UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 For the quarterly period ended June 29, 1997
or [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the transition period from to
Commission File Number: 0-19542
APPLE SOUTH, INC.
(Exact name of registrant as specified in its charter)
Georgia 59-2778983
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Hancock at Washington, Madison, GA 30650
(Address of principal executive offices) (Zip Code)
706-342-4552
(Registrant's telephone number, including area code)
Indicate by check mark whether the 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.
X Yes No
As of August 13, 1997, there were 38,356,010 shares of common stock of the
Registrant outstanding.
<PAGE>
APPLE SOUTH, INC.
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED JUNE 29, 1997
INDEX
Part I - Financial Information Page
Item 1 - Consolidated Financial Statements:
Consolidated Statements of Earnings.... .....................3
Consolidated Balance Sheets..................................4
Consolidated Statements of Shareholders' Equity..............5
Consolidated Statements of Cash Flows........................6
Notes to Consolidated Financial Statements...................7
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations...............11
Part II - Other Information
Item 4 - Submission of Matters to a Vote of Security Holders.........14
Item 6 - Exhibits and Reports on Form 8-K............................14
Signature ............................................................16
2
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Part 1 - Financial Information
Item 1 - Financial Statements
<TABLE>
Apple South, Inc.
Consolidated Statements of Earnings
(In thousands, except per share data)
(Unaudited)
<CAPTION>
Quarter Ended Six Months Ended
- ------------------------------------------------------------------------------------------------------------------------------------
June 29, June 30, June 29, June 30,
1997 1996 1997 1996
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Restaurant sales:
Applebee's $ 115,890 94,950 227,674 184,527
Don Pablo's 48,456 32,773 88,858 59,868
McCormick & Schmick's 19,708 - 27,032 -
Hops 13,494 - 18,223 -
Harrigan's 4,700 5,503 9,840 11,276
Other 641 3,719 2,715 7,607
- ------------------------------------------------------------------------------------------------------------------------------------
Total restaurant sales 202,889 136,945 374,342 263,278
- ------------------------------------------------------------------------------------------------------------------------------------
Restaurant operating expenses:
Food and beverage 56,406 37,386 104,253 72,118
Payroll and benefits 60,540 39,300 112,878 76,966
Depreciation and amortization 7,785 5,531 14,630 10,826
Other operating expenses 44,599 30,085 84,157 58,706
- ------------------------------------------------------------------------------------------------------------------------------------
Total restaurant operating expenses 169,330 112,302 315,918 218,616
- ------------------------------------------------------------------------------------------------------------------------------------
General and administrative expenses 9,779 6,734 18,393 13,176
Asset revaluation charges - - - 19,800
- ------------------------------------------------------------------------------------------------------------------------------------
Operating income 23,780 17,909 40,031 11,686
- ------------------------------------------------------------------------------------------------------------------------------------
Other income (expense):
Interest expense (4,715) (2,122) (8,642) (4,065)
Distributions on preferred securities (2,013) - (2,388) -
Interest income 12 8 63 65
Other, net (1,140) (543) (1,797) (1,021)
- ------------------------------------------------------------------------------------------------------------------------------------
Total other income (expense) (7,856) (2,657) (12,764) (5,021)
- ------------------------------------------------------------------------------------------------------------------------------------
Earnings before income taxes 15,924 15,252 27,267 6,665
Income taxes 5,700 5,475 9,775 2,375
- ------------------------------------------------------------------------------------------------------------------------------------
Net earnings $ 10,224 9,777 17,492 4,290
====================================================================================================================================
Primary earnings per common share $ 0.27 0.25 0.46 0.11
====================================================================================================================================
Fully diluted earnings per common share $ 0.25 0.25 0.44 0.11
====================================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
3
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<TABLE>
Apple South, Inc.
Consolidated Balance Sheets
(In thousands, except share data)
(Unaudited)
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
June 29, Dec. 29,
1997 1996
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 4,822 3,923
Short-term investments 37 52
Accounts receivable 8,751 4,568
Inventories 8,914 6,364
Prepaid expenses and other 11,237 9,780
- ------------------------------------------------------------------------------------------------------------------------------------
Total current assets 33,761 24,687
Premises and equipment, net 476,301 380,523
Franchise costs, net 5,979 5,880
Goodwill, net 134,258 36,351
Other assets 17,457 10,386
- ------------------------------------------------------------------------------------------------------------------------------------
$ 667,756 457,827
====================================================================================================================================
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $ 18,524 16,688
Accrued liabilities 30,242 22,887
Current installments of long-term debt 198 286
Income taxes 61 320
- ------------------------------------------------------------------------------------------------------------------------------------
Total current liabilities 49,025 40,181
Long-term debt 285,935 215,891
Deferred income taxes 12,126 10,326
Other long-term liabilities 2,088 -
- ------------------------------------------------------------------------------------------------------------------------------------
Total liabilities 349,174 266,398
- ------------------------------------------------------------------------------------------------------------------------------------
Company-obligated mandatorily redeemable preferred securities
of subsidiary Apple South Financing I, holding solely
Apple South, Inc. 7% convertible subordinated debentures
due March 1, 2027 115,000 -
Shareholders' equity:
Preferred stock, $0.01 par value. Authorized 10,000,000 shares;
none issued - -
Common stock, $0.01 par value. Authorized 75,000,000 shares;
40,465,235 issued in 1997 and 39,124,925 issued in 1996 405 391
Additional paid-in capital 145,884 132,976
Retained earnings 87,755 70,981
Treasury stock at cost; 2,135,750 shares in 1997 and 677,508
shares in 1996 (30,462) (12,919)
- ------------------------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 203,582 191,429
- ------------------------------------------------------------------------------------------------------------------------------------
$ 667,756 457,827
====================================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
<TABLE>
Apple South, Inc.
Consolidated Statements of Shareholders' Equity
(In thousands, except per share amounts)
(Unaudited)
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Additional Total
Common Stock Paid-in Retained Treasury Shareholders'
Shares Amount Capital Earnings Stock Equity
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 29, 1996 39,125 $391 $132,976 $70,981 ($12,919) $191,429
Net earnings - - - 7,268 - 7,268
Purchase of common stock - - - - (15,640) (15,640)
Issuance of common stock for acquisitions 1,298 13 16,323 - - 16,336
Common stock issued to ESOP and ESPP 23 - 300 - - 300
Exercise of options 10 - (4,374) - 4,992 618
Tax effect of exercise of options by employees - - 848 - - 848
Cash dividends ($0.008 per share) - - - (313) - (313)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at March 30, 1997 40,456 404 146,073 77,936 (23,567) 200,846
- ------------------------------------------------------------------------------------------------------------------------------------
Net earnings - - - 10,224 - 10,224
Purchase of common stock - - - - (7,355) (7,355)
Common stock issued to ESOP and ESPP 9 1 125 - - 126
Exercise of options - - (343) - 460 117
Tax effect of exercise of options by employees - - 29 - - 29
Cash dividends ($0.01 per share) - - - (405) - (405)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at June 29, 1997 40,465 $405 $145,884 $87,755 ($30,462) $203,582
====================================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
<TABLE>
Apple South, Inc.
Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
<CAPTION>
Six Months Ended
- ------------------------------------------------------------------------------------------------------------------------------------
June 29, June, 30
1997 1996
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 17,492 4,290
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization 16,909 12,660
Deferred income taxes 1,800 (526)
Asset revaluation charges - 17,842
(Increase) decrease in assets:
Accounts receivable (2,820) (143)
Inventories (994) (961)
Prepaid expenses and other (1,011) (1,016)
Increase (decrease) in liabilities:
Accounts payable (4,425) (811)
Accrued liabilities (5,464) (618)
Income taxes (120) 1,587
Other long-term liabilities 185 -
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 21,552 32,304
- ------------------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Capital expenditures (73,186) (51,792)
Acquisition of businesses, net of cash acquired (106,240) -
Proceeds from sale of land and equipment 3,219 429
Decrease in short-term investments 15 323
Additions to franchise costs (479) (510)
Additions to other assets (5,972) (7,925)
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (182,643) (59,475)
- ------------------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Net proceeds from (repayment of) revolving credit agreements 69,500 (81,500)
Proceeds from issuance of preferred securities 115,000 -
Proceeds from issuance of long-term debt 510 125,000
Principal payments on long-term debt (468) (1,545)
Proceeds from issuance of common stock 1,161 2,026
Dividends declared and paid (718) (548)
Purchase of treasury stock (22,995) (18,940)
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 161,990 24,493
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase in cash and cash equivalents during the period 899 (2,678)
Cash and cash equivalents at the beginning of the period 3,923 4,806
- ------------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at the end of the period $ 4,822 2,128
====================================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 29, 1997
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X promulgated by the Securities and Exchange Commission.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for annual financial statement
reporting purposes. However, there has been no material change in the
information disclosed in the consolidated financial statements included in the
Company's Annual Report on Form 10-K for the year ended December 29, 1996,
except as disclosed herein. In the opinion of management, all adjustments,
consisting only of normal recurring accruals, considered necessary for a fair
presentation have been included. Operating results for the six-month period
ended June 29, 1997 are not necessarily indicative of the results that may be
expected for the year ending December 28, 1997.
NOTE 2 - BUSINESS COMBINATIONS
On March 3, 1997, the Company acquired all of the outstanding shares of
McCormick & Schmick Holding Corp. ("McCormick & Schmick's"), an Oregon-based
restaurant company, for $53.3 million, including $50.1 million in cash and
248,139 shares of Apple South, Inc. common stock, plus the assumption of
approximately $15.0 million in debt. McCormick & Schmick's operated 16
full-service upper-end casual seafood restaurants in four states plus
Washington, D.C. at the time of acquisition.
On March 13, 1997, the Company acquired the Hops Grill & Bar restaurant system
("Hops Grill & Bar"), for $29.5 million which included $16.3 million in cash and
1.05 million shares of Apple South, Inc. common stock, plus the assumption of
approximately $28.9 million in debt. The accompanying consolidated financial
statements reflect minority interest equal to the proportionate share of the
subsidiary's net assets not owned by Apple South. The Florida-based company
operated 21 full-service casual dining restaurants in four states at the time of
acquisition.
Both acquisitions were accounted for using the purchase method of accounting.
Accordingly, a portion of the purchase price was allocated to the net assets
acquired based on their estimated fair values. At June 29, 1997, the Company had
not finalized its evaluation of the fair value of tangible and intangible assets
acquired and liabilities assumed. Based on the preliminary estimates, the fair
value of tangible assets acquired and liabilities assumed was $49.4 million and
$22.4 million, respectively. The remaining estimated excess of purchase price
over net assets acquired, $99.7 million, was recorded as goodwill and is being
amortized on a straight-line basis over 40 years. The 40 year amortization
period represents the estimated future periods to be benefited and was
determined to be appropriate based on the absence of any legal or contractual
provisions which would indicate a shorter useful life.
The following pro forma information presents a summary of consolidated results
of operations of the Company and the acquired businesses as if the acquisitions
had occurred as of the beginning of the periods presented, after the impact of
certain adjustments, such as: expensing rather than capitalizing and amortizing
7
<PAGE>
preopening expenses, amortization of goodwill, interest expense on the proceeds
of the Convertible Preferred Securities (see Note 4), elimination of interest on
a portion of the acquisition debt assumed, and the related income tax effects
(amounts in thousands, except per share data):
Six Months Ended
--------------------------
June 29, June 30,
1997 1996
--------- ---------
Total restaurant sales $393,327 $314,051
Net earnings $ 17,260 $ 3,717
Primary earnings per common share $ 0.45 $ 0.09
Fully diluted earnings per common share $ 0.43 $ 0.09
NOTE 3 - SHAREHOLDERS' EQUITY
In 1996, the Board of Directors authorized the purchase of up to two million
shares of the Company's common stock through open market transactions to satisfy
obligations under stock option and employee stock ownership plans. During the
first quarter of 1997, this repurchase program was completed and the Company
announced a separate 750,000 share repurchase program. As of June 29, 1997, the
Company had purchased an aggregate 3.1 million shares of its common stock under
repurchase programs at an average price of $16.99 per share and had completed
its announced repurchase programs.
Cash dividends declared and paid in the quarter ended June 29, 1997 were
$405,000, or $0.01 per share. On July 29, 1997, the Company declared a cash
dividend of $0.01 per share, payable on August 29, 1997 to shareholders of
record on August 15, 1997.
NOTE 4 - CONVERTIBLE PREFERRED SECURITIES
During the first quarter of 1997, Apple South Financing I (the "Trust") issued
2,300,000, $3.50 term convertible securities, Series A (the "Convertible
Preferred Securities"). Apple South Financing I, a statutory business trust, is
a wholly owned, consolidated subsidiary of the Company with its sole asset being
$115 million aggregate principal amount of 7% convertible subordinated
debentures due March 1, 2027 of Apple South Inc. (the "Convertible Debentures").
The Convertible Preferred Securities are convertible at an initial rate of
3.3801 shares of Apple South common stock for each security. The Company has
executed a guarantee with regard to the Convertible Preferred Securities. The
guarantee, when taken together with the Company's obligations under the
Convertible Debentures, the indenture pursuant to which the Convertible
Debentures were issued, and the declaration of trust of Apple South Financing I,
provides a full and unconditional guarantee of amounts due under the Convertible
Preferred Securities.
Proceeds to the Company, after deducting underwriters' fees and other offering
expenses of approximately $3.7 million, were $111.3 million. The proceeds were
used to repay revolving loan advances used for the acquisition of McCormick &
Schmick's and to finance the acquisition of Hops Grill & Bar, including in each
case, retirement of acquired company debt.
8
<PAGE>
NOTE 5 - INCOME TAXES
The Company's effective tax rate for the first six months of 1997 and 1996 was
approximately 36%. The Company's effective tax rate for the full year 1997 is
expected to be 36%, which approximates the effective tax rate on 1996 earnings
before asset revaluation charges.
NOTE 6 - SUPPLEMENTAL CASH FLOW INFORMATION
For the six months ended June 29, 1997 and June 30, 1996, the following
supplements the consolidated statements of cash flows (amounts in thousands):
1997 1996
- --------------------------------------------------------------------------------
Interest paid $ 9,976 3,372
- --------------------------------------------------------------------------------
Distributions paid on preferred securities $ 1,807 -
- --------------------------------------------------------------------------------
Income taxes paid $ 7,310 1,091
- --------------------------------------------------------------------------------
Business acquisitions, net of cash acquired
Fair value of assets acquired, other than cash $ 47,166 -
Liabilities assumed (22,379) -
Merger consideration payable (1,890) -
Stock issued (16,336) -
Purchase price in excess of the net assets acquired 99,679 -
================================================================================
Net cash used for acquisitions $ 106,240 -
================================================================================
NOTE 7 - COMMITMENTS
At June 29, 1997, the Company was obligated under development agreements with
Applebee's International, Inc., the franchisor of Applebee's restaurants, to
open 18 additional Applebee's restaurants by the end of 1997 and a total of 113
by the end of the year 2000.
NOTE 8 - EARNINGS PER SHARE
Primary earnings per common share equals net earnings divided by the weighted
average number of common shares outstanding after giving effect to dilutive
stock options. Fully diluted earnings per common share is computed by giving
effect to dilutive stock options and by adjusting both net earnings and shares
outstanding as if the Convertible Preferred Securities had been converted at the
date of issuance. The number of shares used in the primary earnings per share
computations for the six months ended June 29, 1997 and June 30, 1996 was
38,436,000 and 39,754,000, respectively. The number of shares used in the fully
diluted earnings per share computations for the six months ended June 29, 1997
and June 30, 1996 was 43,061,000 and 39,754,000, respectively.
Statement of Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS
128"), is effective for financial statements issued for periods ending after
December 15, 1997. SFAS 128 requires all entities to provide dual disclosure of
earnings per share, basic and diluted. Basic earnings per share equals net
9
<PAGE>
earnings divided by the weighted average number of common shares outstanding and
does not include the dilutive effect of stock options. Diluted earnings per
share is essentially the same as fully diluted as under APB 15 as discussed
above. The Company has evaluated the impact of this pronouncement for 1997 and
expects a slight increase in basic earnings per share, as compared to primary
earnings per share, and no impact on diluted earnings per share.
NOTE 9 - SUBSEQUENT EVENT
On July 18, 1997, the Company and Dallas-based Canyon Cafes, Inc. completed a
merger transaction which will be accounted for as a purchase business
combination. The purchase price of $36.0 million included $30.8 million in cash
and $5.2 million in Apple South common stock. In addition, the Company paid
approximately $7.5 million in debt owed by Canyon Cafes, Inc.
10
<PAGE>
Item 2.
APPLE SOUTH, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
June 29, 1997
Comparison of Historical Results - Fiscal quarters ended June 29, 1997 and June
30, 1996
Restaurant sales for the second quarter and the six months ended June 29, 1997
increased 48% and 42%, respectively, over the comparable periods of 1996. The
increased sales are primarily attributable to increases in the number of
restaurant operating weeks through both restaurant openings and acquisitions, as
well as increases in average weekly sales over prior year. For the second
quarter and six-month period ended June 29, 1997, operating weeks increased by
20% and 21%, respectively, at Applebee's and 44% and 43%, respectively, at Don
Pablo's as compared to the same periods of the prior year. The increase in
operating weeks is due to 42 Applebee's and 27 Don Pablo's opened since June 30,
1996 and 16 McCormick & Schmick's and 21 Hops Grill & Bar restaurants acquired
during the first quarter of 1997. The sales increases resulting from the opening
of new restaurants and acquisitions were slightly offset by sales related to 15
Tomato Rumba's restaurants closed in March 1996 and six additional locations
closed in July 1996. In addition, two Harrigan's restaurants were closed during
the first quarter of 1997 and, during April of the current year, the Company
completed the sale of its 10-unit Hardee's division and closed one Applebee's
restaurant.
