Sacramento, California. In addition escrow holder is
4 to obtain a Tax Lien Report covering any tax liens recorded in the county in which the business is located. Escrow
5 holder is to rely on such information as of the date of said reply and escrow holder is in no way responsible for the
6 sufficiency, correctness of said report(s), nor for any liens which may be filed after the due date of said reply and prior
7 to close of escrow; nor for any previously filed liens that have lapsed; nor as to ascertaining whether or not the
8 collateral of other liens shown on said report is included in the Bill of Sale hereunder. Seller warrants to buyer,
9 however, that such personal property contained in the Bill of Sale is free and clear of any and all encumbrances other
10 than hereinbefore set forth, with which warranty escrow holder is in no way concerned. Seller shall cause
11 terminations of any and all liens that effect subject business and not being assumed by buyer herein, to be deposited
12 into escrow together with demands for same, if any, for payment by seller through escrow.
13
14 ESCROW FEES: All escrow fees and expenses shall be paid one-half by buyer and one-half by seller. It is understood
15 that this fee is for the ordinary services contemplated herein, and that you will be additionally compensated for
16 extraordinary services occasioned by an controversy, or litigation or modification of or change in this escrow.
17
18 From the funds deposited in escrow, you are authorized and directed to pay, prior to close of escrow, any bills for
19 expenses incurred by you on our behalf in connection with the processing of this escrow, including but not limited
20 to, publishing, recording and searching. Upon close of escrow, you are to charge seller and credit buyer with one-half
21 of any amounts so paid from buyer's deposit. In the event this escrow is held open an unreasonable length of time
22 beyond the stated consummation date, you are authorized and directed to charge for administration of same at
23 $25.00 per month, to be deducted from funds then on deposit with you, commencing on a date selected at your
24 discretion.
25
26 Buyer and seller also understand and agree that prior to the release of any funds by escrow holder due to cancellation
27 Of this escrow for any reason whatsoever, escrow holder will be handed specific cancellation instructions by buyer
28 and seller. In the event of cancellation, parties agree to pay the escrow fees and charges incurred.
29
30 NO FUNDS SHALL BE DRAWN FROM THE ESCROW PRIOR TO THE ACTUAL CLOSING AND COMPLETION OF THIS
31 ESCROW. FURTHER, NO FUNDS SHALL BE PAID BY BUYER DIRECTLY TO SELLER PRIOR TO THE CLOSING OF THIS
32 ESCROW BUT SHALL ONLY BE PAID TO ESCROW HOLDER.
33
34 MISCELLANEOUS LICENSE: Any local, state or federal licenses will be procured or assigned outside of this escrow
35 by the Seller and Buyer. You, as escrow holder, are not to be concerned therewith.
36
37
38 LEASE:NOT APPLICABLE.
39
40 CLAIMS: Prior to the close of this escrow, the seller hereunder will provide escrow holder with his written approval
41 or disapproval of the payment of creditor's claims received by escrow holder.
42
43 In the event the Seller disputes any claim pursuant to UCC 6106.2, you shall withhold the amount required by law
44 and send written notice to the claimant that the amount of the claim, or prorate portion thereof, will be paid to the
45 seller or other claimants unless attached within 25 days from the date of the notice.
46
47 At the close of escrow, you are to (a) deliver to buyer the unrecorded Bill of Sale, and any other documents to which
48 the Buyer is entitled; (b) pay all claims and other items which have been approved in writing by the Seller; (c) withhold
49 the required amount for disapproved claims; and, (d) pay the balance to the Seller, or order, less the charges and
50 costs of escrow which the Seller has agreed to pay. PROVIDED, HOWEVER, YOU ARE TO WITHHOLD
51 DISBURSEMENT OF SELLER'S PROCEEDS AND/OR DOCUMENTS UNTIL YOU ARE IN RECEIPT OF THE SALES TAX
52 CLEARANCE FROM THE STATE BOARD OF EQUALIZATION AND CERTIFICATE RELEASING BUYER FROM THE
53 EMPLOYEMENT DEVELOPMENT DEPARTMENT, AND CERTIFICATE OF RELEASE FROM THE FRANCHISE TAX BOARD.
54
55 THE DELIVERY OF THE BILL OF SALE TO THE BUYER SHALL CONSTITUTE THE LEGAL PASSING OF TITLE.
56
57 SELLER'S MISCELLANEOUS LIABILITIES: Except as might be otherwise herein provided, OR AS PROVIDED IN THE
58 ASSET PURCHASE AGREEMENT, the Seller assumes all liability for the payment of insurance premiums, monies due
59 under the lease, personal property taxes, beverage taxes, social security or unemployment insurance deductions, or
60 any other tax accruing from the ownership of the business involved in this escrow to the date of possession by the
61 Buyer and hereby agrees that all such matters will be paid outside of this escrow. In the event, you as escrow holder,
62 are instructed to disburse funds in settlement of insurance premiums, taxes, or rent(s), the parties hereto release you
63 from all liability should the payment not constitute full or final payment of such premiums, taxes, or rent(s).
64
65 DISBURSEMENTS: You are instructed to make all disbursements hereunder by your check. Documents and/or checks
66 to which I am entitled on the consummation of this escrow are to be delivered to me or to my order. Mailing in the
67 United States mails, postage prepaid, of such documents and/or checks, shall constitute delivery.
68
</TABLE>
(CONTINUED)
<PAGE>
Date: July 23, 1998 Escrow No. 98-40640-G
PAGE 4 of 5: Additional instructions made a part of subsequent pages as fully
incorporated therein.
<TABLE>
<CAPTION>
<S> <C>
1 ESCROW DISCLOSURE: MISSION VALLEY ESCROW COMPANY HOLDS DEPARTMENT OF CORPORATIONS LICENSE
2 NO. 963-0607.
3
4 NON-LIABILITY OF ESCROW HOLDER: It is understood and agreed that no examination of the property described in
5 the Bill of Sale, Financing Statement, or any other documented deposited in the escrow, or of the title thereto, or the
6 existence thereof, is to be made or procured by you. Your only responsibility as to the Notice of Creditors of Bulk Sale
7 shall be as aforesaid and you are not liable for the form or the legal effect of any notice(s) handed you nor for said
8 notice(s) being published in the correct judicial district.
9
10 You shall be under no obligation or liability for failure to inform me regarding any sale, loan, exchange, or other
11 transaction, or facts within your knowledge, even though same concern the property described herein, provided they
12 do not prevent you compliance with these instructions; nor shall you be liable for the sufficiency as to the form,
13 manner of execution, or validity of any instrument deposited, nor as to the identity, authority, or rights of any person
14 executing the same. Your liability as escrow holder shall be confined to the things specifically provided for in my
15 written instructions in this escrow.
16
17 The parties hereto jointly and severally agree to pay all costs, damages, judgments and expenses, including reasonable
18 attorney' fees, suffered or incurred by you as a result of any of the foregoing. In the event you file a suit of
19 interpleader or resign as escrow holder you shall ipso facto be fully released and discharged from all obligations further
20 to perform any and all duties or obligations upon you in this escrow.
21
22 FAX TRANSMISSIONS: The parties agree and so instruct escrow holder that it may receive `FAX" transmissions from
23 or on behalf of the parties hereto for informational purposes only. The parties further understand and agree that prior
24 to close or cancellation of escrow or release of any funds held herein that escrow holder will require receipt of the
25 original executed document of any such "FAX" material.
26
27 AMENDED LAWS: In the event current laws pertaining to Bulk Sales and/or Liquor License transfers are modified,
28 amended, or changed in any manner during the course of this escrow, such modification, amendments or changes
29 shall take precedence over these instructions and shall pertain to the terms of this escrow where applicable.
30
31 CONTROVERSIES: should any dispute arise between or among the parties hereto or a third party, or should you
32 before or after close of escrow receive or become aware of any conflicting demands or claims with respect to this
33 escrow or the rights of any of the parties hereto, or money or property deposited herein or affected hereby, you shall
34 have the right to do any of the following:
35
36 (1) Discontinue any and all further acts on your part and withhold the delivery of documents and money in your
37 possession until such disputes or conflicting demands are resolved to your satisfaction;
38
39 (2) Commence or defend any action or proceeding for the determination of such conflict;
40
41 (3) File a suite in interpleader;
42
43 (4) Resign as escrow holder and return to the parties depositing same all monies and/or documents then in your
44 possession.
45
46 The parties hereto jointly and severally agree to pay all costs, damages, judgments and expenses, including reasonable
47 attorney's fees, suffered or incurred by you as a result of any of the foregoing.
48
49 These escrow instructions may be signed in counterparts, each of which so executed shall, irrespective of the date
50 of its execution and delivery, be deemed an original, and said counterparts together shall constitute one and the same
51 instrument.
52
53 The words "SELLER" and "BUYER" are to be construed as plural, and words indicating masculine gender are to be
54 construed as feminine gender, when so required herein. Each of the undersigned states that he has read the foregoing
55 instructions and understands and agrees to them and acknowledge receipt of a copy of same.
56
57 The parties to these instructions authorize you to destroy these instructions, and all other subsequent instructions,
58 regardless of date of same, and all records of this escrow at any time after five (5) years from the date of these
59 instructions without liability on your part or further notice to us.
</TABLE>
(CONTINUED)
<PAGE>
Date: July 23, 1998 Escrow No. 98-40640-G
PAGE 5 of 5: Additional instructions made a part of subsequent pages as fully
incorporated therein.
<TABLE>
<CAPTION>
<S> <C>
1
2 THE PARTIES HERETO ACKNOWLEDGE THAT BY SIGNING THESE INSTRUCTIONS, THEY ARE ENTERING INTO A
3 LEGAL CONTRACT. THE PARTIES ARE ADVISED TO SEEK THE COUNSEL OF THEIR OWN ATTORNEY AND/OR
4 ACCOUNTANT WITH RESPECT TO THE DETERMINATION OF ANY LEGAL RAMIFICATIONS AND/OR ANY TAX
5 CONSEQUENCES, AND ARE RELYING SOLELY ON THEIR OWN INQUIRY AND INFORMATION.
6
7 DATE: _______________________
8
9 CRESTONE GROUP, LLC, a limited liability company
10
11
12 Buyer: By:____________________________________
13 DAVID WELLS
14
15
16 DATE: _______________________
17
18 SOLANA BEACH BAKING COMPANY, a DELAWARE Corporation
19
20
21 Seller: By:____________________________________
22 CYNTHIA QUIGLEY
23
24
25
</TABLE>
<PAGE>
A D D E N D U M T O E S C R O W I N S T R U C T I O N S
-------------------------------------------------------------
Notwithstanding anything contained herein to the contrary, the following is
hereby made a part of the escrow instructions.
In any case where the notice of a bulk sale subject to Section 6106.2 states
that claims may be filed with an escrow agent, the intended buyer shall deposit
with the escrow agent the full amount of the purchase price or consideration. if
at the time of the bulk sale is otherwise ready to be consummated, the amount of
cash deposited or agreed to be deposited at or prior to consummation in the
escrow is insufficient to pay in full all of the claims filed with the escrow
agent, the escrow agent shall do each of the following:
(1) (a) Delay the distribution of the consideration and the passing of legal
title for a period of not less than 25 days nor more than 30 days from the date
the notice required in paragraph (b) of this subdivision is mailed; and
(b) Within five business days after the time the Bulk Sale would otherwise
have been consummated, send a written notice to each claimant who has filed a
claim stating the total consideration deposited or agreed to be deposited in the
escrow, the name of each claimant who filed a claim against the escrow and the
amount of each claim, the amount proposed to be paid to each claimant, the new
date scheduled for the passing of legal title pursuant to paragraph (1) of this
subdivision and the date on or before which distribution will be made to
claimants, which shall not be more than five days after the new date specified
for the passing of legal title.
(c) If no written objection to the distribution described in the notice
required by paragraph (b) is received by the escrow agent, prior to the new date
specified in the notice for the passing of legal title, the escrow agent shall
not be liable to any person to whom the notice required by paragraph (b) was
sent for any good faith error which may have been committed in allocating and
distributing the consideration as stated in such notice.
(2) Distribute the consideration in the following order of priorities:
(a) All obligations owing to the United States, to the extent given
priority by federal law.
(b) Secured claims, including statutory and judicial liens, to the extent
of the consideration fairly attributable to the value of the properties securing
the claims and in accordance with the priorities provided by law. A secured
creditor shall participate in the distribution pursuant to this subdivision only
if a release of lien is deposited by the secured creditor conditioned only upon
receiving an amount equal to the distribution.
(c) Escrow and professional charges and broker's fees attributable directly
to the sale.
(d) Wage claims given priority by Section 1205 of the Code of Civil
Procedure.
(e) All other tax claims.
(f) All other unsecured claims pro rata, including any deficiency claims of
partially secured creditors.
(3) To the extent that an obligation of the Buyer to pay cash in the future is a
part of the consideration and the cash consideration is not sufficient to pay
all claims filed in full, apply all principal and interest received on the
obligation to the payment of claims in accordance with subdivision (2) until
they are paid in full before making any payment to the Seller. In such case, the
notice sent pursuant to subdivision (1) shall state the amount, terms and due
dates of the obligation and the portion of the claims expected to be paid
thereby.
EACH PARTY HERETO ACKNOWLEDGES THAT HE HAS READ AND UNDERSTAND THE FOREGOING
TERMS AND CONDITIONS.
SOLANA BEACH BAKING COMPANY, a DELAWARE CRESTONE GROUP, LLC., a California
Corporation Limited Partnership
- --------------------------------------- ------------------------------------
CYNTHIA QUIGLEY DAVID WELLS
- --------------------------------------- ------------------------------------
- --------------------------------------- ------------------------------------
<PAGE>
<TABLE>
<CAPTION>
PROFIT & LOSS STATEMENT
Wholesale ROW: AJPNL2
December 29, 1997 FORMAT:
P&L
YEAR TO DATE
------------
AMOUNTS PERCENTAGES
------- -----------
PRIOR YR BUDGET ACTUAL VAR PR YR BUD ACT
-------- ------- ------ --- ----- --- ---
<S> <C> <C> <C> <C> <C> <C> <C>
Sales and Revenue
Food Sales 5,019,650 5,325,000 5,844,311 519,311 100.30 100.45 100.52
Sales Returns 14,826- 24,000 29,987- 5,987- 0.30- 0.45- 0.52-
-------------- -------------- -------------- ----------- ---------- ---------- ----------
Total Sales 5,004,824 5,301,000 5,814,324 513,324 100.00 100.00 100.00
Cost of Sales
Food Cost of Sales 1,646,008 1,704,000 1,753,911 49,911 32.79 32.00 30.01
Paper Cost of Sales 305,848 329,084 285,531 43,553- 6.09 6.18 4.89
-------------- -------------- -------------- ----------- ---------- ---------- ----------
Total Food Cost 1,951,856 2,033,084 2,039,442 6,358 38.88 38.18 34.90
-------------- -------------- -------------- ----------- ---------- ---------- ----------
Total Cost of Sales 1,951,856 2,033,084 2,039,442 6,358 39.00 38.35 35.08
-------------- -------------- -------------- ----------- ---------- ---------- ----------
Gross Profit 3,052,968 3,267,916 3,774,882 506,966 61.00 61.65 64.92
S & W and Payroll Costs
S & W
Salaries & Wages Managers 197,310 201,996 204,511 2,515 3.94 3.81 3.52
Restaurant Management Bonus 53,353 48,320 42,396 5,924- 1.07 0.91 0.73
-------------- -------------- -------------- ----------- ---------- ---------- ----------
Total Mgr. Comp 250,663 250,316 246,907 3,409- 5.01 4.72 4.25
Salaries & Wages Rest Personne 759,808 820,919 820,738 181- 15.18 15.49 14.12
Rest. Personnel Bonuses 490 8 8 0.01
Salaries & Waves Overtime 46,358 39,760 39,346 414- 0.93 0.75 0.68
-------------- -------------- -------------- ----------- ---------- ---------- ----------
Total Crew 806,656 860,679 860,092 587- 16.12 16.24 14.79
-------------- -------------- -------------- ----------- ---------- ---------- ----------
Total S & W 1,057,319 1,110,995 1,106,999 3,996- 21.13 20.96 19.04
P.R. Taxes & Benefits
Vacation Pay 10,890 18,023 30,762 12,739 0.22 0.34 0.53
Payroll Taxes 105,385 133,602 111,189 22,413- 2.11 2.52 1.91
Worker's Comp. Insurance 39,153 37,135 41,080 3,945 0.78 0.70 0.71
Group Insurance 5,759 9,000 5,978 3,022- 0.12 0.17 0.10
-------------- -------------- -------------- ----------- ---------- ---------- ----------
Total P.R. Taxes & Benefits 161,187 197,760 189,009 8,751- 3.22 3.73 3.25
-------------- -------------- -------------- ----------- ---------- ---------- ----------
Total S & W and P.R. Costs 1,218,506 1,308,755 1,296,008 12,747- 24.35 24.69 22.29
Manager Controlled Expenses
R & M
R&M Equipment 57,006 55,040 46,537 8,503- 1.14 1.04 0.80
R&M Building 40,125 36,000 52,802 16,802 0.80 0.68 0.91
-------------- -------------- -------------- ----------- ---------- ---------- ----------
Total R&M 97,131 91,040 99,339 8,299 1.94 1.72 1.71
</TABLE>
<PAGE>
15:22 SBBC - Carlsbad, Calif. 3018
01/29/98 Tim Perreira
P00350 1998-02-01
<TABLE>
<CAPTION>
CURRENT PERIOD
--------------
AMOUNTS PERCENTAGES
------- -----------
PRIOR YR BUDGET ACTUAL VAR PR YR BUD ACT
- -------- ------ ------ --- ----- --- ---
<S> <C> <C> <C> <C> <C> <C>
507,514 539,000 575,263 36,263 100.00 100.37 100.00
2,000- 2,000- 0.37-
- --------- --------- --------- -------- ------ ------ ------
507,514 537,000 575,263 38,263 100.00 100.00 100.00
150,896 172,480 189,710 17,230 29.73 32.00 32.98
33,165 33,310 32,394 916- 6.53 6.18 5.63
- --------- --------- --------- -------- ------ ------ ------
184,061 205,790 222,104 16,314 36.27 38.18 38.61
- --------- --------- --------- -------- ------ ------ ------
184,061 205,790 222,104 16,314 36.27 38.18 38.61
- --------- --------- --------- -------- ------ ------ ------
323,453 331,210 353,159 21,949 63.73 61.68 61.39
18,991 19,423 17,817 1,606- 3.74 3.62 3.10
5,877 4,646 2,625 2,021- 1.16 0.87 0.46
- --------- --------- --------- -------- ------ ------ ------
24,868 24,069 20,442 3,627- 4.90 4.48 3.55
77,446 83,329 92,185 8,856 15.26 15.52 16.02
490 0.10
3,511 4,028 5,556 1,528 0.69 0.75 0.97
- --------- --------- --------- -------- ------ ------ ------
81,447 87,357 97,741 10,384 16.05 16.27 16.99
- --------- --------- --------- -------- ------ ------ ------
106,315 111,426 118,183 6,757 20.95 20.75 20.54
348 1,826 4,394 2,568 0.07 0.34 0.76
11,971 12,967 13,032 65 2.36 2.41 2.27
3,959 3,762 4,027 265 0.78 0.70 0.70
57 750 916- 1,666- 0.01 0.14 0.16-
- --------- --------- --------- -------- ------ ------ ------
16,335 19,305 20,537 1,232 3.22 3.59 3.57
- --------- --------- --------- -------- ------ ------ ------
122,650 130,731 138,720 7,989 24.17 24.34 24.11
9,275 5,520 7,351 1,831 1.83 1.03 1.28
4,372 3,000 2,232 768- 0.86 0.56 0.39
- --------- --------- --------- -------- ------ ------ ------
13,647 8,520 9,583 1,063 2.69 1.59 1.67
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PROFIT & LOSS STATEMENT
Wholesale ROW: AJPNL2
December 29, 1997 FORMAT:
P&L
YEAR TO DATE
------------
AMOUNTS PERCENTAGES
------- -----------
PRIOR YR BUDGET ACTUAL VAR PR YR BUD ACT
-------- ------- ------ --- ----- --- ---
<S> <C> <C> <C> <C> <C> <C> <C>
Utilities
Telephone Expense 13,571 9,600 12,814 3,214 0.27 0.18 0.22
Water & Sewer Expense 5,726 6,000 8,452 2,452 0.11 0.11 0.15
Electricity Expense 60,609 65,360 64,115 1,245- 1.21 1.23 1.10
Gas Expense 25,140 27,930 29,246 1,316 0.50 0.53 0.50
-------------- -------------- -------------- ----------- ---------- ---------- ----------
Total Utilities 105,046 108,890 114,627 5,737 2.10 2.05 1.97
Supplies
Kit. & Cleaning Supplies 33,829 34,459 40,500 6,041 0.68 0.65 0.70
Office Supplies 16,742 18,556 9,340 9,216- 0.33 0.35 0.16
-------------- -------------- -------------- ----------- ---------- ---------- ----------
Total Supplies 50,571 53,015 49,840 3,175- 1.01 1.00 0.86
Other Manager Controllables
Protection Services 2,094 2,100 2,112 12 0.04 0.04 0.04
Restaurant Apparel 3,438 3,000 2,710 290- 0.07 0.06 0.05
Laundry & Linen 12,591 12,194 11,404 790- 0.25 0.23 0.20
Waste Removal 8,296 5,541 3,279- 0.17 0.17 0.10
Music/Video 302 0.01
Equipment Rental 3,822 297 297 0.08 0.01
External Promotions 45,051 45,051 0.77
Freight Expense 281,192 190,200 349,837 159,637 5.62 3.59 6.02
Promotion Advertising 32,742 30,000 17,979 12,021- 0.65 0.57 0.31
Complimentary Food, Liq., Wine 3,541 2,653 638 2,015- 0.07 0.05 0.01
Complimentary Coupons 250 250
Restaurant Inspection 1,977 644 644 0.04 0.01
Misc Expense & Credits 90,102- 2,615 2,615 1.80- 0.04
Discounts on Sales 3,537 4,125 4,125 0.07 0.07
Employee Welfare 7,631 2,653 3,922 1,269 0.15 0.05 0.07
Employee Education 2,245 2,245 0.04
Employee Procurement 239 360 4,967 4,607 0.01 0.09
Temporary Office Help 5,235 5,235 0.09
Postage 9,506 9,480 1,218- 10,698- 0.19 0.18 0.02-
Bad Debts 16,604 2,653 785 1,868- 0.33 0.05 0.01
-------------- -------------- -------------- ----------- ---------- ---------- ----------
Total Other Mgr. Cont. 297,410 264,113 459,139 195,026 5.94 4.98 7.90
-------------- -------------- -------------- ----------- ---------- ---------- ----------
Total Mgr. Controllables 550,158 517,058 722,945 205,887 10.99 9.75 12.43
-------------- -------------- -------------- ----------- ---------- ---------- ----------
Controllable Profit 1,284,304 1,442,103 1,755,929 313,826 25.66 27.20 30.20
Other Operating Expenses
Taxes & Licenses 12,278 12,204 12,273 69 0.25 0.23 0.21
Insurance 30,910 40,518 58,494 17,976 0.62 0.76 1.01
Shortage & Spoilage 17,321 17,321 0.30
Bank Charges 2,148 2,160 2,095 65- 0.04 0.04 0.04
Product Development 23,267 9,000 4,024 4,976- 0.46 0.17 0.07
Lease Automobiles 31,698 54,000 31,928 22,072- 0.63 1.02 0.55
Auto Expense 65,153 61,380 74,827 13,447 1.30 1.16 1.29
</TABLE>
<PAGE>
15:22 SBBC - Carlsbad, Calif. 3018
01/29/98 Tim Perreira
P00350 1998-02-01
<TABLE>
<CAPTION>
CURRENT PERIOD
--------------
AMOUNTS PERCENTAGES
------- -----------
PRIOR YR BUDGET ACTUAL VAR PR YR BUD ACT
- -------- ------ ------ --- ----- --- ---
<S> <C> <C> <C> <C> <C> <C>
1,389 800 1,372 572 0.27 0.15 0.24
596 500 720 220 0.12 0.09 0.13
4,212 5,570 4,438 1,232- 0.83 1.06 0.77
1,427 2,580 2,620 40 0.28 0.48 0.46
- --------- --------- --------- -------- ------ ------ ------
7,624 9,550 9,150 400- 1.50 1.78 1.59
3,028 3,491 4,064 573 0.60 0.65 0.71
1,154 1,880 510 1,370- 0.23 0.35 0.09
- --------- --------- --------- -------- ------ ------ ------
4,182 5,371 4,574 797- 0.82 1.00 0.80
176 175 176 1 0.03 0.03 0.03
413 250 140- 390- 0.08 0.05 0.02-
1,439 1,235 970 265- 0.28 0.23 0.17
468 735 474 261- 0.09 0.14 0.08
71 71 0.01
3,500 3,500 0.61
33,207 15,850 33,350 17,500 6.54 2.95 5.80
8,080 2,500 6,032 3,532 1.59 0.47 1.05
109 269 269- 0.02 0.05
47 47 0.01
15,217- 3.00-
423 986 986 0.08 0.17
3,156 269 720 451 0.62 0.05 0.13
30 1,405 1,375 0.01 0.24
946 790 498 292- 0.19 0.15 0.09
7,436 269 269- 1.47 0.05
- --------- --------- --------- -------- ------ ------ ------
40,636 23,372 48,089 25,717 8.01 4.17 8.36
- --------- --------- --------- -------- ------ ------ ------
66,089 45,813 71,396 25,583 13.02 8.53 12.41
- --------- --------- --------- -------- ------ ------ ------
134,714 154,666 143,043 11,623- 26.54 28.80 24.87
- --------- --------- --------- -------- ------ ------ ------
1,677 1,017 890 127- 0.33 0.19 0.15
516- 3,762 5,963 2,201 0.10- 0.70 1.04
175 180 175 5- 0.03 0.03 0.03
14,976 750 740 10- 2.95 0.14 0.13
2,012 4,500 3,309 1,191- 0.40 0.84 0.58
8,863 5,115 7,590 2,475- 1.75 0.95 1.32
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PROFIT & LOSS STATEMENT
Wholesale ROW: AJPNL2
December 29, 1997 FORMAT:
P&L
YEAR TO DATE
------------
AMOUNTS PERCENTAGES
------- -----------
PRIOR YR BUDGET ACTUAL VAR PR YR BUD ACT
-------- ------- ------ --- ----- --- ---
<S> <C> <C> <C> <C> <C> <C> <C>
Travel Expense 2,927 4,800 9,946 5,146 0.06 0.09 0.17
Dues & Subscriptions 683 840 340 500- 0.01 0.02 0.01
Manager Meeting 137 126 126
Moving Expense 4,646 4,646 0.08
Gain or Loss Assets 1,192 14,230 2,177 12,053 0.02 0.27 0.04
-------------- -------------- -------------- ----------- ---------- ---------- ----------
Total Other Operating Exp. 170,393 199,132 218,197 19,065 3.40 3.76 3.75
-------------- -------------- -------------- ----------- ---------- ---------- ----------
Profit/Loss bef. Occupancy 1,113,911 1,242,971 1,537,732 294,761 22.26 23.45 26.45
Occupancy
Rent 111,700 116,389 116,391 2 2.23 2.20 2.00
Depreciation 144,253 171,187 147,465 23,722- 2.88 3.23 2.54
Amort. Of Leasehold Imprvmnts 28,177 29,938 28,383 1,555- 0.56 0.56 0.49
-------------- -------------- -------------- ----------- ---------- ---------- ----------
Total Occupancy 284,130 317,514 292,239 25,275- 5.68 5.99 5.03
-------------- -------------- -------------- ----------- ---------- ---------- ----------
Profit/Loss 829,781 925,457 1,245,493 320,036 16.58 17.46 21.42
============== ============== ============== =========== ========== ========== ==========
Check Balance 829,782 925,457 1,245,494 320,037 16.58 17.46 21.42
* * * * * * *
Cash Flow 1,002,212 1,126,582 1,421,341 294,759 20.02 21.25 24.45
Net Book Value of Assets 715,107 728,098
* * * * * * *
</TABLE>
<PAGE>
15:22 SBBC - Carlsbad, Calif. 3018
01/29/98 Tim Perreira
P00350 1998-02-01
<TABLE>
<CAPTION>
CURRENT PERIOD
--------------
AMOUNTS PERCENTAGES
------- -----------
PRIOR YR BUDGET ACTUAL VAR PR YR BUD ACT
- -------- ------ ------ --- ----- --- ---
<S> <C> <C> <C> <C> <C> <C>
251 400 333 67- 0.05 0.07 0.06
70 70- 0.01
269 269- 0.05
- --------- --------- --------- -------- ------ ------ ------
27,438 16,063 19,000 2,937 5.41 2.99 3.30
- --------- --------- --------- -------- ------ ------ ------
107,276 138,603 124,043 14,560- 21.14 25.81 21.56
9,348 9,731 9,731 1.84 1.81 1.69
12,299 14,539 12,043 2,496- 2.42 2.71 2.09
2,376 2,509 2,360 149- 0.47 0.47 0.41
- --------- --------- --------- -------- ------ ------ ------
24,023 26,779 24,134 2,645- 4.73 4.99 4.20
- --------- --------- --------- -------- ------ ------ ------
83,253 11,824 99,909 11,915- 16.40 20.82 17.37
========= ========= ========= ======== ====== ====== ======
83,252 11,824 99,909 11,915- 16.40 20.82 17.37
97,277 128,872 114,312 14,560- 19.30 24.00 19.87
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PROFIT & LOSS STATEMENT
Wholesale ROW: AJPNL2
June 29, 1998 FORMAT:
P&L
YEAR TO DATE
------------
AMOUNTS PERCENTAGES
------- -----------
PRIOR YR BUDGET ACTUAL VAR PR YR BUD ACT
-------- ------- ------ --- ----- --- ---
<S> <C> <C> <C> <C> <C> <C> <C>
Sales and Revenue
Food Sales 2,954,794 3,008,000 3,190,801 182,801 100.85 100.50 100.00
Sales Returns 24,770- 15,040- 15,040 0.85- 0.50-
-------------- -------------- -------------- ----------- ---------- ---------- ----------
Total Sales 2,930,024 2,992,960 3,190,801 197,841 100.00 100.00 100.00
Cost of Sales
Food Cost of Sales 862,591 917,440 995,815 78,375 29.19 30.50 31.21
Paper Cost of Sales 146,782 154,914 150,063 4,851- 4.97 5.15 4.70
-------------- -------------- -------------- ----------- ---------- ---------- ----------
Total Food Cost 1,009,373 1,072,354 1,145,878 73,524 34.16 35.65 35.91
-------------- -------------- -------------- ----------- ---------- ---------- ----------
Total Cost of Sales 1,009,373 1,072,354 1,145,878 73,524 34.45 35.83 35.91
-------------- -------------- -------------- ----------- ---------- ---------- ----------
Gross Profit 1,920,651 1,920,606 2,044,923 124,317 65.55 64.17 64.09
S & W and Payroll Costs
S & W
Salaries & Wages Managers 105,151 72,996 49,989 23,007- 3.59 2.44 1.57
Restaurant Management Bonus 21,904 11,802 15,822 4,020 0.75 0.39 0.50
-------------- -------------- -------------- ----------- ---------- ---------- ----------
Total Mgr. Comp 127,055 84,798 65,811 18,987- 4.34 2.83 2.06
Salaries & Wages Rest Personne 380,564 433,192 457,903 24,711 12.99 14.47 14.35
