UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the quarterly period ended September 27, 1998
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
AVADO BRANDS, 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)
Apple South, Inc.
-------------------------
(Former name, former address and former fiscal
year, if changed since last report)
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 October 29, 1998, there were 34,199,586 shares of common stock of the
Registrant outstanding.
<PAGE>
AVADO BRANDS, INC.
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 27, 1998
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
Item 3 - Quantitative and Qualitative Disclosures About
Market Risk.................................................16
Part II - Other Information
Item 5 - Other Information...........................................17
Item 6 - Exhibits and Reports on Form 8-K............................17
Signature ............................................................18
2
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<TABLE>
Avado Brands, Inc.
Consolidated Statements of Earnings
(Unaudited)
(In thousands, except per share data)
<CAPTION>
Quarter Ended Nine Months Ended
- ------------------------------------------------------------------------------------------------------------------------------------
Sept. 27, Sept. 28, Sept. 27, Sept. 28,
1998 1997 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Restaurant sales:
Applebee's $ 69,225 114,122 305,612 341,796
Don Pablo's 70,306 54,542 195,985 143,400
Hops 26,891 14,170 75,778 32,393
McCormick & Schmick's 26,939 20,265 73,642 47,297
Canyon Cafes 11,081 8,082 34,944 8,082
Other - 4,558 - 17,113
- ------------------------------------------------------------------------------------------------------------------------------------
Total restaurant sales 204,442 215,739 685,961 590,081
- ------------------------------------------------------------------------------------------------------------------------------------
Restaurant operating expenses:
Food and beverage 57,242 59,457 191,939 163,710
Payroll and benefits 67,235 65,735 223,210 178,613
Depreciation and amortization 4,009 8,275 12,397 22,905
Other operating expenses 48,487 49,602 160,844 133,759
- ------------------------------------------------------------------------------------------------------------------------------------
Total restaurant operating expenses 176,973 183,069 588,390 498,987
- ------------------------------------------------------------------------------------------------------------------------------------
General and administrative expenses 10,983 10,380 36,179 28,773
- ------------------------------------------------------------------------------------------------------------------------------------
Operating income 16,486 22,290 61,392 62,321
- ------------------------------------------------------------------------------------------------------------------------------------
Other income (expense):
Interest expense, net (5,925) (4,534) (20,278) (13,113)
Distributions on preferred securities (2,013) (2,012) (6,038) (4,400)
Gain on disposal of assets held for sale 31,661 - 78,358 -
Income from investments carried at equity 21 - 808 -
Other, primarily goodwill amortization (1,267) (1,379) (4,490) (3,176)
- ------------------------------------------------------------------------------------------------------------------------------------
Total other income (expense) 22,477 (7,925) 48,360 (20,689)
- ------------------------------------------------------------------------------------------------------------------------------------
Earnings before income taxes and cumulative
effect of change in accounting principle 38,963 14,365 109,752 41,632
Income taxes 14,525 3,705 40,450 13,480
- ------------------------------------------------------------------------------------------------------------------------------------
Earnings before cumulative effect of
change in accounting principle 24,438 10,660 69,302 28,152
- ------------------------------------------------------------------------------------------------------------------------------------
Cumulative effect of change in accounting
principle, net of tax benefit - - 1,461 -
- ------------------------------------------------------------------------------------------------------------------------------------
Net earnings $ 24,438 10,660 67,841 28,152
====================================================================================================================================
Basic earnings per common share:
Basic earnings before cumulative effect of
change in accounting principle $ 0.67 0.28 1.84 0.73
Cumulative effect of change in accounting principle - - (0.04) -
- ------------------------------------------------------------------------------------------------------------------------------------
Basic earnings per common share $ 0.67 0.28 1.80 0.73
====================================================================================================================================
Diluted earnings per common share:
Diluted earnings before cumulative effect of
change in accounting principle $ 0.58 0.26 1.61 0.70
Cumulative effect of change in accounting principle - - (0.03) -
- ------------------------------------------------------------------------------------------------------------------------------------
Diluted earnings per common share $ 0.58 0.26 1.58 0.70
====================================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
<TABLE>
Avado Brands, Inc.
Consolidated Balance Sheets
(Unaudited)
(In thousands, except share data)
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Sept. 27, Dec. 28,
1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 1,399 2,503
Short-term investments 27 37
Accounts receivable 12,524 8,983
Notes receivable 10,063 -
Inventories 8,364 10,732
Prepaid expenses and other 11,314 9,047
Assets held for sale 104,896 331,104
- ------------------------------------------------------------------------------------------------------------------------------------
Total current assets 148,587 362,406
Premises and equipment, net 346,357 283,839
Goodwill, net 138,230 138,403
Other assets 49,089 19,641
- ------------------------------------------------------------------------------------------------------------------------------------
$ 682,263 804,289
====================================================================================================================================
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $ 17,453 24,819
Accrued liabilities 49,997 40,266
Current installments of long-term debt 19 206
Income taxes 21,125 -
- ------------------------------------------------------------------------------------------------------------------------------------
Total current liabilities 88,594 65,291
Long-term debt 203,964 381,843
Deferred income taxes 16,700 14,231
Other long-term liabilities 6,885 7,142
- ------------------------------------------------------------------------------------------------------------------------------------
Total liabilities 316,143 468,507
- ------------------------------------------------------------------------------------------------------------------------------------
Company-obligated mandatorily redeemable preferred securities
of Avado Financing I, a subsidiary holding solely Avado
Brands, Inc. 7% convertible subordinated debentures
due March 1, 2027 115,000 115,000
Equity forward contracts pending settlement 107,496 -
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;
40,478,760 issued in 1998 and 1997 405 405
Additional paid-in capital 37,744 145,269
Retained earnings 164,690 97,905
Treasury stock at cost; 4,170,328 shares in 1998 and 1,662,812
shares in 1997 (59,215) (22,797)
- ------------------------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 143,624 220,782
- ------------------------------------------------------------------------------------------------------------------------------------
$ 682,263 804,289
====================================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
4
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<TABLE>
Avado Brands, Inc.
Consolidated Statements of Shareholders' Equity
(Unaudited)
(In thousands, except per share data)
<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 28, 1997 40,479 $405 $145,269 $97,905 ($22,797) $220,782
Net earnings - - - 37,078 - 37,078
Purchase of common stock - - - - (113) (113)
Common stock issued to ESOP and ESPP - - 36 - 206 242
Exercise of options - - (2) - 12 10
Foreign currency translation adjustment - - - 148 - 148
Cash dividends ($0.01 per share) - - - (405) - (405)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at March 29, 1998 40,479 405 145,303 134,726 (22,692) 257,742
- ------------------------------------------------------------------------------------------------------------------------------------
Net earnings - - - 6,325 - 6,325
Purchase of common stock - - - - (30,318) (30,318)
Common stock issued to ESOP and ESPP - - - - 81 81
Exercise of options - - (61) - 201 140
Foreign currency translation adjustment - - - (83) - (83)
Equity forward contract pending settlement - - (3,400) - - (3,400)
Cash dividends ($0.0125 per share) - - - (506) - (506)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at June 28, 1998 40,479 405 141,842 140,462 (52,728) 229,981
- ------------------------------------------------------------------------------------------------------------------------------------
Net earnings - - - 24,438 - 24,438
Purchase of common stock - - - - (6,570) (6,570)
Common stock issued to ESOP and ESPP - - - - 83 83
Exercise of options - - (2) - - (2)
Foreign currency translation adjustment - - - 178 - 178
Equity forward contract pending settlement - - (104,096) - - (104,096)
Cash dividends ($0.0125 per share) - - - (388) - (388)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at September 27, 1998 40,479 $405 $37,744 $164,690 ($59,215) $143,624
====================================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
<TABLE>
Avado Brands, Inc.
Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)
<CAPTION>
Nine Months Ended
- ------------------------------------------------------------------------------------------------------------------------------------
Sept. 27, Sept. 28,
1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 67,841 28,152
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization 17,506 27,573
Deferred income taxes 2,469 4,630
Gain on sale of assets (78,358) -
(Increase) in assets:
Accounts receivable (3,543) 744
Inventories (1,305) (1,345)
Prepaid expenses and other (6,327) (2,146)
Increase (decrease) in liabilities:
Accounts payable (7,366) (6,687)
Accrued liabilities 5,227 (7,922)
Income taxes 21,125 35
Other long-term liabilities 1,057 377
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 18,326 43,411
- ------------------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Capital expenditures (112,224) (120,213)
Acquisition of businesses, net of cash acquired (2,325) (146,444)
Proceeds from sale of premises and equipment 338,365 4,178
Decrease in short-term investments 10 15
Additions to franchise costs - (704)
Additions to other assets (28,235) (5,780)
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities 195,591 (268,948)
- ------------------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Net proceeds from (repayment of) revolving credit agreements (176,721) 134,500
Proceeds from issuance of preferred securities, net of issue costs - 111,261
Proceeds from issuance of long-term debt - 823
Principal payments on long-term debt - (569)
Proceeds from issuance of common stock - 1,518
Dividends declared and paid (1,299) (1,123)
Purchase of treasury stock (37,001) (22,995)
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities (215,021) 223,415
- ------------------------------------------------------------------------------------------------------------------------------------
Net decrease in cash and cash equivalents (1,104) (2,122)
Cash and cash equivalents at the beginning of the period 2,503 3,923
- ------------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at the end of the period $ 1,399 1,801
====================================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE>
AVADO BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 27, 1998
(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 28, 1997,
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 nine-month period
ended September 27, 1998 are not necessarily indicative of the results that may
be expected for the year ending January 3, 1999.
The Company's fiscal year is a 52 or 53-week year ending on the Sunday closest
to December 31. Accordingly, the 1998 fiscal year will be composed of 53 weeks
and the Company's fourth quarter will include 14 weeks of operations.
NOTE 2 - ASSET DIVESTITURES
As previously disclosed, in December 1997 the Company finalized its decision to
sell its franchised Applebee's Neighborhood Grill & Bar ("Applebee's")
restaurants. In the third quarter of 1998, the Company completed seven
transactions for the sale of 118 Applebee's restaurants. Total cash proceeds
from these sales were $199.7 million plus $6.7 million in notes. As of September
28, 1998, the Company had sold 191 of its 279 Applebee's restaurants for total
cash consideration of $361.1 million plus $12.8 million in notes. The notes, net
of a $2.7 million reserve, are included in notes receivable in the accompanying
consolidated balance sheet.
The unsold premises and equipment, franchise costs and goodwill related to the
Applebee's division are included in "Assets held for sale". Depreciation and
amortization on these long-lived assets were suspended in December 1997, when
management finalized the decision to dispose of the division.
NOTE 3 - CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE
At the beginning of fiscal 1998, the Company adopted AICPA Statement of Position
98-5, "Reporting the Cost of Start-Up Activities." This statement requires
entities to expense the costs of start-up activities as incurred. As a result of
the adoption of this change in accounting policy, from expensing preopening
costs in the first full month of a restaurant's operations to expensing them as
incurred, the Company recorded a cumulative effect charge from the change in
accounting principle of $2.2 million ($1.5 million net of tax benefit) during
the first quarter of 1998.
7
<PAGE>
NOTE 4 - EQUITY INVESTMENTS
In January 1998, the Company acquired a 20% interest in Belgo Group, PLC
("Belgo"), a public restaurant company based in the United Kingdom that owned
and operated two Belgo restaurants in London, for $6.1 million. In June and
September of 1998, Belgo completed two separate transactions for the acquisition
of five additional restaurants. In connection with these acquisitions, the
Company invested an additional $3.4 million in the second quarter and an
additional $4.7 million in the third quarter to maintain its 20% equity
interest. The investment in Belgo is accounted for under the equity method of
accounting. Accordingly, the Company's interest in Belgo's net earnings is
included in "Income from investments carried at equity" in the accompanying
consolidated statement of earnings. The Company's investment is included in
"Other assets" in the accompanying consolidated balance sheet. The investment is
translated into U.S. dollars at the period-end exchange rate, while net earnings
are translated at the average exchange rate during the period. The resulting
translation adjustments are recorded as a component of shareholders' equity and
comprehensive income (Note 9).
Also during 1998, the Company and Belgo entered into two 50/50 joint ventures:
one to develop an Avado Brands proprietary concept in Europe and the other to
develop Belgo restaurants in the Western Hemisphere. During the third quarter,
the Company incurred start up expenses of $60,000 related to the ventures. These
costs are included in "Income from investments carried at equity" in the
accompanying consolidated statement of earnings.
In April 1998, the Company sold its Harrigans division, retaining a 25% equity
interest in the ongoing business. The Company received $3.0 million in cash plus
a $4.0 million note and additionally retained ownership of the real estate for
two Harrigans locations which are being leased to the new entity. The
transaction resulted in a $0.7 million gain with an additional $4.0 million
gain, related to the note, being deferred. The investment in Harrigans is
accounted for using the equity method of accounting with net earnings included
in "Income from investments carried at equity". The Company's 25% equity
interest is included in "Other assets" in the accompanying consolidated balance
sheet.
NOTE 5 - SHAREHOLDERS' EQUITY
Cash dividends declared and paid in the quarter ended September 27, 1998 totaled
$0.0125 per share. On October 22, 1998, the Company declared a cash dividend of
$0.0125 per share, payable on November 30, 1998, to shareholders of record on
November 13, 1998.