Average weekly sales at base restaurants (those open for a full 12 months at the
beginning of 1997) were approximately 4% higher at Don Pablo's, 3% higher at
Applebee's, and 1% higher at Harrigan's in the second quarter of 1997 as
compared with the same period in 1996. The Company believes that the sales
increases in its Applebee's division are attributable to (i) initiatives begun
in the third quarter of 1996 to enhance guest and employee satisfaction, (ii)
the impact of new management at the division which has conveyed a strong sense
of direction and purpose to the restaurants, and (iii) increased and improved
advertising strategies. Increases in the Don Pablo's division are attributable
to increased concept recognition and awareness in existing markets achieved
through market penetration and increased advertising.
For the second quarter of 1997, restaurant operating expenses as a percent of
sales increased 1.5% to 83.5% as compared with 82.0% for the same period in
1996. The resulting decrease in restaurant operating margins is principally due
to (i) an increase in labor costs at Applebee's related to higher staffing
levels in conjunction with the increased customer focus initiative begun in the
third quarter of 1996, (ii) higher food and beverage costs as a percentage of
sales at Applebee's, attributable to menu mix changes resulting from higher cost
steak promotions in 1997, (iii) an increase in food and beverage costs compared
to the prior year due to a change in sales mix resulting from the newly acquired
divisions which have higher costs, and (iv) increased advertising expenses as a
percent of sales in both the Applebee's and Don Pablo's divisions.
During the first quarter of 1996, the Company recorded an asset revaluation
charge related to the decision to redeploy the assets in its Tomato Rumba's
division and to accelerate its efforts to sell the Hardee's division. The
resulting pre-tax charge of $19.8 million consisted primarily of asset
impairment loss recorded
11
<PAGE>
in accordance with Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to be
Disposed of" and included certain operating losses related to the Tomato Rumba's
division.
Interest expense for the quarter ended June 29, 1997 increased to $4.7 million
compared to $2.1 million for the same quarter of 1996 due to higher average
borrowings as a result of Company expansion and higher average borrowing rates
associated with the May 1996 issuance of $125.0 million of 9.75% senior notes.
In March 1997, the Company issued $115.0 million of 7.0% Convertible Preferred
Securities to finance acquisitions. Expense related to distributions on the
preferred securities was $2.0 million for the quarter ended June 29, 1997.
The Company's effective tax rate for the full year 1997 is expected to be 36%,
which approximates the effective tax rate on 1996 earnings before asset
revaluation charges.
Liquidity and Capital Resources
Substantially all sales are for cash, and accounts payable are generally due in
15 to 45 days. As such, the Company is able to operate with negative working
capital. The increases in inventory, premises and equipment, franchise costs,
and accrued liabilities are primarily attributable to the restaurants opened
during the first half of the year. In addition, the first quarter acquisitions
of McCormick & Schmick's and Hops Grill & Bar also had a significant impact on
balance sheet accounts, resulting in increases to accounts receivable,
inventories, premises and equipment, goodwill, accounts payable and accrued
liabilities. The increase in other assets is principally due to issuance costs
related to the Convertible Preferred Securities and an increase in cash
surrender value of an officer's life insurance policy. Other long-term
liabilities represents primarily interest of minority partners for the portion
of Hops Grill & Bar not owned by the Company. Further increases in current
assets and liabilities are expected with the addition of new restaurants.
Capital expenditures for the first half of 1997 were $73.2 million as compared
to $51.8 million for the same period of 1996. Capital expenditures include
purchases of land for new restaurants, new restaurant construction, and
purchases of new and replacement furniture and equipment. Capital expenditures
are expected to be approximately $125.0 million for the remainder of fiscal
1997, including $50.0 million for the acquisition and expansion of Canyon Cafes,
Inc., and $225.0 million in 1998, of which $70.0 million is expected to be
financed through a master equipment lease.
At June 29, 1997, the Company was obligated, under development agreements with
Applebee's International, Inc., the franchisor of Applebee's restaurants, to
open 113 additional Applebee's restaurants by the end of the year 2000,
including a total of 34 required to be opened during 1997. As of June 29, 1997,
the Applebee's division had opened 16 new restaurants, and expects to open 18
additional restaurants by the end of the year.
The Company has available unsecured revolving bank credit agreements totaling
$190.0 million with interest payable at a margin above LIBOR or at prime. At
June 29, 1997, approximately $159.0 million was outstanding under the revolving
bank credit agreements. The Company expects to complete the expansion of these
facilities to $235.0 million during the third quarter of 1997. Management
believes that cash flow
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from operations and remaining borrowings available under the existing credit
facilities, as expanded, will provide funding sufficient to enable the Company
to carry out current expansion plans through the first quarter of 1998. The
Company believes that additional credit sources are available on acceptable
terms to carry out its expansion plans through 1998 and maintain a capital
structure with a debt to capital ratio in its target range of 40% to 60%.
New Accounting Pronouncement
Statement of Financial Accounting Standards No. 128, "Earnings Per Share"("SFAS
128"), is effective for financial statements issued for periods ending after
December 15, 1997. SFAS 128 requires all entities to provide dual disclosure of
earnings per share, basic and diluted. Basic earnings per share equals net
earnings divided by the weighted average number of common shares outstanding and
does not include the dilutive effect of stock options. Diluted earnings per
share is essentially the same as fully diluted as under APB 15 (see Note 8). The
Company has evaluated the impact of this pronouncement for 1997 and expects a
slight increase in basic earnings per share, as compared to primary earnings per
share, and no impact on diluted earnings per share.
Effect of Inflation
Management believes that inflation has not had a material effect on earnings
during the past several years. Inflationary increases in the cost of labor, food
and other operating costs could adversely affect the Company's restaurant
operating margins. In the past, however, the Company generally has been able to
modify its operations to offset increases in its operating costs.
Forward-Looking Information
Certain information contained in this Form 10-Q, particularly information
regarding future economic performance and finances, development plans, and
objectives of management, is forward looking. In some cases, information
regarding certain important factors that could cause actual results to differ
materially from any such forward-looking statement appear together with such
statement. In addition, the following factors, in addition to other possible
factors not listed, could affect the Company's actual results and cause such
results to differ materially from those expressed in forward-looking statements.
These factors include competition within the casual dining restaurant industry,
which remains intense; changes in economic conditions such as inflation or a
recession; consumer perceptions of food safety; weather conditions; changes in
consumer tastes; labor and benefit costs; legal claims; the continued ability of
the Company to obtain suitable locations and financing for new restaurant
development; government monetary and fiscal policies; laws and regulations;
governmental initiatives such as minimum wage rates and taxes; and other
factors set forth in Exhibit 99 attached hereto.
13
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Part II. Other Information
Item 4. Submission of Matters to a Vote of Security Holders
The annual meeting of shareholders was held on April 29, 1997, at which the
following proposals were voted upon by shareholders: (i)the election of eight
members of the Board of Directors (ii) the approval of the Company's 1995 Stock
Incentive Plan, as amended, and (iii) the ratification of the appointment of
KPMG Peat Marwick LLP as the Company's independent auditors.
Each of the eight members of the Company's Board of Directors was elected to
hold office until the next Annual Meeting of Shareholders and/or until his or
her successor is elected, and has qualified by the following votes:
Affirmative Negative
Tom E. DuPree, Jr. 34,572,971 94,522
John G. McLeod, Jr. 34,573,051 94,442
David P. Frazier 34,573,347 94,146
John L. Moorhead 34,578,598 88,895
Marc D. Redus 34,573,110 94,383
James W. Rowe 34,577,847 89,646
Dr. Ruth G. Shaw 34,576,581 90,912
Thomas R. Williams, Sr. 34,580,172 87,321
The proposal to approve the Company's 1995 Stock Incentive Plan was approved as
follows: affirmative votes 30,696,257, negative votes 3,918,757, and abstaining
votes 52,479. The appointment of KPMG Peat Marwick LLP was ratified as follows:
affirmative votes 34,612,527, negative votes 34,564, and abstaining votes
20,402.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit No. Exhibit Description Page Number
2.1 Agreement and Plan of Merger among Apple South, 17-63
Inc., Coyote Acquisition Corp.,and Canyon Cafes,
Inc., et.al., dated June 19,1997
4.1 Trust Agreement of Apple South Financing I, dated *
as of February 18, 1997, among Apple South, Inc.,
First Union National Bank of Georgia, First Union
Bank of Delaware and Lansing S. Patterson
4.2 Amended and Restated Declaration of Trust of Apple *
South Financing I, dated as of March 11, 1997,
among Apple South, Inc., as Sponsor, First Union
National Bank of Georgia, as Institutional Trustee,
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First Union Bank of Delaware, as Delaware Trustee,
and the Regular Trustees named therein
4.3 Indenture for the 7% Convertible Subordinated *
Debentures, dated as of March 6, 1997, between
Apple South, Inc. and First Union National Bank
of Georgia, as Trustee
4.4 Form of $3.50 Term Convertible Security, Series *
A (included in Exhibit 4.3)
4.5 Form of 7% Convertible Subordinated Debenture *
(included in Exhibit 4.3)
4.6 Preferred Securities Guarantee Agreement, dated *
as of March 11, 1997, between Apple South, Inc.,
as Guarantor, and First Union National Bank of
Georgia, as Preferred Guarantee Trustee
4.7 Registration Rights Agreement, dated as of *
March 11, 1997 among Apple South, Inc., Apple
South Financing I, J.P. Morgan Securities, Inc.,
and Smith Barney, Inc.
27.1 Financial Data Schedule 64
99.1 Safe Harbor Under the Private Securities Litigation 65
Reform Act of 1995
* Incorporated by reference to corresponding exhibit number filed with the
Company's Registration Statement on Form S-3, File No. 333-25205
(b) Reports on Form 8-K.
None
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Signature
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Apple South, Inc.
(Registrant)
Date: August 27, 1997 By: /s/ Erich J. Booth
-------------------
Erich J. Booth
Chief Financial Officer, Treasurer
/s/ Philip L. Ammons
-------------------
Philip L. Ammons
Chief Accounting Officer
16
Exhibit 2.1
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (the "Agreement") is made
and entered into as of the 19th day of June, 1997, by and among (1) APPLE SOUTH,
INC., a Georgia corporation ("Apple South"), (2) COYOTE ACQUISITION CORP., a
Delaware corporation wholly owned by Apple South ("Merger Sub"), (3) CANYON
CAFES, INC., a Delaware corporation (the "Company"), (4) JACOB C. BAUM, an
individual resident of the State of Texas, and CANYON (1997) INVESTMENT LIMITED
PARTNERSHIP, a Delaware limited partnership (collectively, the "Principal
Stockholder"), and (5) the other stockholders of the Company, as listed on
Exhibit A hereto (collectively with the Principal Stockholder, the
"Stockholders"),
W I T N E S S E T H:
WHEREAS, Company is engaged in owning and operating casual dining
restaurants under the names CANYON CAFE(R) and SAM'S CAFE(TM) and in planning
and implementing the opening of additional such restaurants (collectively, the
"Business"); and
WHEREAS, the parties hereto deem it advisable and in their respective best
interests that Apple South acquire the Company through the merger of Merger Sub
with and into the Company all on the terms and subject to the conditions set
forth herein; and
NOW, THEREFORE, for and in consideration of the premises, and the mutual
covenants and agreements contained herein, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto, intending to be legally bound, agree as follows:
1. THE MERGER
1.1. The Merger. At the Effective Time (as defined in Paragraph 3.5) upon
the terms and subject to the conditions set forth herein, and in accordance with
the General Corporation Law of the State of Delaware (the "Corporate Laws"),
Merger Sub shall be merged with and into the Company, the separate existence of
Merger Sub shall cease, and the Company shall continue as the surviving
corporation (the "Merger"). The Company after the Merger is sometimes hereafter
referred to as the "Surviving Corporation." Merger Sub and the Company are
sometimes hereafter collectively referred to as the "Constituent Corporations."
1.2. Effect of the Merger. At the Effective Time, the Surviving Corporation
shall continue its corporate existence under the Laws of the State of Delaware
and shall possess all the rights, privileges, powers, and franchises of a public
as well as of a private nature, and be subject to all the restrictions,
disabilities, and duties of each of the Constituent Corporations; and all and
singular, the rights, privileges, powers, and franchises of each of the
Constituent Corporations, and all property, real, personal, and mixed, and all
debts due to either of the Constituent Corporations on
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whatever account, as well as for stock subscriptions and all other things in
action or belonging to each of the Constituent Corporations, shall be vested in
the Surviving Corporation, and all property, rights, privileges, powers, and
franchises, and all and every other interest shall be thereafter as effectually
the property of the Surviving Corporation as they were of the Constituent
Corporations, and the title to any real estate vested by deed or otherwise in
any of the Constituent Corporations, shall not revert or be in any way impaired;
but all rights of creditors and all liens upon any property of any of the
Constituent Corporations shall be preserved unimpaired, and all debts,
liabilities, and duties of the Constituent Corporations shall thereafter attach
to the Surviving Corporation, and may be enforced against it to the same extent
as if such debts, liabilities, and duties had been incurred by it.
2. THE SURVIVING CORPORATION
2.1. Certificate of Incorporation. The Certificate of Incorporation of the
Company as in effect immediately prior to the Effective Time shall be the
Certificate of Incorporation of the Surviving Corporation until thereafter
amended in accordance with applicable Law.
2.2. Bylaws. The bylaws of the Company as in effect immediately prior to
the Effective Time shall be the bylaws of the Surviving Corporation until
thereafter amended in accordance with applicable Law.
2.3. Board of Directors. The directors of Merger Sub immediately prior to
the Effective Time shall be the board of directors of the Surviving Corporation
until their respective successors shall be duly elected or appointed and
qualified.
2.4. Officers. The officers of Merger Sub immediately prior to the
Effective Time shall be the officers of the Surviving Corporation until their
respective successors shall be duly elected or appointed and qualified.
3. MERGER CONSIDERATION; CONVERSION
3.1. Company Shares. (a) At the Effective Time, by virtue of the Merger,
and without any action on the part of the Stockholders, all of the Shares issued
and outstanding immediately prior to the Effective Time (other than treasury
shares) shall be converted into and become the right to receive the Merger
Consideration described in this Article 3 and the Stockholders shall have no
further rights with respect to the Shares except the right to receive the Merger
Consideration. All shares of capital stock that are owned by the Company as
treasury stock shall be canceled and retired and no portion of the Merger
Consideration or any other consideration shall be delivered in exchange
therefor.
(b) At the Closing, as defined in Paragraph 3.5, the Stockholders shall
surrender the certificates representing the Shares, accompanied by blank stock
powers to Merger Sub, and Merger Sub shall deliver the Merger Consideration in
accordance with Paragraph 3.2 (less that amount delivered to Escrow Agent
pursuant to Paragraph 3.4 below).
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<PAGE>
3.2. Merger Consideration. (a) The "Merger Consideration" shall total
$36,000,000. The Merger Consideration shall consist of (i) the cash amount of
$30,843,848, and (ii) the remainder in shares of Apple South's common stock,
$0.01 par value per share ("Apple South Stock"), as calculated below. For the
purpose of determining the number of shares of Apple South Stock required to
constitute the stock portion of the Merger Consideration, Apple South Stock
shall be deemed to have a value per share equal to the average of the closing
prices per share (the "Average Price"), without regard to volume (adjusted for
any stock splits or other reclassification during the applicable time period)
for shares of Apple South's common stock on the Nasdaq Stock Market, as reported
by The Wall Street Journal, for each of the ten consecutive trading days
preceding the second trading day prior to the date of the Closing (or if such
period produces a lower per share valuation, the ten consecutive trading days
ending on June 19, 1997). No fractional shares of Apple South Stock will be
issued, but, in lieu thereof, such fractional shares will be rounded up to the
nearest whole share of Apple South Stock. In addition to the Merger
Consideration, Merger Sub shall pay the Stockholders an "Accrued Amount," which
shall equal .0183% of $30,843,848 multiplied by the number of days elapsed after
June 30, 1997, through the date of Closing.
(b) The Merger Consideration shall be allocated among the Stockholders as
follows:
(i) $12,031,022 in cash and $5,156,152 in Apple South Stock (valued at the
Average Price) to the Principal Stockholder (with all of the Apple South Stock
being issued to the Canyon (1997) Investment Limited Partnership);
(ii) $8,335,376 to the Preferred Stockholders to be paid in cash;
(iii) $5,342,372 to the Other Stockholders to be paid in cash; and
(iv) $5,135,078 to the Option Holders and the Warrant Holders to be paid in
cash. The amount allocated to Option Holders and Warrant Holders under this
subparagraph (b) shall (without affecting the amounts due to the Principal
Stockholder, the Preferred Stockholders, and the Other Stockholders hereunder)
be (i) increased to reflect additional amounts due, in accordance with
subparagraph (f) below, to Option Holders and Warrant Holders who exercise their
options or warrants prior to the Effective Time in lieu of relinquishing the
same (with it being understood and agreed that in such event the aggregate
Merger Consideration shall be increased by the corresponding amount received by
the Company in connection with any such exercise), and (ii) decreased to reflect
Outstanding Options (as defined below). For purposes of this subparagraph (b)
Option Holders and Warrant Holders shall not be considered Other Stockholders
even if they exercise their options or warrants prior to the Closing.
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<PAGE>
(c) The portion of the Merger Consideration allocated to the Other
Stockholders shall be divided among them pro rata in accordance with their
respective ownership of shares of Common Stock of the Company as set forth in
Exhibit A attached hereto. The portion of the Merger Consideration allocated to
Option Holders and the Warrant Holders shall be allocated in accordance with
number of options and warrants granted and the exercise price relating thereto,
as set forth in Exhibit B attached hereto, and subparagraphs (f) and (g) below.