Rest. Personnel Bonuses 8 500 500-
Training Salaries & Wages 1,950 1,950- 0.07
Salaries & Wages Overtime 19,915 10,530 38,361 27,831 0.68 0.35 1.20
-------------- -------------- -------------- ----------- ---------- ---------- ----------
Total Crew 400,487 860,679 860,092 50,092 16.12 14.91 15.55
-------------- -------------- -------------- ----------- ---------- ---------- ----------
Total S & W 527,542 1,110,995 1,106,999 31,105 18.00 17.74 17.62
P.R. Taxes & Benefits
Vacation Pay 16,454 14,100 13,727 373- 0.56 0.47 0.43
Payroll Taxes 58,690 67,196 61,620 5,576- 2.00 2.25 1.93
Worker's Comp. Insurance 20,684 21,076 22,331 1,255 0.71 0.70 0.70
Group Insurance 3,522 3,600 1,363 2,237- 0.12 0.12 0.04
-------------- -------------- -------------- ----------- ---------- ---------- ----------
Total P.R. Taxes & Benefits 99,350 105,972 99,041 6,931- 3.39 3.54 3.10
-------------- -------------- -------------- ----------- ---------- ---------- ----------
Total S & W and P.R. Costs 626,892 636,942 661,116 661,116 21.40 21.28 20.72
Manager Controlled Expenses
R & M
R&M Equipment 23,904 25,020 56,086 31,066 0.82 0.84 1.76
R&M Building 35,704 26,400 17,958 8,442- 1.22 0.88 0.56
-------------- -------------- -------------- ----------- ---------- ---------- ----------
Total R&M 59,608 51,420 74,044 22,624 2.03 1.72 2.32
</TABLE>
<PAGE>
09:07 SBBC - Carlsbad, Calif. 3018
07/10/98 Brenda Hubbard
P00350 1998-02-01
<TABLE>
<CAPTION>
CURRENT PERIOD
--------------
AMOUNTS PERCENTAGES
------- -----------
PRIOR YR BUDGET ACTUAL VAR PR YR BUD ACT
- -------- ------ ------ --- ----- --- ---
<S> <C> <C> <C> <C> <C> <C>
584,668 596,000 639,976 43,976 100.93 100.50 100.00
5,387- 2,980- 2,980 0.93- 0.50-
- --------- --------- --------- -------- ------ ------ ------
579,281 593,020 639,976 46,956 100.00 100.00 100.00
167,668 181,780 202,453 20,673 26.68 30.50 31.53
31,128 30,694 28,984 1,710- 5.32 5.15 4.53
- --------- --------- --------- -------- ------ ------ ------
198,796 212,474 231,437 18,963 34.00 35.65 36.16
- --------- --------- --------- -------- ------ ------ ------
198,796 212,474 231,437 168,963 34.32 35.83 36.16
- --------- --------- --------- -------- ------ ------ ------
380,485 380,546 408,539 27,993 65.68 64.17 63.84
20,300 14,038 9,813 4,225- 3.50 2.37 1.53
2,625 2,269 1,492 777- 0.45 0.38 0.23
- --------- --------- --------- -------- ------ ------ ------
22,925 16,307 11,305 5,002- 3.96 2.75 1.77
82,305 82,546 92,141 9,595 14.21 13.92 14.40
250 250- 0.04
2,227- 2,227- 0.35-
4,695 2,086 9,851 7,765 0.81 0.35 1.54
- --------- --------- --------- -------- ------ ------ ------
81,447 84,882 99,765 14,883 15.02 14.31 15.59
- --------- --------- --------- -------- ------ ------ ------
109,925 101,189 111,070 9,881 18.98 17.06 17.36
3,428 2,350 4,337 1,987 0.59 0.40 0.68
12,335 12,166 12,896 730 2.13 2.05 2.02
4,093 4,180 4,459 279 0.71 0.70 0.70
438 600 47 553- 0.08 0.10 0.01
- --------- --------- --------- -------- ------ ------ ------
20,294 19,296 21,739 2,443 3.50 3.25 3.40
- --------- --------- --------- -------- ------ ------ ------
130,219 120,485 132,809 12,324 22.48 20.32 20.75
3,201 4,170 8,424 4,254 0.55 0.70 1.32
4,971 4,400 3,617 783- 0.86 0.74 0.57
- --------- --------- --------- -------- ------ ------ ------
8,172 8,570 12,041 3,471 1.41 1.45 1.88
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PROFIT & LOSS STATEMENT
Wholesale ROW: AJPNL2
June 29, 1998 FORMAT:
P&L
YEAR TO DATE
------------
AMOUNTS PERCENTAGES
------- -----------
PRIOR YR BUDGET ACTUAL VAR PR YR BUD ACT
-------- ------- ------ --- ----- --- ---
<S> <C> <C> <C> <C> <C> <C> <C>
Utilities
Telephone Expense 6,219 6,600 6,131 469- 0.21 0.22 0.19
Water & Sewer Expense 4,186 4,300 3,719 581- 0.14 0.14 0.12
Electricity Expense 27,348 36,100 29,257 6,843- 0.93 1.21 0.92
Gas Expense 15,003 18,200 15,684 2,516 0.51 0.61 0.49
-------------- -------------- -------------- ----------- ---------- ---------- ----------
Total Utilities 52,756 65,200 54,791 10,409- 1.80 2.18 1.72
Supplies
Kit. & Cleaning Supplies 19,814 20,950 26,027 5,077 0.68 0.70 0.82
Office Supplies 5,506 4,490 4,833 343 0.19 0.15 0.15
-------------- -------------- -------------- ----------- ---------- ---------- ----------
Total Supplies 25,320 25,440 30,860 5,420 0.86 0.85 0.97
Other Manager Controllables
Protection Services 1,056 1,080 969 111- 0.04 0.04 0.03
Cash Over/Short 477 477 0.01
Restaurant Apparel 1,322 1,770 1,596 174- 0.05 0.06 0.05
Laundry & Linen 5,692 6,584 5,133 1,451- 0.19 0.22 0.16
Waste Removal 3,073 3,450 3,984 534 0.10 0.12 0.12
Equipment Rental 178 218 218 0.01 0.01
External Promotions 20,227 24,600 27,336 2,736 0.69 0.82 0.86
Freight Expense 142,806 184,000 253,419 69,419 4.87 6.15 7.94
Promotion Advertising 5,255 15,000 8,908 6,092- 0.18 0.50 0.28
Complimentary Food, Liq., Wine 8 600 600- 0.02
Complimentary Coupons 100
Restaurant Inspection 347 1,650 726 924- 0.01 0.06 0.02
Misc Expense & Credits 2,258 9,533 9,533 0.08 0.30
Discounts on Sales 2,157 1,795 2,472 677 0.07 0.06 0.08
Employee Welfare 1,041 1,795 1,955 160 0.04 0.06 0.06
Employee Education 351 298 78- 376- 0.01 0.01
Employee Procurement 1,037 1,300 2,504 1,204 0.04 0.04 0.08
Temporary Office Help 4,856 16,645 16,645 0.17 0.52
Postage 2,197- 1,200 2,131 931 0.07- 0.04 0.07
Bad Debts 785 0.03
-------------- -------------- -------------- ----------- ---------- ---------- ----------
Total Other Mgr. Cont. 190,352 245,122 377,928 92,806 6.50 8.19 10.59
-------------- -------------- -------------- ----------- ---------- ---------- ----------
Total Mgr. Controllables 328,036 387,182 497,623 110,441 11.20 12.94 15.60
-------------- -------------- -------------- ----------- ---------- ---------- ----------
Controllable Profit 965,723 896,482 886,184 10,298- 32.96 29.95 27.77
Other Operating Expenses
Taxes & Licenses 6,215 5,898 6,308 410 0.21 0.20 0.20
Insurance 25,258 27,099 29,456 2,357 0.86 0.91 0.92
Shortage & Spoilage 17,321 0.59
Bank Charges 1,050 1,050 1,050 0.04 0.04 0.03
Product Development 3,056 900 5,029 4,129 0.10 0.03 0.16
Lease Automobiles 14,080 21,000 17,290 3,710- 0.48 0.70 0.54
Auto Expense 35,735 40,600 62,250 21,650 1.22 1.36 1.95
</TABLE>
<PAGE>
09:07 SBBC - Carlsbad, Calif. 3018
07/10/98 Brenda Hubbard
P00350 1998-02-01
<TABLE>
<CAPTION>
CURRENT PERIOD
--------------
AMOUNTS PERCENTAGES
------- -----------
PRIOR YR BUDGET ACTUAL VAR PR YR BUD ACT
- -------- ------ ------ --- ----- --- ---
<S> <C> <C> <C> <C> <C> <C>
1,282 1,200 1,321 121 0.22 0.20 0.21
765 750 750- 0.13 0.13
5,142 6,800 6,195 605- 0.89 1.15 0.97
2,181 3,500 2,612 888- 0.38 0.59 0.41
- --------- --------- --------- -------- ------- ------ ------
9,360 12,250 10,128 2,122- 1.62 2.07 1.58
3,536 4,151 5,026 875 0.61 0.70 0.79
938 890 1,055 165 0.16 0.15 0.16
- --------- --------- --------- -------- ------- ------ ------
4,474 5,041 6,081 1,040 0.77 0.85 0.95
176 180 89 91- 0.03 0.03 0.01
295 384 89 0.05 0.06
1,028 1,305 1,097 208- 0.18 0.22 0.17
474 575 912 337 0.08 0.10 0.14
178 0.03
3,392 4,200 4,000 200- 0.59 0.71 0.63
31,972 34,000 55,598 21,698 5.52 5.73 8.70
660 2,500 1,142 1,358- 0.11 0.42 0.18
119 119- 0.02
211 275 199 76- 0.04 0.05 0.03
2,260 5,705 5,705 0.39 0.89
462 356 687 331 0.08 0.06 0.11
356 209 147- 0.04 0.06 0.03
59 59- 0.01
122 127 3- 0.02 0.02 0.02
7,781 7,781 1.22
446 200 390 190 0.08 0.03 0.06
- --------- --------- --------- -------- ------- ------ ------
41,632 44,550 78,420 33,870 7.19 7.51 12.25
- --------- --------- --------- -------- ------- ------ ------
63,638 70,411 106,670 36,259 10.99 11.87 16.67
- --------- --------- --------- -------- ------- ------ ------
186,628 189,650 169,060 20,590- 32.22 31.98 26.42
- --------- --------- --------- -------- ------- ------ ------
869 983 897 86- 0.15 0.17 0.14
5,843 5,035 5,488 453 1.01 0.85 0.86
175 175 175 0.03 0.03 0.03
178 150 1,147 997 0.03 0.03 0.18
3,414 3,500 2,012 1,488- 0.59 0.59 0.31
6,834 7,500 6,913 587- 1.18 1.26 1.03
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PROFIT & LOSS STATEMENT
Wholesale ROW: AJPNL2
June 29, 1998 FORMAT:
P&L
YEAR TO DATE
------------
AMOUNTS PERCENTAGES
------- -----------
PRIOR YR BUDGET ACTUAL VAR PR YR BUD ACT
-------- ------- ------ --- ----- --- ---
<S> <C> <C> <C> <C> <C> <C> <C>
Travel Expense 4,148 5,100 1,630 3,470- 0.14 0.17 0.05
Dues & Subscriptions 304 90 90- 0.01
Manager Meeting 126 350 350- 0.01
Consulting Fees 23,535 23,535 0.74
-------------- -------------- -------------- ----------- ---------- ---------- ----------
Total Other Operating Exp. 107,293 102,087 146,548 44,461 3.66 3.41 4.59
-------------- -------------- -------------- ----------- ---------- ---------- ----------
Profit/Loss bef. Occupancy 858,430 794,395 739,636 54,759- 29.30 26.54 23.18
Occupancy
Rent 58,004 58,386 58,387 1 1.98 1.95 1.83
Depreciation 71,301 80,262 72,651 7,611- 2.43 2.68 2.28
Amort. Of Leasehold Imprvmnts 14,223 14,160 14,159 1- 0.49 0.47 0.44
Gain or Loss Assets 1,548 1,496 270 1,226- 0.05 0.05 0.01
-------------- -------------- -------------- ----------- ---------- ---------- ----------
Total Occupancy 145,076 154,304 145,467 8,837- 4.95 5.16 4.56
-------------- -------------- -------------- ----------- ---------- ---------- ----------
Profit/Loss 713,354 640,091 594,169 45,922- 24.35 21.39 18.62
============== ============== ============== =========== ========== ========== ==========
Check Balance 713,356 640,091 594,170 45,921- 24.35 21.39 18.62
* * * * * * * * *
Cash Flow 798,880 734,513 680,979 53,534- 27.27 24.54 21.34
Net Book Value of Assets 744,175 805,400
* * * * * * * * *
</TABLE>
<PAGE>
09:07 SBBC - Carlsbad, Calif. 3018
07/10/98 Brenda Hubbard
P00350 1998-02-01
<TABLE>
<CAPTION>
CURRENT PERIOD
--------------
AMOUNTS PERCENTAGES
------- -----------
PRIOR YR BUDGET ACTUAL VAR PR YR BUD ACT
- -------- ------ ------ --- ----- --- ---
<S> <C> <C> <C> <C> <C> <C>
1,044 850 206 644- 0.18 0.14 0.03
155 15 15- 0.02
20 125 125- 0.02
7,391 7,391 1.15
- --------- --------- --------- -------- ------- ------ ------
18,492 18,333 24,229 5,896- 3.19 3.09 3.79
- --------- --------- --------- -------- ------- ------ ------
168,136 171,317 144,831 26,486- 29.02 28.89 22.63
9,731 9,731 9,731 1.68 1.64 1.52
12,561 13,377 12,709 668- 2.17 2.26 1.99
2,360 2,360 2,360 0.41 0.40 0.37
467 297 297- 0.08 0.05
- --------- --------- --------- -------- ------- ------ ------
25,119 25,765 24,800 965- 4.34 4.34 3.88
- --------- --------- --------- -------- ------- ------ ------
143,017 145,552 120,031 25,521- 24.69 24.54 18.76
========= ========= ========= ======== ======= ====== ======
143,016 145,552 120,033 25,519- 24.69 24.54 18.76
157,937 161,289 135,102 26,187- 27.26 27.20 21.11
</TABLE>
<PAGE>
Exhibit 10.6
STOCK PURCHASE AGREEMENT
Among
INWOOD INVESTORS PARTNERSHIP, L.P.
CHART HOUSE ENTERPRISES, INC.
METROPOLITAN LIFE INSURANCE COMPANY
MICHAEL C. JOLLEY
KIRBY GORTON
and
LUTHER'S ACQUISITION CORP.
Dated as of October 22, 1998
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE 1 PURCHASE AND SALE OF THE SHARES....................... 1
1.1 Purchase and Sale of the Shares........................... 1
1.2 Closing................................................... 1
ARTICLE 2 REPRESENTATIONS AND WARRANTIES OF MANAGEMENT.......... 2
2.1 Organization............................................ 2
2.2 Authorization and Enforceability........................ 2
2.3 No Violations of Laws or Agreements..................... 3
2.4 Capital Structure....................................... 3
2.5 Subsidiary and Certain Affiliates....................... 4
2.6 Financial Statements.................................... 5
2.7 Taxes................................................... 5
2.8 Properties.............................................. 7
2.9 Intellectual Property................................... 9
2.10 Contracts............................................... 9
2.11 Litigation.............................................. 11
2.12 Insurance............................................... 11
2.13 Benefit Plans........................................... 11
2.14 Absence of Changes or Events............................ 13
2.15 Compliance with Applicable Laws......................... 15
2.16 Permits; Liquor Licenses................................ 15
2.17 Environmental Matters................................... 16
2.18 Employee and Labor Relations............................ 18
2.19 Accounts and Notes Receivable........................... 19
2.20 Inventory............................................... 19
2.21 Indebtedness............................................ 19
2.22 Suppliers............................................... 19
2.23 Certain Employees....................................... 20
2.24 Potential Conflicts of Interest......................... 20
2.25 Brokers................................................. 20
ARTICLE 3 REPRESENTATION AND WARRANTIES OF SELLERS.............. 20
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
3.1 Organization............................................ 20
3.2 Authorization and Enforceability........................ 21
3.3 No Violations of Laws or Agreements..................... 21
3.4 Transfer of Good Title.................................. 21
3.5 Management's Representation and Warranties.............. 21
3.6 Related Party Agreements................................ 21
3.7 Brokers................................................. 22
ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF BUYER............... 22
4.1 Organization............................................ 22
4.2 Authorization and Enforceability........................ 22
4.3 No Violations of Laws or Agreements..................... 22
4.4 Sufficient Funds; Financing............................. 23
4.5 Compliance with Liquor Licenses......................... 23
4.6 Securities Act.......................................... 23
ARTICLE 5 COVENANTS............................................. 24
5.1 Access.................................................. 24
5.2 Ordinary Conduct........................................ 25
5.3 Litigation.............................................. 25
5.4 Reasonable Efforts...................................... 25
5.5 Reports................................................. 25
5.6 Confidentiality; Press Releases......................... 25
5.7 Financial Information................................... 26
5.8 Employees............................................... 26
5.9 Antitrust Notification.................................. 26
5.10 Reasonable Best Efforts................................. 27
5.11 Advice of Changes....................................... 27
5.12 No Solicitation......................................... 28
5.13 Liquor Licenses......................................... 28
5.14 Non-Competition......................................... 28
5.15 No Additional Representations........................... 29
5.16 Certain Litigation...................................... 29
5.17 Certain Agreements...................................... 29
5.18 Actions Relating to Management's Covenants.............. 29
ARTICLE 6 CONDITIONS TO CLOSING................................. 30
6.1 Conditions to Buyer's Obligations....................... 30
6.2 Conditions to Sellers' Obligations...................... 32
ARTICLE 7 INDEMNIFICATION....................................... 33
</TABLE>
-ii-
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
7.1 Non-Survival of Representations and Warranties.................... 33
7.2 Indemnification by Sellers........................................ 33
7.3 Indemnification by Buyer.......................................... 33
7.4 Indemnification Limitations and Procedures........................ 33
7.5 Procedures Relating to Indemnification - Third Party Claims....... 34
7.6 Procedures for Indemnification - Other Claims..................... 35
7.7 APPLICABILITY..................................................... 35
ARTICLE 8 MISCELLANEOUS.................................................. 36
8.1 Construction of this Agreement.................................... 36
8.2 Assignment........................................................ 36
8.3 No Third-Party Beneficiaries...................................... 37
8.4 Termination....................................................... 37
8.5 Expenses.......................................................... 38
8.6 Amendments........................................................ 38
8.7 Notices........................................................... 38
8.8 Fees.............................................................. 39
8.9 Cooperation....................................................... 39
8.10 Waiver Of Jury Trial, Etc.......................................... 39
8.11 Severability...................................................... 39
8.12 Waiver............................................................ 40
8.13 Counterparts...................................................... 40
8.14 Entire Agreement.................................................. 40
8.15 Governing Law..................................................... 40
8.16 Defined Terms..................................................... 40
</TABLE>
Exhibits
--------
Exhibit A - Form of Sellers' Counsel Opinion
Exhibit B - Form of Buyer's Counsel Opinion
-iii-
<PAGE>
STOCK PURCHASE AGREEMENT
THIS IS A STOCK PURCHASE AGREEMENT, dated as of October 22, 1998
(the "Agreement"), among Inwood Investors Partnership, L.P. ("Inwood"), Chart
House Enterprises, Inc. ("Chart House"), Metropolitan Life Insurance Company
("Metropolitan") (each, a "Seller" and collectively, "Sellers"), Luther's
Acquisition Corp., a Delaware corporation ("Buyer") and Michael C. Jolley
("Jolley") and Kirby Gorton (collectively, "Management").
Background
----------
A. After giving effect to unissued shares underlying options, the
Sellers collectively own 2,470,000 shares of the common stock of Luther's Bar-B-
Q, Inc., a Texas corporation ("Luther's" or the "Company") and a warrant to
purchase 400,000 shares of Common Stock of the Company, par value $0.01 (such
Company shares and the shares to be issued upon the exercise of the warrant as
set forth herein as are owned by Sellers, the "Shares").
B. Upon the terms and subject to the conditions set forth in this
Agreement, Buyer desires to purchase from each Seller, and each Seller desires
to sell to Buyer, such Seller's pro rata portion of the Shares.
THEREFORE, intending to be legally bound hereby, the parties hereto
agree as follows:
ARTICLE I
PURCHASE AND SALE OF THE SHARES
-------------------------------
1.1 Purchase and Sale of the Shares. (a) Upon the terms and subject
-------------------------------
to the conditions of this Agreement, at the Closing referred to in Section 1.2
below, each Seller shall sell, transfer and deliver to Buyer such Seller's pro
rata portion of the Shares, free and clear of any Liens (as such term is defined
in Section 2.8(a)), and Buyer will purchase such Shares from each Seller for the
Purchase Price referred to below.
(b) The aggregate purchase price (the "Purchase Price") for the
Shares shall be $3.0529 per share for an aggregate purchase price of $8,761,823.
1.2 Closing. (a) The closing (the "Closing") of the purchase and sale
-------
of the Shares shall be held at the offices of Vinson & Elkins L.L.P., 1001
Fannin Street, Houston, Texas at 10:00 a.m. on the third business day after the
conditions to Closing set forth in Article 6 of this Agreement shall have been
satisfied or waived (or such other date as the parties may mutually agree). The
date on which the Closing occurs is referred to herein as the "Closing Date."
All transactions at the Closing shall be deemed to take place simultaneously.
<PAGE>
(b) At the Closing,
(i) Each Seller shall deliver the certificates
representing the Shares being purchased hereunder, indicating that Buyer is the
registered owner thereof and dated the Closing Date. To the extent any transfer
stamps are required under applicable law, each Seller shall, at its expense,
obtain and affix such stamps to the foregoing certificates in the appropriate
amounts and canceled as of the Closing Date.
(ii) Buyer shall pay the Purchase Price to each Seller (or
any designee in writing of each Seller) by wire transfer of immediately
available funds to a bank account designated by each Seller in writing not
later than one business day prior to the Closing Date.
(iii) Each Seller shall pay all stock transfer Taxes (as
defined in Section 2.7), recording fees (other than those relating to any
financing of Buyer obtained in connection herewith), and other sales, transfer,
use, purchase or similar Taxes, if any, relating to such Seller's sale of Shares
hereunder.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES OF MANAGEMENT
--------------------------------------------
Management hereby represents and warrants (which words, for purposes
of this Agreement, are used interchangeably), as of the date of this Agreement:
2.1 Organization. (a) Each of the Company and Luther's Spirits, Inc.
------------
(the "Subsidiary") are corporations duly incorporated, validly existing and in
good standing under the laws of the state of its incorporation. Each of the
Company and the Subsidiary have the requisite corporate power and authority to
own, lease and operate its assets, properties (real, personal or mixed) and
business and to carry on its business as presently conducted. Each of the
Company and the Subsidiary is duly qualified or registered as foreign
corporations to do business, and is in good standing in the jurisdictions set
forth in Schedule 2.1, which constitute all jurisdictions in which the character
------------
of the properties owned, operated or leased by the Company or the Subsidiary or
the nature of its activities require such qualification, except where a failure
to so qualify or be in good standing would not, individually or in the
aggregate, have a Material Adverse Effect (as defined in Section 8.16(b)). Each
of the Company and the Subsidiary do not own or lease property in any
jurisdictions other than its jurisdiction of incorporation and the jurisdictions
set forth in Schedule 2.1.
------------
(b) Management has delivered to Buyer true and complete copies
of the Certificate of Incorporation, as amended to date, the Bylaws, as in
effect on the date hereof, and the actual minute books and stock ledgers of the
Company and the Subsidiary.
2.2 Authorization and Enforceability. Management has the requisite
--------------------------------
power and authority to enter into this Agreement and to consummate the
transactions contemplated hereby. This Agreement has been duly executed and
delivered by Management and constitutes
-2-
<PAGE>
the legal, valid and binding obligation of such parties, enforceable against
them in accordance with its terms, except as such enforceability may be limited
by bankruptcy, insolvency or other laws affecting creditor's rights generally
and except as enforcement may be limited by general equitable principles.
2.3 No Violations of Laws or Agreements. Except as set forth in
-----------------------------------
Schedule 2.3 the execution, delivery and performance by Management of this
- ------------
Agreement and the consummation by such parties of the transactions contemplated
hereby will not (a) violate in any material respect any provision of law or any
rule or regulation to which Management, the Company or the Subsidiary or their
respective assets or business are subject (it being understood that the
necessity for filings and consents is dealt with separately in the following
paragraph), (b) conflict with or violate any order, judgment, injunction, award
or decree binding upon Management, the Company or the Subsidiary or their
respective assets or business, (c) conflict with or violate the Certificate of
Incorporation, Bylaws or other similar governing documents of the Company or the
Subsidiary, (d) constitute a default or give rise to a right of termination,
cancellation or acceleration of any right or obligation of Management, the
Company or the Subsidiary, under any provision of any agreement, contract or
other instrument binding upon the Company or the Subsidiary or their respective
assets or business or any license, franchise, permit or other similar
authorization held by the Company or the Subsidiary, including the Leases (as
defined in Section 2.8(f)), or (e) result in the creation or imposition of any
Lien (as defined in Section 2.8(a)) upon any of the assets of Management, the
Company or the Subsidiary or the shares, except, in the case of any of the
foregoing clauses other than clause (a) and clause (c), for any such conflict,
violation, default, right or Lien which would not, individually or in the
aggregate, have a Material Adverse Effect.
Except as set forth in Schedule 2.3, the execution, delivery and
------------
performance by Management of this Agreement and the consummation of the
transactions contemplated hereby do not require any consent from, or filing
with, any governmental or regulatory authority, except for (a) the filing of a
report under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended (the "HSR Act"), and the expiration of the applicable waiting period
thereunder, (b) any action, consent or filing that Buyer is required to obtain
or make, and (c) consents and filings which, if not obtained or made, will not,
individually or in the aggregate, have a Material Adverse Effect or have a
material adverse effect on the consummation of the transactions contemplated
hereby.
2.4 Capital Structure. The authorized capital stock of the Company
-----------------
consists of 12,000,000 shares of Common Stock, par value $0.01 per share, of
which 2,517,944 shares are issued and outstanding, and 1,000,000 shares of
Preferred Stock., par value $0.01 per share, of which no shares are outstanding.
To the knowledge of Management, Schedule 2.4 sets forth the owners of all of
------------
the outstanding shares of Common Stock which owners own such Common Stock,
beneficially and of record, free and clear of all liens, claims or encumbrances
and have full right, power, legal capacity and authority to sell, transfer and
deliver the Shares. The Shares of Common Stock have been duly authorized and
have been duly and validly issued and are fully paid and non-assessable and
free of preemptive rights, with no personal liability attaching thereto. Except
for the Common Stock of the Company owned by Jolley or held by Jolley and
-3-
<PAGE>
other employees of the Company in the form of unissued shares underlying options
and the warrant to purchase 400,000 shares of Common Stock held by Metropolitan,
as set forth on Schedule 2.4, there are no subscriptions, options, warrants,
------------
calls, rights, contracts, commitments, agreements, understandings or
arrangements to issue, sell, deliver, transfer or redeem any shares of capital
stock of the Company or any securities convertible into or exercisable or
exchangeable for any shares of capital stock of the Company or rights of
conversion or exchange under any outstanding security or other instrument.
Except as set forth on Schedule 2.4, no shares of Common Stock are reserved for
------------
issuance for any purpose.
2.5 Subsidiary and Certain Affiliates. (a) (i) Luther's Spirits, Inc.
---------------------------------
is the sole Subsidiary of the Company. For purposes of this Agreement, the term
"Subsidiary" shall mean Luther's Spirits, Inc. and any other person (as defined
below) as to which the Company, directly or indirectly, owns more than 50% of
the voting power of the voting equity securities or interests of such person.
The Company is the record and beneficial owner of all of the outstanding shares
of capital stock of the Subsidiary, and there are no outstanding options,
warrants, convertible or exchangeable securities, subscriptions, rights
(including any preemptive rights), stock appreciation rights, calls or other
legally binding commitments requiring the issuance or sale of shares of any such
capital stock in the Subsidiary, and no agreements to which Management, the
Company or the Subsidiary are a party to issue or enter into any of the
foregoing. Except as set forth in Schedule 2.5(i), all of such shares so owned
---------------
by the Company or the Subsidiary are owned by the applicable Company or
Subsidiary free and clear of any Liens. Except for shares of capital stock of
the Subsidiary or as set forth on Schedule 2.5(i), the Company does not,
---------------
directly or indirectly, own or control or have any capital or other equity
interest or participation, or any interest convertible, exchangeable or
exercisable for, any capital or other equity interest or participation in, nor
is the Company, directly or indirectly, subject to any obligation or requirement
to invest in the equity securities or interests of, any person.