In January 1998, the Company's Board of Directors approved the purchase of up to
two million additional shares of the Company's common stock. During the second
quarter of 1998, the Company completed this repurchase program. On June 18,
1998, the Company announced the approval by its Board of Directors of an
additional repurchase program for the lesser of $125.0 million or 8.3 million
shares. During the third quarter, the Company completed this repurchase program
through a combination of direct purchases and equity forward contracts. To allow
for the execution of the additional program, the Company obtained consent from
the holders of its 9.75% Senior Notes due 2006 to amend certain covenants and
events of default provisions contained in the Indenture dated May 1, 1996
relating to the notes (the "Indenture"). Bondholder consent was finalized on
July 1, 1998 and the Company paid $4.2 million to the consenting holders. The
$4.2 million amount is included in deferred loan costs and is being amortized
over the remaining term of the Indenture.
8
<PAGE>
At September 27, 1998, pursuant to various equity forward contracts with
the Company, third parties had purchased a total of 8.0 million shares of the
Company's common stock at an average price of $13.45 (or a total acquisition
cost of $107.5 million). Upon expiration of the agreements, the Company has the
option to (i) acquire the shares at the third parties' average acquisition cost
or (ii) instruct the third parties to sell the stock in the market and settle in
cash any appreciation or depreciation in the market value of the stock from the
date of purchase through the sale date. The Company may also pursue extending
the contracts dependent on mutual agreement between the Company and the third
parties. The acquisition price paid by third parties is reflected as "Equity
forward contracts pending settlement" in the accompanying consolidated balance
sheet. In addition, on October 12, 1998 the Company announced the approval by
its Board of Directors of an additional 2.5 million share repurchase program.
NOTE 6 - SUPPLEMENTAL CASH FLOW INFORMATION
For the nine-month periods ended September 27, 1998 and September 28 1997, the
following supplements the consolidated statements of cash flows (amounts in
thousands):
1998 1997
- --------------------------------------------------------------------------------
Interest paid $ 17,612 13,216
- --------------------------------------------------------------------------------
Distributions paid on preferred securities $ 6,038 3,912
- --------------------------------------------------------------------------------
Income taxes paid $ 16,103 8,074
- --------------------------------------------------------------------------------
Business acquisitions, net of cash acquired:
Fair value of assets acquired, other than cash $ 1,314 63,261
Liabilities assumed - (34,704)
Merger consideration payable - (1,890)
Stock issued - (21,492)
Purchase price in excess of the net assets acquired 1,011 141,269
- --------------------------------------------------------------------------------
Net cash used for acquisitions $ 2,325 146,444
================================================================================
The 1998 business acquisition reflects the buy-out of a joint venture partner in
the Hops division. As discussed in Note 2, during 1998 the Company sold 191
Applebee's restaurants. The accompanying consolidated balance sheet reflects
changes in asset and liability accounts related to the divestiture of these
restaurants as follows: decrease in assets held for sale of $261.1 million,
decreases in assets not classified as held for sale of $5.4 million and
increases in accrued liabilities of $2.3 million.
NOTE 7 - INCOME TAXES
The effective tax rate for the first nine months of 1998 was 36.9% reflecting
the blend of taxes on operations estimated at 34.0% and taxes on the gain on
sale of assets estimated at 38.0%. The Company's effective tax rate on
operations for fiscal 1998 is expected to be 34.0% compared to the prior year
effective rate of 32.4%.
NOTE 8 - CONTINGENCIES
During 1997, two lawsuits were filed by persons seeking to represent a class of
shareholders of the Company who purchased shares of the Company's common stock
between May 26, 1995 and September 24, 1996. Each plaintiff named the Company
and certain of its officers and directors as defendants. The complaints alleged
9
<PAGE>
acts of fraudulent misrepresentation by the defendants which induced the
plaintiffs to purchase the Company's common stock and alleged illegal insider
trading by certain of the defendants, each of which allegedly resulted in losses
to the plaintiffs and similarly situated shareholders of the Company. The
complaints each sought damages and other relief. During 1998, one of these suits
was dismissed. Although the ultimate outcome of the remaining lawsuit cannot be
determined at this time, the Company believes that the allegations therein are
without merit and intends to vigorously defend itself.
NOTE 9 - COMPREHENSIVE INCOME
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive
Income". SFAS 130, which is effective for the Company's fiscal 1998, establishes
standards for reporting and display of comprehensive income and its components.
Comprehensive income is defined as the change in equity of a business enterprise
during a period from transactions and other events and circumstances from
nonowner sources. Total comprehensive income for the nine months ended September
27, 1998 of $24.7 million included net earnings as reported in the accompanying
consolidated statement of earnings plus the $0.2 million after-tax effect of
foreign currency translation adjustments. Comprehensive income for the nine
months ended September 28, 1997 was equal to net earnings as reported.
10
<PAGE>
Item 2.
AVADO BRANDS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
For the Third Quarter and Nine Months ended September 27, 1998
Consolidated Overview
Consolidated restaurant sales for the third quarter and nine months ended
September 27, 1998 decreased 5% and increased 16%, respectively, over the
comparable periods of 1997 reflecting declining revenues associated with the
Company's divestitures of its Applebee's and Harrigans divisions. In the
Company's core brands, which include Don Pablo's, Hops, McCormick & Schmick's
and Canyon Cafes, sales increased by 39% and 65% for the same respective
periods. Unit growth in Don Pablo's, sales attributable to the brands acquired
in 1997 and subsequent unit growth and increases in average unit volumes in the
newer brands contributed to increased core brand sales. Net earnings for the
third quarter were $24.4 million compared to $10.7 million for the third quarter
of 1997. Earnings for the third quarter included a $31.7 million pre-tax gain on
the disposal of assets held for sale related primarily to the sale of 118
Applebee's restaurants completed during the third quarter.
During 1998, the Company has invested $14.2 million to acquire and maintain a
20% interest in Belgo Group, PLC ("Belgo"), a public restaurant company based in
the United Kingdom that owns and operates seven restaurants in London. During
the second quarter, the Company completed the sale of its Harrigans division,
retaining a 25% equity interest in the ongoing business. The Company's pro rata
share of net earnings of Belgo and Harrigans is included in "Income from
investments carried at equity" in the accompanying consolidated statement of
earnings.
The effective tax rate for the first nine months of 1998 was 36.9% reflecting
the blend of taxes on operations estimated at 34.0% and taxes on the gain on
sale of assets estimated at 38.0%. The Company's effective tax rate on
operations for fiscal 1998 is expected to be 34.0% compared to the prior year
effective rate of 32.4%.
Core Brands
The following tables present operating income and number of restaurants for
ongoing core brands. The operating income table presents the quarter and
nine-month period ended September 27, 1998 compared to the pro forma results for
the quarter and nine-month period ended September 28, 1997 (assuming the 1997
acquisitions of Hops, McCormick & Schmick's and Canyon Cafes occurred as of the
beginning of 1997).