(d) The Accrued Amount shall be allocated among the Stockholders, the
Option Holders and the Warrant Holders pro rata in accordance with their
respective portions of the Merger Consideration as set forth above.
(e) Certificates evidencing the Apple South Stock issuable hereunder shall
be delivered to the Principal Stockholder at the Closing except for those shares
of Apple South Stock to be delivered to the Escrow Agent pursuant to Paragraph
3.4 below. No certificates for fractional interests of Apple South Stock will be
issued, but, in lieu thereof, such fractional interests will be rounded up to
the nearest whole share of Apple South Stock. The cash portion of the Merger
Consideration (less the amount of any tax withholding required with respect to
Option Holders and Warrant Holders) plus any Accrued Amount shall be delivered
by Apple South at the Effective Time by wire transfer of immediately available
funds to an account designated by the Principal Stockholder on behalf of the
Stockholders, Option Holders and Warrant Holders, and the Principal Stockholder
shall coordinate, and neither Apple South nor the Surviving Corporation shall be
responsible for, the disbursement of such funds to the Stockholders, the Option
Holders, and the Warrant Holders as contemplated by this Agreement. On behalf of
the Stockholders, Option Holders, and Warrant Holders, the Principal Stockholder
shall be authorized to make all adjustments to the Merger Consideration required
by the terms of this Agreement, including without limitation, adjustments
pursuant to Paragraph 4.1 hereof and any other adjustments required to discharge
certain indebtedness aggregating $99,350.12 to Gerald E. Zahler prior to the
disbursement of the proceeds. The amounts of withholding taxes withheld from the
Merger Consideration payable to Option Holders and Warrant Holders shall be
delivered by Apple South to the Company for deposit in accordance with
applicable federal and state tax Laws.
(f) The Company shall use its reasonable best efforts to cause all Option
Holders to execute prior to the Effective Time an Option Relinquishment and
Release Agreement (herein so called) in the form attached hereto as Exhibit C.
Those Option Holders who have delivered prior to the Effective Time an Option
Relinquishment and Release Agreement shall be entitled to receive out of the
cash portion of the Merger Consideration the cash amount equal to the product of
(i) the number of shares of Common Stock subject to such options (irrespective
of whether such option is then exercisable) and (ii) the amount by which
$17.95755371 (as such amount may be adjusted in accordance with subparagraph (e)
above) exceeds the exercise or strike price per share of Common Stock subject to
such option immediately prior to the Effective Time (the "Option Merger
Consideration"), less any required withholding taxes. Each Option Holder who has
executed an Option Relinquishment and Release Agreement shall be entitled to
receive the Option
20
<PAGE>
Merger Consideration, less any required withholding taxes, out of the Merger
Consideration pursuant to Paragraph 3.2. If an Option Holder fails to deliver an
Option Relinquishment and Release Agreement prior to the Effective Time, such
holder's options (the "Outstanding Options") shall, in accordance with the terms
and conditions of the governing Stock Option Plan and the holder's stock option
agreement(s), be converted without any action of the part of the holder thereof
into the right to receive an amount equal to the portion of the Merger
Consideration attributable to the shares subject to such Option Holder's options
upon the exercise of such holder's options in accordance with and within the
time period prescribed by, the applicable Stock Option Plan and the holder's
stock option agreement(s). Apple South shall pay, or cause the Surviving
Corporation to pay (via U.S. mail, postage prepaid), to each holder of
Outstanding Options the Merger Consideration allocated to the shares subject to
the exercised Outstanding Option, less any required withholding taxes, as
promptly as practicable after receiving a valid exercise of such options by the
holder thereof. To the extent that options to purchase Common Stock are
exercised by holders prior to the Effective Time, such holders shall receive
certificates evidencing the shares of Common Stock underlying such options and
may surrender such certificates at the Closing for a payment per share in cash
equal to the per share payment to the Other Stockholders. To the extent that any
options expire by their terms prior to Closing, the parties shall reallocate the
Merger Consideration due to the Stockholders, the Warrant Holders, and the other
Option Holders based upon the adjusted number of Options outstanding following
the event.
(g) The Company shall send to all holders of warrants to purchase Common
Stock granted under the outstanding warrants listed in the Disclosure Memorandum
(together, the "Warrants"), written notice (i) of the Merger contemplated
hereby, and (ii) that all unexercised Warrants held by such person shall be
canceled as of the Effective Time. In lieu of having to exercise their Warrants,
the Company also shall send to all such persons a Warrant Relinquishment and
Release Agreement (herein so called) in the form attached hereto as Exhibit D
for execution and delivery by each Warrant Holder prior to the Effective Time
permitting the Warrant Holder to receive the cash amount equal to the product of
(i) the number of shares of Common Stock subject to such Warrant (irrespective
of whether such warrant is then exercisable) and (ii) the amount by which
$17.95755371 exceeds the exercise or strike price per share of Common Stock
subject to such Warrant immediately prior to the Effective Time (the "Warrant
Merger Consideration"), less any required withholding taxes. Each Warrant Holder
who has executed a Warrant Relinquishment and Release Agreement shall be
entitled to receive the Warrant Merger Consideration, less any required
withholding taxes, out of the Merger Consideration pursuant to Paragraph 3.2. To
the extent that Warrants are exercised by Warrant Holders prior to the Effective
Time, such holders shall receive certificates evidencing the shares of Common
Stock underlying such warrants and may surrender such certificates at the
Closing for a payment per share in cash equal to the per share payment to the
Other Stockholders. .
3.3. Merger Sub Shares. Each share of common stock of the Merger Sub issued
and outstanding immediately prior to the Effective Time shall be converted into
one share of common stock of the Surviving Corporation.
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<PAGE>
3.4. Escrow. At Closing, certificates evidencing shares of Apple South
Stock issued to the Canyon (1997) Investment Limited Partnership as part of the
Merger Consideration having an aggregate value (based on the Average Price)
equal to two percent of the total Merger Consideration shall, in lieu of
delivery to Principal Stockholder, be delivered by Apple South to the Escrow
Agent to be held and disbursed by it in accordance with the terms of the Escrow
Agreement attached hereto as Exhibit E (the "Escrow Agreement").
3.5 Closing. Subject to termination of this Agreement pursuant to Article
11, the consummation of the transactions contemplated in this Agreement (the
"Closing") shall take place at the offices of Kilpatrick Stockton LLP, 1100
Peachtree Street, Suite 2800, Atlanta, Georgia, at 10:00 a.m., Atlanta time, on
June 30, 1997, or if all the conditions set forth in Articles 8 and 9 hereof
have not been satisfied or waived by such date on the second Business Day after
all such conditions have been satisfied or waived. On the date of the Closing,
the Company and Merger Sub shall file the documents required by the Corporate
Laws to effect the Merger. The Merger shall become effective at the time of
filing of such documents (the "Effective Time").
4. ADDITIONAL AGREEMENTS
4.1. Expenses. Except as otherwise provided herein, Apple South shall pay
all expenses (i) incurred by Merger Sub and Apple South in connection with the
negotiations among the parties, the authorization, preparation, execution, and
performance of this Agreement, or the transactions contemplated hereby, (ii)
incurred in connection with the issuance of the Apple South Stock, and (iii) any
and all expenses incurred by Merger Sub, Apple South, the Company, or any of the
Stockholders in connection with (A) obtaining consents of landlords to the
assignment of any of the Real Property Leases, (B) the execution of estoppel
certificates by such landlords, (C) the payment and delivery of any letters of
credit in connection with any of the Real Property Leases, (D) the payment and
delivery of any security deposits required by any landlords in connection with
any of the Real Property Leases, (E) obtaining any Government consents or
approvals with respect to the transfer or assumption of liquor, beer, or wine
licenses, (F) any fees and expenses of counsel, agents, or facilitators to any
of the parties incurred in connection with any of the foregoing items, and (G)
any other similar types of fees and expenses. Except as otherwise provided
herein, if the Closing occurs all expenses incurred by the Stockholders and the
Company in connection with the negotiations among the parties, the
authorization, preparation, review, execution, and performance of this Agreement
and other related documents, or the transactions contemplated hereby shall be
paid by the Stockholders; provided that any such expenses that the Principal
Stockholder determines are appropriately attributable to the Company shall be
accrued on the books of the Company as liabilities and paid immediately prior to
Closing by the Company. The Stockholders and Apple South shall each pay one-half
of the filing fees required by the Hart-Scott-Rodino Antitrust Improvements Act
of 1976, as amended (the "HSR Act"), in connection with the Merger. If the
Principal Stockholder so directs, any of the foregoing expenses required to be
paid hereunder by the Stockholders may be paid by Apple South or
22
<PAGE>
the Company prior to Closing and the amount so paid credited pro rata against
the amount of Merger Consideration due to the Stockholders at the Closing. Any
tax deduction or credit allowable as a result of any such expenses payable,
directly or indirectly, by the Stockholders shall be allocated to, and inure to
the benefit of, the Stockholders and shall not be claimed by Apple South.
4.2. Brokers. Principal Stockholder hereby represents and warrants to Apple
South and Merger Sub that no broker, finder, investment banker, or similar
advisor has acted on behalf of the Principal Stockholder or the Company in
connection with this Agreement or the transactions contemplated herein and
agrees to indemnify Apple South and Merger Sub from and against any and all
claims or demands for commissions or other compensation (including claims
against the Surviving Corporation) by any broker, finder, investment banker, or
similar advisor employed by or claiming to have been employed by or on behalf of
the Principal Stockholder or the Company. Apple South and Merger Sub hereby
represent and warrant to the Stockholders and the Company that no broker,
finder, investment banker, or similar advisor has acted on behalf of Apple South
or Merger Sub in connection with this Agreement or the transactions contemplated
herein and agrees to indemnify the Stockholders and the Company from and against
any and all claims or demands for commissions or other compensation by any
broker, finder, investment banker, or similar advisor claiming to have been
employed by or on behalf of Apple South or Merger Sub.
4.3. Publicity. Except as required by applicable Law, prior to the Closing
all press releases and other public announcements respecting the subject matter
hereof shall be made only with the mutual written agreement of Apple South and
the Principal Stockholder, provided, however, that any party hereto may make any
disclosure required to be made under applicable Law or Nasdaq Stock Market rule
if such party has determined in good faith that it is necessary to do so and
used its best efforts, prior to the issuance of the disclosure, to provide the
other parties a copy of the proposed disclosure and to discuss the proposed
disclosure with the other parties.
4.4. Access and Inspection. The Company shall provide Apple South, Merger
Sub, and their authorized representatives full access at reasonable times during
normal business hours from and after the date hereof until the Closing to the
books and records of the Company for the purpose of making such investigation as
they may reasonably desire, the Company shall furnish such information
concerning the Company as they may reasonably request. The Company shall assist
Apple South and Merger Sub in making such investigation and shall cause their
counsel, accountants, consultants, and other non-employee representatives to be
reasonably available for such purposes during normal business hours. No
investigation made heretofore or hereafter by Merger Sub or Apple South shall
limit or affect the representations, warranties, covenants, and indemnities of
the Company or Principal Stockholder hereunder, each of which shall survive any
such investigation.
4.5. Cooperation. The parties shall cooperate with each other and with
their respective counsel and accountants in connection with any steps required
to be taken as part of their respective obligations hereunder, and all parties
shall use commercially
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reasonable efforts to consummate the transactions contemplated herein and to
fulfill their obligations hereunder, including, without limitation, causing to
be fulfilled at the earliest practical date the conditions precedent to the
obligations of the parties to consummate the transactions contemplated hereby.
From time to time and at any time after Closing, at a party's request, and
without further consideration, the other parties shall execute and deliver such
further documents and instruments of conveyance, assignment, and transfer and
shall take such further reasonable actions as may be necessary or desirable, in
the reasonable opinion of the requesting party, in connection with the
consummation of the transactions described herein. It shall be the
responsibility of Apple South to seek any required consents of lessors and
Government consents or approvals with respect to liquor, beer, or wine licenses
under Paragraph 8.11 and Apple South shall use its reasonable best efforts to
obtain all such consents and approvals prior to the Closing Date.
4.6. Apple South's Public Documents and Access to Information. Apple South
has delivered to the Principal Stockholder a true and complete copy of (i) Apple
South's Annual Report on Form 10-K for the year ended December 29, 1996, (ii)
Apple South's Quarterly Report on Form 10-Q for its first quarter of fiscal
1997, (iii) Apple South's Form 10-Q/A relating to the first quarter of fiscal
1997, (iv) Apple South's definitive proxy statement relating to its 1997 annual
shareholders meeting, (v) that certain Offering Memorandum dated March 6, 1997,
offering Apple South Financing I $3.50 Term Convertible Securities, Series A,
(vi) that certain preliminary Prospectus of Apple South dated May 22, 1997, and
(vii) all other filings (other than Form D's and preliminary registration and
proxy statements) made by Apple South with the Securities and Exchange
Commission ("SEC") between December 29, 1996, and the date hereof (collectively,
the "SEC Documents"). Apple South agrees to provide to the Company and the
Principal Stockholder a true and complete copy of each other document filed with
the SEC between the date hereof and the date of the Closing (other than Form D's
and preliminary material) ("Current SEC Documents"). In addition to the SEC
Documents and the Current SEC Documents, Apple South will provide, through its
Chief Financial Officer, the Company and the Principal Stockholder with
opportunities to become familiar with the business, financial condition,
management, prospects, and operations of Apple South, including reasonable
opportunities to ask questions of, receive answers from, and obtain information
regarding Apple South and its business which is material to an investment
decision.
4.7. Legending of Apple South Stock. There shall be placed on all
certificates representing the shares of Apple South Stock issued to the
Principal Stockholder pursuant to this Agreement appropriate restrictive legends
referencing the restrictions imposed by applicable securities Laws, which
legends shall be removed upon the earlier of (i) the effectiveness of a
registration statement under the Securities Act pertaining to such Apple South
Stock, or (ii) the expiration of the applicable holding period for such shares
of Apple South Stock pursuant to Rule 144 under the Securities Act. The
Principal Stockholder agrees that he will not offer to sell, sell, or otherwise
dispose of any of the Apple South Stock issued to him except pursuant to an
effective registration statement under the Securities Act and any applicable
state securities Law or an exemption from the registration requirements of the
Securities Act and any applicable state securities Law. With respect to any such
sale or
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<PAGE>
disposition, the Principal Stockholder agrees to furnish to Apple South upon
request such information as its counsel may reasonably deem necessary to assure
that such sale or disposition is made in full compliance with applicable federal
and state securities Laws.
4.8. Reports Under the Exchange Act. With a view to making available to the
Principal Stockholder the benefits of Rule 144 promulgated under the Securities
Act (Rule 144") and any other rule or regulation of the SEC that may at any time
permit him to sell Apple South Stock to the public without registration, Apple
South shall (i) make and keep public information available, as those terms are
defined in Rule 144, at all times during which Apple South is subject to the
reporting requirements of the Exchange Act; (ii) file with the SEC in a timely
manner all reports and other documents required of Apple South under the
Securities Act and the Exchange Act (at all times during which Apple South is
subject to the reporting requirements of the Exchange Act); and (iii) furnish to
him, forthwith upon request (x) a written statement by Apple South stating
whether it has complied with the reporting requirements of the Exchange Act, (y)
a copy of the most recent annual or quarterly report of Apple South filed with
the SEC, and (z) such other information as may be reasonably requested in
availing him of any rule or regulation of the SEC which permits the sale of any
shares of Apple South Stock without registration.
4.9. Registration of Apple South Stock. In accordance with the terms and
conditions and at the time set forth in the Registration Rights Agreement
attached hereto as Exhibit F (the "Registration Rights Agreement") Apple South
shall register under the Securities Act on Form S-3 or such other form under the
Securities Act for which Apple South shall then qualify for all of the shares of
Apple South Stock issued to Principal Stockholder hereunder. Principal
Stockholder shall comply with the restrictions on resale of his Apple South
Stock, even if registered, set forth in the Registration Rights Agreement.
4.10. Non-Solicitation of Third Party Offers. Neither Principal Stockholder
or any of his Affiliates, agents, or representatives, nor the Company, or any
its officers, directors, management, Affiliates, related persons, or agents,
will (a) negotiate or discuss with any other Person this Agreement or the terms
and conditions contained herein except for the purpose of carrying out the
transactions contemplated hereby, (b) negotiate or discuss with any other Person
any other transaction involving a merger of the Company, or the sale of any
shares in or assets of the Company (except for sales of inventory in the
ordinary course of business) or any other business combination involving the
Company, (c) reveal the terms of this Agreement to any Person except for the
purpose of carrying out the transactions contemplated herein, or (d) solicit,
encourage, consider, entertain, or accept any offer, bid, or proposal from any
other Person respecting any transaction involving a merger of the Company, or
the sale of any shares in or assets of the Company (except for sales of
inventory in the ordinary course of business) or any other business combination
involving the Company. If the Company or the Principal Stockholder receives a
proposal of the kind described in the preceding clause (d) prior to the date of
the Closing, then the Company or the Principal Stockholder (as the case may be)
shall immediately notify Apple South of the receipt of such proposal and shall
promptly provide Apple South with a copy of such proposal (or if such proposal
is not in writing, a written summary of its terms).
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4.11. Securities Law Matters.