(ii) LBBQ of Texas, Inc. and Luther's BAR-B-Q/LA, Inc. are the only
Liquor Affiliates of the Company. For the purposes of this Agreement, the term
"Liquor Affiliate" shall mean LBBQ of Texas, Inc. and Luther's Bar-B-Q/LA, Inc.
and any other person as to which a Liquor Service Agreement (as defined in
Section 2.16(b)) is maintained with or relates to any restaurants owned and/or
operated by the Company. Jolley, Kirby Gorton (the "Texas Owners") and the
Company are the record and beneficial owners of 25.5%, 25.5% and 49% of the
outstanding shares of capital stock of LBBQ of Texas, Inc., respectively. Robert
Angelico (the "Louisiana Owner") is the record and beneficial owner of all of
the outstanding shares of the capital stock of Luther's BAR-B-Q/LA, Inc. There
are no outstanding options, warrants, convertible or exchangeable securities,
subscriptions, rights (including any preemptive rights), stock appreciation
rights, calls or other legally binding commitments requiring the issuance or
sale of shares of any such capital stock in the Liquor Affiliates, and no
agreements to which any Liquor Affiliate is a party to issue or enter into any
of the foregoing. Except as set forth in Schedule 2.5(ii), all of such shares so
----------------
owned by the Company, the Texas Owners or the Louisiana Owner are owned by the
Company, Texas Owners or the Louisiana Owner free and clear of any Liens. The
Company has entered into agreements (the "Call Agreements") with each of the
Texas Owners and the Louisiana Owner, pursuant to which the Company may
purchase the shares of the Liquor Affiliates held by the Texas Owners and the
Louisiana Owner
-4-
<PAGE>
or their heirs and assigns for a nominal consideration. The Call Agreements have
been duly executed and delivered by the Company, the Texas Owners and the
Louisiana Owner and constitute legal, valid and binding obligations, enforceable
against each party thereto in accordance with their respective terms.
(b) The term "person" in this Agreement means any individual,
corporation, general or limited partnership, firm, joint venture, association,
enterprise, joint stock company, trust, unincorporated organization or other
entity.
2.6 Financial Statements. Schedule 2.6 contains (a) the audited
-------------------- ------------
consolidated balance sheets of the Company and the Subsidiary and the unaudited
balance sheet of the Liquor Affiliates in each case as of December 31, 1997 and
December 31, 1996 and the related consolidated statements of income of the
Company, the Subsidiary and the Liquor Affiliates for the fiscal years then
ended, together with the notes to such financial statements (the "Year End
Financial Statements") and (b) the unaudited consolidated balance sheet of the
Company, the Subsidiary and the unaudited balance sheets of the Liquor
Affiliates as of August 31, 1998 (the "Interim Balance Sheet") and the related
consolidated statement of income of the Company, the Subsidiary and the Liquor
Affiliates for the eight-month period then ended, (together with the notes to
such financial statements, if any (collectively, the "Interim Financial
Statements" and, together with the Year End Financial Statements, the "Financial
Statements")). The Financial Statements have been prepared in accordance with
the books and records of the Company, the Subsidiary and the Liquor Affiliates
and in accordance with generally accepted accounting principles ("GAAP") applied
on a consistent basis throughout the periods covered thereby, except that such
Interim Financial Statements contain no notes. Except as set forth in Schedule
--------
2.6, the Financial Statements present fairly, in all material respects, the
- ---
consolidated financial position of the Company, the Subsidiary and the Liquor
Affiliates as of the date of such Financial Statements and the consolidated
results of operations of the Company, the Subsidiary and the Liquor Affiliates
for applicable periods then ended, in conformity with GAAP, provided, however,
that the Interim Financial Statements are subject to normal year-end adjustments
and lack footnotes and other preparation items. All of the services provided,
and all of the assets loaned, licensed or leased to (whether or not pursuant to
any written agreement), the Company, the Subsidiary and the Liquor Affiliates by
any Seller or its affiliates (other than the Company, the Subsidiary or the
Liquor Affiliates) that are required to operate the business as it is currently
operated are set forth on Schedule 2.6. The Company, the Subsidiary and the
------------
Liquor Affiliates have no indebtedness for borrowed money other than as set
forth on Schedule 2.6, all of which will be repaid by the Company from funds
------------
advanced by Buyer at or prior to the Closing, as contemplated by Sections 4.4
and 6.2, without any reduction in the Purchase Price.
2.7 Taxes. (a) The Company, Subsidiary, the Liquor Affiliates and
-----
any affiliated group within the meaning of Section 1504 of the Internal Revenue
Code of 1986, as amended (the "Code") or consolidated, combined or unitary group
(under any state or local Tax law) of which the Company, the Subsidiary or
Liquor Affiliates is or has been a member (each such affiliated, consolidated,
combined or unitary group, an "Affiliated Group"), has filed or caused to be
filed in a timely manner (within any applicable extension periods) all material
Tax Returns required to be filed by the Code or by applicable state, local or
foreign tax laws, and all
-5-
<PAGE>
such Tax Returns are true, correct and complete in all material respects. All
Taxes required to be shown to be due on such Tax Returns have been timely paid
in full. No material tax liens have been filed and no material claims are being
asserted with respect to any Taxes of the Company, the Subsidiary, the Liquor
Affiliates or any Affiliated Group, and no examination, audit or inquiry is
currently being conducted by any taxing authority that could result in a
material Tax liability for which the Company, the Subsidiary or Liquor
Affiliates could be severally liable under Treasury Regulations (S) 1.1502-6 or
any comparable state, local or foreign tax provisions, except as set forth on
Schedule 2.7. None of the Company, the Subsidiary, the Liquor Affiliates or any
- ------------
Affiliated Group has any material liability for unpaid Taxes that are not based
upon net income or sales. The Company, the Subsidiary and the Liquor Affiliates
(including any predecessors) have complied in all material respects with all
applicable laws, rules and regulations relating to the payment and withholding
of Taxes. Since January 1993, the Company, the Subsidiary and the Liquor
Affiliates have been included only in the Affiliated Group for state, federal
and local income tax purposes described in Schedule 2.7 hereto. With respect to
------------
taxable years beginning before 1993, either (i) the federal income tax return of
the consolidated group that included the Company and the Subsidiary and the
federal income tax returns of the Liquor Affiliates in such year or years has
been audited by the Internal Revenue Service and such audit has been completed
or (ii) the statute of limitations with respect to federal income tax liability
has expired. There are no outstanding waivers or comparable consents regarding
the application of the statute of limitations with respect to any Taxes or Tax
Returns of the Company, the Subsidiary, the Liquor Affiliates or any Affiliated
Group. None of the Company, the Subsidiary or the Liquor Affiliates is a party
to any agreement providing for the allocation or sharing of Taxes other than
with respect to each other. None of the Company, the Subsidiary or the Liquor
Affiliates is required to include in income any adjustment pursuant to Section
481(a) of the Code by reason of a voluntary change in accounting method
initiated by the Company or the Subsidiary and none of the Company, the
Subsidiary or the Liquor Affiliates has knowledge that the Internal Revenue
Service has proposed any such adjustment or change in accounting method
except as set forth on Schedule 2.7. The acquisition of the Shares will not be a
------------
factor causing any payments to be made by the Company, the Subsidiary or the
Liquor Affiliates to be nondeductible (in whole or in part) pursuant to Section
280G of the Code. None of the Company, the Subsidiary or the Liquor Affiliates
has filed with respect to any item a disclosure statement pursuant to Section
6662 of the Code or any comparable disclosure with respect to foreign, state
and/or local tax statutes. Set forth on Schedule 2.7 is a list of all federal
------------
income tax audits with respect to the taxable years that have ended within three
years of the date of this Agreement that have been completed by the Internal
Revenue Service. No consent or election under Section 341 of the Code has been
made for the Company, the Subsidiary or the Liquor Affiliates. No property of
the Company, the Subsidiary or the Liquor Affiliates is "tax exempt use
property" within the meaning of Section 168(h) of the Code, and the Company is
not a party to any lease made pursuant to Section 168(f)(8) of the Internal
Revenue Code of 1954, as amended, except as set forth on Schedule 2.7.
------------
(b) For purposes of this Agreement, (i) "Tax" or "Taxes" means all
taxes, charges, fees, levies or other assessments, including all net income,
gross income, gross receipts, sales, use, rental, ad valorem, value added,
transfer, franchise, profits, alternative minimum, license, withholding,
employment, payroll, disability, excise estimated, severance,
-6-
<PAGE>
stamp, occupation, property or other taxes, customs, duties, 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); (ii) "Tax Returns" means all returns, reports, forms or other
information required to be filed with, or supplied to, any tax authority
(federal, state, local, foreign or otherwise) with respect to any Taxes; and
(iii) "material" means material to the Company, Subsidiary and the Liquor
Affiliates taken as a whole.
2.8 Properties. (a) Schedule 2.8 contains a list of all real
---------- ------------
property owned by the Company or the Subsidiary (the "Owned Real Property"). The
Company and the Subsidiary have good and valid title to the personal properties
they purport, to own, whether tangible or intangible (including those reflected
on the Interim Balance Sheet or acquired by the Company or the Subsidiary since
the date of the Interim Balance Sheet, except property sold or otherwise
disposed of since the date of the Interim Balance Sheet, none of which is
material), and fee simple title to the real properties they purport to own, in
each case free and clear of all mortgages, liens, attachments, pledges,
encumbrances, charges, options, rights of first refusal, claims, leases,
easements or security interests of any nature whatsoever ("Liens"), except (i)
Liens disclosed in the Financial Statements, including the notes thereto, if
any, (ii) Liens for current Taxes not yet due and payable or which may hereafter
be paid without penalty, (iii) Liens described in Schedule 2.8 or Schedule 2.9
------------ ------------
or Schedule 2.10, (iv) zoning, building and other similar governmental
-------------
restrictions and Liens imposed by operation of law (including without limitation
mechanics', carriers', workmen's, repairmen's, landlord's or other similar liens
arising from or incurred in the ordinary course of business and for which the
underlying payments are not yet delinquent), and liens arising under original
purchase price conditional sales contracts and equipment leases with third
parties entered into in the ordinary course of business, and (v) easements,
covenants, encroachments, rights-of-way or other similar restrictions and
imperfections of title, none of which items referred to in the foregoing clauses
(iv) and (v) materially impairs the use of the property subject thereto in the
business of the Company and the Subsidiary as presently conducted. Management
has made available to Buyer true and correct copies of all title insurance
policies, reports and commitments relating to the Owned Real Property, together
with all surveys and plans, in the Company's or the Subsidiary's possession
regarding Owned Real Property.
(b) Except as set forth in Schedule 2.8, the Owned Real Property
------------
is used or held for use primarily in connection with the conduct of the present
business and operations of the Company and the Subsidiary. Except as set forth
on Schedule 2.8, to the knowledge of Management, none of the improvements on any
------------
Owned Real Property encroaches on any adjoining property or public streets.
(c) Except as set forth in Schedule 2.8, Management and the
------------
Company have not received in writing, and Management has no knowledge of, any
notice, demand or request from any insurance company, any board of fire
underwriters (or organization exercising functions similar thereto) or any
governmental or municipal agency or any other person requesting the performance
of any work or alteration in respect to the Owned Real Property or the real
property leased by the Company and the Subsidiary under the Leases (as defined
below).
-7-
<PAGE>
(d) Except as set forth in Schedule 2.8, Management and the Company
------------
have not received written notice of, and Management has no knowledge of, any
pending or contemplated eminent domain or condemnation proceeding, or other
governmental or quasigovernmental takings of any of the Owned Real Property or
the real property leased by the Company and the Subsidiary under the Leases (as
defined below).
(e) Except as set forth in Schedule 2.8, Management and the Company
------------
have not received written notice of, and Management has no knowledge of, any
public improvements which have been ordered to be made, and, to Management's
knowledge, there are no special, general or other assessments pending,
threatened against or affecting the Owned Real Property or the real property
leased by the Company and the Subsidiary under the Leases (as defined below)
(other than those that might arise pursuant to the transactions contemplated
hereby).
(f) Schedule 2.8 contains a list of all real property leases pursuant
------------
to which the Company or the Subsidiary lease any real property, including any
amendment, modification or supplement thereto (the "Leases"). Management has
previously made available to Buyer true, correct and complete copies of the
Leases. Except as set forth in Schedule 2.8, the applicable Company or
------------
Subsidiary has good and valid title to the leasehold estates conveyed under each
Lease, free and clear of Liens, except (i) Liens disclosed in the Financial
Statements, including the notes thereto, if any, (ii) Liens for current Taxes
not yet due and payable or which may hereafter be paid without penalty, (iii)
Liens described in Schedule 2.8, (iv) zoning, building and other similar
------------
governmental restrictions and Liens imposed by operation of law (including
without limitation mechanics', carriers', workmen's, repairmen's, landlord's or
other similar liens arising from or incurred in the ordinary course of business
and for which the underlying payments are not yet delinquent), and (v)
easements, covenants, encroachments, rights-of-way or other similar restrictions
and imperfections of title, none of which items referred to in the foregoing
clauses (iv) and (v) materially impairs the use of the property subject thereto
in the business of the Company and the Subsidiary as presently conducted. Each
Lease is valid and, to the knowledge of Management, in full force and effect and
is binding and enforceable in accordance with its terms (except as may be
limited by bankruptcy, reorganization, insolvency, moratorium or other similar
laws affecting the enforcement of creditors' rights and equitable principles
affecting remedies and other matters in effect from time to time). Except as set
forth in Schedule 2.8, the Company and the Subsidiary are not in default with
------------
respect to any payment obligation under the leases, and, to the knowledge of
Management, there are no other existing defaults on the part of the Company or
the Subsidiary or any other party (including any landlord) with respect to the
Leases. To the knowledge of Management, no event has occurred which (with or
without notice, lapse of time or both) would constitute a default on the part of
the Company or the Subsidiary or such other parties under the Leases. Except as
set forth in Schedule 2.8, the consummation of the transactions contemplated by
------------
this Agreement will not constitute a default, or give rise to a right of
termination, cancellation or acceleration of any right under, any Lease.
(g) Except as set forth in Schedule 2.8, the Owned Real Property, and
------------
the real property leased by the Company and the Subsidiary under the Leases, is
in a state of,
-8-
<PAGE>
working condition and repair (ordinary wear and tear excepted). The tangible
personal property of the Company and the Subsidiary which is material to the
business of the Company and the Subsidiary is in working condition and repair
(ordinary wear and tear excepted). During the two years prior to the date
hereof, there has not been an interruption of the operations of the Company and
the Subsidiary due to inadequate maintenance of the tangible personal property
of the Company and the Subsidiary that has had a Material Adverse Effect.
(h) The Liquor Affiliates do not own or lease any real property.
2.9 Intellectual Property. Schedule 2.9 contains a list of (a) all
------------
patents, inventions, trademarks, service marks, trade names, copyrights, trade
secrets (including recipes, formulas and other food and beverage preparation
methods) and rights of publicity (and all registrations and applications for the
foregoing) owned by or licensed to the Company, the Subsidiary and the Liquor
Affiliates that are material to the operation of the Company, the Subsidiary and
the Liquor Affiliates, and (b) all material license agreements to which the
Company, the Subsidiary or the Liquor Affiliates are a party pertaining to
patents, inventions, trademarks, service marks, trade names, copyrights, trade
secrets (including recipes, formulas and other food and beverage preparation
methods) and rights of publicity (and all registrations and applications for the
foregoing) and rights of publicity pertaining to the business of the Company,
the Subsidiary or the Liquor Affiliates. Except as set forth in Schedule 2.9,
------------
none of Management, the Company, the Subsidiary or the Liquor Affiliates has
received written notice of any objections or claim being asserted in writing by
any person with respect to the ownership, validity, enforceability or use of any
such patents, inventions, trademarks, service marks, trade names, copyrights,
trade secrets (including recipes, formulas and other food and beverage
preparation methods) or rights of publicity (or registrations or applications
for the foregoing) or challenging or questioning the validity or effectiveness
of any such license or relating to any proprietary process or confidential
information of the Company, the Subsidiary or the Liquor Affiliates which would
have a Material Adverse Effect.
2.10 Contracts. (a) Except as described in Schedule 2.10 and except
--------- -------------
for the Leases, none of the Company, the Subsidiary or the Liquor Affiliates is
a party to or bound by any written:
(i) employee collective bargaining agreement or other
contract with any labor union;
(ii) agreements with any director, officer or employee;
(iii) (A) lease or similar agreement under which any of the
Company, the Subsidiary or the Liquor Affiliates is lessee of, or holds or uses,
any material machinery, equipment, vehicle or other tangible personal property
owned by a third party, (B) continuing contract for the future purchase or sale
of materials, supplies, merchandise, equipment or services (other than with
respect to the purchase of materials and supplies in the ordinary course of
business), (C) consulting or similar contract, or (D) advertising agreement,
which (with respect to each of the foregoing clauses (A) and (B)) has an
aggregate future liability on the part of one of the Company, the Subsidiary or
the Liquor Affiliates in excess of $10,000 individually
-9-
<PAGE>
or $75,000 in the aggregate (together with all such contracts), or which is not
terminable by the applicable Company, the Subsidiary or Liquor Affiliates (1) on
not more than 90 days' notice without penalty or premium or (2) for a cost of
less than $25,000;
(iv) agreement or contract for indebtedness for borrowed money in
excess of $10,000 individually or $50,000 in the aggregate (other than advances
to employees of the Company, the Subsidiary and the Liquor Affiliates in the
ordinary course of business); and
(v) license, royalty agreement or similar contract involving annual
payments in excess of $10,000 individually or $25,000 in the aggregate;
(vi) distributorship, representative, marketing, sales agency, or
printing agreement, in each case involving annual payments in excess of $10,000
individually or $50,000 in the aggregate;
(vii) contract for the grant to any person of any preferential
rights to purchase any of the businesses the Company, the Subsidiary or the
Liquor Affiliates;
(viii) joint venture agreement;
(ix) contract which by its terms limits the ability of the Company
or the Subsidiary to engage in any line of business in any geographic area;
(x) contract relating to the acquisition by the Company, the
Subsidiary or the Liquor Affiliates of any operating business or the capital
stock of any person;
(xi) contract for the payment of fees or other consideration to
any Seller, any officer or director of any of the Company or any Seller or any
other entity in which any of the foregoing has an interest in excess of 5%;
(xii) mortgage, pledge, security agreement, deed of trust or other
document, in each case granting a lien (including liens upon properties acquired
under conditional sales, capital leases or other title retention or security
devices) securing an obligation in excess of $10,000 individually or $50,000 in
the aggregate;
(xiii) contract under which the Company, the Subsidiary or
any Liquor Affiliate agrees to indemnify any person with respect to Tax
liability or to share Tax liability with any person;
(xiv) any other contract, whether or not in the ordinary course of
business, where the breach thereof would have a Material Adverse Effect or which
involves annual payments in excess of $50,000.
(b) To the knowledge of Management, each agreement, contract, or lease
required to be described on Schedule 2.10 (the "Contracts") is in full force
-------------
and effect. To the knowledge of Management, none of the Company, the Subsidiary
or any Liquor Affiliate is (with or without the lapse of time or the giving of
notice, or both) in breach or default under a
-10-
<PAGE>
Contract to which it is a party, and no other party to any such Contract is
(with or without the lapse of time or the giving of notice, or both) in breach
or default thereunder, except, in either case, for such breaches or defaults
which would not, individually or in the aggregate, have a Material Adverse
Effect.
2.11 Litigation. Schedule 2.11 contains a list of (a) all lawsuits,
---------- -------------
claims, proceedings or investigations pending or, to the knowledge of
Management, threatened by or against the Company, the Subsidiary or any Liquor
Affiliate, or any of their properties, assets, operations or business, which
would reasonably be expected to have a Material Adverse Effect, and all
outstanding orders, injunctions or decrees of any court or governmental
authority against or directly involving as a named party the Company, the
Subsidiary or any Liquor Affiliate and (b) as of the date hereof, all lawsuits,
claims, proceedings or investigations pending or, to the knowledge of
Management, threatened by or against the Company, the Subsidiary or any Liquor
Affiliate, or any of their properties, assets, operations or business or which
challenge the legality of this Agreement or any action to be taken by Management
in connection herewith. The Company, the Subsidiary and the Liquor Affiliates
are not in default under any injunction, order or decree of any court or
governmental authority binding on the Company, the Subsidiary or the Liquor
Affiliates. Schedule 2.11 contains the outstanding judgments against Management,
the Company, the Subsidiary and the Liquor Affiliates that remain unpaid or
unsatisfied.
2.12 Insurance. Set forth on Schedule1e 2.12 is a list of all current
--------- ---------------
policies of insurance held by, or maintained on behalf of, the Company, the
Subsidiary or the Liquor Affiliates, indicating for each policy the carrier, the
insured, the type of insurance, the amounts of coverage and the expiration date,
as well as a description of any claims pending from a prior period involving a
retention. Buyer acknowledges that such policies are maintained by the Company.
Except as set forth on Schedule 2.12, all such policies are in full force and
-------------
effect, and the Company, the Subsidiary and the Liquor Affiliates have not
received any written notice of cancellation, material amendment or material
dispute as to coverage with respect to any such policies. Except as set forth in
Schedule 2.12 all insurance policies referenced above provide insurance coverage
- -------------
(with respect to occurrences during the periods covered by such policies) for
the properties, assets, liabilities and operations of the Company, the
Subsidiary and the Liquor Affiliates of such kinds, in such amounts and against
such risks as are sufficient for compliance with all requirements of law and all
agreements to which the Company, the Subsidiary or the Liquor Affiliates are
parties, and as are reasonably believed by Management and the Company to be
adequate to insure first or third party claims related to the business of the
Company, the Subsidiary and the Liquor Affiliates as currently conducted; and
will remain in full force and effect notwithstanding the consummation of the
transaction contemplated by this Agreement, without the payment of additional
premiums in any material amount other than additional premiums in the ordinary
course prior to Closing.
2.13 Benefit Plans. (a) Schedule 2.13 lists all employee benefit
------------- -------------
plans of the Company, the Subsidiary and the Liquor Affiliates to which the
Company, the Subsidiary or the Liquor Affiliates is obligated to contribute,
including each single employer, multiemployer and multiple employer pension,
profit-sharing stock bonus, money purchase, retirement, welfare benefits
savings, insurance, vacation pay, severance pay, stock purchase, stock option,
incentive
-11-
<PAGE>
or deferred compensation and bonus plan or arrangement, and any other employee
benefit plan covering and with respect to the Company, the Subsidiary or the
Liquor Affiliates and the Company's, Subsidiary's or Liquor Affiliates'
employees, consultants, agents and ex-employees, and their dependents and
beneficiaries (collectively, the "Benefit Plans"). Except as set forth on
Schedule 2.13, none of the Benefit Plans, which are not qualified plans exempt
- -------------
from income Tax, provides or promises benefits to ex-employees (including
retirees) of the Company, the Subsidiary or the Liquor Affiliates and their
dependents and beneficiaries except as specifically required under the Code,
with respect to continuation of coverage. All of such Benefit Plans have been
operated in all material respects in accordance with their terms, and all of
such Benefit Plans that are not multiemployer plans, and that are subject to
the terms of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), the Code, or other statutes, laws, ordinances, codes, rules and
regulations comply in all material respects with ERISA, the Code, and such other
statutes, laws, ordinances, codes, rules and relations, as applicable. In
the case of each Benefit Plan which is a qualified plan exempt from Tax, a
determination has been received from the appropriate District Director of
Internal Revenue that such plan is qualified under Section 401(a) of the Code
and the trust created thereunder, if any, is exempt from federal tax under
Section 501(a) of the Code, and nothing has occurred since such determination
that would adversely affect the qualification of such plan or the tax-exempt
status of such related trust. There has been no transaction involving any
Benefit Plan maintained by the Company, the Subsidiary or the Liquor Affiliates
which is a "prohibited transaction" under ERISA or the Code in connection with
which the Company, the Subsidiary or the Liquor Affiliates would be subject to
liability under ERISA or any tax liability imposed by the Code, or which would
subject any such Benefit Plan, the Company, the Subsidiary or the Liquor
Affiliates to a penalty under ERISA, the Code or any other applicable statute,
law, ordinance, code, rule or regulation, which liability, tax liability or
penalty would have a Material Adverse Effect.
(b) Except as set forth on Schedule 2.13, none of the Benefit
-------------
Plans listed on Schedule 2.13 provides for additional or accelerated payments or
-------------
other consideration to be made on account of the transactions contemplated
hereby. No suit, action, claim, proceeding, investigation or arbitration has
been made or instituted or, to the knowledge of Management, threatened, with
respect to any of such Benefit Plans or any assets thereof.
(c) Except where failure to do so would not have a Material Adverse
Effect, all contributions or payments required to be made to such Benefit Plans
by their terms or by law and any relevant collective bargaining agreement(s),
before or after the Closing Date, with respect to all periods or events
occurring prior to the Closing Date (including all insurance premiums) have been
properly paid or accrued on the books of account of the Company, the Subsidiary
and the Liquor Affiliates prior to the Closing Date (including, without
limitation, a pro rata share with respect to any period including the Closing
Date based on the ratio of the number of days in such period to the total number
of days in the plan year).
(d) Except as set forth on Schedule 2.13, none of the Company, the
-------------
Subsidiary or the Liquor Affiliates, nor any trade or business treated as a
single employer under common control with any of the Company, the Subsidiary or
the Liquor Affiliates within the meaning of Section 414 of the Code (an "ERISA
Affiliate") maintains or has an obligation to
-12-
<PAGE>
contribute to any Benefit Plan subject to Title IV of ERISA. None of the
Company, the Subsidiary or the Liquor Affiliates, nor any ERISA Affiliate is
subject to any asserted or unasserted withdrawal or other liability under Title
IV of ERISA or potentially secondarily liable for any withdrawal or other
liability under Title IV of ERISA which in either case would have a Material
Adverse Effect.
(e) True, complete and accurate copies of the documents setting forth
the terms of each Benefit Plan listed on Schedule 2.13 that is maintained by the
-------------
Company, the Subsidiary or the Liquor Affiliates for the benefit of employees of
the Company, the Subsidiary or the Liquor Affiliates, including plan agreements,
amendments, trusts and all related contracts and other agreements and, where
applicable, copies of the plan (i) most recent summary plan descriptions and
modifications thereto; (ii) notices distributed to employees, consultants,
agents, dependents and other beneficiaries with regard to any continuation of
coverage required under law; (iii) most recent favorable Internal Revenue
Service determination letters; (iv) three most recent annual reports (Forms
5500), including audited financial statements and all schedules thereto; and (v)
three most recent actuarial reports, have heretofore been delivered to Buyer. To
Management's knowledge, there are no oral modifications to any of such Benefit
Plans.
(f) There were no Benefit Plans in effect at any time during the three
years preceding the Closing Date with respect to which the Company, the
Subsidiary or the Liquor Affiliates has taken action during such period which
has or will result in termination that would have a Material Adverse Effect.
(g) Except as set forth on Schedule 2.13, no employee of the Company,
-------------
the Subsidiary or the Liquor Affiliates has accrued any vacation time from any
years prior to 1997 which is currently outstanding. The annual reports (Form
5500 Series) have been properly filed, including the payment in full of any late
fees, interest and penalties, if, and to the extent applicable, with respect to
such annual reports or any other material reporting and disclosure provisions of
Title I of ERISA.
2.14 Absence of Changes or Events. Except as set forth in Schedule
---------------------------- --------
2.14 (or in the other disclosure schedules to this Agreement), since the date of
- ----
the Interim Balance Sheet, the business of the Company, the Subsidiary and the
Liquor Affiliates has been conducted in the ordinary course consistent with past
practice, and there has not been any change in the financial condition or
results of operations of the Company, the Subsidiary and the Liquor Affiliates
(other than changes relating to the economy in general or industry conditions),
which would, individually or in the aggregate, have a Material Adverse Effect.
Except as set forth in Schedule 2.14, since the date of the Interim Balance
-------------
Sheet to the date hereof, none of the Company, the Subsidiary or the Liquor
Affiliates has:
(a) amended its Certificate of Incorporation or Bylaws or merged with
or into or consolidated with any other person, subdivided or in any way
reclassified any shares of its capital stock or changed or agreed to change in
any manner the rights of its outstanding capital stock;
-13-
<PAGE>
(b) except as contemplated by this Agreement, issued, sold, purchased
or redeemed, or entered into any binding contracts to issue, sell, purchase or
redeem, any shares of its capital stock or any options, warrants, convertible or
exchangeable securities, subscriptions, rights (including preemptive rights),
stock appreciation rights, calls or commitments of any character whatsoever
relating to its capital stock;
(c) entered into or amended any employment agreement (other than those
terminated at will), entered into any agreement with any labor union or
association representing any employee, or adopted, entered into or amended any
Benefit Plan;
(d) declared, set aside or paid any non-cash dividends or declared,
set aside or made any non-cash distributions of any kind to its stockholders
(other than to the Company), or made any direct or indirect redemption,
retirement, purchase or other acquisition of any shares of its capital stock;
(e) adopted a plan of liquidation or resolutions providing for the
liquidation, dissolution, merger, consolidation or other reorganization of the
Company or the Subsidiary;
(f) made any change in its accounting methods, principles or practices
or made any change in depreciation or amortization policies or rates adopted by
it, except insofar as may have been required by GAAP or made or changed any tax
election adopted or changed any method of accounting (except as required by
GAAP) or taken or omitted to take any other actions which action or omission
would have had the effect of materially increasing the tax liability of the
Company or the Subsidiary with respect to periods after the Closing;
(g) revalued any portion of its assets, properties or businesses
including any write-down of the value of inventory in excess of $50,000 or any
write-off of notes or accounts receivable in excess of $50,000;
(h) other than in contemplation of the transactions contemplated
hereby, materially changed any of its advertising, pricing, purchasing,
personnel, sales, returns, budget or product acquisition policies;
(i) made any wage or salary increase or bonus, or increase in any
other direct or indirect compensation, for or to any employee with a title of
"regional manager" (or any employee having a comparable or more senior title
thereto), or made any "across the board" wage or salary increase, except as
disclosed on Schedule 2.14;
-------------
(j) made any loan or advance to any of its officers, directors,
employees, consultants, agents or other representatives (other than travel
advances made in the ordinary course of business in a manner consistent with
past practice);
(k) made any payment or binding commitment to pay severance or
termination pay to any of its officers, directors, employees, consultants,
agents or other
-14-
<PAGE>
representatives, except pursuant to Benefit Plans currently in place or
consistent with past practices and disclosed on Schedule 2.14 or as set forth on
-------------
Schedule 2.13;
- -------------
(1) entered into any lease for real property; sold, abandoned or made
any other disposition of any of its material assets, properties or businesses
other than in the ordinary course of business (other than as contemplated by
this Agreement); granted or suffered any material Lien on any of its assets,
properties or businesses other than in the ordinary course of business (other
than as contemplated by this Agreement); or entered into or amended any
agreement set forth on Schedule 2.10 to which it is a party or by or to which it
-------------
or its assets, properties or businesses are bound or subject which agreement or
amendment has had a Material Adverse Effect;
(m) except as contemplated by this Agreement, made any capital
expenditures other than in the ordinary course of business;
(n) except as contemplated by this Agreement, incurred or assumed any
material debt, obligation or liability other than in the ordinary course of
business;
(o) except in the ordinary course of business in a manner consistent
with past practice, made any acquisition of all or any part of the assets,
properties, capital stock or business of any other person; or
(p) except in respect of this Agreement, agreed in writing to do
any of the foregoing.