11
<PAGE>
Core Brands - Operating Income:
- --------------------------------------------------------------------------------
Quarter Ended Nine Months Ended
- --------------------------------------------------------------------------------
Actual Actual Actual Pro forma
Sept.27, Sept.28, Sept.27, Sept.28,
1998 1997 1998 1997
- --------------------------------------------------------------------------------
Restaurant sales:
Don Pablo's $ 70,306 54,542 195,985 143,400
Hops 26,891 14,170 75,778 40,233
McCormick & Schmick's 26,939 20,265 73,642 58,442
Canyon Cafes 11,081 8,082 34,944 23,562
- --------------------------------------------------------------------------------
Total restaurant sales 135,217 97,059 380,349 265,637
- --------------------------------------------------------------------------------
Restaurant operating expenses:
Food and beverage 38,033 26,840 106,601 73,821
Payroll and benefits 40,733 28,890 114,701 79,625
Depreciation and amortization 4,009 3,301 12,397 9,460
Other operating expenses 32,031 22,071 88,426 60,538
- --------------------------------------------------------------------------------
Total restaurant operating expenses 114,806 81,102 322,125 223,444
- --------------------------------------------------------------------------------
Income from restaurant operations 20,411 15,957 58,224 42,193
General and administrative expenses 8,387 6,805 26,251 20,041
================================================================================
Operating income $ 12,024 9,152 31,973 22,152
================================================================================
Core Brands - Number of Restaurants:
- --------------------------------------------------------------------------------
Sept. 27, Sept. 28,
1998 1997
- --------------------------------------------------------------------------------
Don Pablo's 120 87
Hops 44 24
McCormick & Schmick's 20 16
Canyon Cafes 18 15
- --------------------------------------------------------------------------------
Total 202 142
================================================================================
Total core brand restaurant sales for the third quarter and nine-month period
ended September 27, 1998 increased by 39% and 43%, respectively, over the pro
forma results of the comparable prior year periods. These increases were
primarily driven by new restaurant openings and year-to-date gains in average
unit volumes in base restaurants (those open for a full 12 months at the
beginning of 1998) at Hops of 6%, Canyon Cafes of 4%, McCormick & Schmick's of
2% and Don Pablo's of 1%. The gains in average unit volumes were predominately
driven by customer counts associated with an increasing awareness of these
emerging brands.
Average unit volumes at new restaurants at McCormick & Schmick's raised overall
average unit volume gains over prior year at all units to 8% reflecting
increasing customer acceptance in new markets. At Don Pablo's, lower sales in
new units reduced overall average unit volume comparisons to prior year to
negative 5%. Seven weaker 1997 sites at Don Pablo's and management's decision to
open 1998 restaurants for dinner only, combined to reduce overall average weekly
sales for all units.
12
<PAGE>
Restaurant operating expenses for the third quarter of 1998 were 84.9% of
sales compared to 83.6% for the comparable prior year period. The increase is
primarily attributable to (i) an increase in other operating expenses related
primarily to the costs associated with an increase in the number of openings in
the third quarter of 1998 as compared to 1997, (ii) an increase in food and
beverage costs primarily related to an increase in Hops sales as a percentage of
total core brand sales compared to prior year (Hops experiences higher food
costs due to a larger percentage of beef sales as compared to the other core
brands) and (iii) an increase in payroll and benefit cost related primarily to
an increase in the number of new unit openings (new units typically experience
higher labor costs during the first several months of operations). General and
administrative expenses for the quarter, which include divisional and all
corporate overhead, decreased from 7.0% of sales to 6.2% primarily as a result
of leverage gained from absolute increases in size in addition to a reduction in
performance related Corporate bonus accruals.
Asset Divestitures
As previously disclosed, in December 1997 the Company finalized its decision to
sell its franchised Applebee's Neighborhood Grill & Bar ("Applebee's")
restaurants. In the third quarter of 1998, the Company completed seven
transactions for the sale of 118 Applebee's restaurants. Total cash proceeds
from these sales were $199.7 million plus $6.7 million in notes. As of September
28, 1998, the Company had sold 191 of its 279 Applebee's restaurants for total
cash consideration of $361.1 million plus $12.8 million in notes. The notes, net
of a $2.7 million reserve, are included in notes receivable in the accompanying
consolidated balance sheet.
The Company continues to expect net proceeds from the divestiture of its
Applebee's division, after selling expenses and income taxes, to approximate
$400 million. Subsequent to September 27, 1998, the Company completed the sale
of 13 additional Applebee's restaurants for $15.1 million in cash plus a $2.6
million note. As of October 30, 1998, the Company has four definitive purchase
contracts for 50 restaurants, and written offers for the 25 remaining Applebee's
restaurants located in the Washington D.C. area. The Company expects to complete
three of the contracts during the fourth quarter of 1998 and expects sales of
all remaining locations to be completed in 1999.
Liquidity and Capital Resources
Principal financing sources during the first nine months of 1998 consisted of
proceeds from the sale of premises and equipment of $346.5 million and cash flow
from operations of $18.3 million. The principal uses of funds during the first
nine months of 1998 included repayment of revolving credit agreements of $176.7
million, capital expenditures of $112.2 million and treasury stock purchases of
$37.0 million. Capital expenditures, which include purchases of land for new
restaurants, new restaurant construction, and purchases of new and replacement
furniture and equipment, are expected to approximate $20 million for the
remainder of fiscal 1998 and $120 million for fiscal 1999.
Capital requirements are expected to be funded with cash proceeds from the
divestiture of the Applebee's division, cash generated from operations and
remaining commitments of $9.3 million under a $30.0 million master equipment
lease. Additionally, at September 27, 1998 the Company had unsecured revolving
bank credit agreements aggregating $150.0 million of which $71.5 million was
unused and available. The Company anticipates reducing its revolving credit
facilities as additional sales proceeds are received and expects to complete a
new $150.0 million revolving credit facility by year end which, when combined
with an existing $30 million facility, will be used to fund future capital
requirements.
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In the third quarter, the Company continued to use Applebee's sales proceeds to
reduce its obligation under a $200.0 million credit facility to zero. Under the
terms of the $200.0 million facility, credit availability declined commensurate
with reductions in the outstanding obligation. The Company anticipates that the
remaining proceeds from the Applebee's divestiture will continue to be used to
reduce obligations related to its remaining revolving credit facilities (under
which $78.5 million was outstanding at September 27, 1998). Any remaining
proceeds from the divestiture will be used to fund new restaurant development.
By the end of the third quarter, the Company had acquired, or had the option to
purchase pursuant to equity forward contracts, all of the shares authorized for
repurchase under the Company's previously announced 8.3 million share repurchase
program. In connection with this program, the Company obtained consent from the
holders of its 9.75% Senior Notes due 2006 to amend certain covenants contained
in the Indenture dated May 1, 1996, relating to the notes (the "Indenture").
Bondholder consent was finalized on July 1, 1998 and the Company paid $4.2
million to the consenting holders. The $4.2 million amount is included in
deferred loan costs and is being amortized over the remaining term of the
Indenture. In October, the Board of Directors approved an additional 2.5 million
share repurchase program and the Company completed the direct purchase of an
additional 2.5 million shares.