(a) The Principal Stockholder understands and acknowledges (i) that the
offer and sale of the Apple South Stock has not been registered under the
Securities Act or under applicable state securities laws in reliance upon the
exemptions provided by Section 4(2) of the Securities Act and in reliance upon
the relevant exemptions provided by applicable state securities laws and that
the Apple South Stock may not be resold, transferred, assigned, pledged,
hypothecated, or any interest therein otherwise disposed of unless the Apple
South Stock is registered under the Securities Act and applicable state
securities laws or unless the shares are the subject of an opinion of counsel,
which opinion and counsel are reasonably acceptable to Apple South, addressed to
Apple South that such registration is not required; (ii) that the stock
certificates evidencing the Apple South Stock will bear legends setting forth
the restrictions on transfer described above and stop-transfer instructions will
be delivered by Apple South to Apple South's stock transfer agent reflecting
such restrictions; (iii) that he must bear the risk of an investment in the
Apple South Stock for an indefinite period of time and his financial condition
is currently adequate to bear the risk of an investment in the Apple South
Stock; (iv) that he has received copies of the SEC Documents and Current SEC
Documents; and (v) that he has had the opportunity to ask questions of and
receive answers from the officers of Apple South concerning the Apple South
Stock, Apple South, and Apple South's business, plans, and prospects.
(b) The Principal Stockholder is acquiring the Apple South Stock issuable
to him hereunder for his own account for investment purposes only with no
intention of participating, directly or indirectly, in a distribution of the
Apple South Stock.
(c) The Principal Stockholder has such experience in business, financial,
and investment matters as to be able to evaluate the merits and risks of an
investment in the Apple South Stock.
(d) The Principal Stockholder is an "accredited investor" as defined in
Rule 501 of Regulation D of the SEC.
(e) The Principal Stockholder understands and acknowledges that any future
transfer, sale, or other disposition of the Apple South Stock by him is subject
to the terms and conditions of the Registration Rights Agreement.
4.12. Confidentiality. In connection with the negotiation of this
Agreement, a party hereto (the "Disclosing Party") may disclose Confidential
Information, as defined below, to one of the other parties hereto (the
"Disclosee"). Each Party agrees that if the transactions contemplated herein are
not consummated, it will return to the Disclosing Party all documents and other
written information furnished to it. Each party further agrees to maintain the
confidentiality of any and all Confidential Information of a Disclosing Party
and not disclose any Confidential Information to any Person other than its
Affiliates, directors, employees, attorneys, or accountants performing services
with respect to the transactions contemplated hereby, or use such Confidential
Information for any purpose other than the
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evaluation and consummation of the transactions contemplated hereby; provided,
however, the foregoing obligations shall not apply to (i) any information which
was known by the Disclosee on a non-confidential basis prior to its disclosure
by the Disclosing Party; (ii) any information which was in the public domain
prior to the disclosure thereof; (iii) any information which comes into the
public domain on a non-confidential basis through no fault of the Disclosee;
(iv) any information which is disclosed to the Disclosee by a third party, other
than an Affiliate, having the legal right to make such disclosure; or (iv) any
information which is required to be disclosed by Order of any Forum. Should
Disclosee become legally compelled to disclose any portion of the Confidential
Information by Order of any Forum, Disclosee shall give Disclosing Party prompt
notice of such fact, including in its notice the legal basis for the required
disclosure and the nature of the Confidential Information that must be
disclosed. Disclosee shall cooperate fully with Disclosing Party in obtaining a
protective order or other appropriate protection relating to the disclosure and
subsequent use of the Confidential Information. Disclosee will disclose only
that operation of the Confidential Information that is legally required to be
disclosed. For purposes of this Paragraph 4.10, "Confidential Information" shall
mean any and all technical, business, and other information which is (a)
possessed or hereafter acquired by a Disclosing Party and disclosed to the
Disclosee and (b) derives economic value, actual or potential, from not being
generally known to Persons other than the Disclosing Party, including, without
limitation, technical or nontechnical data, compositions, devices, methods,
techniques, drawings, inventions, processes, financial data, financial plans,
product plans, lists of actual or potential customers or suppliers, information
regarding the business plans and operations of the Disclosing Party, and the
existence of discussions and negotiations between the parties hereto relating to
the terms hereof. If the transactions contemplated herein are consummated,
"Confidential Information" of Apple South shall be deemed to include all
Confidential Information of Company and Surviving Corporation, and the Principal
Stockholder shall be subject to the obligations of non-use and non-disclosure
contained in this Agreement with respect to all of such information. The
provisions of this Paragraph 4.10 shall survive any termination of this
Agreement for any reason. The restrictions of this Paragraph shall expire three
years from the date hereof with respect to any confidential business information
that does not constitute a trade secret under applicable law.
4.13. HSR Compliance. Apple South and the Company each agree to use all
reasonable efforts to take, or cause to be taken, all actions and to do, or
cause to be done, all things necessary, properly or advisable to effect all
necessary registrations and filings including under the HSR Act and submissions
of information requested by any Government authority as promptly as practicable
following the execution of this Agreement. Each party hereto shall promptly
inform the other of any material communication from the Federal Trade Commission
(the "FTC"), the United States Department of Justice (the "DOJ") or any other
Government authority regarding any of the transactions contemplated hereby. If
either party or any Affiliate thereof receives a request for additional
information or documentary material from any such Government authority with
respect to the transactions contemplated hereby, then such party will endeavor
in good faith to make, or cause to be made, as soon as reasonably practicable
and after consultation with the other party, an appropriate response in
compliance with such request.
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4.14 Consents. Apple South shall use its reasonable efforts to obtain any
consents of Governments, suppliers, distributors, and other Persons required in
order to consummate the transactions contemplated hereby. The Company agrees to
use its reasonable efforts to assist Apple South in obtaining such consents.
4.15 Indemnification. Apple South shall not amend or repeal any provision
of the Certificate of Incorporation or bylaws of the Surviving Corporation in
any manner that would adversely affect the indemnification or exculpatory
provisions therein insofar as they pertain to the present officers and directors
of the Company. Following the Closing, each of such officers and directors who
continue to serve as an officer or director of the Surviving Corporation shall
be entitled to the benefit of all exculpation and indemnification provisions
generally made available by Apple South to persons serving in similar capacities
with Surviving Corporation or any other subsidiary of Apple South.
4.16 Funding Commitment. In the event that the Closing does not occur on or
before June 30, 1997, Apple South shall make funds available to the Company in
accordance with the terms of a commitment letter to be mutually agreed upon
between Apple South and the Company within five days of the date of this
Agreement.
4.17 Employees. Employees of the Company who continue their employment with
the Surviving Corporation ("Continuing Employees") after the Closing shall
receive credit by Apple South for their length of service with the Company under
Apple South's employee benefit plans (excluding any employee stock option plans)
to the extent Apple South is able to do so without making any material change to
such employee benefit plans. Apple South will provide to the Continuing
Employees benefits reasonably similar to the benefits provided by the Company to
the Continuing Employees prior to the date of the Closing. After the Closing,
the Company and Apple South shall make options to purchase 100,000 shares of
Common Stock of Apple South available to the Continuing Employees on terms
previously agreed to by the Company and Apple South, which options shall be
dated as of the Closing Date.
4.18 Approval. To the extent permitted by applicable law, the Stockholders
acknowledge and agree that their execution and delivery of this Agreement shall
constitute (i) their respective consent, pursuant to Section 288 of the
Corporate Law, to the adoption and approval of this Agreement pursuant to
Section 251 of the Corporate Law and (ii) their respective waiver of all rights
to receive any notice and any materials required to be provided to them by the
Corporate Law.
5. REPRESENTATIONS, WARRANTIES, AND COVENANTS OF THE COMPANY
The Company represents and warrants to Apple South and Merger Sub that
the statements contained in this Article 5 are true and correct, except as set
forth in the disclosure schedules delivered by the Company to Apple South and
Merger Sub on the date
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of this Agreement, as amended or supplemented by the Company on or prior to the
Closing Date to reflect any event occurring subsequent to the date hereof (the
"Disclosure Memorandum"). The Disclosure Memorandum shall be arranged in
paragraphs corresponding to the numbered and lettered paragraphs contained in
this Article 5 and the disclosures in any paragraph shall apply to each other
paragraph in this Article 5.
5.1. Organization, Authority and Qualification. (a) The Company and each
Subsidiary is a corporation duly organized and validly existing under the Laws
of the state of its incorporation as shown in the Disclosure Memorandum. The
location and address, including the county, of each office of Company or a
Subsidiary and each Restaurant is set forth in the Disclosure Memorandum. Each
of the Company and the Subsidiaries has full corporate power and authority to
own or lease its properties and to carry on its business as presently conducted.
The Company has previously made available to Apple South true, correct, and
complete copies of the certificates or articles of incorporation and bylaws of
the Company and each Subsidiary and true, correct, and complete copies of: (i)
the minutes and other similar records of meetings of the stockholders and the
boards of directors of the Company and each Subsidiary which contain all records
of meetings of, actions taken in lieu thereof by, and all other actions taken by
their stockholders, boards of directors or any committees thereof, and (ii) the
Company's and each Subsidiary's stock transfer records, which reflect fully all
issuances, transfers, and redemptions of their shares since the date of their
respective incorporations.
(b) The Company has all requisite corporate power and authority to enter
into this Agreement and to consummate the transactions contemplated by this
Agreement. The execution and delivery of this Agreement and the consummation of
the transactions contemplated by this Agreement have been duly authorized by all
necessary corporate action on the part of the Company, including the approval of
the Merger by the Stockholders, as evidenced by the execution hereof. This
Agreement has been duly executed and delivered by the Company and constitutes
the valid and binding obligation of the Company, enforceable in accordance with
its terms, subject to applicable bankruptcy, insolvency, reorganization,
moratorium, or other similar laws affecting the rights of creditors generally
and general principles of equity.
(c) Except as set forth in the Disclosure Memorandum, the execution and
delivery of this Agreement by the Company does not, and the consummation of the
transactions contemplated by this Agreement will not (i) conflict with, or
result in any violation or breach of any provision of the certificate or
articles of incorporation or bylaws of the Company or any Subsidiary; (ii)
result in any violation or breach of, or constitute (with or without notice or
lapse of time, or both) a default (or give rise to any right of termination,
cancellation, or acceleration of any obligation or loss of any benefit) under
any of the terms, conditions, or provisions of any Company Contract which would
have a Material Adverse Effect; (iii) conflict with, violate, or result in the
termination of any permit, concession, franchise, or license held by the Company
or any Subsidiary; nor (iv) violate any Order or Law which violation would have
a Material Adverse Effect.
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(d) The Company and each Subsidiary is qualified to transact business as a
foreign corporation in all those states and jurisdictions in which its
activities require it to so qualify unless the failure to so qualify would not
have a Material Adverse Effect. A list of states and jurisdictions where the
Company or a Subsidiary is so qualified to transact business is set forth in the
Disclosure Memorandum.
5.2. Ownership of Shares; Subsidiaries. (a) The total authorized capital
stock of the Company is as set forth in the Disclosure Memorandum.
(b) All of the issued and outstanding shares of capital stock or other
outstanding equity interests of any nature in each Subsidiary ("Subsidiary
Interests") are owned of record and beneficially held by the Persons listed in
the Disclosure Memorandum, free and clear of any Liens. There are no outstanding
contracts, demands, commitments, or other agreements or arrangements under which
any holder of Subsidiary Interests is or may become obliged to sell, transfer,
or assign any Subsidiary Interests, except as disclosed in the Disclosure
Memorandum. There are no Persons with any claims or rights to any Subsidiary
Interests, except as disclosed in the Disclosure Memorandum.
(c) All the Shares and Subsidiary Interests are duly authorized and validly
issued, and, fully paid, and nonassessable and were authorized, offered, issued,
and sold in accordance with all applicable securities and other Laws and all
rights of stockholders and other Persons. No Person has any preemptive rights or
other rights to acquire any stock or other equity interest in the Company or in
any Subsidiary, whether issued and outstanding or otherwise. Except as set forth
in the Disclosure Memorandum, there are no outstanding securities convertible
into an equity interest or rights to subscribe for or to purchase, or any
options, warrants, or other rights for the purchase of, or any agreements or
arrangements providing for the issuance (contingent or otherwise) of, or any
Actions relating to, stock or other equity interest in the Company or any
Subsidiary. There are no voting trusts, proxies, or other agreements or
understandings with respect to the voting of any interest in or exercise of any
control rights with respect to the Company or any Subsidiary. Neither the
Company nor any Subsidiary is subject to any obligation to repurchase or
otherwise acquire or retire any equity interest therein or has any liability for
distributions or dividends declared or accrued, but unpaid, with respect to its
equity interests. The Company has not purchased or redeemed any of its capital
stock, paid any dividend, or made any other distribution or payment in respect
of such stock to any Person since the Reference Date.
(d) Each corporation, limited partnership, general partnership, joint
venture, limited liability company, or other entity in which the Company holds
directly or indirectly (including through one or more other entities or a chain
of entities) any stock, limited partnership interest, general partnership
interest, joint venture interest, or other equity interest or security or any
investment is listed in the Disclosure Memorandum. The Disclosure Memorandum
also lists all the equity owners of each such Subsidiary and the nature and
amount of equity interest owned by each such owner. There are no equity
interests in any Subsidiary except those owned by the Company or another
Subsidiary. Except for the Subsidiaries set forth in the Disclosure Memorandum,
the Company does not,
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directly or indirectly, own or have any interest, direct or indirect, or any
commitment to purchase or otherwise acquire, any capital stock, partnership
interest, or other security, or other equity interest, direct or indirect, in
any other Person.
5.3. Consents. No consent, approval, order, or authorization of, or
registration, declaration, or filing with, any Government is required by or with
respect to the Company or any Subsidiary in connection with the execution and
delivery of this Agreement or the Escrow Agreement or the consummation of the
transactions contemplated hereby, except for (i) the filing of the pre-merger
notification report under the HSR Act; (ii) the filing of a certificate of
merger with the Secretary of State of the State of Delaware; and (iii) consents
or approvals of the Governments issuing liquor licenses and related approvals in
the jurisdictions where the Restaurants are located.
5.4. Legal Compliance. Neither the Company nor any Subsidiary is in default
under or in violation of (a) its certificate or articles of incorporation,
bylaws, or partnership agreement or (b) any Order except for such defaults or
violations that would not, individually or in the aggregate, have a Material
Adverse Effect. The operations of the Company, the Subsidiaries, and their
respective predecessors, if any, have been conducted in all material respects in
compliance with all applicable Laws. Neither the Company nor any Subsidiary has
received any notification of any asserted past or present failure to comply with
any applicable Law.
5.5. Possession of Permits. Except where the failure to possess such
Permits or a violation of such Permits would not have a Material Adverse Effect,
the Company and the Subsidiaries possess all material franchises, certificates,
licenses, permits, bonds, and other authorizations from Governments and all
other Persons that are necessary for the ownership, maintenance, and operation
of their properties and assets and the conduct of the Business ("Permits") and
are not in violation thereof. Company and its Subsidiaries hold such Permits
free of any claims or restrictions (other than any restrictions in existence at
the time such Permits were issued) and have fulfilled and performed all of their
material obligations with respect to such Permits and no event has occurred
which allows, nor after notice of lapse of time or both would allow, revocation
or early termination thereof or would result in any other impairment of the
rights of the holder of any such Permits. Except as set forth in the Disclosure
Memorandum, the consummation of the Merger will not result in the revocation,
termination, or impairment of any Permit or require the consent of any Person in
order to avoid any such revocation, termination, or impairment.
5.6. Financial Statements. Prior to the date hereof, the Company has
delivered to Apple South copies of (i) the audited consolidated balance sheet of
Company for the year ended December 31, 1996, and the audited consolidated
statements of operations, stockholders' equity and cash flow of the Company for
such period; and (ii) unaudited consolidated financial statements of the Company
for the three-month period ended March 31, 1997 ("Reference Date"), including an
unaudited consolidated balance sheet of the Company as of the end of such period
(the "Reference Balance Sheet") and consolidated statement of operations of the
Company for such period (the financial statements referred to
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in clauses (i) and (ii) of this Paragraph 5.6 being collectively referred to as
the "Financial Statements"). The Financial Statements have been prepared in
accordance with GAAP consistently applied, present fairly (subject in the case
of unaudited financial statements to normal recurring audit adjustments) the
consolidated financial condition of the Company as at the respective dates
thereof and the results of the Company's operations and cash flows for the
periods then ended, and are consistent with the books and records of the
Company, which are true, correct, and complete in all material respects.
5.7. Liabilities. Neither the Company nor any Subsidiary has any Liability,
except (i) as reflected in the Reference Balance Sheet, (ii) Liabilities
incurred in the ordinary course of business since the Reference Date consistent
with past experience of the Company and Subsidiaries during the period covered
by the Financial Statements (none of which results from, arises out of, relates
to, is in the nature of, or was caused by any breach of contract, breach of
representation or warranty, tort, product liability, "dram shop" liability,
infringement, or violation of any Law or Order), or (iii) Liabilities shown on
the Disclosure Memorandum.
5.8. Events Subsequent to Reference Date. Since the Reference Date, except
as shown on the Disclosure Memorandum, neither the Company nor any Subsidiary
has: (i) issued any stock, bond, options, warrants, rights, partnership
interests, other equity interests, or other securities; (ii) borrowed any amount
or incurred any obligations or liabilities (absolute or contingent), except
current obligations and liabilities incurred in the ordinary course of business
of the type and in the amounts consistent with the period covered by the
Reference Balance Sheet; (iii) sold, assigned, mortgaged, pledged, subjected to
Lien or otherwise transferred any interest in any of the assets reflected in the
Financial Statements or canceled any debts or claims; (iv) suffered any casualty
losses in excess of $25,000, or waived any rights in excess of $25,000 in value;
(v) made any material changes in employee compensation; (vi) materially reduced
its level of inventory or supplies; (vii) materially changed the number of
employees or management personnel, except as a result of the opening of new
restaurants; (viii) canceled, entered into, or amended any Company Contract or
agreement except in the ordinary course of business and consistent with past
practice; or (ix) changed the operation of the Business in any material respect.