2.15 Compliance with Applicable Laws. Except as set forth in Schedule
------------------------------- --------
2.15, the Company, the Subsidiary and the Liquor Affiliates and their properties
- ----
and assets are in compliance with all applicable statutes, laws, ordinances,
rules and regulations of any governmental authority or instrumentality,
domestic or foreign (other than Environmental Laws, which are dealt with
separately in Section 2.17), except where noncompliance would not have a
Material Adverse Effect.
2.16 Permits: Liquor Licenses. (a) To the knowledge of Management all
------------------------
material governmental licenses, permits or authorizations of the Company,
the Subsidiary and the Liquor Affiliates (other than those relating to
environmental matters, which are dealt with separately in Section 2.17, and the
Liquor Licenses, which are dealt with separately in paragraph (b) below) (the
"Permits") are in full force and effect and are validly held by the Company, the
Subsidiary or the Liquor Affiliates, as applicable, and the Company, the
Subsidiary and the Liquor Affiliates are in compliance in all material respects
with such Permits. Except as set forth on Schedule 2.16 such Permits will not be
-------------
subject to suspension, modification or revocation solely as a result of the
execution and delivery of this Agreement or the consummation of the transactions
contemplated hereby. The Company, the Subsidiary and the Liquor Affiliates have
all of the Permits (other than those referred to above) which are required to
carry on the business of the Company, the Subsidiary and the Liquor Affiliates
as such business is now conducted, except where the failure to have any such
Permit would not have a Material Adverse Effect. Except as set forth on Schedule
--------
2.16 neither Management nor the Company has received written
- ----
-15-
<PAGE>
notice of any violation of any Permit, and no proceeding is pending or, to the
knowledge of Management, threatened to revoke or limit any Permit.
(b) Schedule 2.16 contains a list of each restaurant owned
-------------
and/or operated by the Company and the Subsidiary (the "Restaurants") showing
the state in which such Restaurant is located. Schedule 2.16 also contains a
-------------
list of all liquor licenses held by the Subsidiary and the Liquor Affiliates in
connection with the operation of the Restaurants (the "Liquor Licenses"). The
Company has entered into an agreement with either the Subsidiary or the Liquor
Affiliates (each a "Liquor Service Agreement") pursuant to which liquor is sold
at such Restaurant by the Subsidiary or a Liquor Affiliate, as the case may be.
The Liquor Service Agreements have been duly executed and delivered by the
Company, the Subsidiary and the Liquor Affiliates and constitute legal, valid
and binding obligations, enforceable against each party thereto in accordance
with their respective terms. To the knowledge of Management, each of the Liquor
Licenses is in full force and effect and adequate for the current conduct of
operations at the Restaurant for which it is issued, and, subject to the matters
disclosed in the following sentence, has been validly issued. Except as set
forth in Schedule 2.16, neither Management nor the Company has received written
-------------
notice of any pending or threatened modification, suspension or cancellation of
a Liquor License, or any proceeding relating thereto. During the three year
period prior to the date of this Agreement, there have been no such proceedings
relating to any of the Liquor Licenses.
2.17 Environmental Matters. Except as set forth in Schedule 2.17:
--------------------- -------------
(a) The operations of the Company, the Subsidiary and the Liquor
Affiliates are in compliance with Environmental Laws, except where any non-
compliance would not have a Material Adverse Effect.
(b) The Company, the Subsidiary and the Liquor Affiliates have
obtained and are in compliance with all necessary permits or authorizations that
are required under Environmental Laws to operate the facilities, assets and
business of the Company, except where any non-compliance would not have a
Material Adverse Effect.
(c) There has been no Release at any of the properties owned by
the Company, the Subsidiary or, to the knowledge of Management, any predecessor
in interest, or at any disposal or treatment facility which received Hazardous
Materials generated by the Company, the Subsidiary, the Liquor Affiliates or, to
the knowledge of Management, any predecessor in interest, which would have a
Material Adverse Effect.
(d) No Environmental Claims have been asserted against the
Company, the Subsidiary or, to the knowledge of Management, any predecessor in
interest, which would have a Material Adverse Effect nor does the Company, the
Subsidiary or the Liquor Affiliates have knowledge or notice of any threatened
or pending Environmental Claim against the Company, the Subsidiary, the Liquor
Affiliates, or, to the knowledge of Management, any predecessor in interest,
which would have a Material Adverse Effect.
-16-
<PAGE>
(e) No Environmental Claims which would have a Material Adverse
Effect have been asserted against any facilities that may have received
Hazardous Materials generated by the Company, the Subsidiary, the Liquor
Affiliates or, to the knowledge of Management, any predecessor in interest.
(f) To the knowledge of Management, no underground or
aboveground storage tanks are located at any of the properties owned or operated
or leased by the Company, the Subsidiary, the Liquor Affiliates or any
predecessor in interest.
(g) Management has delivered to Buyer true and complete copies
of all environmental reports, studies, investigations or correspondence
regarding any Environmental Liabilities of the Company or the Subsidiary or any
environmental conditions at any of the properties previously or currently owned
or operated by the Company, the Subsidiary, the Liquor Affiliates or any
predecessor in interest, which are in possession of the Sellers, the Company,
the Subsidiary, the Liquor Affiliates or their agents.
(h) (i) "Environmental Claims" refers to any complaint,
summons, citation, notice, directive, order, claim, litigation, investigation,
judicial or administrative proceeding, judgment, letter or other written
communication from any governmental agency, department, bureau, office or other
authority, or any third party involving violations of Environmental Laws or
Releases of Hazardous Materials from (A) any assets, properties or businesses of
the Company, the Subsidiary or the Liquor Affiliates or, to the knowledge of
Management, any predecessor in interest; (B) from adjoining properties or
businesses; or (C) from or onto any facilities which received Hazardous
Materials generated by the Company, the Subsidiary or the Liquor Affiliates or
any predecessor in interest.
(ii) "Environmental Laws" includes the Comprehensive
Environmental Response, Compensation and Liability Act ("CERCLA"), 42 U.S.C.
9601 et seq., as amended; the Resource Conservation and Recovery Act ("RCRA"),
-- ---
42 U.S.C. 6901 et seq., as amended; the Clean Air Act ("CAA"), 42 U.S.C. 7401 et
-- --- --
seq., as amended; the Clean Water Act ("CWA"), 33 U.S.C. 1251 et seq., as
- --- -- ---
amended; the Occupational Safety and Health Act ("OSHA"), 29 U.S.C. 655 et seq.,
-- ---
and any other federal, state, local or municipal laws, statutes, regulations,
rules or ordinances imposing liability or establishing standards of conduct for
protection of the environment; each as in effect as of the Closing Date.
(iii) "Environmental Liabilities" means any monetary
obligations, losses, liabilities (including strict liability), damages, punitive
damages, consequential damages, treble damages, costs and expenses (including
all reasonable out-of-pocket fees, disbursements and expenses of counsel,
out-of-pocket expert and consulting fees and out-of-pocket costs for
environmental site assessments, remedial investigation and feasibility studies),
fines, penalties, sanctions and interest incurred as a result of any
Environmental Claim filed by any Governmental Authority or any third party which
relate to any violations of Environmental Laws, Remedial Actions, Releases or
threatened Releases of Hazardous Materials from or onto (A) any property
presently or formerly owned by the Company, the Subsidiary, the Liquor
Affiliates or, to the knowledge of Management, any predecessor in interest, or
(B) any facility
-17-
<PAGE>
which received Hazardous Materials generated by the Company, the Subsidiary, the
Liquor Affiliates or, to the knowledge of Management, any predecessor in
interest.
(iv) "Hazardous Materials" shall include (A) any element,
compound, or chemical that is defined, listed or otherwise classified as a
contaminant, pollutant, toxic pollutant, toxic or hazardous substance, extremely
hazardous substance or chemical, hazardous waste, medical waste, biohazardous or
infectious waste, special waste, or solid waste under Environmental Laws; (B)
petroleum, petroleum-based or petroleum-derived products; (C) polychlorinated
biphenyls; (D) any substance exhibiting a hazardous waste characteristic
radioactive or explosive materials; and (E) any raw materials, building
components, including but not limited to asbestos-containing materials and
manufactured products containing Hazardous Materials.
(v) "Release" means any spilling, leaking, pumping,
emitting, emptying, discharging, injecting, escaping, leaching, migrating,
dumping, or disposing of Hazardous Materials (including the abandonment or
discarding of barrels, containers or other closed receptacles containing
Hazardous Materials) into the environment.
(vi) "Remedial Action" means all actions to (A) clean up,
remove, remediate, contain, treat, monitor, assess, evaluate or in any other way
address Hazardous Materials in the indoor or outdoor environment; (B) prevent or
minimize a Release or threatened Release of Hazardous Materials so they do not
migrate or endanger or threaten to endanger public health or welfare or the
indoor or outdoor environment; (C) perform pre-remedial studies and
investigations and post-remedial operation and maintenance activities; or (iv)
any other actions authorized by 42 U.S.C. 9601(24).
2.18 Employee and Labor Relations. Except as set forth in Schedule
---------------------------- --------
2.18 there is no labor strike, dispute, slowdown or work stoppage or lockout
- ----
pending or, to the knowledge of Management, threatened against the Company, the
Subsidiary and the Liquor Affiliates which would have a Material Adverse Effect.
Except as set forth in Schedule 2.18 during the 12 month period prior to the
-------------
date of this Agreement, there has not been any such strike, dispute, slowdown,
stoppage or lockout. Within six months prior to the date hereof, (a) neither the
Company nor the Subsidiary has effectuated (i) a plant closing (as defined in
the Workers Adjustment and Retaining Notification Act (the "WARN Act"))
affecting any group of Employees (as defined in Section 4.8) or (ii) a mass
layoff (as defined in the WARN Act) affecting any group of Employees at any site
of employment, facility or operating unit; (b) neither the Company nor the
Subsidiary has engaged in layoffs or employment terminations with respect to the
Employees sufficient in number to trigger application of any similar state or
local law; and (c) no Employees have suffered an employment loss (as defined in
the WARN Act). Except as set forth in Schedule 2.18 there are no complaints,
-------------
charges or claims pending or, to the knowledge of Management, threatened to be
brought or filed with the National Labor Relations Board or any other federal,
state or local department or agency in connection with the employment by the
Company, the Subsidiary or the Liquor Affiliates of any individual, including
any claim relating to employment discrimination, equal pay, unfair labor
practice, sexual harassment, employee safety and health, wages and hours,
workers compensation or any other, employment practice.
-18-
<PAGE>
2.19 Accounts and Notes Receivable. All accounts and notes receivable
-----------------------------
reflected on the Interim Balance Sheet and all accounts and notes receivable
arising subsequent to the date of the Interim Balance Sheet have arisen in the
ordinary course of business and represent accounts receivable for merchandise or
services actually delivered. Schedule 2.19 hereto sets forth a true and
-------------
correct aged list of all accounts receivable of the Company and the Subsidiary
as of a date not more than 45 days prior to the date hereof either (a) in excess
of $5,000 from any one account debtor and more than 60 days past due or (b) in
excess of $25,000 from any one account debtor.
2.20 Inventory. The inventory of the Company and the Subsidiary as set
---------
forth on the Interim Balance Sheet and the inventory of the Liquor Affiliates as
set forth on the most recent balance sheets of the Liquor Affiliates was, as of
the date of such financial statements, and the inventory of the Company, the
Subsidiary and the Liquor Affiliates, existing as of the date hereof, is in
usable or salable condition in the ordinary course of business at the amounts
carried on the Interim Balance Sheet and the most recent balance sheets of the
Liquor Affiliates, or currently on the books and records of the Company, the
Subsidiary and the Liquor Affiliates, respectively, except for items not
material to the financial condition of the Company, the Subsidiary and the
Liquor Affiliates taken as a whole. The materials and supplies included in such
inventory are of at least the standard quality for such items in the restaurant
industry and are not materially in excess of the normal purchasing patterns of
the Company and the Subsidiary. Except as set forth in Schedule 2.20, the
-------------
amounts of the inventories reflected on the Interim Balance Sheet and the most
recent balance sheets of the Liquor Affiliates and on the books and records of
the Company, the Subsidiary and the Liquor Affiliates as of the date hereof have
been determined in accordance with GAAP applied on a consistent basis, subject
to normal year-end adjustments and lack footnotes and the other preparation
items. Management has no knowledge of any existing condition affecting the
supply of materials to the Company, the Subsidiary or the Liquor Affiliates
which would have a Material Adverse Effect.
2.21 Indebtedness. All Indebtedness (as defined below) of the Company
------------
and the Subsidiary and the Liquor Affiliates (other than intercompany debt) as
of the date of the Interim Balance Sheet is set forth on the Interim Balance
Sheet and the Liquor Affiliates' most recent balance sheets. Schedule 2.21 sets
-------------
forth the trade accounts payable of the Company, the Subsidiary and the Liquor
Affiliates as of a date not more than 45 days prior to the date hereof either
(a) in excess of $25,000 to any one payee and more than 60 days past due or (b)
in excess of $50,000 to any one payee. All Indebtedness reflected on the Interim
Balance Sheet and the Liquor Affiliates' most recent balance sheets or on
Schedule 2.21 or which has arisen after the date of the Interim Balance Sheet
- -------------
and the Liquor Affiliates' most recent balance sheets has arisen in the ordinary
course of business and represents valid Indebtedness of the Company, the
Subsidiary and the Liquor Affiliates. As used herein, the term "Indebtedness"
shall mean all items which, in accordance with GAAP, would be included in
determining total liabilities as shown on the liability side of a balance sheet
as at the date Indebtedness is to be determined.
2.22 Suppliers. Except as set forth on Schedule 2.22 hereto, no single
--------- -------------
supplier accounted for more than 10% of purchases of supplies by the Company,
the Subsidiary and the Liquor Affiliates taken as a whole in their most recent
fiscal year (the suppliers set forth on
-19-
<PAGE>
Schedule 2.22 hereto are referred to as the "Material Suppliers"). To the
- -------------
knowledge of Management, no Material Supplier has canceled or otherwise
terminated, or threatened to cancel or otherwise terminate, its relationship
with the Company, the Subsidiary or the Liquor Affiliates or has during the last
12 months decreased or threatened to decrease or limit, its services, supplies
or materials to the Company, the Subsidiary or the Liquor Affiliates where such
cancellation, termination, decrease or limit would have a Material Adverse
Effect. Management, the Company, the Subsidiary and the Liquor Affiliates have
received no written notice that any such Material Supplier intends to cancel or
otherwise adversely modify its relationship with the Company, the Subsidiary or
the Liquor Affiliates or to decrease or limit materially its services, supplies
or materials to the Company, the Subsidiary or the Liquor Affiliates.
2.23 Certain Employees. Schedule 2.23 sets forth all of the officers
----------------- -------------
of the Company and the Subsidiary as well as all employees with a title of
"regional manager" (or any employee having a comparable or more senior title
thereto). Except as set forth in Schedule 2.23, neither the Company nor
-------------
Management has received written notice that any of such persons intends to
resign or retire as a result of the transactions contemplated hereby or
otherwise.
2.24 Potential Conflicts of Interest. None of the officers or
-------------------------------
directors of the Company, the Subsidiary, the Liquor Affiliates or any entity
controlled by any of the foregoing (other than the Company and Subsidiary) or
any member of the immediate family of any of the foregoing has commenced any
lawsuit, claims or proceeding against, or owes any amount to the Company or the
Subsidiary, except for claims in the ordinary course of business and disclosed
on Schedule 2.24.
-------------
As used in this Section 2.24, a person's immediate family shall mean
such person's spouse, parents, children, siblings, mothers- and fathers-in-law,
sons- and daughters-in-law, and brothers- and sisters-in-law.
2.25 Brokers. No banker, finder, agent or similar intermediary has
-------
acted for or on behalf of the Management or the Company in connection with this
Agreement or the transactions contemplated hereby, and no broker, finder, agent
or similar intermediary is entitled to any broker's, finder's or similar fee or
other commission in connection herewith based on any agreement with the
Company, except that Management has retained PricewaterhouseCoopers Securities
L.L.C. in connection with this Agreement. The Company will be solely responsible
for the fees and expenses of such firm.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF SELLERS
-----------------------------------------
Each Seller individually represents and warrants with respect to
itself only to Buyer as follows:
3.1 Organization. Such Seller is duly organized, validly existing and
------------
in good standing under the laws of the State of its organization or
incorporation.
-20-
<PAGE>
3.2 Authorization and Enforceability Such Seller has the requisite
--------------------------------
power and authority to enter into this Agreement and to sell its Shares. All
corporate or partnership acts and other proceedings required to be taken by such
Seller to authorize the execution, delivery and performance of this Agreement
and the sale of its Shares contemplated hereby by such Seller have been duly and
properly taken. This Agreement has been duly executed and delivered by such
Seller and constitutes the legal, valid and binding obligation of such Seller,
enforceable against such Seller in accordance with its terms, except as such
enforceability may be limited by bankruptcy, insolvency or other laws affecting
creditor's rights generally and except as enforcement may be limited by general
equitable principles.
3.3 No Violations of Laws or Agreements. Except as set forth in
-----------------------------------
Schedule 3.3, the execution, delivery and performance by such Seller of this
- ------------
Agreement and the consummation by such Seller of the transactions contemplated
hereby will not (a) violate in any material respect any provision of law or any
rule or regulation to which such Seller is, subject (it being understood that
the necessity for filings and consents is dealt with separately in the following
paragraph), (b) conflict with or violate any order, judgment, injunction, award
or decree binding upon such Seller, (c) conflict with or violate the Certificate
of Incorporation, Bylaws or other similar governing documents of such Seller, or
(d) result in the creation or imposition of any Lien upon the Shares owned by
such Seller, except, in the case of any of the foregoing clauses other than
clause (a) and clause (c), for any such conflict, violation, default, right or
Lien which would not, individually or in the aggregate, have a Material Adverse
Effect.
Except as set forth in Schedule 2.3 the execution, delivery and
------------
performance by such Seller of this Agreement and the consummation of the
transactions contemplated hereby do not require any consent from, or filing
with, any governmental or regulatory authority, except for (a) the filing of a
report under the HSR Act, and the expiration of the applicable waiting period
thereunder, (b) any action, consent or filing that Buyer is required to obtain
or make, and (c) consents and filings which, if not obtained or made, will not,
individually or in the aggregate, have a material adverse effect on the ability
of such Seller to consummate the transactions contemplated hereby with respect
to its Shares.
3.4 Transfer of Good Title. Upon consummation of the transactions
----------------------
contemplated hereby, such Seller will transfer to Buyer, and Buyer will have
good and valid title to, such Seller's Shares listed by such Sellers name on
Schedule 2.4, free and clear of all pledges, security interests, liens, charges,
encumbrances, equities, claims and options of whatever nature (other than such
as may be created by Buyer).
3.5 Management's Representation and Warranties. To such Seller's
------------------------------------------
actual knowledge, without any requirement for investigation, none of the
representations and warranties of Management set forth in Article 2 of this
Agreement are untrue as of the date of this Agreement; provided, however, that
-------- -------
for purposes of making the representation in this Section 3.5, references to the
"knowledge of Management" in Article 2 shall be ignored.
3.6 Related Party Agreements. To the knowledge of such Seller, there
------------------------
are no agreements or arrangements between such Seller, any directors or officers
of such Seller or any
-21-
<PAGE>
entity controlling, controlled by or under common control with such Seller or
any directors or officers of such person or entity or any member of the
immediate family of any such officers or directors on the one hand, and the
Company, the Subsidiary or the Liquor Affiliates, on the other hand, except as
described on Schedule 2.10. As used in this Section 3.6, a person's immediate
family shall mean such person's spouse, parents, children, siblings, mothers-
and fathers-in-law, sons- and daughters-in-law, and brothers- and sisters-in-
law.
3.7 Brokers. No banker, finder, agent or similar intermediary has
-------
acted for or on behalf of such Seller in connection with this Agreement or the
transactions contemplated hereby, and no broker, finder, agent or similar
intermediary is entitled to any broker's, finder's or similar fee or other
commission in connection herewith based on any agreement with such Seller, in
either case, for which the Company is obligated to pay any fee or commission.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF BUYER
---------------------------------------
Buyer represents and warrants, as of the date of this Agreement, to
Sellers as follows:
4.1 Organization. Buyer is a corporation duly organized and validly
------------
existing under the laws of the State of Delaware. Buyer has the requisite
corporate power and authority to carry on its business as presently conducted.
4.2 Authorization and Enforceability. Buyer has the requisite
--------------------------------
corporate power and authority to enter into this Agreement and to consummate the
transactions contemplated hereby. All corporate acts and proceedings required to
be taken by Buyer to authorize the execution, delivery and performance of this
Agreement and the consummation of the transactions contemplated hereby have been
duly and properly taken. This Agreement has been duly executed and delivered by
Buyer and constitutes the legal, valid and binding obligation of Buyer,
enforceable against Buyer in accordance with its terms, except as such
enforceability may be limited by bankruptcy, insolvency or other laws affecting
creditor's rights generally and except for equitable remedies.
4.3 No Violations of Laws or Agreements. The execution, delivery and
-----------------------------------
performance by Buyer of this Agreement and the consummation by it of the
transactions contemplated hereby will not (a) violate in any material respect
any provision of law or any rule or regulation to which Buyer is subject (it
being understood that the necessity for filings and consents is dealt with
separately in the following paragraph), (b) conflict with or violate any order,
judgment, injunction, award or decree applicable to Buyer, (c) conflict with or
violate the Certificate of Incorporation, Bylaws or other similar governing
documents of Buyer, (d) constitute a default, or give rise to a right of
termination, cancellation or acceleration of any right or obligation of Buyer,
under any provision of any agreement, contract or other instrument binding upon
Buyer or any license, franchise, permit or other similar authorization held by
Buyer, or (e) result in the creation or imposition of any Lien upon any of the
assets of Buyer except, in the case of any of the foregoing clauses other than
clause (a) and clause (c), for any
-22-
<PAGE>
such conflict, default, right or Lien which would not individually or in the
aggregate have a Material Adverse Effect.
The execution, delivery and performance by Buyer of this Agreement and
the transactions contemplated hereby do not require any consent from or filing
with any governmental or regulatory authority, except for (a) the filing of a
report under the HSR Act and the expiration of the applicable waiting period
thereunder, or (b) any action, consent or filing that Sellers or the Company or
the Subsidiary is required to obtain or make.
4.4 Sufficient Funds; Financing. Buyer represents and warrants that
---------------------------
it or an affiliate has entered, or simultaneously with the execution of this
Agreement will enter, into a letter agreement (the "Letter Agreement") relating
to debt financing to pay in full in cash at closing the Purchase Price and to
repay the indebtedness of the Company set forth on Schedule 6.2 together with
all fees and expenses of Buyer and the fees and expenses of Pricewaterhouse
Coopers Securities L.L.C. associated with the transactions contemplated hereby,
and to make any other payments necessary on the part of Buyer or its affiliates
to consummate the transactions contemplated hereby. A true and correct copy of
the Letter Agreement is attached as part of Schedule 4.4. Neither Buyer nor its
-------------
affiliates will terminate, amend or modify in any respect the Letter Agreement
in a manner which will adversely affect the probability that such financing will
be actually funded, or the timing thereof, without the prior written consent of
Sellers. Buyer or an affiliate has fully paid any and all commitment fees or
other fees required by such Letter Agreement to be paid as of the date hereof
(and will duly pay any such fees due after the date hereof). Buyer will use its
reasonable efforts to maintain the Letter Agreement in full force and effect and
will use its reasonable efforts to cause the conditions to funding under such
letter to be fulfilled on a timely basis and to obtain such funding to permit
the Closing to occur hereunder. In the event the Letter Agreement is terminated
for any reason, Buyer shall use its reasonable efforts to obtain substitute
financing sufficient to permit the Closing to occur in accordance with this
Agreement. The debt financing contemplated by the Letter Agreement or such
substitute financing is referred to herein as the "Debt Financing."
4.5 Compliance with Liquor Licenses. Buyer and its "affiliates" (as
-------------------------------
such term is defined in Rule 12b-2 under the Securities Exchange Act of 1934,
as amended) are not aware, after reasonable investigation, of any event or
condition applying to Buyer or such affiliates which will interfere with the
transfer of the Liquor Licenses to Buyer, or with any corporate change
application in connection therewith, or with the ability of Buyer to procure new
Liquor Licenses, if necessary, as may be applicable.
4.6 Securities Act. The Shares purchased by Buyer pursuant to this
--------------
Agreement are being acquired for investment only and not with a view to any
public distribution thereof, and Buyer shall not offer or sell or otherwise
dispose of the Shares so acquired by it in violation of any of the registration
requirements of the Securities Act of 1933, as amended.
-23-
<PAGE>
ARTICLE 5
COVENANTS
---------
5.1 Access. (a) Prior to the Closing, Management shall cause the
------
Company and the Subsidiary and the Liquor Affiliates, to give Buyer and its
representatives, employees, counsel and accountants, and the lenders providing
financing to Buyer hereunder, reasonable access to the properties, books and
records of the Company, the Subsidiary and the Liquor Affiliates upon reasonable
notice and during regular business hours and will furnish to Buyer all such
contacts and other agreements and documents, and any extracts or summaries
thereof available to Management and the Company, and information with respect to
the affairs of the Company, the Subsidiary and the Liquor Affiliates as the
Buyer may from time to time reasonably request, and will cause the officers and
employees (and will use reasonable efforts to cause any agents or consultants)
of the Company, the Subsidiary and the Liquor Affiliates to keep the officers of
Buyer informed as to the affairs of the Company, the Subsidiary and the Liquor
Affiliates and to arrange for meetings with management of the Company, the
Subsidiary and the Liquor Affiliates from time to time upon Buyer's request on
reasonable notice; provided, however, that Buyer and its employees and agents
will not make any request or take any action which unreasonably interferes with
the operation of the business of the Company, the Subsidiary and the Liquor
Affiliates; and provided further that Buyer, at its expense, may conduct a Phase
I environmental site assessment (a "Phase I Assessment") on any property of the
Company, the Subsidiary and the Liquor Affiliates. Prior to the Closing, Buyer
may, at its expense, conduct an additional assessment (a "Phase II Assessment")
to further evaluate any potential environmental conditions identified in any
Phase I Assessment or other information learned by Buyer after the date hereof,
or any information known to Buyer and conveyed to Sellers, Management and the
Company prior to the date hereof, which Buyer reasonably determines require
further evaluation (subject to obtaining any required landlord consents, which
Management and the Company will use its reasonable efforts to obtain). Buyer
shall provide Sellers, Management and the Company with a copy of the proposed
actions to be taken in connection with such Phase II Assessment prior to
initiating such assessment. The Phase II Assessment may include air, soil,
surface and/or groundwater tests. If Buyer conducts a Phase II Assessment prior
to Closing which identifies an environmental condition which has a Material
Adverse Effect then Buyer may terminate this Agreement pursuant to Section
8.4(a)(v) if Buyer notifies Sellers, Management and the Company of its intention
to terminate this Agreement within 10 days after the identification of such
environmental condition.
(b) Except as otherwise provided in Schedule 5.1, notwithstanding any
------------
right of Buyer to investigate fully the affairs of the Company, the Subsidiary
and the Liquor Affiliates, and notwithstanding any knowledge of facts,
determined or determinable by Buyer pursuant to such investigation or right of
investigation, Buyer has the right to rely fully on the representations,
warranties, covenants and agreements of Management and the Sellers contained in
this Agreement. No party to this Agreement may rely on any representation or
warranty other than the representations and warranties made in this Agreement.
Buyer will use its reasonable efforts to conclude all of its environmental due
diligence as promptly as practicable after the date hereof.
-24-
<PAGE>
5.2 Ordinary Conduct. (a) From and after the date hereof and prior to
----------------
Closing, and unless Buyer shall otherwise consent or agree in writing and except
as contemplated by this Agreement or as disclosed on Schedule 5.2, the
------------
Management shall, and shall cause the Company and the Subsidiary, and the
Company shall cause the Liquor Affiliates to:
(i) conduct their businesses in the ordinary course;
(ii) use their reasonable efforts to preserve their
business organizations to maintain the services of their present key employees
and to preserve the goodwill of the suppliers, customers and others having
business dealings with them; and
(iii) maintain in force (including necessary renewals
thereof) the insurance policies listed on Schedule 2.12 to the extent that such
-------------
policies may be maintained at commercially reasonable rates.
(b) From and after the date hereof and prior to Closing, and unless
Buyer shall otherwise consent or agree in writing and except as contemplated by
this Agreement or as disclosed on Schedule 5.2 the Management shall, and shall
------------
cause the Company, and the Company shall cause the Liquor Affiliates not to take
any of the actions specified in Section 2.14.
5.3 Litigation. Management shall, as promptly as reasonably
----------
practicable, notify Buyer of any suits, actions, claims, proceedings or
investigations which after the date of this Agreement and prior to the Closing
are threatened in writing or commenced against the Company, the Subsidiary, the
Liquor Affiliates or any officer, director or employee of the Company or the
Subsidiary, or (to the extent known to Management, the Company, the Subsidiary
or the Liquor Affiliates) any consultant or agent of the Company or the
Subsidiary, in their capacities as such, or otherwise affecting the Company, the
Subsidiary or the Liquor Affiliates.