At September 27, 1998, third parties had purchased a total of 8.0 million
shares of the Company's common stock at an average price per share of $13.45 (or
a total acquisition cost of $107.5 million) pursuant to equity forward
contracts. The acquisition price paid by third parties is reflected as "Equity
forward contracts pending settlement" in the accompanying consolidated balance
sheet. Upon expiration of the agreements, the Company has the option to (i)
acquire the shares at the third parties' average acquisition cost or (ii)
instruct the third parties to sell the stock in the market and settle in cash
any appreciation or depreciation in the market value of the stock from the date
of purchase through the sale date. The Company may also pursue extending the
contracts dependent on mutual agreement between the Company and the third
parties. The Indenture contains a restricted payments covenant which limits the
amount that may be expended for share repurchases to a basket calculated by a
specified formula. Earnings, proceeds from equity offerings and other
transactions increase the basket while dividends, share repurchases and other
transactions reduce the basket. At September 27, 1998, the amount available per
the basket for share repurchases was approximately $76.1 million. As of October
29, 1998 the total purchase price of shares represented by equity forward
contracts exceeded the basket by approximately $54.7 million (or 4.1 million
shares). If settlements were currently made under the equity forward contracts
for these excess shares, the Company would owe approximately $18.5 million to
the third parties with respect to these shares (based on the closing sales price
of the Company's common stock on October 29, 1998). The Company intends to
purchase as many shares currently represented by equity forward contracts as
allowed by the basket under the Indenture. The Company believes that it may be
able to extend some or all of the equity forward contracts which currently
expire from December 1998 through July 1999. In addition, some of the shares may
be utilized for management and other employee share purchase option plans,
possible future acquisitions and the future conversion of the Company's
2,300,000, $3.50 term convertible securities, all of which would increase the
basket amount. The Company's revolving credit agreements, including a $150.0
million credit facility expected to be completed during the fourth quarter, and
cash flow from operations will be sufficient to satisfy the Company's
obligations upon expiration of the equity forward contracts.
During October, the Board of Directors approved loans to the Chief Executive
Officer and certain other executive officers of the Company. Pursuant to this
approval, the Company has advanced a total of approximately $1.8 million.
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Forward-Looking Information
Certain information contained in this Form 10-Q, particularly information
regarding the timing and sales price of the disposition of Applebee's
restaurants, future economic performance and finances, restaurant development
plans, capital requirements 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; retention of Applebee's division employees while sales are
pending; the availability of qualified buyers for the Applebee's restaurants and
their ability to obtain required financing; and the satisfaction of closing
conditions for prospective transactions subject to outstanding contracts or
letters of intent. Other factors that may cause actual results to differ from
the forward-looking statements contained in this release and that may affect the
Company's prospects in general are described in Exhibit 99.1 to the Company's
Form 10-Q for the fiscal quarter ended June 29, 1997, and the Company's other
filings with the Securities and Exchange Commission.
Year 2000
Historically, certain computer programs were written and certain computer chips
were designed using two digit year designations. These programs and chips may
experience problems handling dates beyond 1999. Incomplete or untimely
resolution of these problems by the Company, by its critical suppliers, or by
governmental entities could have a material adverse effect on the Company's
consolidated financial position or results of operations. The Company began work
on Year 2000 related issues in 1997 by conducting executive awareness programs
and engaging outside consultants to assist in developing a consistent Year 2000
methodology, time line and project plan. An inventory and assessment of
information technology ("IT") systems as well as non-IT systems has been
completed and the Company is currently in the process of correcting systems with
date-related deficiencies. Completion of the solution implementation phase and
testing of those solutions is scheduled to be completed prior to December 31,
1998. As the Company has invested primarily in licensed software rather than
developing it internally, remediation efforts and related expenditures are not
material. The Company is also in the process of evaluating key suppliers to
determine the status of their Year 2000 compliance programs. Management does not
currently anticipate any adverse effects related to the Year 2000.
New Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive
Income". SFAS 130, which is effective for the Company's fiscal 1998, establishes
standards for reporting and display of comprehensive income and its components.
Comprehensive income is defined as the change in equity of a business enterprise
during a period from transactions and other events and circumstances from
nonowner sources. Total comprehensive income for the nine months ended September
27, 1998 of $24.7 million included net earnings as reported in the accompanying
consolidated statement of earnings plus the $0.2 million after-tax effect of
foreign currency translation adjustments. Comprehensive income for the nine
months ended September 28, 1997 was equal to net earnings as reported.
15
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Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
16
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Part II. Other Information
Item 5. Other Information
Apple South Financing I, a Delaware business trust sponsored by the Company (the
"Trust"), filed a certificate of amendment on October 19, 1998 with the
Secretary of State of Delaware to change the name of the Trust to Avado
Financing I. The Trust's preferred securities trade on NASDAQ under the new
symbol "AVDOP".
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
2.1 Asset purchase agreement dated July 31, 1998, by and among
Apple South, Inc. and Delta Bluff, LLC.
11.1 Computation of earnings per common share
27.1 Financial Data Schedule (EDGAR version only)
99.1 Safe Harbor Under the Private Securities Litigation Reform Act
of 1995*
*Incorporated by reference to the corresponding exhibit to the Company's
Quarterly Report on Form 10-Q for the quarter ended June 29, 1997, as amended by
a Form 10-Q/A filed on August 27, 1997
(b) Reports on Form 8-K.
The Company filed a Current Report on Form 8-K, dated August 3, 1998,
which disclosed, pursuant to Item 2 of Form 8-K, the Company's completion of the
sale of 123 of its franchised Applebee's Neighborhood Grill & Bar restaurants.
The Company filed a Current Report on Form 8-K, dated September 14,
1998, which disclosed, pursuant to Item 2 of Form 8-K, the Company's completion
of the sale of 191 of its franchised Applebee's Neighborhood Grill & Bar
restaurants.
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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.
Avado Brands, Inc.
(Registrant)
Date: October 30, 1998 By: /s/ Erich J. Booth
-------------------------------
Erich J. Booth
Chief Financial Officer
and Treasurer
/s/ Philip L. Ammons
-------------------------------
Philip L. Ammons
Chief Accounting Officer
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EXHIBIT INDEX
2.1 Asset purchase agreement dated July 31, 1998, by and among Apple South,
Inc. and Delta Bluff, LLC.
11.1 Computation of earnings per common share
27.1 Financial Data Schedule (EDGAR version only)
99.1 Safe Harbor Under the Private Securities Litigation Reform Act of
1995*
*Incorporated by reference to the corresponding exhibit to the Company's
Quarterly Report on Form 10-Q for the quarter ended June 29, 1997, as amended by
a Form 10-Q/A filed on August 27, 1997
19
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT, dated as of July 31, 1998, by and among
APPLE SOUTH, INC., a Georgia corporation ("Seller") and DELTA BLUFF, LLC., a
Tennessee limited liability company ("Purchaser"),
W I T N E S S E T H :
WHEREAS, Seller owns and operates a number of Applebee's Neighborhood Grill
& Bar ("Applebee's") franchise restaurants; and
WHEREAS, Seller desires to sell to Purchaser certain Applebee's restaurants
and related property, and Purchaser desires to purchase such assets, all on the
terms and subject to the conditions set forth herein;
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and adequacy of which are hereby
acknowledged, and intending to be legally bound, the parties hereby agree as
follows:
ARTICLE I - DEFINITIONS
1.1 Definitions. For purposes of this Agreement, the following terms shall
have the meanings set forth 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.