5.9. Taxes. Except as set forth on the Disclosure Memorandum, the Company
and each Subsidiary and any entity at any time eligible or required to file a
consolidated or combined Tax return with the Company (individually, an
"Affiliated Entity" and collectively, the "Affiliated Entities"), have duly and
timely filed all federal, state, municipal, local, and foreign, if any, Tax
returns and reports (including returns for estimated tax), and all reports and
returns of all other Governments having jurisdiction required to have been filed
as of the date hereof (collectively, "Returns") with respect to all Taxes
(including, without limitation, consolidated or combined Tax returns of some or
all of the Affiliated Entities); all such Tax returns and reports show the
correct and proper amount due; and the Taxes shown on all Tax returns and
reports and all Tax assessments received by the Company, a Subsidiary, or any
Affiliated Entity have been paid to the extent that such Taxes or estimates are
due, except such as are being or may be contested in good faith by
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appropriate proceedings. The Company and each Subsidiary has previously provided
Apple South with true, correct, and complete copies of all Returns filed with
respect to the three tax years preceding the date hereof. Except as set forth in
Disclosure Memorandum, all Taxes imposed on the Company, a Subsidiary, or
Affiliated Entities by any Government (including all deposits in connection
therewith required by applicable Law, and all interest and penalties thereon)
which have become due and payable by the Company for all periods through the
date hereof have been paid in full, except such as are being or may be contested
in good faith by appropriate proceedings. No reserves for future Taxes of the
Company and the Subsidiaries have been set up on the books of the Company or the
Subsidiaries. Except as set forth in the Disclosure Memorandum, the Company has
not received any proposed assessment against it or any Affiliated Entity of
additional Taxes of any kind. The Company is not a party to any Tax sharing or
Tax allocation agreement, understanding, arrangement, or commitment that include
any party other than any wholly-owned Subsidiary. There is no dispute or Action
concerning any Tax Liability of the Company raised by a Government in writing.
5.10. Properties. The Company has good title to all properties and assets
reflected in the Reference Balance Sheet, except inventories and other
immaterial assets which have been disposed of in the ordinary course of business
since the Reference Date, and all other properties and assets necessary to
conduct the Business as currently being conducted and as conducted during the
period covered by the Financial Statements (other than any leased property),
free and clear of Liens, except (i) as may be set forth in the notes to the
Reference Balance Sheet or in the Disclosure Memorandum; (ii) Liens for current
taxes and assessments not yet due or being contested in good faith by
appropriate proceedings, (iii) mechanic's Liens arising under the operation of
law for actions contested in good faith or for which payment arrangements have
been made; (iv) Liens granted or incurred by the Company or its Subsidiaries in
the ordinary course of their business for financing of office space, furniture,
and computers in the ordinary court of their Business; and (v) easements, rights
of way, encroachments or other reductions or matters affecting title which do
not prevent the assets from being used for the purpose for which they are
currently being used and which do not in the aggregate have a Material Adverse
Effect.
5.11. Real Estate.
(a) Neither Company nor any Subsidiary owns any real property except as
shown in the Disclosure Memorandum.
(b) The water, electric, gas, and sewer utility services, and storm
drainage facilities currently available to any Real Property owned or leased by
the Company or a Subsidiary (the "Real Property") are adequate for the conduct
of the Business as currently conducted and the operation of the Restaurants, and
to the knowledge of the Company, there is no condition which will result in the
termination of the present access from the Real Property to such utility
services and facilities.
(c) The Company and the Subsidiaries have obtained, or landlords have
obtained on their behalf, all easements, authorizations, and rights-of-way,
which are
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reasonably necessary to ensure reasonable vehicular and pedestrian ingress and
egress to and from the Real Property. To the Company's knowledge, except as set
forth in the Disclosure Memorandum, there are no restrictions on entrance to or
exit from the Real Property to adjacent public streets, roadways, or parking
lots presently used other than as contained in such easements, authorizations,
and rights of way, and no conditions which will result in the termination of the
present access from the Real Property to existing highways and roads and parking
lots or private drives presently used other than as contained in such easements,
authorizations, and rights of way.
(d) Neither the Company nor any Subsidiary has received any notices, oral
or written, that any Government having the power of eminent domain over the Real
Property has commenced or intends to exercise the power of eminent domain or a
similar power with respect to all or any part of the Real Property.
(e) To the Company's knowledge, except as set forth in the Disclosure
Memorandum, the Real Property and the present uses thereof by the Company and
the Subsidiaries comply in all material respects with all regulations of any
Government having jurisdiction over the Real Property.
(f) The improvements located on the Real Property and used by the Company
or the Subsidiaries are in good condition and are structurally sound, and all
mechanical and other systems located therein are in good operating condition, in
each case, subject to normal wear and tear, and no condition exists requiring
material repairs, alternations, improvements, or corrections, except to that all
such cases in the aggregate do not require repairs, alterations, improvements,
or corrections that would have a Material Adverse Effect.
(g) Each Restaurant provides on or off-site (pursuant to applicable
agreements) parking sufficient to satisfy any applicable Laws.
(h) To the Company's knowledge, no work for municipal improvements has been
commenced on, or in connection with, any parcel of Real Property or any street
adjacent thereto which is likely to result in a special assessment on the Real
Property or materially impede access to the Real Property and, to the knowledge
of the Company, no such improvements are contemplated which in either such case
would have a Material Adverse Effect. No assessment for public improvements has
been made against the owned Real Property or, to the Company's knowledge, the
leased Real Property, which remains unpaid. No written notice from any
Government has been served upon the owned Real Property or received by the
Company or any Subsidiary, or to the Company's knowledge received by the owner
of the leased Real Property requiring or calling attention to the need for any
work, repair, construction, alteration, or installation on, or in connection
with, the Real Property which has not been complied with in all material
respects or contested in good faith by appropriate proceedings.
5.12. Owned and Leased Real Property. (a) The Company or a
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Subsidiary has good and marketable title to all of the real property reflected
on the Reference Balance Sheet as owned by the Company or a Subsidiary. No
options have been granted to others to purchase, lease, or otherwise acquire any
interest in the owned Real Property or any part thereof. The present use,
occupancy, and operation of the owned Real Property are in compliance in all
material respects with all, and not in violation in any material respect of any,
Laws and with all private restrictive covenants of record. To the knowledge of
the Company, there exists no conflict or dispute with any Government or other
Person relating to any owned Real Property or the activities thereon.
(b) The Disclosure Memorandum identifies each parcel or tract of real
property which is used by the Company or any Subsidiary in the Business which is
subject to a lease or sublease under which the Company or any Subsidiary is
lessee or sublessee (individually, a "Real Property Lease"). All Real Property
Leases are valid in all material respects and in full force and effect in
accordance with their terms in all material respects. The Company has furnished
Apple South with true, correct, and complete copies of all Real Property Leases.
There is not, with respect to any Real Property Lease (a) any material default
by the Company or any Subsidiary, or any event of default or event which with
notice or lapse of time, or both, would constitute a material default by the
Company or any Subsidiary or (b) to the knowledge of the Company, any existing
material default by any other party to any Real Property Lease, or event of
default or event which with notice or lapse of time, or both, would constitute a
material default by any other party to any Real Property Lease.
5.13. Personal Property. (a) All machinery, equipment, vehicles, and other
items of tangible personal property which are owned or leased by the Company or
any Subsidiary having a fair market value of $10,000 or more, are in good
condition and repair, subject to normal wear and tear, suited for the use
intended, and are and have been operated in material conformity with applicable
Laws.
(b) Neither the Company nor any Subsidiary is in material default under any
lease of machinery, equipment, or other tangible personal property. To the
Company's knowledge, all lessors of machinery, equipment, or other tangible
personal property leased by the Company or any Subsidiary have performed and
satisfied their respective duties and obligations under such leases. Neither the
Company nor any Subsidiary has brought or threatened any Action against any such
lessor for failure to perform and satisfy its duties and obligations thereunder.
(c) Except as set forth in the Disclosure Memorandum, all tangible personal
property used in the Restaurants or otherwise in the Business and having a fair
market value of $5,000 or more is owned by the Company or a Subsidiary or is
leased pursuant to a written lease agreement. Such personal property is
sufficient for the operation of the Business and the Restaurants.
5.14. Intellectual Property Rights. (a) All of the patents, copyrights,
trademarks, service marks, trade names, and applications therefor or
registrations thereof
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which are owned or used by the Company or any Subsidiary are set forth in the
Disclosure Memorandum which indicates which of the same are owned and which are
licensed from third parties. Except as set forth in the Disclosure Memorandum,
neither the Company nor any Subsidiary is a party to, either as a licensor or
licensee, and/or is bound by or subject to, any license agreement for any
patent, process, trademark, service mark, trade name, copyright, trade secret,
or confidential information that is material to the operation of the Business or
any Restaurant. Except as set forth in the Disclosure Memorandum, to the
Company's knowledge, there are no rights of third parties with respect to any
trademark, service mark, trade secret, confidential information, trade name,
patent, patent application, copyright, invention, device, or process utilized by
the Company which could reasonably be expected to have a Material Adverse
Effect. The Company and the Subsidiaries have complied in all material respects
with all applicable Laws relating to the filing or registration of "fictitious
names" or trade names.
(b) Except as set forth in the Disclosure Memorandum, to the knowledge of
Company, neither the Company nor any Subsidiary has interfered with, infringed
or misappropriated any intellectual property rights of any other person, and
neither the Company, any Subsidiary, nor any of their officers, directors, or
partners has within the last five years received any charge, complaint, claim,
demand, or notice alleging any such interference, infringement,
misappropriation, or violation. Except as set forth in the Disclosure
Memorandum, to the Company's knowledge, no Person has interfered with, infringed
upon, misappropriated, or otherwise come into conflict with the proprietary
inventions, designs, ideas, processes, methods and other know-how, trademarks,
service marks, trade names, copyrights, or other intellectual property of the
Company or any Subsidiary which are owned or used in the operation of its
business.
5.15. Contracts. (a) All Company Contracts are valid and enforceable in all
material respects in accordance with their terms, are in full force and effect
(subject to applicable bankruptcy, insolvency, reorganization, moratorium, or
other similar laws affecting the rights of creditors generally and general
principles of equity) and in full force and effect on identical terms
immediately following Closing except as set forth in the Disclosure Memorandum.
All Company Contracts are listed in the Disclosure Memorandum, and true,
correct, and complete copies of all Company Contracts have been delivered or
made available to Apple South.
(b) Except as set forth in the Disclosure Memorandum, there are no existing
material defaults, events of default or events which, with the giving of notice
or lapse of time or both, would constitute a material default by the Company or
any Subsidiary under any Company Contract. To the Company's knowledge, no event
has occurred which may hereafter give rise to any right of termination,
acceleration, damages or any other remedy under any Company Contract.
5.16. Insurance. The Disclosure Memorandum lists the types, amounts of
coverage, and deductibles of all insurance policies of the Company and
Subsidiaries, and true, correct, and complete copies thereof have been delivered
or made available to Apple South.
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All premiums due on such policies have been paid, and neither the Company nor
any Subsidiary has received any notice of cancellation with respect thereto.
Neither the Company nor any Subsidiary has any Liability for premiums past due
or to the knowledge of the Company for retrospective premium adjustments for any
period through the date hereof.
5.17. Environmental Matters. The Company and the Subsidiaries hold all
Environmental Permits necessary for conducting the Business and their operations
and have conducted, and are presently conducting, the Business and their
operations in material compliance with all applicable Environmental Laws and
Environmental Permits held by them, including, without limitation, all record
keeping and filing requirements. To the Company's knowledge, all Hazardous
Materials and Solid Waste, on, in, or under Real Property, or any other property
operated by the Company or any Subsidiary, wherever located, have been properly
removed and disposed of, and to the Company's knowledge no past or present
disposal, discharge, spill, or other release of, or treatment, transportation,
or other handling of Hazardous Materials or Solid Waste on, in, under or
off-site from any Real Property, or adjacent property, will subject the Company,
any Subsidiary, or any subsequent owner, occupant, or operator of such Real
Property to corrective or compliance action or any other Liability. There are no
presently pending, or to Company's knowledge, threatened Actions or Orders
against or involving the Company or any Subsidiary (including any other Person
for whose acts or omissions the Company or any Subsidiary is responsible)
relating to any alleged past or ongoing violation of any Environmental Laws or
Environmental Permits, nor is the Company or any Subsidiary subject to any
Liability for any such past or ongoing violation.
5.18. Conditions Affecting Business. Except as set forth in the Disclosure
Memorandum, there is no fact, development, or threatened development with
respect to the services, customers, facilities, personnel, vendors, suppliers,
operations, or assets of the Business which are known to the Company and which
may reasonably be expected to materially adversely affect the Business or the
operations or performance of any Restaurant, other than such conditions as may
affect the local, regional, or national economy generally or the restaurant
industry generally. The Company does not have any reason to believe that any
loss of any key employee, agent, or supplier or other advantageous arrangement
will result because of the consummation of the transactions contemplated hereby.
5.19. Litigation. Except as set forth in the Disclosure Memorandum, there
is no Action or investigation pending or, to the knowledge of the Company,
threatened against the Company or any Subsidiary, or any of their properties or
rights before any court or by or before any Forum. To the Company's knowledge,
there does not exist any basis for any such Action or investigation. There are
no unsatisfied judgments or Orders against the Company, any Subsidiary, or any
of their predecessors or to which any of them or their assets and properties are
subject.
5.20. Labor Matters. Neither the Company nor any Subsidiary is or since
January 31, 1993, has been, a party to any collective bargaining or other labor
agreement. There is not pending or threatened any labor dispute, strike, work
stoppage, union
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representation, election, negotiation of collective bargaining agreement, or
similar labor matter. To the knowledge of the Company, neither the Company nor
any Subsidiary is involved in any controversy with any of its employees or any
organization representing any such employees of the Company. The Company and
each Subsidiary is in material compliance with all Laws and agreements relating
to the employment of their respective employees, including, without limitation,
provisions thereof relating to wages, bonuses, hours of work, and the payment of
Social Security and withholding taxes, and neither the Company nor any
Subsidiary is liable for any unpaid wages, bonuses, or commissions, or any tax,
penalty, assessment, or forfeiture for failure to comply with any of the
foregoing which would have a Material Adverse Effect.
5.21. Employee Benefits.
(a) The Disclosure Memorandum hereto contains a true and complete list of
all the following agreements or plans of the Company or any Subsidiary which are
presently in effect:
(i) "employee welfare benefit plans" and "employee pension benefit plans,"
as defined in Sections 3(1) and 3(2), respectively, of the Employee Retirement
Income Securities Act of 1974, as amended ("ERISA");
(ii) any other pension, profit sharing, retirement, deferred compensation,
stock purchase, stock option, incentive, bonus, vacation, severance, disability,
health, hospitalization, medical, life insurance, vision, dental, prescription
drug, supplemental unemployment, layoff, automobile, apprenticeship and
training, day care, scholarship, group legal benefits, fringe benefits, or other
employee benefit plan, program, or arrangement, whether written or unwritten,
formal or informal, which the Company or any Subsidiary maintains or to which
the Company or any Subsidiary has any outstanding, present, or future obligation
to contribute to or make payments under, whether voluntary, contingent, or
otherwise (the plans, programs, policies or arrangements described in clauses
(i) or (ii) of this paragraph are herein collectively referred to as the "ERISA
Plans").
(b) Except as described on the Disclosure Memorandum, neither the Company
nor any Subsidiary has an employee stock ownership plan as defined in Sections
4975(e)(7) or 409 of the Code.
(c) Neither the Company nor any Subsidiary presently contributes and/or has
ever contributed or been obligated to contribute to a multi-employer pension
plan as defined in section 3(37)(A) of ERISA.
(d) No ERISA Plan of the Company or any Subsidiary is subject to Title IV
of ERISA.
5.22. Agreements and Transactions with Related Parties. Except as set
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forth in the Disclosure Memorandum, neither the Company nor any Subsidiary is
directly or indirectly a party to any contract, agreement, or lease with, or any
other commitment to, (a) a Stockholder, (b) any Affiliate or Relative of a
Stockholder, (c) any director or officer of the Company, (d) any Person in which
any of the foregoing Persons has, directly or indirectly, at least a 5%
beneficial interest in the capital stock or other type of equity interest of
such Person, or (e) any partnership in which any of the foregoing Persons is a
general partner or has at least a 5% beneficial interest (any or all of the
foregoing being referred to herein as "Related Parties"). Without limiting the
generality of the foregoing, (x) no Related Party, directly or indirectly, owns
or controls any assets or properties which are used in the Company's business,
except as set forth in the Disclosure Memorandum, and (y) except as set forth in
the Disclosure Memorandum, no Related Party, directly or indirectly, engages in
or has any significant interest in or in connection with any business which is
or which within the last three years has been a supplier of the Company or any
Subsidiary or has done business with the Company or any Subsidiary.
5.23. Disclosure. The Company has provided Apple South or its
representatives with all the information and documentation that Apple South has
requested in analyzing whether to consummate the Merger, and the Company has
made the books and records of the Company and the Subsidiaries available for
inspection and review by Apple South and its representatives and agents. None of
the information and documentation so provided or made available, when viewed in
the aggregate, contains any misrepresentation or omits to state any material
fact necessary in order to make the aggregate of such information, in light of
the circumstances under which it was disclosed, not misleading.
The representations and warranties set forth herein are made and given
subject to the disclosures contained in the Disclosure Memorandum. The Company
shall not be or be deemed to be in breach of any such representations or
warranties (and no claim shall lie in respect thereof) in respect of any such
matter so disclosed in the Disclosure Memorandum. As requested by Apple South,
the specific disclosures set forth in the Disclosure Memorandum have been
organized by the Company to correspond to schedule references in this Agreement
to which the disclosure may be most likely to relate but such disclosure shall
apply to and shall be deemed to be disclosed for the purposes of the Agreement
generally, and all of the representations and warranties contained herein.