5.4 Reasonable Efforts. Management and Buyer shall use their
------------------
reasonable efforts to conduct the respective businesses of the Company, the
Subsidiary and the Liquor Affiliates and of the Buyer in such a manner so that
the representations and warranties contained in Article 2 or Article 4, as
applicable, of this Agreement shall continue to be true and correct on and as of
the Closing Date with the same force and effect as if made on and as of the
Closing Date in a manner so as to satisfy the conditions to closing set forth in
Sections 6.1 and 6.2.
5.5 Reports. During the period from the date of this Agreement to and
-------
including the Closing Date, Management shall provide to Buyer, within 20
days after the end of each fiscal month occurring during such period, balance
sheets for the Company and the Subsidiary and for the Liquor Affiliates prepared
on the same basis as the Interim Balance Sheet. Each such statement shall
present fairly the information set forth therein in accordance with accounting
policies and procedures consistent with the Interim Balance Sheet.
5.6 Confidentiality; Press Releases. (a) Buyer, on behalf of itself
-------------------------------
and its affiliates, acknowledges that all information being provided to it by
Sellers, the Company, the
-25-
<PAGE>
Subsidiary and the Liquor Affiliates, or their representatives, is subject to
the terms of a Confidentiality Agreement dated June 19, 1998 (the
"Confidentiality Agreement"), the terms of which are incorporated herein by
reference.
(b) Buyer, on the one hand, and each of Sellers,
Management, the Company, the Subsidiary, and the Company on behalf of the Liquor
Affiliates, on the other hand, agree that neither it nor its affiliates will
make any disclosure or statement to the press, press release or other private
or public announcement regarding this Agreement or the transactions contemplated
hereby prior to the Closing Date unless the text and time of the release of any
such statement has been approved by the other parties in writing, except (a)
where such disclosure is required pursuant to applicable law (in which case such
party will consult with the other parties regarding any such public statements
prior to disclosure) and (b) that Buyer, Sellers, the Company, the Subsidiary
and the Liquor Affiliates may communicate with advisors, consultants, and others
as necessary to complete the Transaction. Buyer, Sellers, Management, the
Company, the Subsidiary and the Liquor Affiliates agree to consult with the
other parties prior to any press release or other public announcement by it or
its affiliates relating to this Agreement in connection with the Closing of the
transactions contemplated hereby and agree that such press release or
announcement will not be made prior to such consultation.
5.7 Financial Information. Buyer shall, and the Company shall cause
---------------------
the Liquor Affiliates to permit Buyer to (a) hold all of the books and records
of the Company, the Subsidiary and the Liquor Affiliates existing on the Closing
Date and not destroy or dispose of any thereof unless it offers first in
writing, at least 60 days prior to such destruction or disposition to surrender
them to Sellers (and, if Sellers accept such offer, Buyer will so surrender
them) and (b) provide to Sellers such financial and other information with
respect to the Company, the Subsidiary and the Liquor Affiliates for the portion
of the current fiscal year during which Shares were owned by Sellers in
accordance with past practice to allow Sellers to comply with financial, tax
reporting, legal and accounting requirements.
5.8 Employees. From the date of this Agreement to the Closing Date,
---------
Management shall not cause or permit the Company, the Subsidiary or the Liquor
Affiliates to hire or fire any employees having a title of "regional manager"
(or any employee having a comparable or more senior title) without the consent
of Buyer (not to be unreasonably withheld). Management shall use reasonable
efforts to continue the employment of those employees of the Company, the
Subsidiary and the Liquor Affiliates who are employed on the Closing Date,
including those on authorized leave of absence but excluding those who have
qualified for long-term disability (the "Employees"), after the Closing Date on
substantially the same terms and conditions, including the right of the Company,
the Subsidiary or the Liquor Affiliates to terminate the employment of any such
Employee, as in effect on the Closing Date.
5.9 Antitrust Notification. Management, Sellers and Buyer shall file
----------------------
or cause to be filed, respectively, as soon as practicable after the date
hereof, to the extent required, an acquired person's and acquiring person's HSR
Act notification and report form with respect to the transactions contemplated
by this Agreement as required by the HSR Act. Management, Sellers and Buyer
agree to use their reasonable efforts to comply promptly with and, where
appropriate,
-26-
<PAGE>
to respond in cooperation with each other to, all requests or requirements which
applicable federal, state, local, foreign or other applicable law or any
governmental authority may impose on them with respect to the transactions which
are the subject of this Agreement including taking any shareholder action.
5.10 Reasonable Efforts. Subject to the terms and conditions of this
------------------
Agreement, each party shall use its reasonable efforts to cause the Closing to
occur as promptly as reasonably possible. Sellers shall use reasonable efforts
to (a) obtain any required third party consents necessary in connection with the
transactions contemplated hereby; provided, however, that Buyer will cooperate
-------- -------
with Management in a reasonable manner and that such reasonable efforts shall
not include any requirement of Sellers, Management, the Company, the Subsidiary
or the Liquor Affiliates to expend money, commence or participate in any
litigation or offer or grant any accommodation, financial or otherwise, to any
third parties and (b) notify any third party required to be notified prior to
the Closing under a contract of the Company, the Subsidiary or the Liquor
Affiliates of the transactions contemplated hereby. At and after the Closing
Date, as and when requested by either party hereto, the other party shall
execute and deliver, or cause to be executed and delivered, any documents,
assignments or assurances and to take and do, any other actions and things to
vest, perfect or confirm of record or otherwise in Buyer any and all right,
title and interest in, to and under any of the rights, properties or assets of
the Company acquired or to be acquired by Buyer as a result of, or in connection
with, the transactions contemplated by this Agreement.
5.11 Advice of Changes. Prior to the Closing, each party shall, to the
-----------------
extent such party has knowledge of the following events or conditions, give
prompt written notice to the other of (a) any breach of any representation or
warranty of such party made herein that is qualified by the standard of
"Material Adverse Effect," (b) any breach of any representation or warranty of
such party made herein that is not qualified by the standard of "Material
Adverse Effect" if such breach has a Material Adverse Effect; (c) any failure to
comply in any material respect with any covenant or agreement to be complied
with by it prior to Closing under this Agreement; (d) any event which will
result in the failure to satisfy the conditions specified in Article 6 hereof;
(e) any notice or other written communication of or relating to a default (or
event which, with notice or lapse of time, or both, would constitute a default),
received by such party subsequent to the date hereof and prior to the Closing
Date under any contract or agreement and that would have a Material Adverse
Effect; (f) any notice or other written communication from any person alleging
that the consent of such person is or may be required in connection with the
transactions contemplated hereby; (g) any notice or other written communication
from any foreign, federal, state, county or local government or any other
governmental, regulatory or administrative agency or authority in connection
with the transactions contemplated hereby; and (h) any Material Adverse Effect
or change which would result in a Material Adverse Effect; provided, however,
that (except as otherwise provided herein) no such notice shall affect the
conditions to the obligations of Sellers or Buyer hereunder. Prior to Closing,
Management shall, to the extent that it has such knowledge, give prompt written
notice to Buyer and Sellers of any damage in excess of $10,000 to the Company's
property or other assets.
-27-
<PAGE>
5.12 No Solicitation. Prior to the earlier of (a) the Closing or (b)
---------------
the termination of this Agreement, Management, the Company, each Seller and
Buyer shall not, and shall cause the Company, the Subsidiary, the Liquor
Affiliates and Sellers', Management's and Buyer's agents not to directly or
indirectly, solicit any inquiries or proposals for, or enter into or continue
any discussions or agreement with respect to, the acquisition of any of the
Shares or other capital stock of the Company, the Subsidiary or the Liquor
Affiliates, all or a substantial portion of the business of the Company, the
Subsidiary or the Liquor Affiliates or all or any substantial portion of the
assets of the Company, the Subsidiary or the Liquor Affiliates (an "Acquisition
Transaction"). Each Seller and Management shall promptly notify Buyer of the
terms and material facts of any inquiry or proposal received respectively by
such Seller, Management, the Company, the Subsidiary or the Liquor Affiliates
with respect to such Acquisition Transaction. Buyer shall promptly notify each
Seller of the terms and material facts of any inquiry or proposal received by
Buyer with respect to any such Acquisition Transaction. Prior to the earlier of
(a) the Closing or (b) the termination of this Agreement, except as contemplated
by this Agreement, each Seller shall not sell, transfer or otherwise dispose of,
grant any option or proxy to any person with respect to, create any Lien upon,
or transfer any interest in any of the Shares owned by such Seller, or enter
into any agreement to do so.
5.13 Liquor Licenses. Each Seller, Management, at the Company's
---------------
expense, shall reasonably cooperate with Buyer in obtaining any approvals, or
completing any filings, necessary in connection with the Liquor Licenses (and
any other permits or authorizations referred to in Section 6.1(k)) in connection
with the transactions contemplated hereby. Buyer, at its expense, will use its
reasonable efforts to complete any required filings, and obtain any required
approvals, in respect of the Liquor Licenses (and any other permits or
authorizations referred to in Section 6.1(k)) in connection with the
transactions contemplated hereby as promptly as practicable.
5.14 Non-Competition. (a) Each of Inwood and Chart House covenant and
---------------
agree that for a period of two years after the Closing Date, neither Inwood, its
general partners nor Chart House shall engage directly or indirectly in any
restaurant or catering business that generates more than 50% of its revenue from
barbecued menu items (i) in the case of Inwood and its general partners,
anywhere in the United States and (ii) in the case of Chart House, within 25
miles of any current Restaurant; provided, however, that financial institutions
-------- ------
that are affiliates of any general partner of Inwood shall be permitted to make
loans in the normal course of their lending businesses to any restaurant or
catering business that offers barbecued menu items and to exercise any remedies
upon default with respect to such loans, including exercising control or
significant influence over any such restaurant or catering business; and
provided, further, however, that Inwood and its general partners and Chart
- -------- ------- -------
House shall be permitted to own less than 5% of the outstanding equity interests
as a passive investment in any restaurant or catering business that offers
barbecued menu items.
(b) Inwood and Chart House acknowledge that Buyer will be
irrevocably damaged if such covenant is not specifically enforced. Accordingly,
Inwood and Chart House agree that, in addition to any other relief to which
Buyer may be entitled, Buyer will be entitled to seek and obtain injunctive
relief (without the requirement of any bond) from a court
-28-
<PAGE>
of competent jurisdiction for the purposes of restraining Inwood, its general
partners, and Chart House from any actual or threatened breach of such covenant.
5.15 No Additional Representations. Buyer acknowledges that it and its
-----------------------------
representatives have had the opportunity prior to the date of this Agreement to
review the books and records of the Company, the Subsidiary and the Liquor
Affiliates and to meet with officers and employees of the Company, the
Subsidiary and the Liquor Affiliates to discuss the business and assets of the
Company, the Subsidiary and Liquor Affiliates. Buyer acknowledges that none of
Sellers, Management or any other person has made any representation or warranty,
expressed or implied, as to the accuracy or completeness of any information
regarding the Company, the Subsidiary or the Liquor Affiliates furnished or made
available to Buyer and its representatives, except as expressly set forth in
this Agreement, any certificate or other document required to be delivered in
connection with this Agreement or the Schedules hereto.
5.16 Certain Litigation. Each Seller shall, as promptly as reasonably
------------------
practicable, notify Buyer of any suits, actions, claims, proceedings or
investigations which, after the date of this Agreement and prior to the Closing,
are threatened in writing or commenced against such Seller and are directly
related to the sale of such Seller's Shares to Buyer pursuant to this Agreement.
5.17 Certain Agreement. (a) On or prior to the Closing Date Michael C.
-----------------
Jolley shall execute and deliver an agreement in form reasonably satisfactory to
Buyer providing for the contribution of 78,000 shares of common stock of the
Company to Buyer in exchange for shares of common stock of Buyer.
(b) On or prior to the Closing Date, the appropriate parties
shall execute and deliver a document, reasonably satisfactory to Buyer,
providing for the termination of payments to Inwood Management Company pro-rata
to, and effective as of, the Closing Date.
(c) On or prior to the Closing Date, the appropriate parties
shall execute and deliver a document, reasonably satisfactory to Buyer,
providing for termination of that certain Management Stock Subscription
Agreement, dated as of August 30, 1989, between the Company and Michael C.
Jolley.
(d) On or prior to the Closing Date, the appropriate parties
shall execute and deliver a document, reasonably satisfactory to Buyer,
providing for termination of that certain Shareholders' Agreement dated as of
December 30, 1988 between Luther's Acquisition Corporation and the shareholders
named therein.
5.18 Actions Relating to Management's Covenants. Each Seller agrees
------------------------------------------
that it shall not impede Management from complying with Management's covenants
in this Article 5.
-29-
<PAGE>
ARTICLE 6
CONDITIONS TO CLOSING
---------------------
6.1 Conditions to Buyer's Obligations. The obligation of Buyer to
---------------------------------
purchase and pay for the Shares and to take the other actions required to be
taken by Buyer at the Closing is subject to the satisfaction (or waiver by
Buyer) on or prior to the Closing of the following conditions:
(a) (i) The representations and warranties of Management and
Sellers made in this Agreement shall be true and correct on and as of the
Closing Date, as though made on and as of the Closing Date, except for (A)
changes contemplated by this Agreement, (B) those representations and warranties
(other than solely in respect of Section 2.1 and Section 3.5) that address
matters only as of a particular date (which shall be true and correct as of that
date), and (C) breaches or inaccuracies of representations or warranties that do
not, individually or in the aggregate, have a Material Adverse Effect; (ii)
Management and Sellers shall have performed in all material respects the
covenants contained in this Agreement required to be performed by Management and
Sellers prior to the Closing, and the Company and the Subsidiary shall have
performed in all material respects the covenants required to be performed by the
Company and the Subsidiary prior to the Closing; and (iii) Management and an
authorized officer of each of the Sellers reasonably acceptable to Buyer shall
have delivered to Buyer, on behalf of Management and each such Seller, a
certificate dated the Closing Date confirming the applicable statements
contained in the foregoing clauses (i) and (ii).
(b) No suit, action, claim, proceeding or investigation shall
have been instituted by or before any court or any foreign, federal, state,
county or local government or any other governmental, regulatory or
administrative agency or authority (i) seeking to restrain, prohibit or
invalidate the sale of the Shares to Buyer hereunder or the consummation of the
transactions contemplated hereby or (ii) seeking material damages in connection
with such transactions (and having a reasonable likelihood of success) or which
would adversely affect the right of Buyer to own, operate or control after the
Closing the assets, properties or business of the Company and the Subsidiary, or
have a Material Adverse Effect.
(c) The applicable waiting period under the HSR Act shall have
expired or been terminated.
(d) Buyer shall have obtained debt financing adequate to pay in
full in cash at closing the Purchase Price and to repay the indebtedness of the
Company set forth in Schedule 6.2 together with all fees and expenses of
Pricewaterhouse Coopers Securities L.L.C. associated with the transactions
contemplated hereby, and to make any other payments necessary on the part of
Buyer or its affiliates to consummate the transactions contemplated hereby.
(e) Management shall have delivered to Buyer (i) copies of the
respective Certificates of Incorporation, including all amendments thereto, of
each of the Company and the Subsidiary, certified by the Secretary of State of
its jurisdiction of incorporation; (ii) certificates from the Secretary of State
of the respective jurisdictions of
-30-
<PAGE>
incorporation to the effect that each of the Company and the Subsidiary is in
good standing in such jurisdiction and listing all charter documents of the
Company and the Subsidiary on file in such state; and (iii) a certificate from
the Secretary of State or other appropriate official in each state in which the
Company or the Subsidiary is qualified to do business to the effect that each of
the Company and the Subsidiary is in good standing in such state; in each case,
dated as of a date not more than five business days prior to the Closing Date.
(f) Sellers shall have delivered to Buyer the stock certificates
representing all of the Shares in accordance with Section 1.1, duly endorsed in
blank or with duly executed stock powers attached, in proper form for transfer
and with required transfer stamps, if any, affixed.
(g) Buyer shall have the received the resignation, dated the
Closing Date, of those officers and members of the Board of Directors of the
Company and the Subsidiary as shall be designated by Buyer in writing to
Sellers not less than five days prior to the Closing Date.
(h) Management and Sellers shall have delivered to Buyer
incumbency certificates with respect to each of the persons signing this
Agreement and any other document or certificate in connection herewith on behalf
of Sellers.
(i) Buyer shall have received an opinion of Vinson & Elkins
L.L.P., counsel to Sellers, dated the Closing Date, addressed to Buyer in form
reasonably satisfactory to Buyer.
(j) The Company shall have implemented any reasonable request of
Buyer to cancel options under the Company's stock option plans, consistent with
such plans; provided, however that no Seller shall be required to pay any amount
-------- -------
in respect thereof.
(k) Metropolitan shall have exercised all of its outstanding
options to purchase common stock of the Company.
(l) Any and all approvals necessary for the consummation of the
transactions contemplated hereby in connection with the Liquor Licenses (and any
other material governmental permits or authorizations of the Company and the
Subsidiary) or required in connection with such Liquor Licenses, permits or
authorizations for the Company and the Subsidiary to carry on their respective
businesses immediately after the Closing as currently conducted, or to maintain
such Liquor Licenses, permits or other authorizations in effect immediately
after the Closing, shall have been obtained.
(m) The consents set forth on Schedule 6.1 shall have been
received.
(n) Management shall have executed and delivered agreements
reasonably satisfactory to Buyer pursuant to which each shall have provided
indemnities to Buyer in respect of the representations and warranties of
Management contained herein (the "Indemnification Agreements").
-31-
<PAGE>
(o) Buyer shall have been satisfied, in its sole discretion,
with the capabilities of the senior executives of the Company to run the
Company.
(p) Michael C. Jolley shall have executed and delivered
employment and non-compete agreements reasonably satisfactory to Buyer.
6.2 Conditions to Sellers' Obligations. The obligation of Sellers to
----------------------------------
sell and deliver the Shares to Buyer is subject to the satisfaction (or waiver
by Sellers) on or prior to the Closing of the following conditions:
(a) (i) The representations and warranties of Buyer made in this
Agreement shall be true and correct on and as of the Closing Date, as though
made on and as of the Closing Date, except for (A) changes contemplated by this
Agreement, (B) breaches or inaccuracies of representations and warranties that
do not, individually or in the aggregate, have a Material Adverse Effect and (C)
those representations and warranties (other than solely in respect of the first
sentence of Section 4.1) that address matters only as of a particular date
(which shall be true and correct as of that date); (ii) Buyer shall have
performed in all material respects the covenants of Buyer contained in this
Agreement required to be performed by the time of the Closing; and (iii) the
President or any Vice President of Buyer shall have delivered to Sellers, on
behalf of Buyer, a certificate dated the Closing Date confirming the
satisfaction of the foregoing clauses (i) and (ii).
(b) No suit, action, claim, proceeding or investigation shall
have been instituted by or before any court or any foreign, federal, state,
county or local government or any other governmental, regulatory or
administrative agency or authority (i) seeking to restrain, prohibit or
invalidate the sale of the Shares to Buyer hereunder or the consummation of the
transactions contemplated hereby or (ii) other than any suit, action, claim,
proceeding or investigation instituted against Sellers or its affiliates (and
not also against Buyer and its affiliates), to seek material damages in
connection with such transactions (and having a reasonable likelihood of
success) or which would have a Material Adverse Effect.
(c) Any applicable waiting period under the HSR Act shall have
expired or been terminated.
(d) Buyer shall have paid the Purchase Price to Sellers as
provided in Section 1.1.
(e) Buyer shall have paid or caused to be paid or assumed full
and complete liability for the outstanding balance of the indebtedness of the
Company set forth on Schedule 6.2.
(f) Sellers shall have received an opinion of Schulte Roth &
Zabel LLP, counsel to Buyer, dated the Closing Date, addressed to Sellers, in
the form attached hereto as Exhibit A.
-32-
<PAGE>
ARTICLE 7
INDEMNIFICATION
7.1 Non-Survival of Representations and Warranties. The
----------------------------------------------
representations and warranties, covenants and agreements contained in this
Agreement, shall not survive, and shall terminate as of the Closing, except that
the representations and warranties set forth in Article 3 and Article 4 and the
covenants set forth in Section 5.6, 5.7 and 5.14 shall survive the Closing
indefinitely if no term is specified therein or for the terms specified in such
Sections. The obligations to indemnify and hold harmless a Buyer Indemnified
Party or a Sellers Indemnified Party, as the case may be, (i) pursuant to
Sections 7.2(a) and 7.3(a), shall terminate when the applicable representation
or warranty terminates, an (ii) pursuant to the other clauses of Sections 7.2
and 7.3 (and Section 7.6), shall not terminate; provided, however, that such
-------- -------
obligations to indemnify and hold harmless shall not terminate with respect to
any item, as to which the person to be indemnified shall have, before the
expiration of the applicable period, previously made a claim by delivering a
notice stating in reasonable detail the basis of such claim to the party
providing the indemnification. It is understood that this Section 7.1 does not
refer or relate to the Indemnity Agreements.
7.2 Indemnification by Sellers. From and after the Closing, each
--------------------------
Seller shall, individually, indemnify Buyer and its affiliates and their
respective officers and directors (the "Buyer Indemnified Parties") against, and
hold them harmless from, any losses, liabilities, claims, damages, amounts paid
in settlement of suits, actions, claims or proceedings, judgments and expenses
(including reasonable legal fees and expenses, but not consequential damages of
any type) ("Losses") suffered or incurred by any such indemnified party, as a
direct consequence of (a) any breach of any representation or warranty of such
Seller contained in Article 3 of this Agreement, and (b) any breach in any
material respect of the covenants of such Seller contained in Section 5.6 or
5.14 of this Agreement.
7.3 Indemnification by Buyer. Buyer and, after the Closing, Buyer
------------------------
shall cause the Company, shall indemnify each Seller and its affiliates and
their respective officers and directors (the "Sellers Indemnified Parties")
against, and hold them harmless from, any Losses suffered or incurred by any
such indemnified party as a direct consequence of (a) any breach of any
representation or warranty of Buyer contained in this Agreement, and (b) any
breach in any material respect of any covenant of Buyer contained in this
Agreement.
7.4 Indemnification Limitations and Procedures. (a) The parties
------------------------------------------
hereto agree that the representations, warranties, covenants and agreements of
each contained herein or in any schedule or exhibit hereto or certificate
delivered hereunder are made for purposes of this Agreement only and are made by
the party solely in conjunction with the execution of this Agreement and with
the closing conditions and indemnification provisions set forth in Article 6 and
Article 7 of this Agreement. The parties agree that the representations,
warranties, covenants and agreements of the parties contained in this Agreement
shall not provide the basis for any action or remedy other than as set forth in,
or permitted by, this Agreement; except as provided in the Indemnification
Agreements.
-33-
<PAGE>
(b) The parties hereto agree that the sole and exclusive
remedies for breaches of this Agreement (other than any available equitable
remedies), for negligence, negligent misrepresentation or for any tort (but not
any tort based upon intent to deceive) committed in connection with the
transactions described in, or contemplated by, this Agreement are those set
forth in this Agreement, and that no claim may be made by any party hereto for
any matter in connection with the transactions described in, or contemplated by,
this Agreement unless specifically set forth in this Agreement and then only
pursuant to the terms of this Agreement.
(c) Amounts paid in respect of indemnification obligations of
the parties pursuant to this Article 7 shall be treated as an adjustment to the
purchase price for the Shares. In determining the amount of Losses to which an
indemnified party is entitled under this Article 7, full allowance shall be made
for any proceeds recovered pursuant to the indemnified party's insurance
policies (which the indemnified party shall use its reasonable efforts to
obtain) or from any third party and for any tax benefit resulting from the
indemnified party's loss, claim or damages. In the event that any such proceeds
or recovery are received by an indemnified party after payment of an indemnity
claim by an indemnifying party hereunder, the indemnified party shall promptly
pay the amount of such proceeds or other recovery to the indemnifying party to
the extent it is duplicative with the indemnifying party's prior payment.
7.5 Procedures Relating to Indemnification - Third Party Claims. (a)
-----------------------------------------------------------
A party seeking indemnification pursuant to Sections 7.2 or 7.3 (an "Indemnified
Party") shall give prompt notice to the party from whom such indemnification is
sought (the "Indemnifying Party") of the assertion of any claim or assessment,
and shall notify the Indemnifying Party of the commencement of any action, suit,
audit or proceeding by a third party in respect of which indemnity may be sought
hereunder (a "Third Party Claim") within 30 days of such commencement; provided,
however, that the failure to give such notice in a timely manner shall not
affect the indemnity obligation of the Indemnifying Party hereunder to the
extent the Indemnified Party demonstrates that the Indemnifying Party has not
been prejudiced thereby. The Indemnified Party will give the Indemnifying Party
such information with respect thereto as the Indemnifying Party may reasonably
request. Thereafter, the Indemnified Party shall deliver to the Indemnifying
Party, within five business days after the Indemnified Party's receipt thereof,
copies of all notices and documents (including court papers) received by the
Indemnified Party relating to the Third Party Claim; provided, however, that the
failure to deliver such notices and documents in a timely manner shall not
affect the indemnity obligation of the Indemnifying Party hereunder to the
extent the Indemnified Party demonstrates that the Indemnifying Party has not
been prejudiced thereby. The Indemnifying Party shall have the right,
exercisable by written notice (the "Notice") to the Indemnified Party within 60
days following receipt of notice from the Indemnified Party of the commencement
of or assertion of any Third Party Claim, to assume the defense of such Third
Party Claim, using counsel selected by the Indemnifying Party (and reasonably
satisfactory to the Indemnified Party). Should the Indemnifying Party so elect
to assume the defense of a Third Party Claim, the Indemnifying Party will not
be liable to the Indemnified Party for legal expenses subsequently incurred by
the Indemnified Party in connection with the defense thereof unless the defense
of such claim by counsel to the Indemnifying Party presents such counsel with a
conflict of interest (other than in respect of the
-34-
<PAGE>
indemnity obligation of the Indemnifying Party). Regardless of whether the
Indemnifying Party elects to assume the defense of any such Third Party Claim,
the Indemnified Party shall not admit any liability with respect to, or settle,
compromise or discharge, such Third Party Claim without the Indemnifying Party's
prior written consent (which shall not be unreasonably withheld).
(b) The Indemnifying Party or the Indemnified Party, as the case
may be, shall in any event have the right to participate, at its own expense, in
the defense of any Third Party Claim which the other is defending.
(c) The Indemnifying Party, if it shall have assumed the defense
of any Third Party Claim, shall have the right to consent to the entry
of judgement with respect to, or otherwise settle such Third Party Claim,
provided that as between the Indemnifying Party and the Indemnified Party,
the Indemnifying Party shall be solely obligated to satisfy and discharge
such judgment or settlement, and there is no finding or admission of any
violation of any judgment, ruling, order, writ, award, decree, statute, law,
ordinance, code, rule or regulation or any court or foreign, federal, state,
county or local government or any other governmental, regulatory or
administrative agency or authority or any violation of the rights of any person
by the Indemnified Party and no effect on any other pending or threatened in
writing suit, action, claim, proceeding or investigation. Otherwise, such
settlement only may be made with the written consent of the Indemnified Party,
which consent shall not be unreasonably withheld.
(d) Whether or not the Indemnifying Party chooses to defend or
prosecute any claim involving a third party, all the parties hereto shall
cooperate in the defense or prosecution thereof and shall furnish such records,
information and testimony, and attend such conferences, discovery proceedings,
hearings, trials and appeals as may be reasonably requested in connection
therewith. Such cooperation shall include access during normal business hours
afforded to the Indemnifying Party to, and reasonable retention by the
Indemnified Party of, records and information which are reasonably relevant to
such Third Party Claim, and making employees available on a mutually convenient
basis to provide additional information and explanation of any material provided
hereunder, and the Indemnifying Party shall reimburse the Indemnified Party for
all its reasonable out-of-pocket expenses in connection therewith.
(e) The Indemnifying Party shall pay to the Indemnified Party in
cash the amount of any Loss to which the Indemnified Party may become entitled
by reason of the provisions of this Article 7, such payment to be made within 10
days after (i) such Losses are finally agreed to by the Indemnified Party and
the Indemnifying Party or (ii) such Losses are determined by the final
unappealable judgment of a court of competent jurisdiction.
7.6 Procedures for Indemnification, Other Claims. A claim for
--------------------------------------------
indemnification for any matter not involving a Third Party Claim may be asserted
by notice to the party from whom indemnification is sought.
7.7 APPLICABILITY. THE PROVISIONS OF THIS ARTICLE 7 SHALL
-------------
APPLY NOTWITHSTANDING THE SOLE, JOINT OR CONCURRENT NEGLIGENCE, STRICT LIABILITY
OR OTHER FAULT OF THE INDEMNIFIED PARTY. IF BOTH THE
-35-
<PAGE>
INDEMNIFIED PARTY AND THE INDEMNIFYING PARTY ARE NEGLIGENT OR OTHERWISE AT FAULT
OR STRICTLY LIABLE WITHOUT FAULT, THE CONTRACTUAL OBLIGATIONS OF INDEMNIFICATION
UNDER THIS ARTICLE 7 SHALL CONTINUE, BUT THE INDEMNIFYING PARTY SHALL INDEMNIFY
THE INDEMNIFIED PARTY ONLY FOR THE PERCENTAGE OF RESPONSIBILITY FOR THE DAMAGES,
INJURIES AND EXPENSES ATTRIBUTABLE TO THE INDEMNIFYING PARTY.
ARTICLE 8
MISCELLANEOUS
-------------
8.1 Construction of this Agreement. All of the parties to this
------------------------------
Agreement have participated jointly in the negotiation and drafting of this
Agreement. In the event any ambiguity or question of interpretation arises, this
Agreement and the other documents and instruments executed in connection with
this Agreement shall be construed as if drafted jointly, and no presumption or
burden of proof shall arise favoring or disfavoring any party by virtue of the
authorship of any provision of this Agreement or such other documents and
instruments. Any item disclosed on a disclosure schedule to this Agreement shall
be deemed disclosed for all other disclosure schedules to which such item is
applicable, provided such reference is clear. The term "including" in this
Agreement shall mean "including without limitation." References in this
Agreement to dollar amount thresholds (including references in Article 2 of this
Agreement) shall not, for purposes of this Agreement, be deemed to be evidence
of materiality or a Material Adverse Effect. All references in this Agreement to
the "knowledge of Sellers" (or similar terms) shall be interpreted as follows:
the Sellers will be deemed to have "knowledge" of a particular fact or other
matter if any officer of the Sellers (including an officer of the general
partner of Inwood), is actually aware of such fact or other matter. All
references to immediately available funds or dollar amounts contained in this
Agreement shall mean United States dollars. All references to GAAP contained in
this Agreement shall mean United States generally accepted accounting
principles. The headings contained in this Agreement are for reference purposes
only and shall not affect in any way the meaning or interpretation of this
Agreement. References to "schedules" or "sections" herein shall be deemed to
refer to the applicable disclosure schedule or section of this Agreement.