"ADIs" shall mean Arbitron Rating Areas of Dominant Influence.
"ADI Personnel" shall have the meaning set forth in Section 4.4.
"Assets" shall mean all of Seller's rights and interests in, to, or under
the following:
(i) all tangible personal property of any kind located in the Restaurants
or on the Real Property, including, but not limited to, equipment, appliances,
machinery, tables, chairs, other furniture, bars, tableware, cookware, utensils,
furnishings, signage, leasehold improvements, fixtures, uniforms, supplies, food
and beverage inventory (including beer, liquor, and wine inventory), and
advertising and promotional materials. The tangible personal property shall
include, without limitation, the items set forth on Schedule 1.1(i);
(ii) $1,500 cash in each Restaurant;
(iii) all prepaid items relating exclusively to the Business;
(iv) all assignable Permits;
(v) all assignable rights under express or implied warranties of
manufacturers, distributors, or retailers relating to the Assets;
(vi) all of Seller's supplier lists, demographic, statistical, and other
information related exclusively to the Business;
(vii) copies of Seller's employee records of those current employees of
Seller who are employed by Purchaser as of the Closing (subject to execution of
a release by each affected employee allowing for the disclosure of such files);
(viii) the Contracts and Leases;
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(ix) the Owned Real Property; and
(x) all records and files related to the Real Property such as rent
calculations, landlord correspondence, purchase agreements, deeds, construction
documents, title reports, environmental and engineering reports, appraisals,
surveys, etc.
"Assets" shall not include cash in the Restaurants in excess of $1,500 per
Restaurant, bank accounts, or any other property, tangible or intangible, real
or personal, not described above.
"Assumed Liabilities" shall mean (i) all obligations of Seller that accrue
after the Closing under the terms of the Contracts and Leases, (ii) all
obligations of Seller under the Contracts and Leases that accrue prior to the
Closing but which are not due for payment until after the Closing and which are
taken into account in computing the Purchase Price pursuant to Section 2.3,
(iii) obligations arising after the Closing under any Permits which are assigned
to Purchaser, (iv) all Property Taxes and all other obligations with respect to
the Assets that accrue prior to the Closing but which are not due for payment
until after the Closing and which are taken into account in computing the
Purchase Price pursuant to Section 2.3, (v) all Property Taxes and all other
obligations with respect to the Assets that accrue after the Closing, (vi) gift
certificates issued by Seller prior to Closing, (vii) accrued vacation of ADI
Personnel assumed pursuant to Section 6.3(c), and (viii) all obligations with
respect to Seller's development activities under Section 4.7 not otherwise
assumed hereunder or covered by an increase in the purchase price pursuant to
Section 2.3. Assumed Liabilities shall not include any liability, obligation,
payment, duty, or responsibility of any nature except as expressly described
above and specifically shall not include (i) liabilities or obligations of
Seller arising out of any breach by Seller of any of the Contracts or Leases;
(ii) except as provided in clauses (ii) or (iv) above, liabilities or
obligations of Seller under any of the Contracts or Leases or with respect to
the Owned Real Property or other Assets that accrue in any such case prior to
the Closing; (iii) any liabilities or obligations of Seller under the Franchise
Agreements; (iv) any liability of Seller for product liability, personal injury,
property damage, or otherwise based on any tort claim or statutory liability
(including but not limited to any "dram shop" liability); (v) any federal,
state, or local tax liability of Seller except to the extent expressly assumed
hereunder, (vi) any contractual claim based on any lease, contract, or agreement
other than the Contracts and Leases; (vii) any liability, obligation, or
responsibility of Seller to Seller's employees, agents, or independent
contractors with respect to wages, salaries, bonuses, or other compensation or
benefits earned or accrued prior to the Closing (except for accrued vacation
assumed pursuant to Section 6.3(c)); and (viii) any liability or obligation of
Seller arising out of the negotiation, execution, or performance of this
Agreement, including fees and expenses of attorneys and accountants, except as
otherwise expressly provided herein.
"Bill of Sale and Assignment Agreement" shall mean an instrument in
substantially the form of Exhibit A hereto pursuant to which the Assets (except
for the Owned Real Property) will be transferred and assigned to Purchaser at
the Closing and pursuant to which Purchaser will assume the Assumed Liabilities.
"Business" shall mean the business of owning and operating the Restaurants
and developing and opening new Applebee's Neighborhood Grill & Bar restaurants
in the Territory, as conducted prior to the Closing by Seller pursuant to the
Franchise Agreements.
"Closing" shall have the meaning set forth in Section 2.6 hereof.
"Closing Date" shall mean the time and date that the Closing occurs.
"Code" shall mean the United States Internal Revenue Code of 1986, as
amended, and all regulations thereunder. Any reference herein to a specific
section or sections of the Code shall be deemed to include a reference to any
corresponding provision of future law.
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"Consents" shall mean all consents, approvals, and estoppels of others
which are required to be obtained in order to effect the valid assignment,
transfer, and conveyance to Purchaser of the Material Contracts and the Leases
without resulting in any default thereunder.
"Contracts" shall mean all contracts, agreements, and leases of equipment
or other personal property that relate exclusively to the Business; provided,
however, that the Franchise Agreements are not included within the meaning of
"Contracts."
"Deeds" shall mean special warranty deeds, limited warranty deeds or other
appropriate instruments to convey good and marketable fee simple title to the
Owned Real Property, with the warranty of title contained therein limited to the
claims of Persons claiming by, through or under Seller, but not otherwise.
"Development Costs" shall mean (i) all of Seller's reasonable out-of-pocket
costs paid in connection with the development of the restaurant located at 7515
Goodman Road in Olive Branch, Mississippi and capitalized in accordance with
generally accepted accounting principles and Seller's historical practices
including, but not limited to, the purchase price paid for real estate;
acquisition and closing costs, such as legal fees, engineering fees, surveys,
transfer taxes, title policies, and the like; environmental investigation costs;
the cost of permits, approvals, variances, or rezonings; land development costs;
construction costs; the cost of equipment and other personal property acquired
for the restaurants; pre-opening expenses; and construction period insurance;
(ii) Seller's internal costs capitalized in connection with such development
efforts in accordance with Seller's historic practices; and (iii) Seller's
reasonable costs in the acquisition and development of new restaurant sites
approved by the Purchaser. Notwithstanding the foregoing, the parties agree that
the Development Costs and pre-opening expenses with respect to the new
restaurant at 7515 Goodman Road in Olive Branch, Mississippi, shall not exceed $
1,735,000 without the written consent of both parties.