5A. REPRESENTATIONS, WARRANTIES, AND COVENANTS OF THE STOCKHOLDERS
Each Stockholder, severally and not jointly, for himself or itself and not
with respect to any other Stockholder, represents and warrants to Apple South
and Merger Sub that the statements contained in this Article 5A are true and
correct, except as set forth in the Disclosure Memorandum.
5A. 1 Authority.
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(a) The Stockholder has all requisite power, capacity and authority to
enter into this Agreement and to consummate the transactions contemplated by
this Agreement. The execution and delivery of this Agreement and the
consummation of the transactions contemplated by this Agreement have been duly
authorized by all necessary corporate or other action on the part of the
Stockholder. This Agreement has been duly executed and delivered by the
Stockholder and constitutes the valid and binding obligation of such
Stockholder, enforceable in accordance with its terms, subject to applicable
bankruptcy, insolvency, reorganization, moratorium, or other similar laws
affecting the rights of creditors generally and general principles of equity.
(b) Except as set forth in the Disclosure Memorandum or as contemplated
pursuant to provisions hereof, the execution and delivery of this Agreement does
not, and the consummation of the transactions contemplated by this Agreement
will not, conflict with, result in a breach of or the acceleration of any
obligation under, or constitute a default or event of default (or event which
with notice or lapse of time or both would constitute a default) under, any
provision of any charter, bylaw, indenture, mortgage, lien, lease, license,
agreement, contract, permit, instrument, order, judgment, decree, ordinance or
regulation, or any restriction to which any property of any such Stockholder is
subject or by which such Stockholder is bound, the effect of which would result
in a Material Adverse Effect, would materially affect the ability of such
Stockholder to perform his or its obligations hereunder. Except as set forth in
the Disclosure Memorandum, the Stockholder is not in violation of any rule or
regulation promulgated or judgment entered by any Forum relating to or affecting
the operation, conduct or ownership of the property or business of such
Stockholder or the property or business of the Company and its Subsidiaries,
taken as a whole, which violation would have a Material Adverse Effect or would
materially affect the ability of such Stockholder to perform his or its
obligations hereunder.
5A.2 Title. All of the Shares are owned of record and beneficially and held
by the Persons listed in the Disclosure Memorandum, free and clear of any Liens.
There are no outstanding contracts, demands, commitments, or other agreements or
arrangements under which any holder of Shares is or may become obligated to
sell, transfer, or assign any of the Shares, except as disclosed in the
Disclosure Memorandum. To the Stockholder's knowledge, there are no Persons with
any claims or rights to any Shares, except as disclosed in the Disclosure
Memorandum.
5A.3 Consents. No consent, approval, order, or authorization of, or
registration, declaration, or filing with, any Government is required by or with
respect to the Stockholder in connection with the execution and delivery of this
Agreement or the Escrow Agreement or the consummation of the transactions
contemplated hereby, except for (i) the filing of the pre-merger notification
report under the HSR Act; (ii) the filing of a Certificate of Merger with the
Secretary of State of the State of Delaware; and (iii) consents or approvals of
the Governments issuing liquor licenses and related approvals in the
jurisdictions where the Restaurants are located.
5A.4 Disclosure. The representations and warranties set forth herein are
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made and given subject to the disclosures contained in the Disclosure
Memorandum. The Stockholder shall not be or be deemed to be in breach of any
such representations or warranties (and no claim shall lie in respect thereof)
in respect of any such matter so disclosed in the Disclosure Memorandum. As
requested by Apple South, the specific disclosures set forth in the Disclosure
Memorandum have been organized by the Stockholders to correspond to schedule
references in this Agreement to which the disclosure may be most likely to
relate but such disclosure shall apply to and shall be deemed to be disclosed
for the purposes of the Agreement generally, and all of the representations and
warranties contained herein.
6. REPRESENTATIONS AND WARRANTIES OF APPLE SOUTH
Apple South hereby represents and warrants to the Company and the
Stockholders that the statements contained in this Article 6 are true and
correct:
6.1. Organization. Apple South is a corporation duly organized and validly
existing under the Laws of the State of Georgia. Merger Sub is a corporation
duly organized and validly existing under the Laws of the State of Delaware.
6.2. Authorization; No Inconsistent Agreements. Each of Apple South and
Merger Sub has all requisite corporate power and authority to enter into this
Agreement and, in the case of Apple South, the Escrow Agreement, and the
Registration Rights Agreement and to consummate the transactions contemplated by
this Agreement. The execution and delivery of this Agreement and, in the case of
Apple South, the Escrow Agreement, and Registration Rights Agreement and the
consummation of the transactions contemplated by this Agreement have been duly
authorized by all necessary corporate action on the part of Apple South and
Merger Sub. This Agreement has been duly executed and delivered by each of Apple
South and Merger Sub and constitutes the valid and binding obligation of each of
them, enforceable in accordance with its terms, subject to applicable
bankruptcy, insolvency, reorganization, moratorium, or other similar laws
affecting the rights of creditors generally and general principles of equity.
The execution and delivery of this Agreement by Apple South and Merger Sub does
not, and the execution and delivery of the Escrow Agreement and Registration
Rights Agreement by Apple South and the consummation of the transactions
contemplated by this Agreement will not, (i) conflict with, or result in any
violation or breach of any provision of the articles of incorporation or bylaws
of Apple South or Merger Sub, (ii) result in any violation or breach of, or
constitute (with or without notice or lapse of time, or both) a default (or give
rise to any right of termination, cancellation, or acceleration of any
obligation or loss of any benefit) under any of the terms, conditions, or
provisions of any material agreement of Apple South or Merger Sub, or (iii)
conflict with or violate any permit, concession, franchise, or license held by
Apple South or Merger Sub or any Order or Law.
6.3. Authorization of Apple South Stock. The shares of the Apple South
Stock to be issued pursuant to Paragraph 3.2 (i) have been duly authorized for
issuance at the Closing and upon issuance in accordance with this Agreement will
constitute duly
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authorized, fully paid and non-assessable shares of Common Stock of Apple South,
and (ii) will have been approved for inclusion on the National Market System of
the Nasdaq Stock Market.
6.4 Consents. No consent, approval, order, or authorization of, or
registration, declaration, or filing with, any Government is required by or with
respect to Apple South or Merger Sub in connection with the execution and
delivery of this Agreement, the Escrow Agreement, the Registration Rights
Agreement, or the consummation of the transactions contemplated hereby, except
for (i) the filing of the pre-merger notification report under the HSR Act; (ii)
the filing of a Certificate of Merger with the Secretary of State of the State
of Delaware; (iii) consents to approvals of the Governments issuing liquor
licenses in the jurisdictions where the Restaurants are located; and (iv) filing
with and issuance of an order by the SEC with respect to the registration of
Apple South Stock pursuant to the Registration Rights Agreement.
6.5 SEC Documents. The SEC Documents and the Current SEC Documents
represent all of the filings with the SEC that Apple South has been required to
make under the Securities Act and the Exchange Act during the periods covered
thereby. As of their respective dates, and except as amended, the SEC Documents
and the Current SEC Documents complied in all material respects with the
requirements of the Securities Act or the Exchange Act, as the case may be, and
none of the SEC Documents or the Current SEC Documents contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. The financial
statements of Apple South included in the SEC Documents and the Current SEC
Documents comply as to form in all material respects with applicable accounting
requirements and with the published rules and regulations of the SEC with
respect thereto, have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis during the periods involved
(except as may be indicated in the notes thereto or, in the case of the
unaudited statements, as permitted by Form 10-Q) and fairly present (subject, in
the case of the unaudited statements, to normal recurring audit adjustments) the
consolidated financial position of Apple South and its consolidated Subsidiaries
as at the dates thereof and the consolidated results of their operations and
cash flows for the periods then ended. There have been no material adverse
changes in the business, operations or financial condition or prospects of Apple
South and its Subsidiaries taken as a whole since March 31, 1997, and Apple
South's operations have been conducted in the ordinary course of business since
March 31, 1997.
6.6 Interim Operation of Merger Sub. Merger Sub was formed solely for the
purpose of engaging in the transactions contemplated hereby, has engaged in no
other business activities and has conducted its operations only as contemplated
hereby.
6.7 Capitalization of Apple South. Apple South has authorized capital stock
of (i) 75,000,000 shares of common stock, of which, as of the date of this
Agreement, 38,329,485 shares are issued and outstanding, and (ii) 10,000 shares
of special stock, of
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which no shares are issued and outstanding, and are presently convertible into
an aggregate of shares of Apple South's common stock. All of the issued and
outstanding shares of Apple South's common stock and preferred stock are duly
and validly issued and outstanding, fully paid and non-assessable. None of the
outstanding shares of Apple South's common stock and preferred stock have been
issued in violation of any preemptive rights of the current or past shareholders
of Apple South. As of the date hereof, Apple South has reserved for issuance (i)
an aggregate of shares of its common stock issuable on conversion of its
[convertible notes], (ii) an aggregate of shares of its common stock issuable
upon exercise of stock options granted to employees, officers, directors and
other persons, and (iii) an aggregate of shares of its common stock issuable
upon exercise of stock purchase warrants. Except as set forth in this Paragraph
6.7, there are no shares of capital stock or other equity securities of Apple
South outstanding, and no outstanding options, warrants, rights to subscribe
for, cause, or commitments of any character whatsoever relating to, or
securities or rights convertible into or exchangeable for, shares of the capital
stock of Apple South or contracts, commitments, understandings or arrangements
by which Apple South is or may be obligated to issues additional shares of its
capital stock or options, warrants, or rights to purchase or acquire any
additional shares of its capital stock. No investigation on the part of the
Company or the Stockholders shall diminish their right to rely on the
representations and warranties of Apple South and the Merger Sub contained in
this Agreement.
7. CONDUCT OF BUSINESS OF THE COMPANY PENDING CLOSING
The Company covenants and agrees that, except as may otherwise be provided
herein, without the prior written consent of Apple South, between the date
hereof and the date of the Closing:
7.1. Business in the Ordinary Course. The Company shall ensure that the
business of the Company and Subsidiaries is conducted only in the ordinary
course and consistent with prior practices. Without limiting the generality of
the foregoing:
(a) Neither the Company nor any Subsidiary shall sell, assign, transfer,
convey, pledge, mortgage, encumber, or otherwise dispose of, or cause the sale,
assignment, transfer, conveyance, pledge, mortgage, encumbrance, or other
disposition of, any material asset or property of the Company except in the
ordinary course of business.
(b) The Company and each Subsidiary shall protect, preserve, and maintain
all its assets in good condition, except for ordinary wear and tear; and shall
use commercially reasonable efforts to maintain in full force and effect all
insurance coverage described in the Disclosure Memorandum.
(c) The Company shall not take, or agree to take, any action that would
make any representation or warranty contained herein, untrue, incorrect, or
misleading in any material respect as of the date when made or at any time
through Closing, or that would cause
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any covenant by them contained herein not to be fulfilled in any material
respect.
7.2. No Material Changes. Except as expressly provided in this Agreement,
neither the Company nor any of its Subsidiaries shall take any action which
shall materially alter the organization, capitalization, financial structure,
practices, or operations of the Company or any Subsidiary. Without limiting the
generality of the foregoing:
(a) No change shall be made in the articles of incorporation or bylaws of
the Company or of any Subsidiary.
(b) No change shall be made in the authorized or issued capital stock of
the Company or any Subsidiary, except as contemplated hereby.
(c) Neither the Company nor any Subsidiary shall issue or grant any right
or option to purchase or otherwise acquire any capital stock or other security
of the Company or create or suffer any Lien on any Shares or any equity interest
in any Subsidiary.
(d) No dividend or other distribution or payment shall be declared or made
with respect to any capital stock of the Company, and the Company shall not,
directly or indirectly, redeem, purchase or otherwise acquire any capital stock.
(e) The Company shall not liquidate or voluntarily declare bankruptcy or
seek the appointment of a receiver, trustee, or custodian.
8. CONDITIONS TO OBLIGATIONS OF APPLE SOUTH AND MERGER SUB
All obligations of Apple South and Merger Sub hereunder are subject to the
fulfillment and satisfaction of each and every one of the following conditions
on or prior to the Closing, any or all of which may be waived in whole or in
part by Apple South, provided that no such waiver shall be effective unless it
is set forth in a writing executed by Apple South:
8.1. Representations and Warranties. Subject to the exceptions and
supplemental information set forth in the Disclosure Memorandum, the
representations and warranties contained in Articles 5 or 5A shall be true and
correct in all material respects as of the date when made and shall be deemed to
be made again at and as of the date of the Closing and shall be true and correct
in all material respects at and as of such time.
8.2. Compliance with Agreements and Conditions. The Company and the
Stockholders shall have materially performed and complied with all agreements
and conditions required hereby to be performed or complied with by them prior to
or on the date of the Closing.
8.3 Options, Warrants, Etc.. The Company shall have received all of
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the Option Relinquishment and Release Agreements and the Warrant Relinquishment
and Release Agreements contemplated by Paragraph 3.2(e) and (f).
8.4. No Pending Action. No Action shall be pending by any Government or
Person (i) against a party hereto to restrain or prohibit the consummation of
the transactions herein or (ii) which could reasonably be expected to have a
material adverse effect on the Company or the Business.
8.5. Certificate of the Principal Stockholder. The Principal Stockholder
shall have delivered to Apple South a certificate, dated the date of the
Closing, certifying as to the fulfillment and satisfaction of the conditions
specified in Paragraphs 8.1 and 8.2 pertaining to the Company and the Principal
Stockholder.
8.6. Resolutions. Apple South shall have received duly adopted resolutions
of the board of directors and the stockholders of the Company, certified by the
Secretary of the Company as of the date of the Closing, authorizing and
approving the execution hereof and all other documents executed by it and the
taking of any and all other actions necessary to enable the Company to comply
with the terms hereof and to consummate the Merger.
8.7. No Material Adverse Change. There shall have been no material adverse
change in the financial condition, results of operations, business, or assets of
the Company or the Subsidiaries since the date hereof. No amendment or
supplement to the Disclosure Memorandum shall have reported an occurrence likely
to have a Material Adverse Effect.
8.8. Opinion. Haynes and Boone, LLP, counsel to the Company, shall have
delivered to Apple South its opinion in substantially the form of Exhibit H
hereto.
8.9. Other Agreements. The Escrow Agreement, Registration Rights Agreement,
and Non-Compete Agreement shall have been fully executed and delivered by the
other parties thereto.
8.10. Hart-Scott-Rodino. Any applicable filings under the HSR Act shall
have been made and all applicable waiting periods thereunder shall have expired
or early termination thereof granted.
8.11 Consents. Without limiting the obligations of the parties set forth in
Paragraph 4.14, the Company shall have obtained the consent and approval (to the
extent required) of (i) the lessors of all Restaurant sites, buildings, and
fixtures, and any lessors of personal property to the Company or any Subsidiary,
and (ii) the other parties to any Company Contract, to the Merger and the
subsequent liquidation, or merger, of the Company and all Subsidiaries into
Apple South. Without limited the obligations of the parties set forth in
Paragraph 4.14, Apple South shall have obtained any consents, approvals, or
other actions relating to licenses required to sell liquor, beer, and wine at
the Restaurants in connection
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with the change in ownership of the Company and the subsequent liquidation or
merger of the Company and the Subsidiaries into Apple South.
9. CONDITIONS TO OBLIGATIONS OF THE STOCKHOLDERS AND THE
COMPANY
All obligations of the Stockholders and the Company hereunder are subject
to the fulfillment and satisfaction of each and every one of the following
conditions on or prior to the Closing, any or all of which may be waived in
whole or in part by the Company, provided that no such waiver shall be effective
unless it is set forth in a writing executed by the Company and the
Stockholders:
9.1. Representations and Warranties. The representations and warranties
contained in Article 6 hereof shall be true and correct in all material respects
on and as of the date when made and shall be deemed to be made again at and as
of the date of the Closing and shall be true and correct in all material
respects at and as of such time.
9.2. Compliance with Agreements and Conditions. Apple South and Merger Sub
shall have materially performed and complied with all agreements and conditions
required hereby to be performed or complied with by them prior to or on the date
of the Closing.
9.3. Certificate. Each of Apple South and Merger Sub shall have delivered
to the Company and the Stockholders a certificate executed by an executive
officer, dated the date of the Closing, as to the fulfillment and satisfaction
of the conditions specified in Paragraphs 9.1 and 9.2.
9.4 Other Agreements. The Escrow Agreement, Registration Rights Agreement,
and Non-Compete Agreement shall have been fully executed and delivered by the
parties thereto.
9.5 Hart-Scott-Rodino. Any applicable filings under the HSR Act shall have
been made, and all applicable waiting periods thereunder shall have expired or
been terminated.
9.6. No Pending Action. No Action shall have been instituted by any
Government or Person (i) against a party hereto to restrain or prohibit the
consummation of the transactions herein or (ii) which could reasonably be
expected to have a material adverse effect on the Company.
9.7. Opinion. Kilpatrick Stockton LLP, counsel to Apple South, shall have
delivered to Stockholders its opinion in substantially the form of Exhibit I
hereto.
9.8. No Material Adverse Change. There shall have been no material
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adverse change in the financial condition, results of operations, business, or
assets of Apple South since the date hereof.
9.9. Payment of Indebtedness. The Stockholders shall have received evidence
of (i) the repayment of all indebtedness of the Company to Silicon Valley Bank,
N.A., Brinker Restaurant Corporation and Petra Capital, LLC, the Company's
lenders, (ii) the repayment of indebtedness aggregating $106,725 to Gerald E.
Zahler, and (iii) the exercise by the Company of its option to purchase the
Leased Real Property relating to the Restaurant in Scottsdale, Arizona, and the
purchase of such Leased Real Property.
9.10. Release of Guaranties. Apple South shall have caused the Stockholders
to be released from all personal guarantees of any debt, liability, or other
obligation of the Company or any Subsidiary.