8.2 Assignment. This Agreement and the rights and obligations of the
----------
parties hereunder shall not be assigned, delegated or otherwise transferred by
Buyer, Sellers or the Company without the prior written consent of Buyer (where
Sellers seek to assign or delegate rights or obligations) or Sellers (where
Buyer or, following the Closing, the Company seeks to assign or delegate rights
or obligations); provided, however, that Buyer may assign its right to purchase
all or a portion of the Shares to one or more of its affiliates and may assign
any or all of its rights hereunder to a lender providing financing for the
transaction contemplated hereby, but in no event will such assignment relieve
Buyer of its obligations and liabilities hereunder. This Agreement shall inure
to the benefit of, and be binding upon and enforceable against, the successors
and permitted assigns of the respective parties hereto.
-36-
<PAGE>
8.3 No Third-Party Beneficiaries. Except as provided in Article 7, this
----------------------------
Agreement is for the sole benefit of the parties hereto and their permitted
assigns, and nothing herein expressed or implied shall give or be construed to
give to any person or entity, other than the parties hereto and such assigns,
any legal or equitable rights hereunder.
8.4 Termination. (a) This Agreement may be terminated by written notice
-----------
given by Buyer to Sellers or Sellers to Buyer, as the case may be, (i) if the
Closing shall not have occurred by December 1, 1998, (ii) if (A) the purchase
and sale of the Shares contemplated hereby shall violate any non-appealable
final order, decree or judgment of any court or governmental authority of
competent jurisdiction or (B) there shall be an applicable statute, rule or
regulation which makes the purchase and sale of the Shares contemplated hereby
illegal or otherwise prohibited, (iii) at the election of any Seller acting by a
majority in interest of all Sellers, if Buyer has (A) failed to comply with or
perform in any material respect any covenant or agreement contained in this
Agreement or (B) breached any representation or warranty made by it in this
Agreement, and, in either of such cases, has not cured such breach or failure
within 10 days of written notice thereof and (v) at the election of Buyer, as
provided in the last sentence of Section 5.1(a).
(b) In the event of termination by Sellers or Buyer pursuant to
paragraph (a) of this Section 8.4, written notice thereof shall forthwith be
given to the other party, and the transactions contemplated by this Agreement
shall be terminated, without further action by any party hereto. If the
transactions contemplated by this Agreement are so terminated:
(i) Buyer and its affiliates shall return all documents and
other material received from Sellers, Management, the Company, the Subsidiary
or the Liquor Affiliates or any of their affiliates or representatives relating
to the transactions contemplated hereby, whether so obtained before or after the
execution hereof, to the Company;
(ii) all confidential information received by Buyer and its
affiliates with respect to the business of the Company, the Subsidiary and the
Liquor Affiliates shall be treated in accordance with the Confidentiality
Agreement, which shall remain in full force and effect notwithstanding the
termination of this Agreement;
(iii) the provisions of Sections 8.1, 8.5, 8.7 and 8.14 shall
remain in full force and effect; and
(iv) in no event shall any termination of this Agreement limit
or restrict the rights and remedies of any party hereto against any other party
which has intentionally breached any of the agreements or other provisions of
this Agreement prior to termination hereof.
-37-
<PAGE>
8.5 Expenses. Whether or not the transactions contemplated hereby are
--------
consummated, all costs and expenses incurred in connection with this Agreement
and the transactions contemplated hereby shall be paid by the party incurring
such costs or expenses, except that the Company will be responsible for the fees
and expenses or Pricewaterhouse Coopers Securities, L.L.C. and all costs,
including filing fees, related to the HSR Act and except as may otherwise be
expressly provided in this Agreement; provided, that the Company will pay up to
a maximum amount of $5,000 with respect to legal fees related to the HSR Act.
8.6 Amendments. No amendment to or modification of this Agreement
----------
shall be effective unless it shall be in writing and signed by each of the
parties to this Agreement.
8.7 Notices. All notices and other communications given under this
-------
Agreement shall be in writing and shall be deemed given (a) on the date of
receipt, if delivered personally, (b) on the date of receipt after delivery by a
reputable nationally recognized overnight courier service, or (c) upon receipt
after being mailed by registered or certified mail (return receipt requested) to
the parties at the following addresses (or at such other address for a party as
shall be specified by like notice):
If to Buyer:
Luther's Acquisition Corp.
150 East 58th Street
New York, New York 10155
Attention: Howard D. Morgan
Telecopier: (212) 207-8042
With a required copy to:
Schulte Roth & Zabel LLP
900 Third Avenue
New York, New York 10022
Attention: Marc Weingarten, Esq.
Telecopier: (212) 593-5955
If to Sellers:
1111 Hermann Drive, 7D
Houston, Texas 77004
Attention: Edward C. Stanton III
Telecopier: (713) 528-2441
With a required copy to:
Vinson & Elkins L.L.P.
1001 Fannin Street
-38-
<PAGE>
2300 First City Tower
Houston, TX 77002-6760
Attention: John Watson, Esq.
Telecopier: (713) 615-5236
Such addresses may be changed, from time to time by means of a notice given in
the manner provided in this Section (provided that no such notice shall be
effective until it is received by the other parties hereto).
8.8 Fees. Each of Buyer and Sellers agree that (a) the only brokers or
----
finders that have acted for such party in connection with this Agreement or the
transactions contemplated hereby or that may be entitled to any brokerage or
finder's fee or commission in respect thereof are Pricewaterhouse Coopers
Securities L.L.C., and (b) the Company will pay all fees or commissions which
may be payable to the firm so named.
8.9 Cooperation. Sellers and Buyer agree, and Buyer agrees to cause the
-----------
Company and the Subsidiary after the Closing to agree, to provide, or cause to
be provided, at the cost of the requesting party, any assistance that the other
may reasonably request with respect to all matters relating to the income or
other Tax liabilities of the Company or Sellers for any taxable year or period
ending on or prior to the Closing Date. The requested party shall bear the cost
of: (i) providing forms, information, schedules and other assistance which would
customarily be prepared or provided in connection with the preparation of the
requested party's income tax returns, consistent with past practices; and (ii)
providing information and data which would customarily be provided in connection
with the audit of the requested party's income tax returns.
8.10 WAIVER OF JURY TRIAL, ETC. EACH OF THE SELLERS AND BUYER HEREBY WAIVES
--------------------------
ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM
CONCERNING ANY RIGHTS UNDER THIS AGREEMENT, OR UNDER ANY DOCUMENT OR OTHER
AGREEMENT DELIVERED OR WHICH IN THE FUTURE MAY BE DELIVERED IN CONNECTION
THEREWITH, OR ARISING IN CONNECTION WITH THIS AGREEMENT, AND AGREES THAT ANY
SUCH ACTION, PROCEEDINGS OR COUNTERCLAIM SHALL BE TRIED BEFORE A COURT AND NOT
BEFORE A JURY. EACH OF THE SELLERS CERTIFIES THAT NO OFFICER, REPRESENTATIVE,
AGENT OR ATTORNEY OF THE BUYER HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT THE
BUYER WOULD NOT, IN THE EVENT OF ANY ACTION, PROCEEDING OR COUNTERCLAIM, SEEK TO
ENFORCE THE FOREGOING WAIVERS. EACH OF THE SELLERS HEREBY ACKNOWLEDGES THAT THIS
PROVISION IS A MATERIAL INDUCEMENT FOR THE BUYER ENTERING INTO THIS AGREEMENT.
8.11 Severability. If any provision of this Agreement or the application of
------------
any such provision to any person or circumstance shall be held invalid, illegal
or unenforceable in any respect by a court of competent jurisdiction, such
invalidity, illegality, or unenforceability shall not affect any other provision
hereof.
-39-
<PAGE>
8.12 Waiver. Waiver of any term or condition of this Agreement by any party
------
shall be effective if in a writing signed by the party against whom such waiver
is asserted. Any such waiver shall not be construed as a waiver of any
subsequent breach or failure of the same term or condition, or a waiver of any
other term of this Agreement. No failure or delay by any party in exercising any
right, power or privilege hereunder shall operate as a waiver thereof nor shall
any single or partial exercise thereof preclude any other or further exercise
thereof or the exercise of any other right, power or privilege.
8.13 Counterparts. This Agreement may be executed in any number of
------------
counterparts, all of which shall be considered one and the same agreement, and
shall become effective when one or more such counterparts have been signed by
each of the parties to this Agreement and delivered to the other parties.
8.14 Entire Agreement. This Agreement, including the disclosure schedules
----------------
hereto and the other documents delivered pursuant to this Agreement (including
the Indemnification Agreements), and the Confidentiality Agreement, contain the
entire agreement and understanding between the parties hereto with respect to
the subject matter hereof and supersede all prior and contemporaneous
agreements, negotiations, correspondence, undertakings and understandings, oral
or written, relating to such subject matter.
8.15 Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the internal laws of the State of New York applicable to
agreements made and to be performed entirely within the State of New York,
without regard to the conflicts of law principles of such state.
8.16 Defined Terms. (a) The location of certain defined terms used in this
-------------
Agreement is as follows:
<TABLE>
<CAPTION>
Defined Term Section
- ------------ -------
<S> <C>
Acquisition Transaction............................................. 5.12
Affiliate........................................................... 4.5
Agreement........................................................... Recitals
Affiliated Group.................................................... 2.7(a)
Benefit Plans....................................................... 2.13(a)
Buyer............................................................... Recitals
Buyer Indemnified Parties........................................... 7.2
CAA................................................................. 2.17(h)(ii)
Call Agreement...................................................... 2.5(a)(ii)
CERCLA.............................................................. 2.17(h)(ii)
Chart House......................................................... Recitals
Closing............................................................. 1.2(a)
Closing Date........................................................ 1.2(a)
Code................................................................ 2.7(a)
Company............................................................. Recitals
Confidentiality Agreement........................................... 5.6(a)
</TABLE>
-40-
<PAGE>
<TABLE>
<S> <C>
Contracts........................................................... 2.10(b)
CWA................................................................. 2.17(h)(ii)
Debt Financing...................................................... 4.4
Employees........................................................... 5.8
Environmental Claims................................................ 2.17(h)(i)
Environmental Laws.................................................. 2.17(h)(ii)
Environmental Liabilities........................................... 2.17(h)(iii)
ERISA............................................................... 2.13(a)
ERISA Affiliate..................................................... 2.13(d)
Financial Statements................................................ 2.6
GAAP................................................................ 2.6
Hazardous Materials................................................. 2.17(h)(iv)
HSR Act............................................................. .2.3
Indebtedness........................................................ 2.21
Indemnification Agreements.......................................... 6.1(n)
Indemnified Party................................................... 7.5(a)
Indemnifying Party.................................................. 7.5(a)
Interim Balance Sheet............................................... 2.6
Interim Financial Statements........................................ 2.6
Inwood.............................................................. Recitals
Jolley.............................................................. Recitals
Knowledge........................................................... 8.1
Leases.............................................................. 2.8(f)
Letter Agreement.................................................... 4.4
Liens............................................................... 2.8(a)
Liquor Affiliates................................................... 2.5(a)(ii)
Liquor Licenses..................................................... 2.16(b)
Liquor Service Agreement............................................ 2.16(b)
Losses.............................................................. 7.2
Louisiana Owner..................................................... 2.5(a)(iii)
Luther's............................................................ Recitals
Management.......................................................... Recitals
Material Adverse Effect............................................. 8.16(b)
Material Suppliers.................................................. 2.22
Metropolitan........................................................ Recitals
Notice.............................................................. 7.5(a)
Owned Real Property................................................. 2.8(a)
OSHA................................................................ 2.17(h)(ii)
Permits............................................................. 2.16(a)
Person.............................................................. 2.5(b)
Phase I Assessment.................................................. 5.1(a)
Phase II Assessment................................................. 5.1(a)
Purchase Price...................................................... 1.1(b)
Release............................................................. 2.17(h)(v)
Remedial Action..................................................... 2.17(h)(vi)
</TABLE>
-41-
<PAGE>
<TABLE>
<S> <C>
RCRA............................................................... 2.17(h)(ii)
Restaurants........................................................ 2.16(b)
Sellers............................................................ Recitals
Sellers Indemnified Parties........................................ 7.3
Shares............................................................. Background
Subsidiary......................................................... 2.1(a)
Tax................................................................ 2.7(b)
Tax Returns........................................................ 2.7(b)
Texas Owners....................................................... 2.5(a)(ii)
Third Party Claim.................................................. 7.5(a)
Year End Financial Statements...................................... 2.6
WARN Act........................................................... 2.18
</TABLE>
(b) For purposes of this Agreement, "Material Adverse Effect" means
any effect, event, circumstance or condition which when considered with all
other effects, events, circumstances or conditions would result in a "loss"
having the effect of materially adversely affecting the business, assets,
properties, results of operations or financial condition of the Company, the
Subsidiary and the Liquor Affiliates, taken as a whole. In no event shall any of
the following constitute a Material Adverse Effect: (i) effects, events,
circumstances or conditions generally affecting the industry in which the
Company, the Subsidiary or the Liquor Affiliates operate or arising from changes
in general business or economic conditions; (ii) effects, events, circumstances
or conditions directly attributable to (a) out-of-pocket expenses (including
without limitation, legal, accounting, investigatory, investment banking, and
other fees and expenses) incurred in connection with the transactions
contemplated by this Agreement, or (b) the payment by the Company, the
Subsidiary or Buyer of all amounts due to any officers or employees of the
Company under employment contracts, non-competition agreements, employee benefit
plans or severance arrangements disclosed to Buyer on or prior to the date
hereof, (iii) any effects, events, circumstances or conditions arising after the
date hereof resulting from any change in law or generally accepted accounting
principles, which affect generally entities such as the Company, the Subsidiary
or the Liquor Affiliates; and (iv) any effect resulting from compliance by the
Company, the Subsidiary or the Liquor Affiliates with the terms of this
Agreement. For purposes of this Agreement, the term "loss" shall mean any and
all direct or indirect payments, obligations, assessments, losses, loss of
income, liabilities, fines, penalties, costs and expenses paid or incurred, or
diminutions in value of any kind or character that have occurred, including
without limitation, penalties, interest on any amount payable to a third party
as a result of the foregoing and any legal or other expenses reasonably incurred
in connection with investigating or defending any demands, claims, actions or
causes of action that, if adversely determined, would result in losses, and all
amounts paid in settlement of claims or actions; provided, however, that losses
-------- -------
shall be reduced by any amounts recovered or recoverable by the Company, the
Subsidiary or the Liquor Affiliates under insurance policies with respect to
such loss or from any third party, and reduced for any tax benefit realized by
the Company, the Subsidiary or the Liquor Affiliates arising from the incurrence
or payment of any such loss.
It is understood that Management may include in the disclosure
schedules to this Agreement or elsewhere items which would not have a Material
Adverse Effect within the
-42-
<PAGE>
meaning of the previous paragraph to avoid any misunderstanding or for any other
reason, and such inclusion shall not be deemed to be an acknowledgment by
Management that such items would have a Material Adverse Effect or further
define or bear on the meaning of such term for the purposes of this Agreement.
-43-
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as of the date first written above.
INWOOD INVESTORS PARTNERSHIP, L.P.
By: Inwood Management Company
Its: General Partner
By: Cramon Corp.
Its: General Partner
By: /s/ Edward C. Stanton III
----------------------------
Name: EDWARD C. STANTON III
Title: PRESIDENT
CHART HOUSE ENTERPRISES, INC.
By: /s/ Cynthia T. Quigley
---------------------------------------
Name: CYNTHIA T. QUIGLEY
Title: CHIEF FINANCIAL OFFICER
METROPOLITAN LIFE INSURANCE COMPANY
By: /s/ Jacqueline D. Jenkins
---------------------------------------
Name: JACQUELINE D. JENKINS
Title: DIRECTOR
LUTHER'S ACQUISITION CORP.
By: /s/ [SIGNATURE ILLEGIBLE]^^
---------------------------------------
-------------------------------------------
MICHAEL C. JOLLEY
-------------------------------------------
KIRBY GORTON
<PAGE>
EXHIBIT A
FORM OF OPINION OF BUYER'S COUNSEL
1. Buyer is a corporation validly existing and in good standing
under the laws of its jurisdiction of incorporation. Buyer, has the requisite
corporate power and corporate authority to own, lease and operate its assets,
properties (real, personal or mixed) and business and to carry on its business
as presently conducted. Buyer has the corporate power and corporate authority to
execute and deliver, and perform its obligations under, the Agreement (the
"Transaction Document").
2. The Transaction Document has been duly authorized, executed and
delivered by Buyer and are valid and binding obligations of Buyer, enforceable
against Buyer in accordance with their terms, except as the same may be limited
by bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance or
other laws or equitable principles relating to or affecting the enforcement of
creditors' rights and to rules of law or equitable principles governing specific
performance, injunctive relief and other equitable remedies.
3. All corporate proceedings required to be taken by Buyer to
execute and deliver the Transaction Document and perform its obligations
thereunder, have been duly taken.
4. The execution, delivery and performance of the Transaction
Document by the Buyer do not (i) conflict with or result in a violation of any
of the provisions of the Articles of Incorporation or Bylaws of Buyer, (ii)
conflict with or violate in any material respect any law, rule or regulation
(other than any such conflict or violation that would not have a Material
Adverse Effect), (iii) to our knowledge, conflict with or violate any order,
judgment, decree or award binding upon Buyer or its assets or business (other
than any such conflict or violation that would not have a Material Adverse
Effect), (iv) constitute a default or give rise to a right of termination,
cancellation or acceleration of any right under any contract or agreement to
which Buyer is a party or which is binding upon Buyer (other than any such
default, termination, cancellation or acceleration that would not have a
Material Adverse Effect) or (v) result in the creation or imposition of any Lien
upon any of the assets of Buyer (other than any such Lien that would not have a
Material Adverse Effect), except in connection with the financing of the
transaction.
<PAGE>
TO OUR SHAREHOLDERS
Nineteen ninety-eight was a very exciting year of new challenges and
opportunities at Chart House Enterprises.
The transformation that is underway at Chart House literally includes every
facet of the business. Whether it's the "look" of our facilities, the management
team in place, the marketing programs to support sales, the food that the guest
enjoys at our restaurants, or the operating systems, we have made important and
substantial changes.
Even more exciting are the results that we are starting to see. The
overwhelmingly positive feedback that we are receiving from our guests assures
us that we are on the right track to shareholder value creation.
[PICTURE APPEARS HERE]
Sesame-Crusted Salmon, just
one of the mouth-watering
entrees offered on the menu.
The beginning of the year marked the start of my tenure with Chart House.
Fortunately, I was able to "hit the ground running," as significant groundwork
had been laid prior to my joining. The sale or disposition of all non-core
assets was substantially completed, all long-term debt had been eliminated, and
a restructuring reserve, set up in 1997, allowed the flexibility to execute a
number of important decisions throughout the year. These included the relocation
of the corporate office to Chicago, Illinois from Solana Beach, California, the
creation of the new management team, the closure of several underperforming
units, and the write-down of impaired assets.
With a clean slate, we focused completely on revitalizing the Chart House brand
- -- a brand rich in tradition, and steeped in loyalty and customer recognition.
Our unique locations, beautiful views, delicious food and attentive service
offer plenty on which to build. Our focus in crafting the future strategy of the
Company has been anchored to the following:
[_] Creating a more contemporary menu that will attract new diners, while
maintaining elements of our tried-and-true menu to continue to cater to our
loyal customers
[_] Improving the value perception of the guest through lowering entree prices
[_] Beginning unit remodels to enhance the decor and atmosphere of the
restaurants
[_] Supporting the brand with stronger marketing support in order to spread the
message of "the new Chart House"
Our new menu, created in concert with Richard Melman and his Lettuce Entertain
You team, began rolling out to our restaurants in August. The menu adheres to
our seafood and beef tradition, but enhances both the quality of the food and
the attractiveness of its presentation.
We have created a greater value perception by lowering the prices of our entrees
by several dollars, while adding a charge for our signature "salad bar" in those
restaurants that have one. In addition, we have improved our selection and
quality of appetizers, desserts, and coffees.
[PICTURE APPEARS HERE]
Fifteen restaurants were part of a "first wave" to implement the new menu. This
allowed us to work extensively to perfect the operation of the new menu. With an
additional seven restaurants converted to the new menu, 38% of our restaurants
have been carrying the new menu since year-end, 1998. All restaurants are
expected to be converted by June 30, 1999.
The reaction has been overwhelmingly positive. An independent market research
firm captured coast-to-coast guest responses for us. Across a variety of
questions concerning taste, appeal, value, presentation, etc., our new menu
2
<PAGE>
[PICTURE APPEARS HERE]
Chart House's new frequent
dining program, View Points,
was developed in 1998.
scored between an 8 and a 9 out of a possible "9." And, our year-over-year
growth in these restaurants outpaced both our non-new menu restaurants, and the
casual dining industry in general.
Simultaneous with the new menu rollout, we took a fresh look at our marketing
support and created a new advertising campaign to support our brand. We created
a new frequent dining program called "ViewPoints" to replace the older "Aloha
Club." ViewPoints capitalizes on our beautiful scenery by showcasing our
restaurant views, encouraging guests to "link" Chart House experiences across a
number of special occasions through reminder card mailings, and inviting diners
to return frequently by rewarding points toward future meals. This program,
created in 1998, was implemented in January 1999.
During 1998, we also increased our focus on local marketing opportunities and
public relations events, focusing especially on our "Concierge Program." In
order to better support our marketing efforts and to be strongly positioned for
1999, we increased the number of Sales and Catering Manager positions throughout
the system.
Nineteen ninety-eight was also an important year for our facilities investment.
Over the next three years, the Company plans to invest in every restaurant in
the system to improve the feel and decor of each location to enhance the guest
experience. As part of this effort, we will adapt each location more readily to
its local flavor, and capitalize on the many historic and unique aspects of our
sites.
This effort got underway in 1998, with the remodeling of six restaurants
completed prior to year-end. The first two -- the only two completed prior to
December -- are enjoying improved sales as a result of the new design.
[PICTURE APPEARS HERE]
Interior of the newly-remodeled
Chart House in Scottsdale, Arizona.
Finally, my ten-month tenure during 1998 allowed me the time to create both the
management team to drive the Company forward, and the performance and reward
systems to support the Company strategy. Our recruiting, training and
development plans have been upgraded so that we can attract employees and
managers who want to participate in our success. And, we have redesigned our
bonus and incentive plans to ensure that strong performers do, indeed,
participate in, and are focused on, our success.
Nineteen ninety-eight has been an exhilarating year, in which many building
blocks for the future were put into place. Nineteen ninety-nine promises to be
equally fast paced, as the initiatives implemented in 1998 continue full force
throughout 1999. The culmination of these efforts, beginning in 1999, should
reward you, our shareholders, handsomely in the future. We appreciate our
shareholders' support, and your interest and belief in our Company and its
future growth strategies. We are proud to be part of this turnaround story, and
we want you to be, as well.
Sincerely,
/s/ Thomas J. Walters
Thomas J. Walters
President and Chief Executive Officer
View of the Chart House on
Coronado Island, California.
3
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The following table presents the results of operations for each of the fiscal
years in the three years ended December 28, 1998.
The dollar amounts are in thousands.
<TABLE>
<CAPTION>
1998 1997 1996
- -------------------------------------------------------------------------------------------------------------------------------
AMOUNT % AMOUNT % AMOUNT %
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues $145,188 100.0 $151,202 100.0 $160,551 100.0
Costs and Expenses:
Cost of Sales 47,388 32.6 46,932 31.0 49,202 30.6
Restaurant Labor 42,078 29.0 42,056 27.8 45,648 28.4
Other Operating Costs 34,955 24.1 36,289 24.0 38,767 24.1
Selling, General and Administrative Expenses 14,353 9.9 12,879 8.5 13,911 8.7
Depreciation and Amortization 6,601 4.5 8,964 5.9 9,743 6.1
Write-Down of Assets & Restructuring & Unusual Charges -- -- 43,374 28.7 7,833 4.9
Gains on Sales of Assets (1,534) (1.0) -- -- -- --
Interest Expense 790 0.5 3,292 2.2 4,903 3.1
Interest Income (14) -- (1,827) (1.2) (1,240) (0.8)
- -------------------------------------------------------------------------------------------------------------------------------
Total Costs and Expenses 144,617 99.6 191,959 127.0 168,767 105.1
- -------------------------------------------------------------------------------------------------------------------------------
Income/(Loss) Before Income Taxes 571 0.4 (40,757) (27.0) (8,216) (5.1)
Benefit for Income Taxes -- 0.0 (9,639) (6.4) (2,793) (1.7)
- -------------------------------------------------------------------------------------------------------------------------------
NET INCOME/(LOSS) $ 571 0.4 $(31,118) (20.6) $ (5,423) (3.4)
===============================================================================================================================
</TABLE>
Management believes that the most meaningful approach to analyzing operations is
through margin analysis, which requires critically reviewing the relationships
that certain costs and expenses bear to revenues. Accordingly, the discussion
below follows this approach.
1998 COMPARED TO 1997
Revenues for the 1998 Fiscal Year decreased $6,014,000, or 4.0%, due primarily
to the closure of five Chart House restaurants, all of which had been identified
for disposal as part of the 1997 restructuring actions. The closure of the five
restaurants resulted in a $4,820,000 or 3.2% decrease in revenues from prior
year. The sale of Solana Beach Baking Company, also identified for disposal in
1997, contributed an additional $1,024,000 or 0.7% in revenues in 1997 which
were not realized after operations ceased in October 1998. Additionally,
comparable restaurant revenues (revenues at restaurants open for the entire
period of both years) decreased $208,000, or 0.1%, resulting primarily from
twenty-two restaurants which had implemented a new, more contemporary menu. The
successful implementation of the new menu required greater focus on perfecting
the new products, thereby reducing the resources available to service large
party reservations during the implementation phase. All twenty-two restaurants
are currently accepting large party reservations as usual.
Restaurant operating costs and expenses decreased from 1997 to 1998 by
$856,000, but increased as a percentage of revenues by 2.8%. The new menu
incorporates reduced entree pricing which negatively affects the cost of sales
margin. Further, cost of sales as a percentage of revenues increased over 1997
because of larger, pre-portioned meat and better quality seafood. Restaurant
labor was higher as a percentage of revenues due to enhanced restaurant staffing
and transition costs associated with the new menu implementation. Federal and
California minimum wage requirements negatively impacted comparable results for
the Company's hourly restaurant labor costs. The minimum wage in California (a
state where the Company operates 19 restaurants) was increased in March 1998
from $5.15 to $5.75 per hour. Other operating costs remained consistent as a
percentage of revenues, but decreased in dollar terms primarily due to
restaurant closures.
Selling, general, and administrative expenses increased 11.4% in 1998 due
primarily to the relocation of the corporate office from Solana Beach,
California to Chicago, Illinois. Relocation costs of approximately $852,000 in
1998
6
<PAGE>
had no comparable cost in 1997. Additionally, new staff were hired and trained
to better support field operations and incremental costs were incurred as part
of a consulting arrangement with Lettuce Entertain You Enterprises, Inc. Related
party transactions during 1998 with EGI Risk Services, Inc., EGI Corporate
Investments, Equity Group Investments, Inc., Lettuce Entertain You Enterprises,
Inc., and Rosenberg & Liebentritt, P.C. totaled approximately $2,103,000.
Depreciation and amortization decreased 26.4% from 1997 primarily because
of the dispositions and write-down of assets resulting from the restructuring
efforts.
The Company incurred special charges of $43.4 million in 1997 for asset
write-downs and other charges related to management organizational changes. A
description of those charges is provided below. The 1998 results include gains
on sales of non-core assets totaling $1,534,000, stemming primarily from the
sale of Solana Beach Baking Company and Company-held investments.
Interest expense decreased 76.0% from 1997 interest expense primarily due
to a reduction in the Company's outstanding debt balances as a result of the
1997 sale of shares of common stock and the sale of certain assets.
Interest income decreased 99.2% from 1997 interest income. Interest income
in 1997 was earned principally from the note received in connection with the
sale of the Islands restaurant operations in May 1996, which was paid in the
fourth quarter of 1997.
The loss reported in 1997 from the special charges generated a tax benefit,
which was applied against previous years', current, and future taxable income.
Therefore, there was no provision recorded in 1998. The effective rate for the
benefit for income taxes was approximately 24% for 1997.
As a result of the foregoing, net income for 1998 was $571,000, versus a
loss in 1997 of ($31,118,000), including special charges; an increase in net
income of $31,689,000. Excluding special charges and the 24% tax impact in 1997,
the results indicate income in 1998 of $571,000, versus income in 1997 of
$1,989,000, a decrease in net income of $1,418,000. The decrease stems primarily
from restaurant closures and the sale of Solana Beach Baking Company.
1997 COMPARED TO 1996
Revenues for the 1997 fiscal year decreased by $9,349,000 from $160,551,000 in
1996 to $151,202,000 in 1997. The disposition of the Islands restaurants in May
1996 accounted for a decrease in revenues of $11,095,000. Revenues for Chart
House restaurants increased by $936,000 over 1996, due primarily to one new
restaurant opening (in April 1996) and the reopening of two restaurants
following shutdown/remodels (in March and July 1996), the effects of which were
partially offset by the permanent closing of three Chart House restaurants in
November 1997 and the temporary shutdown of one restaurant for a kitchen
remodel. Comparable sales (sales at restaurants open the entire period of both
years) were even with the previous year, reflecting a slight increase in average
check and corresponding decrease in customer counts. Increased sales at Solana
Beach Baking Company, primarily from the growth of two retail customers,
accounted for an increase in revenues of $810,000 for the 1997 fiscal year.