"Disclosure Memorandum" shall mean the set of numbered schedules
referencing Sections of this Agreement delivered by Seller and dated of even
date herewith, as supplemented by new or amended schedules delivered by Seller
prior to the Closing.
"DR Holdings Tracts" shall mean two parcels of real property located at
4855 American Way, Memphis, Tennessee and 3954 Austin Peay Highway, Memphis,
Tennessee, which are subject to leases, but which Seller shall cause to be
conveyed to Purchaser in fee simple at the Closing.
"Effective Time" shall have the meaning set forth in Section 2.5 hereof.
"Environmental Laws" shall mean all federal, state, municipal, and local
laws, statutes, ordinances, rules, regulations, conventions, and decrees
relating to the environment, including without limitation, those relating to
emissions, discharges, releases, or threatened releases of 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, 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,
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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.
"Financial Statements" shall have the meaning set forth in Section 3.8.
"Financing Commitment" shall have the meaning set forth in Section 6.4.
"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.
"Franchise Agreements" shall mean those development agreements, franchise
agreements, and other agreements between Seller and Franchisor relating
exclusively to the Territory.
"Franchisor" shall mean Applebee's International, Inc.
"Government" shall mean any federal, state, local, municipal, or foreign
government or any department, commission, board, bureau, agency,
instrumentality, unit, or taxing authority thereof.
"Guarantee" shall mean each of the guarantees executed and delivered to the
Seller by James L. Hudson, Harold Jordan, Elmer Jordan and A. Van Vincent on or
prior to the date of this Agreement.
"Hazardous Material" shall mean all substances and materials designated as
hazardous or toxic as of the date hereof pursuant to any applicable
Environmental Law.
"HSR Act" shall mean the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended.
"Knowledge of Seller" (or words of like effect) when used to qualify a
representation, warranty, or other statement shall mean the actual knowledge of
Seller's directors of operations for the Territory and all management of Seller
senior thereto after due inquiry of the Restaurant managers in the Territory.
"Leases" shall mean the leases of real property and improvements described
on Schedule 1.1B and any leases subsequently entered into and pertaining to new
restaurants being developed pursuant to Section 4.7.
"Letter Agreement" shall mean the letter agreement, as described in Section
10.13, duly executed and delivered to Seller by A. Van Vincent of Delta Bluff,
LLC on or prior to the date of this Agreement.
"Material Contracts" shall mean all Contracts that involve monetary
obligations of Seller of more than $12,000 during any two-year period and that
are not cancelable by Seller upon thirty days notice or less, a list of which
are set forth on Schedule 1.1D.
"Minor Contracts" shall mean all Contracts that are not Material Contracts.
"Mortgages" shall mean deeds of trust and fixture filings, assignments of
rents, and security agreements, relating to Austin Peay and American Way
securing the Promissory Note, in a form to be agreed upon by the parties within
30 days from the date hereof.
"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.
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"Owned Real Property" shall mean those tracts and parcels of land owned by
Seller on which a Restaurant is located or which is being held for development
pursuant to Section 4.7 (all of which tracts and parcels are described in
Schedule 1.1C) or which is acquired by Seller prior to Closing for development
pursuant to Section 4.7, and all buildings, fixtures, signs, parking facilities,
and other improvements located thereon and appurtenances thereto. For the
purposes of this Agreement, "Owned Real Property" will include the DR Holdings
Tracts.
"Permits" shall mean all rights of Seller under any liquor, alcoholic
beverage, beer and wine licenses, other licenses of every kind, certificates of
occupancy, and permits or approvals of any nature, from governmental and
regulatory authorities which relate exclusively to the Business, the
Restaurants, or the Real Property.
"Permitted Encumbrances" shall mean, in the case of all Real Property, (i)
such easements, restrictions, covenants, and other such encumbrances which are
shown as exceptions on the Title Commitments and any other encumbrances of
record as of the effective date of the Title Commitments, (ii) ordinances
(municipal and zoning), (iii) survey matters, and (iv) the Mortgages; and (v)
such easements, restrictions, covenants, and other encumbrances which become
matters of public record after the effective date of the Title Commitments and
before the Closing, in each such case, to the extent that such encumbrances
could not reasonably be expected to materially interfere with or impair
Purchaser's use of the Real Property for Applebee's Neighborhood Grill & Bar
Restaurants or that are waived, or deemed to be waived, by Purchaser pursuant to
Section 7.1(a). Permitted Encumbrances shall include in the case of both Real
Property and personal property all liens for taxes not yet due and payable. In
the case of Assets pertaining to Applebee's restaurants under development
pursuant to Section 4.7, Permitted Encumbrances shall include all mechanic's,
materialman's, and other liens relating to Assumed Liabilities.
"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.
"Promissory Note" shall mean the $2.4 million promissory note substantially
in the form attached hereto as Exhibit B made by the Purchaser in favor of the
Seller. Interest only shall be payable quarterly on the first business day of
each calendar quarter beginning during the first full quarter following the
Closing at an annual interest rate of 8.5%. The principal amount shall be paid
in full at the end of three years from the Closing date. The Promissory Note
shall be secured by a first lien on the land and buildings at 3954 Austin Peay
and 4855 American Way, both of which are located in Memphis, Tennessee.
"Property Taxes" shall mean all ad valorem, real property, and personal
property taxes, all general and special private and public assessments, all
other property taxes, and all similar obligations pertaining to the Assets.
"Real Property" shall mean the land and improvements comprising the Owned
Real Property and all land and improvements subject to Leases.
"Restaurants" shall mean the 13 Applebee's Neighborhood Grill & Bar
restaurants operated by Seller at the locations set forth on Schedule 1.1A and
any additional Applebee's restaurants completed prior to Closing pursuant to
Section 4.7.
"Schedules" shall mean the numbered sections of the Disclosure Memorandum.
"Seller Plans" shall have the meaning set forth on Schedule 3.15.
"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
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operations, and from community activities.
"Termination Date" shall mean October 5, 1998.
"Territory" shall mean those ADIs consisting of a portion of the Jackson,
Tennessee ADI and the Memphis, Tennessee ADI, as more particularly set forth on
Schedule 1.1E.
"Title Commitments" shall have the meaning set forth in Section 7.1(a).
"Title Policies" shall mean the Owner's Title Policies and the Lessee's
Title Policies as defined in Section 7.1(a).
ARTICLE II - PURCHASE AND SALE
2.1 Purchase and Sale. Upon the terms and subject to the conditions set
forth in this Agreement, at the Closing Seller shall sell, transfer, and assign
to Purchaser the Assets free and clear of any mortgage, security interest, lien,
charge, claim, or other encumbrance of any nature except the Permitted
Encumbrances, and Purchaser shall purchase the Assets from Seller for the
Purchase Price set forth in Section 2.3.