10. INDEMNITIES
10.1. Indemnification by Principal Stockholder. In accordance with and
subject to the provisions of this Article 10, the Principal Stockholder shall
hold harmless the Surviving Corporation, Apple South, their Affiliates, and the
officers, directors, agents, and employees of the Surviving Corporation, Apple
South, and their Affiliates (collectively, the "Apple South Indemnitees") from
and against any and all loss, damage, liability, cost, and expense, including
reasonable attorneys' fees and amounts paid in settlement (collectively, "Apple
South's Indemnified Losses"), suffered or incurred by any one or more of the
Apple South Indemnitees by reason of, or arising out of:
(a) any misrepresentation or breach of representation or warranty by any
Stockholder or the Company contained in this Agreement, the Disclosure
Memorandum, or any certificate or other agreement delivered by or on behalf of
any Stockholder or the Company pursuant to this Agreement;
(b) the breach of any covenant or agreement of the Principal Stockholder or
the Company contained in this Agreement or any other agreement delivered to
Merger Sub or Apple South by or on behalf of any Stockholder or the Company
pursuant to this Agreement; and
(d) any and all Actions and efforts reasonably undertaken in attempting to
avoid any of the foregoing losses, liabilities, damages, etc., or in enforcing
this indemnification.
10.2. Indemnification by Apple South. In accordance with and subject to the
provisions of this Article 10, Apple South shall indemnify and hold harmless the
Stockholders from and against any and all loss, damage, liability, cost, and
expense, including reasonable attorneys' fees and amounts paid in settlement
("Stockholders' Indemnified Losses", and together with Apple South's Indemnified
Losses, "Indemnified Losses"),
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suffered or incurred by any one or more of the Stockholders by reason of,
or arising out of:
(a) any misrepresentation or breach of representation or warranty contained
in this Agreement or any certificate or other agreement delivered by or on
behalf of Apple South or Merger Sub pursuant to this Agreement; and
(b) the breach of any covenant or agreement of Apple South or Merger Sub
contained in this Agreement or any other agreement delivered to the Company or
Stockholders by or on behalf of Apple South or Merger Sub pursuant to this
Agreement;
(c) any guarantee prior to the Closing by a Stockholder of any obligation
of the Company or a Subsidiary; and
(d) any and all Actions, and efforts reasonably undertaken in attempting to
avoid any of the foregoing losses, liabilities, damages, etc., or in enforcing
this indemnification.
10.3. No Liability or Contribution by the Surviving Corporation. The
Surviving Corporation shall not have any liability to any Stockholder as a
result of any misrepresentation or breach of representation or warranty by the
Company contained in this Agreement, the Disclosure Memorandum, or any
certificate, instrument, agreement, or other writing delivered by or on behalf
of any Stockholder or the Company pursuant to this Agreement or in connection
with the transactions contemplated herein, or the breach of any covenant or
agreement of any Stockholder or the Company contained in this Agreement or in
the Disclosure Memorandum, or in any certificate, instrument, agreement, or
other writing delivered to Apple South by or on behalf of any Stockholder or the
Company pursuant to the provisions of this Agreement or in connection with the
transactions contemplated herein, and no Stockholder shall have any right of
indemnification or contribution against the Surviving Corporation on account of
any event or condition occurring or existing prior to or on the date hereof.
10.4. Survival. The representations and warranties contained in this
Agreement or in any Schedule, certificate, instrument, agreement, or other
writing delivered by or on behalf of any party pursuant to this Agreement or in
connection with the transactions contemplated herein shall survive any
investigation heretofore or hereafter made by any of the parties and the
consummation of the transactions contemplated herein and shall continue in full
force and effect for the periods specified below ("Survival Period"):
(a) the representations and warranties contained in Paragraph 5.1, 5.2,
5A.1 and 5A.2 or relating to the reporting, payment, or liability for Taxes or
relating to labor, ERISA, or employment matters or environmental matters shall
survive until the expiration of any applicable statute or period of limitations,
and any extensions thereof; and
(b) all other representations and warranties by the
48
<PAGE>
Company or any Stockholder shall be of no further force and effect after
February 28, 1998.
Anything to the contrary notwithstanding, the Survival Period shall be extended
automatically to include any time period necessary to resolve a claim for
indemnification which was made before expiration of the Survival Period but not
resolved prior to its expiration, and any such extension shall apply only as to
the claims asserted and not so resolved within the Survival Period. Liability
for any such item shall continue until such claim shall have been finally
settled, decided or adjudicated.
10.5 Defense of Third Party Claims. With respect to any claim under
Paragraph 10.1 (including any third party claims for Taxes relating to a breach
of Paragraph 5.9) relating to a third party claim or demand, Apple South shall
provide the Principal Stockholder with prompt written notice thereof and the
Principal Stockholder may defend, in good faith and at his expense, by legal
counsel chosen by him and reasonably acceptable to Apple South any such claim or
demand, and Apple South, at its expense, shall have the right to participate in
the defense of any such third party claim. So long as the Principal Stockholder
is defending in good faith any such third party claim, Apple South shall not
settle or compromise such third party claim. In any event Apple South shall
cooperate in the settlement or compromise of, or defense against, any such
asserted claim. If the Principal Stockholder does not so elect to defend any
such third party claim, Apple South shall have no obligation to do so.
10.6 Limitation of Liability. Except for breach of any representation or
warranty contained in Paragraphs 4.2, 4.11, 5.1, 5.2, 5A.1, 5A.2 or 5A.3 of this
Agreement, for which a claim for Apple South's Indemnified Losses may be made
regardless of the amount of all Apple South's Indemnified Losses, Apple South
Indemnitees shall not be entitled to any recovery under this Article 10 with
respect to a breach of any representation or warranty unless and until the
aggregate amount of Apple South's Indemnified Losses exceeds $300,000. The
maximum aggregate amount of Apple South Indemnified Losses that the Principal
Stockholder shall be obligated to pay pursuant to this Agreement shall not be
more than $2,000,000. Apple South and Merger Sub covenant and agree first to
pursue any and all indemnity claims contemplated hereby from the Apple South
Stock held in escrow pursuant to the Escrow Agreement attached hereto as Exhibit
E, with it being understood that the market value of such stock shall be deemed
to equal the Average Price thereof. Once all such amounts held in escrow have
been fully and finally exhausted, Apple South and Merger Sub may then seek
recovery of any additional indemnified claims from the Principal Stockholder
directly. Notwithstanding any other provision of this Agreement, the amount of
Apple South's Indemnified Losses shall be computed on an after-tax basis and
shall be net of insurance proceeds, if any, received with respect to the matter
out of which the Apple South Indemnified Losses arose. Notwithstanding anything
to the contrary set forth in this Agreement, the Principal Stockholder shall not
have any liability to Apple South or Merger Sub, whether pursuant to the Escrow
Agreement or otherwise, for any breach of representation or warranty contained
in this Agreement or in any other document executed and delivered pursuant
hereto or in connection herewith unless the subject of such breach was
49
<PAGE>
known by the Principal Stockholder, or was an item of which he was aware,
at the time of Closing.
10.7 Escrow. Any claim for Apple South Indemnified Losses against the
Principal Stockholder shall be asserted first against the shares of Apple South
Stock held in escrow pursuant to the Escrow Agreement and then against the
Principal Stockholder personally only to the extent that the amount held in
escrow is insufficient or the escrow has terminated.
11. TERMINATION.
This Agreement may be terminated prior to the Closing (i) at the election
of the Company if any one or more of the conditions to the obligations of the
Stockholders and the Company to close has not been cured or fulfilled as of the
Termination Date; (ii) at the election of Apple South, if any one or more of the
conditions to its obligations to close has not been fulfilled as of the
Termination Date; (iii) upon at least five days' prior written notice, at the
election of the Company, if Apple South has breached any material
representation, warranty, covenant, or agreement contained in this Agreement,
which breach cannot be or is not cured by the Termination Date; (iv) upon at
least five days' prior written notice, at the election of Apple South, if the
Company has breached any material representation, warranty, covenant, or
agreement contained in this Agreement, which breach cannot be or is not cured by
the Termination Date; or (v) at any time or prior to the Closing Date, by mutual
written consent of the Company and Apple South. Upon any such termination, no
party shall have any further rights, liabilities, or obligations hereunder
(except with respect to Paragraphs 4.1, 4.2, 4.3, 4.12, and Article 12, all of
which shall survive the termination of this Agreement); provided, however, if
any of the terms and conditions contained herein have been breached by any
party, the non-breaching parties may pursue whatever rights and remedies they
may have at Law, in equity or otherwise by reason of such breach regardless of
such termination, and such termination shall not constitute an election of
remedies.
12. MISCELLANEOUS
12.1. Notices. All notices or other communications required or permitted to
be given or made hereunder shall be in writing and delivered personally or sent
by pre-paid, first class certified or registered mail, return receipt requested,
or by facsimile transmission, to the intended recipient thereof at its address
or facsimile number set out below with copies to the Persons set forth below.
Any such notice or communication shall be deemed to have been duly given upon
receipt (if given or made in person by delivery service or by facsimile
confirmed by mailing a copy thereof to the recipient in accordance with this
Paragraph 12.1 on the date of such facsimile), or four days after mailing (if
given or made by mail), and in proving same it shall be sufficient to show that
the envelope containing the same was delivered by the delivery service to the
recipient, or that receipt of a facsimile was confirmed by the recipient. The
addresses and facsimile numbers of the parties for purposes of this
50
<PAGE>
Agreement are set forth on the signature page hereto below their respective
signatures. Any party may change the address to which notices or other
communications to such party shall be delivered or mailed by giving notice
thereof to the other parties hereto in the manner provided herein.
12.2. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, and all of which
together shall constitute one and the same instrument.
12.3. Governing Law. THE VALIDITY AND EFFECT OF THIS AGREEMENT SHALL BE
GOVERNED BY AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE
OF DELAWARE, WITHOUT REGARD TO ITS CONFLICTS OF LAWS RULES.
12.4. Successors and Assigns. This Agreement shall be binding upon and
shall inure to the benefit of the parties hereto and their respective permitted
assigns. No party may assign, delegate, or otherwise transfer any of its rights
or obligations under this Agreement without the written consent of the other
parties hereto.
12.5. Partial Invalidity and Severability. All rights and restrictions
contained herein may be exercised and shall be applicable and binding only to
the extent that they do not violate any applicable Laws and are intended to be
limited to the extent necessary to render this Agreement legal, valid, and
enforceable. If any term of this Agreement, or part thereof, not essential to
the commercial purpose of this Agreement shall be held to be illegal, invalid,
or unenforceable by a Forum of competent jurisdiction, it is the intention of
the parties that the remaining terms hereof, or part thereof, shall constitute
their agreement with respect to the subject matter hereof and all such remaining
terms, or parts thereof, shall remain in full force and effect.
12.6. Waiver. Any term or condition of this Agreement may be waived at any
time by the party which is entitled to the benefit thereof, but only if such
waiver is evidenced by a writing signed by such party. No failure on the part of
any party hereto to exercise, and no delay in exercising any right, power, or
remedy created hereunder, shall operate as a waiver thereof, nor shall any
single or partial exercise of any right, power, or remedy by either party
preclude any other or further exercise thereof or the exercise of any other
right, power, or remedy. No waiver by any party hereto of any breach of or
default in any term or condition of this Agreement shall constitute a waiver of
or assent to any succeeding breach of or default in the same or any other term
or condition hereof.
12.7. Headings. The headings of particular provisions of this Agreement are
inserted for convenience only and shall not be construed as a part of this
Agreement or serve as a limitation or expansion on the scope of any term or
provision of this Agreement.
12.8. Number and Gender. Where the context requires, the use of the
singular form herein shall include the plural, the use of the plural shall
include the singular,
51
<PAGE>
and the use of any gender shall include any and all genders.
12.9. Entire Agreement. This Agreement supersedes all prior discussions and
agreements between the parties with respect to the subject matter hereof, and
this Agreement contains the sole and entire agreement between the parties with
respect to the matters covered hereby. This Agreement, including the Disclosure
Memorandum, shall not be altered or amended except by an instrument in writing
signed by or on behalf of the party entitled to the benefit of the provision
against whom enforcement is sought.
12.10. Settlement of Disputes.
(a) Arbitration. All disputes and controversies of every kind and nature
between the parties hereto arising out of or in connection with this Agreement
as to the construction, validity, interpretation or meaning, performance,
non-performance, enforcement, operation, or breach, shall be submitted to
arbitration pursuant to the following procedures:
(i) After a dispute or controversy arises, either party may, in a written
notice delivered to the other party, demand such arbitration. Such notice shall
designate the name of the arbitrator appointed by such party demanding
arbitration, together with a statement of the matter in controversy;
(ii) Within 30 days after receipt of such demand, the other party shall, in
a written notice delivered to the other party, name such party's arbitrator. If
such party fails to name an arbitrator, then the second arbitrator shall be
named by the American Arbitration Association ("AAA"). The two arbitrators so
selected shall name a third arbitrator within 30 days, or in lieu of such
agreement on a third arbitrator by the two arbitrators so appointed, the third
arbitrator shall be appointed by the AAA;
(iii) The arbitration hearing shall be held in Dallas, Texas (in the case
of arbitration initiated by Apple South or the Surviving Corporation) or in
Atlanta, Georgia (in the case of arbitration initiated by the Company prior to
the Merger or by a Stockholder) at a location designated by a majority of the
arbitrators. The Commercial Arbitration Rule of the AAA shall be used and the
substantive laws of the State of Delaware (excluding conflict of laws
provisions) shall apply;
(iv) The arbitration hearing shall be concluded within ten (10) days unless
otherwise ordered by the arbitrators and the award thereon shall be made within
fifteen (15) days after the close of submission of evidence. An award rendered
by a majority of the arbitrators appointed pursuant to this Agreement shall be
final and binding on all parties to the proceeding, shall deal with the question
of costs of the arbitration and all related matters, and judgment on such award
may be entered by either party
52
<PAGE>
in a court of competent jurisdiction; and
(v) Except as set forth in Paragraph 12.10(b), the parties stipulate that
the provisions of this Paragraph 12.10 shall be a complete defense to any suit,
action or proceeding instituted in any federal, state, or local court or before
any administrative tribunal with respect to any controversy or dispute arising
out of this Agreement. The arbitration provisions hereof shall, with respect to
such controversy or dispute, survive the termination or expiration of this
Agreement.
No party hereto nor the arbitrators may disclose the existence or results of any
arbitration hereunder without the prior written consent of the other parties;
nor will any party hereto disclose to any third party any confidential
information disclosed by any other party hereto in the course of an arbitration
hereunder without the prior written consent of such other party.
(b) Emergency Relief Notwithstanding anything in this Paragraph 12.10 to
the contrary, either party may seek from a court any provisional remedy that may
be necessary to protect any rights or property of such party pending the
establishment of the arbitral tribunal or its determination of the merits of the
controversy.
(i) Jurisdiction. In connection only with the provisions of this Paragraph
12.10(b), each party hereto hereby irrevocably submits to the exclusive
jurisdiction of the United States District Court for Northern District of Texas
or the Middle District of Georgia, and, if such court does not have
jurisdiction, of the courts of Dallas County in the State of Texas and the
courts of Morgan County in the State of Georgia, for the purposes of any action
arising out of this Agreement, or the subject matter hereof or thereof, brought
by any other party under Paragraph 12.10 of this Agreement.
(ii) Waiver of Defenses. In connection only with the provisions of this
Paragraph 12.10(b), to the extent permitted by applicable law, each party hereby
waives and agrees not to assert, by way of motion, as a defense or otherwise, in
any such action brought under this Paragraph 12.10(b), any claim (i) that it is
not personally subject to the jurisdiction of the above-named courts, (ii) that
the action is brought in an inconvenient forum, (iii) that it is immune from any
legal process with respect to itself or its property, (iv) that the venue of the
suit, action or proceeding is improper, or (v) that this Agreement, or the
subject matter hereof or thereof, may not be enforced in or by such courts.
(iii) Service of Process. In connection with the provisions of this
Paragraph 12.10(b), each party agrees that, if at any time during the term of
this Agreements is not qualified to do business as a foreign corporation in the
State of Texas or the State of Georgia and is not incorporated under the laws of
such state, it shall and does hereby irrevocably designate and appoint the
Secretary of State of the State of Texas or the State of Georgia as its agent or
service of process in any
53
<PAGE>
action with respect to any matter as to which it submits to jurisdiction as set
forth above; it being agreed that any method of service upon such agent, with a
copy sent to such party in the manner set forth in Paragraph 12.1, shall
constitute valid service upon such party.
13. DEFINITIONS
For purposes of this Agreement, the following capitalized terms shall have
the meanings specified with respect thereto below:
"Action" shall mean any action, suit, litigation, complaint, counterclaim,
claim, petition, mediation contest, or administrative proceeding, whether at
Law, in equity, in arbitration or otherwise, and whether conducted by or before
any Government or other Person.
"Affiliate" of any Person shall mean any other Person directly or
indirectly Controlling, Controlled by, or under direct or indirect common
Control with, the former Person.
"Affiliated Entity" or "Affiliated Entities" shall have the meaning set
forth in Paragraph 5.9.
"Apple South" shall have the meaning set forth in the Preamble.
"Apple South Indemnitees" shall have the meaning set forth in Paragraph
10.1.
"Apple South's Indemnified Losses" shall have the meaning set forth in
Paragraph 10.1.
"Apple South Stock" shall have the meaning set forth in Paragraph 3.2.
"Business" shall have the meaning set forth in the Preamble.
"Business Day" shall mean any day other than a Saturday, a Sunday, or a day
on which commercial banks in the United States are required or authorized to be
closed.
"Closing" shall have the meaning set forth in Paragraph 3.5.
"Common Stock" shall mean the Company's common stock, $0.01 par value per
share.