Operating-related cost and expense categories in the consolidated
statements of operations were lower in 1997 than 1996 because of the disposition
of the Islands restaurants. Aggregate operating-related costs of Islands for
1996 were approximately $9,700,000. As a percentage of sales, Islands had lower
food costs than Chart House restaurants; conversely, Islands had higher
percentage labor and other operating costs than Chart House restaurants.
Restaurant-level operating margins in 1997 were even to slightly down from
1996, as cost pressures caused decreases in the second half of the year. Cost of
sales as a percentage of revenues was higher in 1997 compared to 1996; excluding
Islands from 1996, percentage comparisons were the same. Restaurant labor was
lower in 1997 than 1996, as the Company focused efforts on further controlling
hourly labor costs to counter the effects of Federal and State minimum wage
increases. Other operating costs overall as a percentage of revenues were
comparable between 1997 and 1996. However, other operating costs at Chart House
restaurants were slightly higher in 1997 because of increases in costs of, among
other things, supplying uniforms to restaurant employees.
Selling, general and administrative expenses decreased by $1,032,000 in
1997, and were also slightly lower as a percentage of revenues. The disposition
of Islands accounted for approximately $455,000 of the decrease. In addition,
salaries and wages were lower because of reduced numbers of administrative
management and other employees as a result of the Company's restructuring and
reorganization activities. Partially offsetting these decreases were increased
costs and expenses related to the Company's planning and creative revitalization
efforts.
Depreciation and amortization decreased from 1996 levels primarily because
of asset write-downs recorded at the end of the 1997 third quarter.
The Company incurred special charges in 1997 of $43.4 million, consisting
of asset write-downs and other charges. The Company also incurred charges in the
1996 fiscal year as a result of restructuring-related activity. These charges
are discussed further below.
Interest expense decreased by approximately $1.6 million in 1997. The
Company used net proceeds from the sale of shares of common stock and certain
asset sales and excess cash flows from operating activities to pay
7
<PAGE>
off the remaining balances of long-term senior notes and reduce outstanding debt
under the revolving credit agreement, the effect of which reduced interest
expense.
Interest income was higher in 1997 because the note receivable from which
substantially all interest income was generated was outstanding longer in 1997
than in 1996. The note was received in connection with the disposition of
Islands restaurants in May 1996 and was paid in December 1997.
The effective rate for the benefit for income taxes was approximately 24%
for 1997. The loss reported in 1997 from the special charges generated a tax
benefit which will be applied against previous years' and estimated future
taxable income. The effective rate for the benefit for income taxes for 1996 was
34%. The loss for the 1996 year was applied against previous years' taxable
income to generate income tax refunds in the 1997 fiscal year.
Operating profits at Solana Beach Baking Company increased by $362,000 in
1997, primarily as a result of the increase in sales referred to above.
As a result of the foregoing, the net loss increased by $25,695,000 from a
loss of $5,423,000 in 1996, to a loss of $31,118,000 in 1997.
1996 AND 1997 RESTRUCTURING ACTIONS AND SPECIAL CHARGES
Throughout most of its history, the Company has enjoyed relative stability in
executive management and Chart House restaurant operations. In recent years, the
Company has experienced disruption from organizational changes including
significant turnover of senior management and attempts to grow and then
subsequently sell other restaurant concepts. As a result, operating
profitability declined over the 1996 and 1997 fiscal years.
By late 1996, the Company had built up significant debt balances and, as a
result, the Company's Board of Directors began to review strategic financing
alternatives. In May 1997, the Company completed a sale of common stock to an
investment company and partially paid down outstanding debt balances. In the
following months, there were additional management and organizational changes
and a change in the composition of the Board of Directors. The Company entered
into new strategic and creative alliances in order to accelerate the
revitalization process of the Chart House restaurants. In the third quarter of
1997, the Board made the decision to sell for cash all non-core assets (assets
and operations outside of the core Chart House restaurant operations) in an
effort to pay down remaining debt balances and focus management attention on the
revitalization of the Chart House restaurants. Management and the Board also re-
examined the Company's marginally performing restaurants. New management and the
Board established better operating standards with a greater emphasis on
achieving higher economic returns over the estimated life of each restaurant
property. As a result of this change in direction, a decision was made to
dispose of certain restaurants and write down others to amounts which current
management and the Board believed to be approximate fair value. Such write-downs
were prepared in accordance with Financial Accounting Standards Board Statement
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of." In addition, the Company sold its corporate office
building and a decision was made to relocate the corporate operations from
Solana Beach, California to Chicago, Illinois. A resulting termination plan
affected approximately 55 corporate managerial and clerical employees. The
relocation was completed in June 1998. As a direct result of certain of these
restructuring activities, the Company was able to generate significant proceeds
from asset disposals to pay off long-term debt. There were no additional
restructuring actions in 1998.
The 1997 special charges of $43.4 million were primarily the result of
write-downs of assets to be used in ongoing operations or to be disposed of. The
charges included (i) approximately $21.2 million in write-downs to estimated net
realizable value of assets to be sold or otherwise disposed of, including the
Company's remaining investment in Islands ($5.7 million); five Chart House
restaurants ($6.3 million); fixtures, decor and other identified restaurant
assets to be disposed of in connection with the remodel and revitalization of
the Chart House restaurants ($7.8 million); and other non-core assets and
minority interests in unrelated companies ($1.4 million), and (ii) approximately
$16.8 million in write-downs to estimated fair value of several underperforming
Chart House restaurants to be used in ongoing operations and other non-cash
charges, including a write-down of goodwill associated with impaired assets
($4.2 million). The remainder of the special charges consisted of approximately
$5.4 million in charges, which included, among other things, costs associated
with hiring a new chief executive officer, severance and other costs related to
executive management and organizational changes, and termination benefits to be
paid to employees in connection with the planned relocation of the Company's
headquarters.
In 1996, the Company incurred $7.8 million in restructuring charges
including costs associated with the turnover of two chief executive officers,
the write-down of an investment subsequently disposed of in 1997, severance and
special compensation costs resulting from a reorganization of the Company's
management team, and charges to write down to estimated net realizable value
certain assets and one restaurant property to be disposed of.
8
<PAGE>
OPERATING OUTLOOK
As part of a strategic initiative to rebuild the Chart House concept, the
Company made modifications to the menu beginning in the second half of 1997 and
continuing through 1998 which have contributed to higher cost of sales and
restaurant labor costs. In an effort to provide increased value to the customer,
the rollout of the new menu has been completed in twenty-two restaurants as of
the end of 1998, and implementation of the new menu in the remaining restaurants
will be completed in 1999. Labor costs are expected to increase with continued
strengthening of field management. Management anticipates that margins will be
negatively affected during the first several weeks of implementation in each
restaurant as training on the new products and education on the menu occurs.
This impact is amplified by the decrease in pricing that becomes effective when
the new menu is implemented. Based on customer responses where the
implementation has already occurred, the Company believes that the program
underway will strengthen the Chart House brand and financial performance in the
long term.
As of the end of the 1998 fiscal year, the Company had completed the
remodeling of six Chart House restaurants. The remodel program is intended to
update the look of each Chart House restaurant and create a more comfortable and
enjoyable dining experience. Over the next two years, management expects to
remodel all Chart House restaurants. Management anticipates expenditures for
remodels during 1999 to approximate $8.5 million.
Federal and State legislated minimum wage increases generally have some
impact on the restaurant operating results. Future minimum wage increases could
adversely affect the Company's labor costs. With the exception of California,
the Company does not currently have a significant number of hourly personnel in
any one state to impact overall operating results. The minimum wage in
California was increased in March 1998 from $5.15 to $5.75 per hour. This
increase will impact the comparability of labor costs during the first quarter
of 1999.
Restructuring and other activities that occurred in 1997 will continue to
affect results of operations in 1999. Revenues will be reduced to the extent of
the closed and sold restaurants. Additionally, restaurant sales and operating
expenses will be affected to the extent that there is shutdown time in
connection with the remodeling of restaurants. The Company expects one
restaurant to be closed for the majority of 1999 due to remodeling. Depreciation
and amortization will increase in 1999 as remodeling activities accelerate.
Interest expense will also increase as the Company increases debt levels to fund
revitalization activities.
The Company is planning an increase in marketing spending in 1999 over
recent historical levels. Marketing programs include the introduction of
"ViewPoints," a new frequent dining program, and several media advertisements.
During the first quarter of 1999, the Company signed an agreement to purchase
a restaurant business located in New York, New York. Consummation of the
transaction, which is expected to occur in the second quarter of 1999, is
subject to satisfaction of a number of conditions. Upon consummation of the
transaction, the Company anticipates that operating results of the acquired
restaurant will positively affect overall results. However, no assurance can be
given that the transaction will occur, nor can management assure that results
will be positively affected as a result of the acquisition.
It is currently management's intention to dispose of four to six restaurant
properties during 1999; however, no assurance can be given as to the likelihood
or timing of such disposals.
LIQUIDITY AND CAPITAL RESOURCES
The Company requires capital principally for the acquisition and construction of
new restaurants and for the remodeling and refurbishing of existing restaurants.
The Company's primary sources of working capital are cash flows from operations
and borrowings under a credit agreement which provides a $20 million revolving
credit facility with interest at the bank's base rate (or LIBOR plus a maximum
2.0%). The agreement includes certain financial and other covenants and matures
in June 2000. Net cash flows from operating, investing and financing activities
are used primarily to reduce or increase those borrowings. At December 28, 1998,
the Company had approximately $3.5 million in outstanding borrowings under the
revolving credit facility. The Company expects borrowings to increase during
1999 depending on the timing of working capital and capital expenditure needs.
In October 1998, the Company completed the sale of the Solana Beach Baking
Company, generating net cash proceeds of approximately $388,000. In November
1998 the Company sold an investment which generated net cash proceeds of
approximately $1,080,000.
Cash flows from operations, plus availability under the $20 million
revolving credit facility, will, in the opinion of management, be sufficient to
fund working capital and capital expenditure commitments. The Company currently
projects 1999 total capital expenditures to be $11.5 million. However, this
amount may vary depending on the timing of remodel activities. In order to fully
implement the remodeling and revitalization program, the Company may require
alternative sources of long-term financing. However, no assurance can be given
that such financing will be available or that it will be available on terms
satisfactory to the Company.
9
<PAGE>
EFFECT OF INFLATION
Management does not believe inflation has had a significant effect on the
Company's operations during the past several years. Management believes the
Company generally has been able to increase menu prices or make other
adjustments to substantially offset increases in its operating costs resulting
from inflation, but there can be no assurance that it will be able to do so in
the future. Although management does not anticipate that inflation will have a
material effect on income from restaurant operations in 1999, future increases
in labor, food or other operating costs could adversely affect the Company's
operating results.
SEASONALITY & OTHER INFORMATION
Historically, the Company's business is seasonal in nature, with revenues and
net income in the fourth quarter generally lower than the rest of the year.
In 1996, the Company switched from a calendar-based fiscal year to a 52/53-
week fiscal year. This reporting method is used by many companies in the
restaurant and retail industries and is meant to improve future year-to-year
comparisons of operating results. The new fiscal year consists of four equal 13-
week quarterly periods ending on the Monday nearest to the calendar quarter end.
This change did not have a material effect on reported results for the fiscal
year ended December 30, 1996. However, the first fiscal quarters of 1997 and
1998 benefited from the inclusion of December 31, which historically is the
highest sales day for the Chart House restaurants. The first quarter of 1999
will also include sales for December 31.
In May 1998, the Chart House restaurant in Weehawken, New Jersey, which the
Company operated under a management agreement with the owner of the property,
was completely destroyed by fire. The Company is covered by a business
interruption insurance policy. Coverage includes lost profits for twelve months.
Taking into account the business interruption insurance proceeds, this event has
not had an impact on the operating results. However, management believes that it
will take more than twelve months to rebuild and reopen the restaurant and
comparable financial results will be negatively affected beginning in June 1999.
A new lease has been signed with the owner of the property and construction of a
new restaurant is to begin in 1999. Although management believes the restaurant
will be completed and reopened prior to the end of fiscal year 1999, no
assurances can be made as to the timing or completion of the construction
activities.
In addition to the aforementioned financial impacts, as part of the
restructuring efforts announced in 1997, there has been a significant turnover
in management during 1998. Four of the seven officers currently in place with
the Company were hired during 1998 to lead the Chart House revitalization.
YEAR 2000
Many software applications and operational programs written in the past were not
designed to recognize calendar dates beginning in the year 2000. The failure of
such applications or systems to properly recognize the dates beginning in the
year 2000 could result in miscalculations or system failures that may result in
an adverse effect on the Company's operations. The Company has instituted a Year
2000 project in an attempt to prevent these occurrences. As of December 28,
1998, the Company was approximately 30% complete in achieving compliance with
the project's requirements. The Company has completed Awareness and Assessment
and has partially completed the Replacement, Testing, and Implementation phases
of this project. The Company expects these phases to be substantially complete
by the third quarter of 1999.
The operation of Chart House restaurants does not rely heavily on information
technology. The most direct operational issue the Company faces with its
information technology is the point-of-sale system at each of the restaurants.
The replacement of the point-of-sale system is one part of a significant
operational and financial systems overhaul expected to be completed by the
second quarter of 1999. The overhaul was scheduled and represents the most cost-
effective way of enhancing reporting capabilities; the Company has received
assurances from the manufacturers that the replacement technology will be Year
2000 compliant. The Company expects to fund the overhaul with operating cash
flows and availability under its revolving credit facility. Since the overhaul
was contemplated prior to the institution of a Year 2000 project, the Company
does not believe that it will incur significant incremental expense with respect
to Year 2000 compliance. The Company does not believe that it faces any
significant operational issues with embedded technology or non-IT systems.
The Company's potential third party risk is primarily with its food
distributors. Preliminary evaluations, including review of disclosures in third
party SEC filings, indicate that such distributors are addressing the issue on a
timely basis and do not expect significant operational difficulties as a result
thereof. In identifying a "worst case scenario," the Company believes that a
failure of the project will only affect internal reporting capabilities. As a
result, if the worst case scenario should
10
<PAGE>
occur, the Company's restaurants should be able to function with no anticipated
interruption. Under this scenario, the Company's contingency plan consists of
administrative personnel analyzing source data information, if necessary, to
continue daily operations support for the Company.
Due to the general uncertainty inherent in the Year 2000 issue as well as the
uncertainty of third party suppliers and distributors becoming Year 2000
compliant, the Company is unable at this time to determine if consequences of
Year 2000 failures, both internal and external, will have a material impact on
the Company's results of operations, liquidity and financial condition. The
Company believes that its Year 2000 compliance efforts should reduce the
likelihood of a material and adverse impact to normal operations.
FORWARD-LOOKING STATEMENTS
Certain of the statements contained in this report may be forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934. Forward-looking statements
include financial projections, estimates and statements regarding plans,
objectives and expectations of the Company and its management. Examples of
certain forward-looking statements are the Company's estimates of the cost,
timing and effect of its Year 2000 compliance efforts, the anticipated effect of
menu changes and restructuring activities, and the Company's intentions to
dispose of assets, remodel assets, or acquire assets. Although the Company
believes that the expectations reflected in all such forward-looking statements
are based upon reasonable assumptions, it can give no assurance that its
expectations will be achieved. Such forward-looking statements involve known and
unknown risks, uncertainties and other factors which may cause the actual
results, performance or achievements of the Company to be materially different
from any future results, performance or achievements expressed or implied by
such forward-looking statements.
SELECTED FINANCIAL DATA
(In Thousands, except per share data)
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues $145,188 $151,202 $160,551 $179,155 $174,940
Depreciation & Amortization 6,601 8,964 9,743 10,697 9,872
Restructuring & Other Charges (1) -- 43,374 7,833 4,853 --
Interest Expense 790 3,292 4,903 4,996 4,718
Interest Income (14) (1,827) (1,240) (185) (191)
Other Income-Gain on Sale Of Subsidiary (2) -- -- -- (1,855) --
Income/(Loss) Before Income Taxes 571 (40,757) (8,216) 2,422 6,598
Net Income/(Loss) 571 (31,118) (5,423) 2,663 4,286
Net Income/(Loss) Per Common Share
Basic And Diluted (3) .05 (2.91) (.66) .32 .52
Weighted Average Shares Outstanding (3) 11,745 10,688 8,254 8,277 8,292
Balance Sheet Data (End of Period):
Total Assets $ 88,010 $ 88,245 $148,925 $153,446 $156,709
Current Portion of Long-Term Indebtedness 724 816 6,772 3,401 646
Long-Term Indebtedness 8,470 5,746 50,499 51,694 61,982
Stockholders' Equity 59,754 59,005 71,308 76,652 73,958
- -----------------------------------------------------------------------------------------------------------
</TABLE>
(1) Restructuring and Other Charges in 1997, 1996 and 1995 include asset write-
downs, severance and other charges.
(2) Other Income in 1995 represents the gain recorded on the sale of the
Company's wholly owned subsidiary, Paradise Bakery, Inc.
(3) Effective December 1997, the Company adopted Statement of Financial
Accounting Standards No. 128, "Earnings Per Share" (SFAS 128). The adoption
of the standard had no material impact for any of the years presented
above. For all years presented, basic and diluted earnings per share are
the same.
11
<PAGE>
CHART HOUSE ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands)
<TABLE>
<CAPTION>
Assets 12/28/1998 12/29/1997
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Current Assets:
Cash and Equivalents $ 266 $ 205
Accounts Receivable 3,093 3,249
Refundable Income Taxes -- 537
Inventories 2,288 2,624
Prepaid Expenses and Other Current Assets 306 429
Current Portion of Deferred Tax Asset 685 1,780
- -----------------------------------------------------------------------------------------------------------------------
Total Current Assets 6,638 8,824
- -----------------------------------------------------------------------------------------------------------------------
Property and Equipment, at Cost:
Land 6,258 6,582
Buildings 18,844 19,145
Equipment 31,400 29,236
Leasehold Interests & Improvements 50,532 46,541
Construction in Progress 2,063 924
- -----------------------------------------------------------------------------------------------------------------------
109,097 102,428
Less: Accumulated Depreciation and Amortization 44,659 40,726
- -----------------------------------------------------------------------------------------------------------------------
Net Property & Equipment 64,438 61,702
- -----------------------------------------------------------------------------------------------------------------------
Leased Property under Capital Leases, Less Accumulated
Amortization of $6,376 in 1998 and $5,479 in 1997 4,128 5,026
- -----------------------------------------------------------------------------------------------------------------------
Non-current Portion of Deferred Tax Asset 4,679 3,895
Other Assets and Goodwill, Net 8,127 8,798
- -----------------------------------------------------------------------------------------------------------------------
$ 88,010 $88,245
============= ==============
Liabilities and Stockholders' Equity 12/28/1998 12/29/1997
- -----------------------------------------------------------------------------------------------------------------------
Current Liabilities:
Current Portion of Obligations under Capital Leases $ 724 $ 816
Accounts Payable 4,772 4,955
Accrued Liabilities 14,290 17,723
- -----------------------------------------------------------------------------------------------------------------------
Total Current Liabilities 19,786 23,494
- -----------------------------------------------------------------------------------------------------------------------
Long-Term Debt 3,450 --
- -----------------------------------------------------------------------------------------------------------------------
Long-Term Obligations under Capital Leases 5,020 5,746
- -----------------------------------------------------------------------------------------------------------------------
Stockholders' Equity:
Preferred Stock, $1.00 par value, authorized 10,000,000 shares; none outstanding -- --
Common Stock, $.01 par value, authorized 30,000,000 shares; 11,762,561 shares
outstanding in 1998 and 11,727,409 in 1997 118 117
Additional Paid-In Capital 61,103 60,926
Accumulated Deficit (1,467) (2,038)
- -----------------------------------------------------------------------------------------------------------------------
Total Stockholders' Equity 59,754 59,005
- -----------------------------------------------------------------------------------------------------------------------
$ 88,010 $ 88,245
============= ==============
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
12
<PAGE>
CHART HOUSE ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
Fiscal Years Ended
12/28/1998 12/29/1997 12/30/1996
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues $ 145,188 $ 151,202 $ 160,551
- ------------------------------------------------------------------------------------------------------------------------------
Costs and Expenses:
Cost of Sales 47,388 46,932 49,202
Restaurant Labor 42,078 42,056 45,648
Other Operating Costs 34,955 36,289 38,767
Selling, General and Administrative Expenses 14,353 12,879 13,911
Depreciation and Amortization 6,601 8,964 9,743
Write-Down of Assets and Restructuring and Unusual Charges -- 43,374 7,833
Gains on Sales of Assets (1,534) -- --
Interest Expense 790 3,292 4,903
Interest Income (14) (1,827) (1,240)
- ------------------------------------------------------------------------------------------------------------------------------
Total Costs and Expenses 144,617 191,959 168,767
- ------------------------------------------------------------------------------------------------------------------------------
Income/(Loss) Before Income Taxes 571 (40,757) (8,216)
Benefit for Income Taxes -- (9,639) (2,793)
- ------------------------------------------------------------------------------------------------------------------------------
Net Income/(Loss) $ 571 $ (31,118) $ (5,423)
- ------------------------------------------------------------------------------------------------------------------------------
Net Income/(Loss) Per Common Share Basic and Diluted $ 0.05 $ (2.91) $ (.66)
- ------------------------------------------------------------------------------------------------------------------------------
Weighted Average Shares Outstanding 11,745 10,688 8,254
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
CHART HOUSE ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In Thousands)
<TABLE>
<CAPTION>
COMMON COMMON ADDITIONAL RETAINED TOTAL
STOCK STOCK PAID-IN EARNINGS STOCKHOLDERS'
SHARES AMOUNT CAPITAL (DEFICIT) EQUITY
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1995 8,216 $ 82 $ 42,067 $ 34,503 $ 76,652
Exercise of Stock Options 46 1 78 -- 79
Net Loss -- -- -- (5,423) (5,423)
- --------------------------------------------------------------------------------------------------------------------
Balance, December 30, 1996 8,262 83 42,145 29,080 71,308
Issuance of New Shares 3,400 34 18,407 -- 18,441
Exercise of Stock Options 57 -- 324 -- 324
Non-Employee Director Compensation 8 -- 50 -- 50
Net Loss -- -- -- (31,118) (31,118)
- --------------------------------------------------------------------------------------------------------------------
Balance, December 29, 1997 11,727 117 60,926 (2,038) 59,005
Exercise of Stock Options 26 1 155 -- 156
Non-Employee Director Compensation 10 -- 22 -- 22
Net Income -- -- -- 571 571
- --------------------------------------------------------------------------------------------------------------------
Balance, December 28, 1998 11,763 $118 $ 61,103 $ (1,467) $ 59,754
======= ====== ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
13
<PAGE>
CHART HOUSE ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
<TABLE>
<CAPTION>
Fiscal Years Ended
12/28/1998 12/29/1997 12/30/1996
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net Income (Loss) $ 571 $ (31,118) $ (5,423)
Adjustments to Reconcile Net Income (Loss) to Cash Flows
Provided by Operating Activities
Depreciation and Amortization 6,601 8,964 9,743
Deferred Income Taxes -- (9,252) (941)
Common Stock Issued in Lieu of Compensation 22 50 --
(Gain) Loss on Retirement and Write-Down of Assets (1,534) 38,113 6,999
Change in Net Current Liabilities (2,153) 9,837 (2,529)
- -------------------------------------------------------------------------------------------------------------------
Cash Provided by Operating Activities 3,507 16,594 7,849
- -------------------------------------------------------------------------------------------------------------------
Cash Flows from Investing Activities:
Expenditures for Property and Equipment (10,225) (5,926) (11,481)
(Increases) Reductions in Other Assets and Goodwill (67) 510 865
Net Proceeds from Disposition of Assets 4,058 3,968 1,596
Payments Received on Notes Receivable -- 17,070 659
- -------------------------------------------------------------------------------------------------------------------
Cash Provided by (Used in) Investing Activities (6,234) 15,622 (8,361)
- -------------------------------------------------------------------------------------------------------------------
Cash Flows from Financing Activities:
Principal Payments on Long-Term Obligations under Capital Leases (818) (780) (534)
Net Borrowings (Payments) under Revolving Credit Agreement 3,450 (19,200) 3,926
Payments of Long-Term Debt -- (31,000) (3,000)
Proceeds from Issuance of Common Stock 156 18,765 79
- -------------------------------------------------------------------------------------------------------------------
Cash Provided by (Used in) Financing Activities 2,788 (32,215) 471
- -------------------------------------------------------------------------------------------------------------------
Increase (Decrease) in Cash 61 1 (41)
Cash, Beginning of Year 205 204 245
- -------------------------------------------------------------------------------------------------------------------
Cash, End of Year $ 266 $ 205 $ 204
===================================================================================================================
The Change in Net Current Liabilities is Comprised of the Following:
Decrease (Increase) in Accounts Receivable $ 156 $ 1,558 $ (263)
Decrease (Increase) in Refundable Income Taxes 537 1,315 (1,852)
Decrease in Inventories 336 602 53
Decrease in Prepaid Expenses and Other Current Assets 123 453 280
Increase (Decrease) in Accounts Payable (183) 1,652 (937)
Increase (Decrease) in Accrued Liabilities (3,122) 4,257 190
- -------------------------------------------------------------------------------------------------------------------
Change in Net Current Liabilities $ (2,153) $ 9,837 $ (2,529)
===================================================================================================================
Supplemental Cash Flow Disclosure:
Cash Paid During the Year For:
Interest (Net of Amount Capitalized) $ 735 $ 4,044 $ 5,037
Income Taxes (Net of Refunds) $ (205) $ (2,269) $ 786
Non-Cash Investing and Financing Activities:
Notes Received from Sale of 75% of Islands Operations -- -- $ 23,000
Capitalized Lease Obligations Incurred for Property -- $ 271 $ 2,532
Additions and Acquisitions
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
14
<PAGE>
CHART HOUSE ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 28, 1998
[1] Nature of Operations and Summary of Significant Accounting Policies
BASIS OF PRESENTATION
The accompanying consolidated financial statements include the accounts of Chart
House Enterprises, Inc. and its subsidiaries, all of which are wholly owned
(hereinafter referred to as the "Company"). All significant intercompany
balances and transactions have been eliminated in consolidation.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
In 1996, the Company switched from a calendar-based fiscal year to a 52/53-
week fiscal year. This reporting method is used by many companies in the
restaurant and retail industries and is meant to improve future year-to-year
comparisons of operating results. The new fiscal year consists of four equal 13-
week quarterly periods ending on the Monday nearest to the calendar quarter end.
Certain prior year balances have been reclassified to conform to the 1998
presentation.
NATURE OF OPERATIONS
The Company is engaged primarily in the restaurant business. At December 28,
1998, the Company operated 57 Chart House restaurants and one Peohe's
restaurant. The Company operates restaurants in 21 states and the U.S. Virgin
Islands, with a concentration of operations on the east and west coasts.
The Weehawken, New Jersey restaurant is closed due to a fire in May 1998.
Construction of a new restaurant in Weehawken is scheduled to begin in 1999.
Management anticipates reopening the restaurant in the fourth quarter of 1999.
The Company previously operated the Solana Beach Baking Company, a wholesale
bakery, through October 1998. The Company sold this operation in October 1998.
Revenues were $5.2 million and $5.8 million in 1998 and 1997, respectively.
INVENTORIES
Inventories are priced at the lower of cost (first-in, first-out) or market, and
consist of the following (in thousands)
<TABLE>
<CAPTION>
12/28/98 12/29/97
- -------------------------------------------------------------------
<S> <C> <C>
Food and Non-Alcoholic Beverages $ 917 $ 1,227
Alcoholic Beverages 1,197 1,264
Operating Supplies 174 133
- -------------------------------------------------------------------
$ 2,288 $ 2,624
========= =========
</TABLE>
PROPERTY AND EQUIPMENT AND LEASED PROPERTY
Depreciation and amortization are recorded for financial reporting purposes
using the straight-line method over the estimated useful lives of the assets.
Leasehold interests and improvements and leased property are amortized over the
shorter of the lease term or the asset life. The average estimated depreciable
lives for financial reporting purposes are 30 years for buildings, 22 years for
leasehold interests and improvements and leased property, and 7 years for
equipment.
Maintenance, repairs and minor purchases are expensed as incurred. Major
purchases of equipment and facilities, and major replacements and improvements
are capitalized. When assets are sold or otherwise disposed of, the cost and
related accumulated depreciation and amortization are removed from the accounts
and the resulting gains or losses are reflected in the accompanying consolidated
statements of operations.
OTHER ASSETS AND GOODWILL
Other assets and goodwill include costs of liquor licenses of $397,000 and
$931,000 at December 28, 1998 and December 29, 1997, respectively. In accordance
with the guidelines of Financial Accounting Standards Board Statement No.
121,"Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of," ("SFAS No. 121") the historical costs of liquor
licenses acquired have been written down to a net realizable value. The carrying
values of liquor licenses are not being amortized. A substantial number of
licenses are transferable and were issued in California, which has a very
restricted market for new licenses. For this reason, management believes the
licenses, which have indefinite legal lives, will retain their value. The
Company evaluates liquor licenses for impairment on an ongoing basis.
Goodwill was $7,539,000 and $7,819,000 at December 28, 1998 and December 29,
1997, respectively, net accumulated amortization of $3,641,000 and $3,361,000,
respectively. The goodwill is being amortized using the straight-line method
over 40 years. The Company evaluates goodwill for impairment on an ongoing basis
(see Note 2).
LONG-LIVED ASSETS
On a regular basis, the Company evaluates and assesses its assets and properties
for impairment under the guidelines of SFAS No. 121, and makes appropriate
adjustments when an asset is deemed to be impaired (see Note 2). In performing
this analysis, the Company generally groups assets by individual location or
restaurant property. Future estimated cash flows to be generated as a result of
operating the particular restaurant, generally over specified lease terms or
useful lives, are compared against the carrying value of the related assets.
15
<PAGE>
FEES AND ROYALTIES
The Company previously operated a Chart House restaurant in Weehawken, New
Jersey under a management agreement with the owner of the property that provided
the Company with a management fee of 7% of sales of the restaurant. In May 1998,
the restaurant was completely destroyed by a fire. The Company is covered by a
business interruption insurance policy. Therefore, this has not had an impact on
1998 operating results. Proceeds received in 1998 for business interruption
insurance were approximately $388,000. Management fees related to this operation
were $586,000 in 1998, $557,000 in 1997, and $502,000 in 1996.