"Company" shall have the meaning set forth in the Preamble.
54
<PAGE>
"Company Contracts" shall mean all existing written and oral agreements and
commitments of the Company or any Subsidiary, including without limitation all
leases, employment and consulting contracts, union contracts, agreements with
suppliers, personal property leases, licenses, employee benefit plans, deferred
compensation agreements, indentures, notes, bonds, mortgages, security
agreements, loan agreements, guarantees, franchise agreements, agreements in
respect of the issuance, sale, repurchase, or transfer of the Company's or any
Subsidiary's capital, stock, bonds, or other securities, and powers of attorney,
which involve payments aggregating more than $25,000 or have a term or require
performance over a period of more than 180 days.
"Confidential Information" shall have the meaning set forth in Paragraph
4.12.
"Constituent Corporations" shall have the meaning set forth in Paragraph
1.1.
"Control" shall mean a Person possesses, directly or indirectly, the power
to direct or cause the direction of the management and policies of another
Person, whether through the ownership of voting securities, by contract, or
otherwise.
"Corporate Laws" shall have the meaning set forth in Paragraph 1.1.
"Current SEC Documents" shall have the meaning set forth in Paragraph 4.7.
"Disclosee" shall have the meaning set forth in Paragraph 4.12.
"Disclosing Party" shall have the meaning set forth in Paragraph 4.12.
"Disclosure Memorandum" shall have the meaning set forth in the
introductory paragraph of Article 5.
"Effective Time" shall have the meaning set forth in the first paragraph of
Article 5.
"Environmental Laws" shall mean all federal, state, provincial, municipal,
and local Laws, statutes, ordinances, rules, regulations, general or particular
conditions, conventions, requirements, and decrees relating to the environment,
including without limitation, those relating to emissions, discharges, releases,
or threatened releases of pollutants, contaminants, chemicals, or industrial,
toxic, or Hazardous Materials or wastes of every kind and nature into the
environment (including without limitation ambient air, surface water, ground
water, soil, and subsoil), or otherwise relating to the manufacture, generation,
processing, distribution, application, use, treatment, storage, disposal,
transport, or handling of pollutants, contaminants, chemicals, or industrial,
toxic, or hazardous substances or wastes, and any and all Laws, rules,
regulations, codes, directives, orders, decrees, judgments,
55
<PAGE>
injunctions, consent agreements, stipulations, provisions, and conditions of
Environmental Permits, licenses, injunctions, consent agreements, stipulations,
certificates of authorization, and other operating authorizations, entered,
promulgated, or approved thereunder.
"Environmental Permits" shall mean all permits, licenses, certificates,
approvals, authorizations, regulatory plans or compliance schedules required by
applicable Environmental Laws, or issued by a Government pursuant to applicable
Environmental Laws, or entered into by agreement of the party to be bound,
relating to activities that affect the environment, including without
limitation, permits, licenses, certificates, approvals, authorizations,
regulatory plans and compliance schedules for air emissions, water discharges,
pesticide and herbicide or other agricultural chemical storage, use or
application, and Hazardous Material or Solid Waste generation, use, storage,
treatment and disposal.
"ERISA" shall have the meaning set forth in Paragraph 5.21(a)(i).
"ERISA Plans" shall have the meaning set forth in Paragraph 5.31(a)(ii).
"Escrow Agent" shall mean First Union National Bank of Georgia or such
other national bank as may be agreed upon by Apple South and Principal
Stockholder.
"Escrow Agreement" shall mean an escrow agreement in the form attached
hereto as Exhibit E.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended.
"Forum" shall mean any federal, state, local, municipal, or foreign court,
governmental agency, administrative body or agency, tribunal, private
alternative dispute resolution system, or arbitration panel.
"Financial Statements" shall have the meaning set forth in Paragraph 5.6.
"GAAP" shall mean generally accepted accounting principles, consistently
applied.
"Government" shall mean any federal, state, provincial, local, municipal,
or foreign government or any department, commission, board, bureau, agency,
instrumentality, unit, or taxing authority thereof.
"HSR Act" shall have the meaning set forth in Paragraph 4.1.
"Hazardous Material" shall mean all substances and materials designated as
hazardous or toxic as of the date hereof pursuant to any applicable
Environmental Law.
"Hereof," "herein," "hereunder" and words of similar import when used in
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<PAGE>
this Agreement shall refer to this Agreement as a whole and not to any
particular provision of this Agreement, and "Article," "Paragraph," "Disclosure
Memorandum," "Exhibit" and like references are to this Agreement unless
otherwise specified.
"Improvements" shall mean all buildings, structures and other improvements
of any and every nature located on the Real Property and all fixtures attached
or affixed, actually or constructively, to the Real Property or to any such
buildings, structures or other improvements.
"Indemnified Losses" shall have the meaning set forth in Paragraph 10.2.
"Known," "to the knowledge of," "to the best knowledge of," "aware," or
words of similar import employed in this Agreement with reference to any
individual or entity shall be conclusively presumed to mean that the person or
entity has made reasonable efforts under the circumstances to become
knowledgeable; in the case of the Company, "knowledge" shall be deemed to be the
individual and collective knowledge (as defined above) of its directors and
senior officers and managers set forth on the attached Exhibit J.
"Law" shall mean all federal, state, provincial, local, municipal or
foreign constitutions, statutes, rules, regulations, ordinances, acts, codes,
legislation, treaties, conventions, judicial decisions, and similar laws and
legal requirements, whether of the United States of America or any other
jurisdiction as in effect from time to time.
"Liability" shall mean any liability or obligation known to Principal
Stockholder or of which he is aware, whether asserted or unasserted, absolute or
contingent, accrued or unaccrued, liquidated or unliquidated, and whether due or
to become due.
"Lien" shall mean any mortgage, pledge, hypothecation, security interest,
encumbrance, claim, restriction on use, lien or charge of any kind, or any
rights of others, however evidenced or created (including any agreement to give
any of the foregoing, any conditional sale or other title retention agreement,
any lease in the nature thereof, and the filing of or agreement to give any
financing statement under the lien notice records or other similar legislation
of any jurisdiction).
"Material Adverse Effect" shall mean, with respect to the specific matter
to which such reference pertains, a change occurring or an effect occurring, as
the case may be, which would adversely and materially result in a change in or
effect upon the consolidated financial condition of the Company and its
Subsidiaries, taken as a whole, aggregating $100,000 or more.
"Merger" shall have the meaning set forth in Paragraph 1.1.
"Merger Consideration" shall have the meaning set forth in Paragraph 3.2.
"Non-Compete Agreement" shall mean an agreement between Principal
57
<PAGE>
Stockholder and Apple South in the form attached hereto as Exhibit G.
"Option Holders" shall mean those Persons set forth on Exhibit B hereto.
"Orders" shall mean all applicable orders, writs, judgments, decrees,
rulings, consent agreements, and awards of or by any Forum or entered by consent
of the party to be bound.
"Other Stockholders" shall mean all the Stockholders of the Company except
for the Principal Stockholder.
"Permits" shall have the meaning set forth in Paragraph 5.5.
"Person" shall include an individual, a partnership, a joint venture, a
corporation, a limited liability company, a trust, an unincorporated
organization, a Government, and any other legal entity.
"Preferred Stock" shall mean the Company's Series A Convertible Preferred
Stock, $1.00 par value per share.
"Preferred Stockholders" shall mean those Persons set forth on Exhibit A
hereto.
"Principal Stockholder" shall mean Jacob C. Baum, a resident of the State
of Texas.
"Real Property" shall mean all real property owned or leased by the Company
or any Subsidiary.
"Real Property Lease" shall have the meaning set forth in Paragraph 5.12.
"Reference Balance Sheet" shall have the meaning set forth in Paragraph
5.6.
"Reference Date" shall have the meaning set forth in Paragraph 5.6.
"Registration Rights Agreement" shall have the meaning set forth in
Paragraph 4. 10.
"Related Parties" shall have the meaning set forth in Paragraph 5.22.
"Relative" shall mean (i) the spouse of a Stockholder or (ii) any sibling,
parent, grandparent, child, or grandchild of a Stockholder or Stockholder's
spouse and any spouse of any of the foregoing persons.
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<PAGE>
"Restaurants" shall have the meaning set forth in the Disclosure
Memorandum.
"SEC" shall mean the United States Securities and Exchange Commission.
"SEC Documents" shall have the meaning set forth in Paragraph 4.7.
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Shares" shall mean all the issued and outstanding shares of capital stock
of the Company.
"Stockholders" shall mean the Principal Stockholder, the Preferred
Stockholders, and the Other Stockholders, who collectively constitute the
holders of all the issued and outstanding shares of capital stock of the
Company.
"Stockholders' Indemnified Losses" shall have the meaning set forth in
Paragraph 10.2.
"Solid Waste" shall mean any garbage, refuse, sludge from a waste treatment
plant, water supply treatment plant, or air pollution control facility, and
other discarded material, including solid, liquid, semisolid, or contained
gaseous material resulting from industrial, commercial, mining, and agricultural
operations, and from community activities.
"Subsidiaries" shall mean the entities listed in the Disclosure Memorandum
pursuant to Paragraph 5.2(d).
"Subsidiary Interests" shall have the meaning set forth in Paragraph
5.2(b).
"Survival Period" shall have the meaning set forth in Paragraph 10.4.
"Surviving Corporation" shall have the meaning set forth in Paragraph 1.1.
"Taxes" shall mean any present or future taxes, levies, imposts, duties,
fees, assessments, deductions, withholdings or other charges of whatever nature,
including without limitation income, gross receipts, excise, property, sales,
use, customs, value added, consumption, transfer, license, payroll, employee
income, withholding, social security, and franchise taxes, imposed or levied by
the United States of America or any Government or by any department, agency, or
other political subdivision or taxing authority thereof or therein, all deposits
required in connection therewith, and all interests, penalties, additions to
tax, and other similar liabilities with respect thereto.
"Termination Date" shall mean July 15, 1997.
"Warrant Holders" shall mean the Persons set forth on Exhibit B hereto.
59
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement under seal or
caused it to be executed by their duly authorized officers and agents and their
corporate seals affixed as of the day and year first above written. Signatures
of the parties transmitted by facsimile shall be valid and binding for all
purposes.
APPLE SOUTH:
APPLE SOUTH, INC.
By: ________________________________
Name: ________________________________
Title: ________________________________
Address: Hancock at Washington
Madison, GA 30650
Facsimile: 706-342-9283
MERGER SUB:
COYOTE ACQUISITION CORP.
By: ________________________________
Name: ________________________________
Title: ________________________________
Address: Hancock at Washington
Madison, GA 30650
Facsimile: 706-342-9283
COMPANY:
CANYON CAFES, INC.
By: ________________________________
Jacob C. Baum, President
Address: 5720 LBJ Freeway, Suite 180
Dallas, TX 75244
Facsimile: 972-991-2798
STOCKHOLDERS:
----------------------------------------
JACOB C. BAUM
Address: ----------------------------
60
<PAGE>
----------------------------
----------------------------
Facsimile: ________________
PHILLIPS-SMITH SPECIALTY RETAIL
GROUP III, L.P.
By: Phillips-Smith Management Company,L.P.
General Partner
By:
---------------------------
G. Michael Machens
General Partner
Address:
-----------------------
---------------------------
----------------------------
Facsimile: ________________
----------------------------------------
CRAIG J. FOLEY
Address:
----------------------------
----------------------------
----------------------------
Facsimile: ________________
----------------------------------------
JOHN T. McNABB, II
Address:
----------------------------
----------------------------
----------------------------
61
<PAGE>
Facsimile: ________________
----------------------------------------
DAVID W. SARGENT
Address:
----------------------------
----------------------------
----------------------------
Facsimile: ________________
----------------------------------------
IRA TOBOLOWSKY
Address:
----------------------------
----------------------------
----------------------------
Facsimile: ________________
----------------------------------------
DEBBIE TOBOLOWSKY
Address:
----------------------------
----------------------------
----------------------------
Facsimile: ________________
TOBOLOWSKY CHILDREN'S TRUST
By:
--------------------------------
Ira Tobolowsky, Trustee
Address:
---------------------------
---------------------------
----------------------------
Facsimile: ________________
----------------------------------------
BRUCE LAZARUS
Address:
----------------------------
----------------------------
----------------------------
Facsimile: ________________
----------------------------------------
ABBY LAZARUS
Address:
----------------------------
----------------------------
----------------------------
Facsimile: ________________
LAZARUS CHILDREN'S TRUST
By:
----------------------------------
Bruce Lazarus, Trustee
Address:
---------------------------
---------------------------
----------------------------
Facsimile: ________________
BAUM FAMILY TRUST
By:
----------------------------------
Gerald E. Zahler, Trustee
Address:
---------------------------
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<PAGE>
---------------------------
----------------------------
Facsimile: ________________
BAUM CHILDREN'S TRUST
By:
----------------------------------
Jacob C. Baum, Trustee
Address:
---------------------------
---------------------------
----------------------------
Facsimile: ________________
CANYON (1997) INVESTMENT LIMITED
PARTNERSHIP
By:
----------------------------------
Jacob C. Baum, General Partner
By:
----------------------------------
Janet Z. Baum, General Partner
Address:
---------------------------
---------------------------
----------------------------
Facsimile: ________________
63
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
(THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM
10Q FOR THE PERIOD ENDING JUNE 29, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.)
</LEGEND>
<CIK> 0000849101
<NAME> Apple South, Inc.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> Dec-28-1997
<PERIOD-START> Dec-30-1997
<PERIOD-END> Jun-30-1997
<CASH> 4,822
<SECURITIES> 37
<RECEIVABLES> 8,751
<ALLOWANCES> 0
<INVENTORY> 8,914
<CURRENT-ASSETS> 33,761
<PP&E> 476,301
<DEPRECIATION> 0
<TOTAL-ASSETS> 667,756
<CURRENT-LIABILITIES> 49,025
<BONDS> 285,935
115,000
0
<COMMON> 405
<OTHER-SE> 203,177
<TOTAL-LIABILITY-AND-EQUITY> 667,756
<SALES> 374,342
<TOTAL-REVENUES> 374,342
<CGS> 104,253
<TOTAL-COSTS> 315,918
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,642
<INCOME-PRETAX> 27,267
<INCOME-TAX> 9,775
<INCOME-CONTINUING> 17,492
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 17,492
<EPS-PRIMARY> 0.46
<EPS-DILUTED> 0.44
</TABLE>
EXHIBIT 99.1
SAFE HARBOR UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
The Private Securities Litigation Reform Act of 1995 (the "Act") provides a
"safe harbor" for forward- looking statements to encourage companies to provide
prospective information about their companies, so long as those statements are
identified as forward looking and are accompanied by meaningful cautionary
statements identifying important factors that could cause actual results to
differ materially from those discussed in the statement. The Company desires to
take advantage of the "safe harbor" provisions of the Act. Certain information,
particularly information regarding future economic performance and finances, and
plans and objectives of management, contained, or incorporated by reference, in
this Form 10-Q is forward looking. In some cases, information regarding certain
important factors that could cause actual results to differ materially from any
such forward-looking statement appear together with such statement. Also, the
following factors, in addition to other possible factors not listed, could
affect the Company's actual results and cause such results to differ materially
from those expressed in forward-looking statements:
Competition. The casual dining restaurant industry is intensely competitive with
respect to price, service, location, personnel, and type and quality of food.
The Company competes with national, regional and local organizations primarily
through the quality, variety and value perception of food products offered. The
number and location of units, quality of service, attractiveness of facilities
and effectiveness of advertising and marketing programs are also important
factors.
Economic, Market and Other Conditions. The casual dining restaurant industry is
affected by changes in national, regional and local economic conditions,
consumer preferences and spending patterns, demographic trends, consumer
perceptions of food safety, weather, traffic patterns and the type, number and
location of competing restaurants. Factors such as inflation, food costs, labor
and benefit costs, legal claims, and the availability of management and hourly
employees also affect restaurant operations and administrative expenses. The
ability of the Company to finance new restaurant development, improvements and
additions to existing restaurants and the acquisition of additional restaurant
concepts is affected by economic conditions, including interest rates and other
government policies impacting land and construction costs and the cost and
availability of borrowed funds.
Importance of Locations. The success of Company restaurants is dependent in
substantial part on location. There can be no assurance that current locations
will continue to be attractive, as demographic patterns change. It is possible
the neighborhood or economic conditions where restaurants are located could
decline in the future, thus resulting in potentially reduced sales in those
locations.
Government Regulation. The Company is subject to various federal, state and
local laws affecting its business. The development and operation of restaurants
depend to a significant extent on the selection and acquisition of suitable
sites, which are subject to zoning, land use, environmental, traffic and other
regulations. Restaurant operations are also subject to licensing and regulation
by state and local departments relating to health, sanitation and safety
65
<PAGE>
standards, alcoholic beverage control laws, federal and state labor laws
(including applicable minimum wage requirements, overtime, working and safety
conditions, and citizenship requirements), state "dram-shop" statutes, and
federal and state laws which prohibit discrimination and other laws regulating
the design and operation of facilities, such as the
Americans With Disabilities Act of 1990. Changes in these laws and regulations ,
particularly increases in applicable minimum wages, may adversely affect
financial results. The Company cannot predict the effect on its operations of
the future enactment of additional legislation .
Growth Plans. The Company plans to significantly increase the number of its
restaurants open or under construction. There can be no assurance that the
Company will be able to achieve growth objectives or that new restaurants opened
or acquired will be profitable. The opening and success of restaurants depends
on various factors, including the identification and availability of suitable
and economically viable locations, sales levels at existing restaurants, the
negotiation of acceptable lease or purchase terms for new locations, permitting
and regulatory compliance, the ability to meet construction schedules, the
ability of the Company to hire and train qualified management personnel, and
general economic and business conditions.
66