INTEREST COSTS
Interest costs incurred during the construction period for new restaurants are
capitalized. Property additions for the Company include capitalized interest of
$76,000 for fiscal year 1996.
ADVERTISING
The Company records advertising expense as incurred. Advertising expense was
$147,000, $669,000, and $785,000 in fiscal years 1998, 1997, and 1996,
respectively.
NET INCOME (LOSS) PER COMMON SHARE
Earnings per share calculations are based on the weighted average number of
common shares and common stock equivalents (stock options) outstanding during
the period. Common stock equivalents are anti-dilutive, by definition, in
periods reporting losses and therefore excluded from the weighted average number
of shares calculation. Anti-dilutive securities are excluded from calculations
of any income per share. Diluted earnings per share equals basic earnings per
share for all periods presented. The incremental effect of dilutive securities
on weighted average shares outstanding used to compute diluted earnings per
share was not material at December 28, 1998 or December 29, 1997.
[2] Restructuring & Special Charges
During 1996 and 1997 the Company incurred significant restructuring charges in
connection with the Company's strategy to, among other things, revitalize its
core Chart House restaurants, dispose of non-core assets and selected under-
performing Chart House restaurants, and reorganize senior management. There were
no restructuring charges in 1998.
In 1997, the charges of $43.4 million, as presented in the accompanying
consolidated statement of operations, included:
Write-down of assets to be disposed of $21.2 million
Write-down of assets to be used in
continuing operations $16.8 million
Severance and other relocation costs $ 5.4 million
In 1996, the charges of $7.8 million, as presented in the accompanying
consolidated statement of operations, included:
Write-down of assets to be disposed of $ 6.4 million
Severance and other special
compensation costs $ 1.4 million
All six of the restaurants and properties written down in 1995 and 1996 have
been disposed of through December 28, 1998. Of the five restaurants identified
for disposal as part of the 1997 restructuring actions, three have been disposed
of and two remain open at December 28, 1998. The Solana Beach Baking Company,
wholly owned by the Company and held for disposal at December 29, 1997, was sold
in October 1998.
Management is uncertain as to the timing of or ability to dispose of the two
restaurants identified for disposal as part of the 1997 restructuring actions.
In accordance with criteria for determining assets held for disposal under SFAS
No. 121, the Company no longer defines these restaurant assets as "held for
disposal."
Included in property and equipment in the accompanying balance sheets are
restaurant assets held for disposal of approximately $2.4 million at December
29, 1997 and $696,000 at December 30, 1996. The amount of write-down and
resulting carrying value of the respective assets, and other assets held for
disposal, at December 29, 1997 and December 30, 1996 include management's best
estimates of the amounts to be realized on the disposition of the assets.
In 1998, amounts paid and charged against the liability for severance and
other special costs totaled $3,568,000. At December 28, 1998 and December 29,
1997, the balance of the liability (included in accrued liabilities) was
$519,000 and $4,087,000, respectively. The Company anticipates that the
remaining liability will be exhausted during 1999.
16
<PAGE>
[3] Acquisitions and Dispositions
In May 1996, the Company completed the sale of a 75% interest in its Islands
restaurants operations to two affiliated partnerships of Islands Restaurants,
L.P., the owner/ licensor of the Islands concept, for a total sale price of $23
million in secured notes ($20 million from Islands CA/AZ Holdings, L.P., and $3
million from Islands Florida LP), with interest at 9% annually. The Company had
a 25% interest as a limited partner in each of the partnerships, which entitled
it to periodic distributions based on available cash flows, as provided in the
partnership agreements.
In November 1996, one of the partnerships, Islands Florida LP, consummated the
sale of six Islands restaurant properties to an unrelated third party. In
connection with this transaction, the Company recorded a special charge of $4.2
million to write down to net realizable value its note receivable from, and
investment in, Islands Florida LP.
In July 1997, the Company's Board of Directors decided to dispose of the
remaining investment in Islands. In December 1997, the Company and Islands CA/AZ
Holdings, L.P. completed a restructuring of the Company's note receivable from
the partnership and purchase of the Company's 25% limited partner interest,
generating net cash proceeds to the Company of approximately $17.1 million. In
connection with the transaction, the Company agreed to guarantee through January
2004 an amount of $4.0 million of note obligations to the Islands partnership's
new lender. The accompanying consolidated statement of operations for the year
ended December 29, 1997 includes approximately $5.7 million of charges related
to this transaction (see Note 2).
In October 1998, the Company sold all of the assets of the Solana Beach Baking
Company to an unrelated third party. The total sale price was $865,000 and was
received in cash. The Company recognized a net gain on the sale of $388,000,
which is included in the accompanying consolidated statement of operations.
In November 1998, the Company sold an investment in capital stock of a non-
public company to an unrelated third party. The total sale price was $1,349,000
and was received in cash. The Company recognized a net gain on the sale of
$1,080,000, which is included in the accompanying consolidated statement of
operations.
[4] Notes Receivable
At December 29, 1997, the Company held $446,000 in notes receivable from the
buyer of Paradise Bakery, Inc. The amount is included in other assets and
goodwill in the accompanying consolidated balance sheet net of a reserve of
$446,000 at December 29, 1997.
[5] Income Taxes
<TABLE>
<CAPTION>
The benefit for income taxes consists of the following components (in thousands): Fiscal Years Ended
1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current $(2,762) $ (537) $ (1,852)
Deferred 2,762 (9,102) (941)
- ---------------------------------------------------------------------------------------------------------------------------------
Benefit for Income Taxes $ -- $ (9,639) $ (2,793)
======= ========= =========
</TABLE>
<TABLE>
<CAPTION>
The components of deferred income tax asset are as follows (in thousands): 12/28/98 12/29/97
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Excess of Tax Depreciation Over Book Depreciation $ 6,653 $ 6,696
Compensation and Other Benefits Not Deducted Until Paid (383) (1,564)
State Income Taxes 34 50
Excess of Book Expense over Tax Expense Related to Restructuring Charges (1,572) (2,785)
Excess of Book Expense over Tax Expense Related to Fixed Asset Write-Downs (7,922) (9,737)
Excess of Book Expense over Tax Expense Related to Capitalized Leases (426) (398)
Deferred Tax Credits, including Targeted Jobs and FICA Credit Carry Forwards (2,225) (718)
Net Operating Loss (2,753) --
Other Deferred Costs (715) (598)
- ---------------------------------------------------------------------------------------------------------------------------------
(9,309) (9,054)
Deferred Tax Benefit Valuation Allowance 3,945 3,379
- ---------------------------------------------------------------------------------------------------------------------------------
Deferred Income Tax Asset $ (5,364) $ (5,675)
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
The benefit for income taxes reconciles to the amounts computed by applying the
Federal statutory rate to income before tax as follows (in thousands): FISCAL YEARS ENDED
1998 1997 1996
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Statutory Federal Income Tax Provision (Benefit) $ 194 $ (13,858) $ (2,793)
Amortization of Goodwill 95 1,536 103
State Income Taxes, Net of Federal Benefit 113 (716) (156)
Deferred Tax Benefits Valuation Allowance 566 3,379 --
FICA Tax Credit, net (995) -- --
Other (Meals and Entertainment) 27 20 53
-------------------------------------------------------------------------------------------------------------------------------
Benefit for Income Taxes $ -- $ (9,639) $ (2,793)
========= ============= =============
</TABLE>
(6) LONG-TERM DEBT
Long-term debt of the Company is as follows (in thousands):
Notes payable to banks under 12/28/98 12/29/97
Revolving Credit Agreement, $ 3,450 $ --
interest payable quarterly at ========= =========
the bank's base rate (7.75% at
December 28, 1998)
In December 1998, the Company amended its credit facility with its
banks. The amendment provides for a commitment of $20.0 million at one bank
with interest at the bank's base rate or LIBOR plus a maximum 2.0%. The
Company is required to pay a facility fee of .25% per annum on the total
commitment. The Company must also maintain certain specified financial
ratios among other restrictions. All of the Company's assets are pledged as
security to the banks in accordance with the terms of the agreement. The
carrying value of long-term debt as of December 28, 1998 approximates fair
value.
(7) LEASES
The Company is committed under long-term lease agreements primarily
involving land and restaurant buildings, improvements and equipment which
expire on various dates through 2031. Also, a substantial number of leases
contain renewal options ranging from five to fifty years. Certain of the
leases require the payment of an additional amount by which a percentage of
annual sales exceeds annual minimum rentals. The total amount of such
contingent rentals for the fiscal years 1998, 1997 and 1996 amounted to
$2,147,000, $2,251,000 and $2,254,000, respectively.
CAPITAL LEASES
At December 28, 1998, minimum lease payments under long-term capital leases
were as follows (in thousands):
<TABLE>
<CAPTION>
FISCAL YEARS ENDED
<S> <C>
1999 1,230
2000 1,161
2001 1,220
2002 584
2003 520
Thereafter 5,405
------------------------------------------------------
Total Minimum Lease Payments 10,120
Less: Amount Representing Interest 4,376
------------------------------------------------------
Total Obligations under Capital Leases 5,744
Less: Current Portion 724
------------------------------------------------------
Long-Term Obligations under Capital Leases,
with an Average Interest Rate of 9% $ 5,020
=======
</TABLE>
Amortization of leased property under capital leases and interest expense
on the outstanding obligations under such leases were as follows (in
thousands):
<TABLE>
<CAPTION>
FISCAL YEARS ENDED 1998 1997 1996
<S> <C> <C> <C>
Amortization $ 898 $ 917 $ 630
Interest Expense $ 572 $ 623 $ 572
===== ===== =====
</TABLE>
OPERATING LEASES
The Company is committed under long-term operating leases (primarily for
restaurant land) to make minimum rental payments as follows (in thousands):
<TABLE>
<CAPTION>
FISCAL YEARS ENDED
<S> <C>
1999 $ 3,705
2000 3,665
2001 3,442
2002 3,109
2003 2,697
Thereafter 17,166
------------------------------
$33,784
=======
</TABLE>
Minimum rental expense for all operating leases, excluding contingent rent,
for the fiscal years 1998, 1997 and 1996 was $3,468,000, $4,140,000 and
$4,571,000, respectively.
18
<PAGE>
(8) EMPLOYEE BENEFIT PLANS
The Company's 401(k) Plan allows qualified employees to contribute through
payroll deductions from 1% to 10% of gross pay. The Company makes basic
matching contributions to the plan equal to 25% of the first 5% of the
employee's contribution, not to exceed $1,250 per employee per year. In
addition, the Company will make a supplemental 25% matching contribution on
the first 5% of the employees contribution, not to exceed $1,250 per
employee, per year, on a quarterly basis if targeted financial results are
achieved. Company matching contributions and administrative costs
associated with the plan were $454,000, $325,000 and $295,000 for the
fiscal years 1998, 1997 and 1996, respectively.
The Company's Executive Benefit and Wealth Accumulation Plan allows
qualified key executives to defer compensation of at least $5,000 per year
and to obtain supplemental survivor and disability benefits.
(9) STOCK OPTION PLANS
In July 1989, the Board of Directors adopted, and the stockholders of the
Company approved, the 1989 Non-Qualified Stock Option Plan (the "1989
Plan"), which authorized the grant of non-qualified stock options to
purchase up to 250,000 shares of the Company's common stock. Under the 1989
Plan, options to purchase 250,000 shares were granted in 1989 to certain
senior management and other employees at a fair market value exercise price
of $13.50 per share. The options vested at a rate of 25% per year over four
years and expire ten years from the date of grant. In December 1991, the
Board of Directors approved an exchange program giving option holders under
the 1989 Plan an opportunity to surrender their existing options in
exchange for the reissuance of a new option with an exercise price of $8.50
that covers one-half the number of shares covered by the existing option.
The exchange also required the four-year vesting schedule to start over.
Options covering a total of 7,250 shares were reissued in connection with
this program. In September 1995, the Board of Directors approved an
additional exchange program giving all option holders, excluding executive
officers, the opportunity to surrender their existing $13.50 options and
$8.50 options for the reissuance of new options with an exercise price of
$6.25 that cover one-half the number of shares covered by the existing
$13.50 options and four-fifths the number of shares covered by the existing
$8.50 options. The exchange required a new two-year vesting period to
start. In 1998, the Board of Directors approved an adjustment disallowing
future grants under the 1989 Plan.
In February 1992, the Board of Directors adopted, and stockholders later
approved, the 1992 Stock Option Plan (the "1992 Plan"), which authorized
the grant of options to purchase up to 310,000 shares of the Company's
common stock. The options under the 1992 Plan were awarded as non-qualified
stock options at an exercise price equal to the fair market value of the
common stock at the date of grant. Through September 1995, management and
other employees were granted stock options to purchase an aggregate of
377,000 shares of common stock (which included option grants for shares
totaling 70,500 related to previously granted and forfeited options). The
options vest at a rate of 20% per year over five years, and expire ten
years from the date of grant. In 1998, the Board of Directors approved an
adjustment disallowing future grants under the 1992 Plan.
In May 1996, the Board of Directors adopted, and the stockholders of the
Company approved, the 1996 Stock Option Plan (the "1996 Plan"), which
authorized the grant of non-qualified stock options to employees to
purchase up to 1,000,000 shares of the Company's common stock. Options were
granted in 1996, 1997, and 1998 to employees at exercise prices ranging
from $4.25 to $8.63 per share, the fair market value at the date of grant.
The options granted generally vest at a rate of 20% per year over five
years, and expire ten years from the date of grant. There are 384,090
options available for future grant under the 1996 Plan as of December 28,
1998.
In May 1998, options to purchase a total of 10,000 shares of common
stock were granted to directors following the Company's annual meeting of
shareholders under the 1996 Nonemployee Director Stock Compensation Plan
(see Note 10). There were 12,500 options granted in 1997 and no options
granted in 1996.
In addition to options granted under the plans described above, an
option to purchase 20,000 shares of common stock was granted to an officer
in April 1988 at a price of $2.31 per share. The option vested over a five-
year period and would have expired ten years from the date of grant. In
August 1997, this officer exercised the remaining 10,000 shares outstanding
and exercisable. An option to purchase 100,000 shares was granted in May
1997 to a director of the Company at an exercise price of $6.75 per share,
the fair market value at date of grant. This option grant, which is not
covered under the Company's option plans, was subsequently approved at the
annual stockholders' meeting in May 1998, and expires ten years from date
of grant. An option to purchase 160,000 shares of common stock was granted
to an officer in March 1998 at a price of $7.00, the fair market value on
the date of grant. This option grant, which is not covered under
the Company's option plans, was subsequently approved at the annual
stockholders' meeting in May 1998, and expires ten years from date of
grant.
There have been no charges to operations with respect to options granted
in the 1998, 1997 and 1996 fiscal years.
19
<PAGE>
The following table summarizes stock option transactions for the fiscal years
1996, 1997 and 1998:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
ISO PLAN/ TOTAL OPTION PRICE
OTHER 1989 PLAN 1992 PLAN 1996 PLAN SHARES PER SHARES
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding, December 31, 1995 56,390 137,300 287,500 -- 481,190 $9.43
Granted -- -- -- 434,000 434,000 $6.40
Exercised (46,390) -- -- -- (46,390) $1.70
Forfeited -- (34,250) (91,500) (110,500) (236,250) $8.00
- ----------------------------------------------------------------------------------------------------------------------------------
Outstanding, December 30, 1996 10,000 103,050 196,000 323,500 632,550 $7.84
Granted 512,500 -- -- 451,500 964,000 $7.52
Exercised (10,000) (1,250) (32,000) (13,800) (57,050) $5.68
Forfeited (400,000) (64,800) (89,400) (355,100) (909,300) $7.90
- ----------------------------------------------------------------------------------------------------------------------------------
Outstanding, December 29, 1997 112,500 37,000 74,600 406,100 630,200 $7.46
Granted 170,000 -- -- 491,000 661,000 $6.80
Exercised -- (3,500) (19,900) (1,630) (25,030) $6.21
Forfeited -- (18,050) (29,200) (294,990) (342,240) $7.81
- ----------------------------------------------------------------------------------------------------------------------------------
Outstanding, December 28, 1998 282,500 15,450 25,500 600,480 923,930 $6.83
Exercisable at December 28, 1998 106,250 15,450 20,000 40,510 182,210 $7.03
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The following table summarizes information concerning outstanding and
exercisable stock options as of December 28, 1998:
<TABLE>
<CAPTION>
WEIGHTED
RANGE OF SHARES COVERED BY OPTIONS WEIGHTED AVERAGE PRICE AVERAGE
EXERCISE PRICES OUTSTANDING EXERCISABLE OUTSTANDING EXERCISABLE REMAINING LIFE
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$4.25-$5.88 203,910 15,860 $ 5.36 $ 5.58 9.26
$6.25-$8.63 707,020 155,550 $ 7.15 $ 6.78 8.86
$12.25-$12.88 13,000 10,800 $ 12.78 $12.76 4.83
- -------------------------------------------------------------------------------------------------------------------------
Total 923,930 182,210 $ 6.83 $ 7.03 8.89
======== ======== ======= ====== ======
</TABLE>
The Company applies Accounting Principles Board Opinion No. 25 ("Accounting
for Stock Issued to Employees"), and related interpretations in accounting for
its employee stock option plans and, accordingly, does not recognize
compensation expense. Had the Company elected to recognize compensation expense
based on the fair value at the grant date for options granted under the plans
consistent with the methodology prescribed under Statement of Financial
Accounting Standards No. 123, ("Accounting for Stock-Based Compensation"), the
Company's net income (loss) and per share amounts would reflect the following
pro forma amounts (in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Net Income (Loss)
As Reported $ 571 $(31,118) $(5,423)
Pro Forma 209 (31,406) (5,570)
Net Income (Loss) Per
Common Share:
As Reported .05 (2.91) (.66)
Pro Forma .02 (2.94) (.67)
Weighted average fair $ 2.93 $ 3.36 $ 2.82
value of options granted
Expected stock price 47% 46% 46%
volatility
Risk-free interest rates 4.8% 5.8% 6.7%
Expected lives 4.0 years 4.9 years 4.3 years
Dividend yield 0.0% 0.0% 0.0%
</TABLE>
20
<PAGE>
The Company has options outstanding from the 1989 and 1992 Plans that have
not been included in the above pro forma amounts. Therefore, these amounts may
not be representative of the impact on net income and earnings per share in
future years.
[10] STOCKHOLDERS' EQUITY
The Company's preferred stock may be issued in one or more series and the Board
of Directors may fix the designation, powers, preferences, rights,
qualifications, limitations and restrictions of each class or series so
authorized.
In May 1996, the Board of Directors' adopted, and stockholders of the
Company approved, the 1996 Non-employee Director Stock Compensation Plan. The
plan provides the right for each nonemployee director, at his or her election,
to receive the Company's common stock and stock options in lieu of receipt of
compensation in the form of cash and the automatic grant to each participating
director of an option to purchase 2,500 shares of common stock as of the date of
each annual meeting of shareholders. There are a total of 50,000 shares
reserved for issuance under the plan. A total of 10,122 and 7,846 shares of
common stock were issued to directors under this plan in 1998 and 1997,
respectively. No shares were issued in the 1996 fiscal year.
In March 1997, the Company agreed to sell 3,400,000 newly-issued shares of
common stock in a private placement to an investment company at $5.75 per share
for a total sale price of $19.5 million. The initial sale of 1,641,750 shares
for $9.4 million was completed in March 1997. The additional 1,758,250 shares
were sold for $10.1 million following shareholder approval at the annual meeting
held in May 1997. Transaction costs applied against the proceeds were
approximately $1.1 million. The Company used the net proceeds from the
transaction to repay $12.0 million of scheduled principal installments under two
senior secured notes, with the remainder of the net proceeds from the sale
applied to reduce outstanding borrowings under the bank credit agreement.
[11] SUPPLEMENTARY FINANCIAL STATEMENT INFORMATION
Accrued liabilities consist of the following (in thousands):
12/28/98 12/29/97
- ---------------------------------------------------------------------
Rent $ 690 $ 681
Sales Tax 684 767
Payroll and Payroll Taxes 1,405 1,652
Insurance 1,502 2,017
Interest 38 89
Unredeemed Gift Certificates 3,343 3,232
Severance and Termination Benefits 519 4,087
Aloha Club 923 954
Compensated Absences 743 683
Taxes & Licenses 395 245
Claims 367 --
Bank Drafts Outstanding 2,193 363
Other 1,488 2,953
- ---------------------------------------------------------------------
$ 14,290 $ 17,723
======== ========
[12] RELATED PARTY TRANSACTIONS
Related party transactions during 1998 with EGI Risk Services, Inc., EGI
Corporate investments, Equity Group Investments, Inc., Lettuce Entertain You
Enterprises, Inc., and Rosenburg & Liebentritt, P.C. totaled approximately
$2,103,000.
[13] COMMITMENTS & CONTINGENCIES
COMMITMENTS
At December 28, 1998, the Company had no material purchase commitments relating
to buildings and equipment.
LITIGATION AND OTHER CONTINGENCIES
The Company periodically is a defendant in cases incidental to its business
activities. While any litigation or investigation has an element of
uncertainty, the Company believes that the outcome of any of these matters will
not have a materially adverse effect on its financial condition or operations.
The Company maintains letters of credit primarily to cover insurance
reserves. At December 28, 1998, outstanding letters of credit amounted to
$1,527,000.
The Company has guaranteed certain bank debt obligations of third parties
with a maximum potential liability totaling $5,035,000 as of December 28, 1998.
The Company is contingently liable, in certain circumstances, for certain
lease obligations of the Islands restaurants sold in 1996.
21
<PAGE>
[14] SUMMARY OF UNAUDITED QUARTERLY FINANCIAL INFORMATION
The following is a summary of the unaudited quarterly results of operations
for 1998 and 1997 (in thousands, except per share data):
<TABLE>
<CAPTION>
1998 QUARTER ENDED
- -----------------------------------------------------------------------------------------------------------------
MARCH 30 JUNE 29 SEPT 28 DEC 28
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $ 37,152 $ 38,522 $ 37,018 $ 32,496
Costs and Expenses:
Cost of Sales 11,957 12,172 12,336 10,923
Restaurant Labor 10,022 10,782 11,051 10,223
Other Operating Costs 8,428 9,358 8,708 8,461
Selling, General and Administrative Expenses 3,586 3,851 3,655 3,261
Depreciation and Amortization 1,823 1,821 1,717 1,240
Gains on Sales of Assets - - - (1,534)
Interest Expense 211 179 193 207
Interest Income - (1) (13) -
- -----------------------------------------------------------------------------------------------------------------
Total Costs and Expenses 36,027 38,162 37,647 32,781
- -----------------------------------------------------------------------------------------------------------------
Income/(Loss) Before Income Taxes 1,125 360 (629) (285)
Provision (Benefit) for Income Taxes 349 112 (153) (308)
- -----------------------------------------------------------------------------------------------------------------
Net Income/(Loss) $ 776 $ 248 $ (476) $ 23
- -----------------------------------------------------------------------------------------------------------------
Net Income/(Loss) Per Share $ .07 $ .02 $ (.04) $ -
- -----------------------------------------------------------------------------------------------------------------
Weighted Average Shares Outstanding 11,734 11,730 11,752 11,763
======== ======== ========= ========
</TABLE>
<TABLE>
<CAPTION>
1997 QUARTER ENDED
- -----------------------------------------------------------------------------------------------------------------------------
MARCH 31 JUNE 30 SEPT 29 DEC 29
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $ 38,347 $ 39,344 $ 39,273 $ 34,238
Costs and Expenses:
Cost of Sales 11,828 11,859 12,217 11,028
Restaurant Labor 10,333 10,805 10,851 10,067
Other Operating Costs 9,106 9,520 9,351 8,312
Selling, General and Administrative Expenses 3,029 3,062 3,784 3,004
Depreciation and Amortization 2,384 2,366 2,378 1,836
Write-Down of Assets & Restructuring & Unusual Charges (Credits) -- 933 43,241 (800)
Interest Expense 1,181 971 586 554
Interest Income (491) (498) (450) (388)
- -----------------------------------------------------------------------------------------------------------------------------
Total Costs and Expenses 37,370 39,018 81,958 33,613
- -----------------------------------------------------------------------------------------------------------------------------
Income/(Loss) Before Income Taxes 977 326 (42,685) 625
Provision (Benefit) for Income Taxes 303 101 (10,193) 150
- -----------------------------------------------------------------------------------------------------------------------------
Net Income/(Loss) $ 674 $ 225 $(32,492) $ 475
- -----------------------------------------------------------------------------------------------------------------------------
Net Income/(Loss) Per Share $ .08 $ .02 $ (2.78) $ .04
- -----------------------------------------------------------------------------------------------------------------------------
Weighted Average Shares Outstanding 8,647 10,723 11,696 11,744
======== ======== ======== ========
</TABLE>
22
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of Chart House Enterprises, Inc.:
We have audited the accompanying consolidated balance sheets of Chart House
Enterprises, Inc. (a Delaware corporation) and subsidiaries as of December 28,
1998 and December 29, 1997, and the related consolidated statements of
operations, stockholders' equity and cash flows for each of the three fiscal
years in the period ended December 28, 1998. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Chart House Enterprises, Inc.
and subsidiaries as of December 28, 1998 and December 29, 1997, and the results
of their operations and their cash flows for each of the three fiscal years in
the period ended December 28, 1998 in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
Chicago, Illinois
January 26, 1999
23
<PAGE>
BOARD OF DIRECTORS
Barbara R. Allen
President of Corporate Supplier Solutions, Corporate Express
Linda Walker Bynoe
President and Chief Executive Officer, Telemat Ltd.
William M. Diefenderfer III
Partner, Diefenderfer, Hoover, Boyle & Wood
F. Philip Handy
Private Investor
Stephen Ottmann
President and Chief Operating Officer,
Lettuce Entertain You Enterprises, Inc.
Thomas J. Walters
President and Chief Executive Officer,
Chart House Enterprises, Inc.
Samuel Zell
Chairman of the Board, Equity Group Investments, L.L.C.
INDEPENDENT PUBLIC
ACCOUNTANTS
Arthur Andersen LLP, Chicago, Illinois
TRANSFER AGENT & REGISTRAR
BankBoston, N.A.
c/o EquiServe
P.O. Box 8040
Boston, MA 02266-8040
(781) 575-3120
equiserve.com
ANNUAL MEETING
The Company's annual meeting of stockholders will be held Tuesday, May 18, 1999
at 11:00 a.m. at: One North Franklin Street, Third Floor, Chicago, Illinois
60606
COMPANY OFFICERS
Thomas J. Walters
President and Chief Executive Officer
Nydia I. Casas
Vice President-Purchasing
Peter A. Lucas
Vice President-Operations
Susan Morlock
Vice President-Human Resources
Timothy E. Perreira
Vice President-Concept Development
Mark Running
Vice President-Operations
William M. Sullivan
Vice President-Finance
CORPORATE OFFICES
640 North Lasalle, Suite 295
Chicago, IL 60610
(312) 266-1100
THE COMPANY
Chart House Enterprises, Inc., based in Chicago, Illinois, operates 57 Chart
House restaurants and one Peohe's restaurant, which are full-service dinner
houses located in 21 states and the U.s. Virgin Islands.
COMMON STOCK INFORMATION
The Company's Common Stock is listed on the New York Stock Exchange under the
trading symbol CHT. On March 1, 1999, there were 623 holders of record of the
Company's Common Stock. The Company has not paid any cash dividends on its
Common Stock and does not anticipate paying cash dividends in the foreseeable
future. The following table sets forth the quarterly high and low sales prices
for a share of the Company's Common Stock for the two most recent fiscal years.
1998 HIGH LOW
- ------------------------------------------------------------
FIRST QUARTER 7 3/8 6
SECOND QUARTER 9 3/16 6 11/16
THIRD QUARTER 8 11/16 4 9/16
FOURTH QUARTER 6 1/8 4
1997 HIGH LOW
- ------------------------------------------------------------
FIRST QUARTER 6 1/4 4 7/8
SECOND QUARTER 7 11/16 5 1/4
THIRD QUARTER 9 3/4 7 1/2
FOURTH QUARTER 8 5/16 5 5/8
SEC FORM 10-K REPORT
A copy of the Company's annual report to the Securities and Exchange Commission
on Form 10-K is available without charge to stockholders and may be obtained by
writing to:
Susan Obuchowski
Secretary
Chart House Enterprises, Inc.
640 North LaSalle, Suite 295
Chicago, IL 60610
STOCKHOLDER MAILING LIST
The Company maintains a direct mailing list to ensure that stockholders whose
shares are held in the name of a brokerage firm, bank or other person may
receive corporate reports on a timely basis. If you would like your name added
to this list, please send us your request in writing.
24
<PAGE>
CHART HOUSE ENTERPRISES, INC. Exhibit 21
SUBSIDIARIES AS OF DECEMBER 28, 1998
Name State of Incorporation Trade Name
- ---- ---------------------- ----------
Chart House, Inc. Delaware Chart House, Peohe's
Big Wave, Inc. Delaware
(formerly known as
Islands Restaurants, Inc.)
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
-----------------------------------------
As independent public accountants, we hereby consent to the incorporation of our
report dated January 26, 1999 incorporated by reference in this Form 10-K, into
Chart House Enterprises, Inc.'s previously filed Registration Statements File
No. 33-16795 and File No. 33-30089.
/s/ Arthur Anderson LLP
Chicago, Illinois
March 17, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-28-1998
<PERIOD-START> DEC-30-1997
<PERIOD-END> DEC-28-1998
<CASH> 266
<SECURITIES> 0
<RECEIVABLES> 3,093
<ALLOWANCES> 0
<INVENTORY> 2,288
<CURRENT-ASSETS> 6,638
<PP&E> 109,097
<DEPRECIATION> 44,659
<TOTAL-ASSETS> 88,010
<CURRENT-LIABILITIES> 19,786
<BONDS> 0
0
0
<COMMON> 118
<OTHER-SE> 59,636
<TOTAL-LIABILITY-AND-EQUITY> 88,010
<SALES> 145,188
<TOTAL-REVENUES> 145,188
<CGS> 47,388
<TOTAL-COSTS> 89,466
<OTHER-EXPENSES> 34,955
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 790
<INCOME-PRETAX> 571
<INCOME-TAX> 0
<INCOME-CONTINUING> 571
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 571
<EPS-PRIMARY> .05
<EPS-DILUTED> .05
</TABLE>