2.2 Assumption of Liabilities. As of the Effective Time, Purchaser shall
assume all of the Assumed Liabilities. Except for the Assumed Liabilities,
Purchaser does not hereby assume or agree to assume or pay any obligations,
liabilities, indebtedness, duties, responsibilities, or commitments of Seller or
any other Person, of any nature whatsoever, whether known or unknown, absolute
or contingent, due or to become due.
2.3 Purchase Price. The purchase price for the Assets (the "Purchase
Price") shall be $15,750,000 as adjusted as follows:
(a) The amount of the purchase price shall be increased by (i) all Property
Taxes accruing with respect to the Assets after the Closing that have been paid
by Seller prior to Closing; (ii) all amounts paid by Seller under the Contracts
and Leases that pertain to periods after the Closing; (iii) any other prepaid
expenses pertaining to the Business (such as telephone expenses, advertising
expenses, utility charges, and the like) to the extent that the same will
benefit Purchaser after the Closing; (iv) an amount equal to Seller's cost of
those Assets consisting of food, beverage (including beer, wine, and liquor),
new uniforms, paper, and supplies inventory as determined by the parties' joint
inventory at the close of business on the day prior to the Closing Date; and (v)
the amount of Seller's Development Costs.
(b) The amount of the purchase price shall be decreased by (i) all Property
Taxes accruing with respect to the Assets prior to the Closing that are due and
payable after the Closing and that have not been paid as of the Closing, (ii)
all amounts payable under the Contracts and Leases that pertain to periods
before the Closing but are due and payable after the Closing and that have not
been paid as of the Closing, and (iii) the cost of unused vacation accrued as of
the Closing Date by ADI Personnel hired by Purchaser the cost of which is being
assumed by Purchaser pursuant to Section 6.3(c).
(c) The amount of the purchase price shall be further adjusted to reflect
any expense paid by one party which the other party has agreed to pay or share
pursuant to Section 10.1 or otherwise pursuant to this Agreement.
The foregoing adjustments shall be calculated by the parties and set forth
on Exhibit C which shall be signed by both parties at Closing. The Purchase
Price shall be paid by Purchaser on the Closing Date by delivery of the
Promissory Note and wire transfer of immediately available funds in the amount
of the remainder of the Purchase Price to an account designated by Seller.
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2.4 Deliveries at the Closing. (a) At the Closing, Seller shall deliver to
Purchaser the following:
(i) A certificate executed by Seller, dated as of the Closing Date,
certifying in such detail as Purchaser may reasonably request that subject to
the matters disclosed in the Disclosure Memorandum, as it may be supplemented by
Seller from time to time, all representations and warranties of Seller in this
Agreement are true in all material respects as of the Closing Date;
(ii) A certificate of the Secretary or an Assistant Secretary of Seller,
dated as of the Closing Date, certifying in such detail as Purchaser may
reasonably request (A) that attached thereto is a true and complete copy of
resolutions adopted by the Board of Directors of Seller authorizing the
execution, delivery, and performance of this Agreement, the Bill of Sale and
Assignment Agreement, and the Deeds, and that all such resolutions are still in
full force and effect and are all the resolutions adopted in connection with the
transactions contemplated by this Agreement, and (B) as to the incumbency and
specimen signature of each officer of Seller executing this Agreement, the Bill
of Sale and Assignment Agreement, the Deeds, and any certificate or instrument
furnished pursuant hereto, and a certification by another officer of Seller as
to the incumbency and signature of the officer signing such certificate;
(iii) The opinion of Kilpatrick Stockton LLP, counsel to Seller, in
substantially the form of Exhibit D hereto;
(iv) The Bill of Sale and Assignment Agreement, duly executed by Seller;
(v) The Consents;
(vi) The Deeds, duly executed by Seller or in the case of the two DR
Holdings Tracts by the owner thereof;
(vii) A "non-foreign affidavit" that meets the requirements of Section
1445(b)(2) of the Internal Revenue Code of 1986, as amended;
(viii) A Standard form Seller's Affidavit required by the title insurance
company as a condition to the issuance of the title insurance policies;
(ix) A Cross-Receipt, acknowledging receipt of the Purchase Price, duly
executed by Seller in substantially the form of Exhibit G hereto; and
(x) Any other documents that Purchaser may reasonably request at least
three days prior to the Closing in order to effectuate the transactions
contemplated hereby.
(b) At the Closing Purchaser shall deliver to Seller the following:
(i) A certificate executed by Purchaser, dated as of the Closing Date,
certifying in such detail as Seller may reasonably request to the fulfillment of
the conditions specified in Sections 7.3(a) and (b) hereof;
(ii) A certificate of the Secretary or an Assistant Secretary of Purchaser,
dated as of the Closing Date, certifying in such detail as Seller may request
(i) that attached thereto is a true and complete copy of resolutions adopted by
the Board of Directors of Purchaser authorizing the execution, delivery and
performance of this Agreement, the Bill of Sale and Assignment Agreement, the
Mortgages and the Promissory Note and that all such resolutions are still in
full force and effect and are all the resolutions adopted in connection with the
transactions contemplated by this Agreement, and (ii) as to the incumbency and
specimen signature of each officer of Purchaser executing this Agreement, and
any certificate or instrument furnished pursuant hereto or to be furnished in
connection herewith as of the Closing Date, and a certification by another
officer of Purchaser as to the incumbency and signature of the officer signing
such certificate;
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(iii) The funds constituting the cash portion of the Purchase Price;
(iv) The Promissory Note, duly executed by Purchaser;
(v) The Mortgages, duly executed by Purchaser;
(vi) The Bill of Sale and Assignment Agreement, duly executed by Purchaser;
(vii) The opinion of Glankler Brown PLLC, counsel to Purchaser, in
substantially the form of Exhibit E hereto;
(viii) A Cross-Receipt, acknowledging receipt of the Assets, duly executed
by Purchaser, in substantially the form of Exhibit G hereto; and
(ix) Any other documents that Seller may reasonably request at least three
days prior to the Closing, including but not limited to the Letter Agreement
described in Section 10.13 and the Guarantees described in Section 10.14.
2.5 Transfer of Operations. Purchaser shall be entitled to immediate
possession of, and to exercise all rights arising under, the Assets from and
after the time that the Restaurants open for business on the Closing Date, and
operation of the Restaurants shall transfer at such time (the "Effective Time").
Except as expressly provided in this Agreement, all profits, losses,
liabilities, claims, or injuries arising before the Effective Time shall be
solely to the benefit or the risk of Seller. All such occurrences after the
Effective Time shall be solely to the benefit or the risk of Purchaser. The risk
of loss or damage by fire, storm, flood, theft, or other casualty or cause shall
be in all respects upon Seller prior to the Effective Time and upon the
Purchaser thereafter.
2.6 Closing. The closing of the transactions described in this Article II
(the "Closing") shall take place at the offices of Kilpatrick Stockton LLP,
Suite 2800, 1100 Peachtree Street, Atlanta, Georgia, at 10:00 a.m. on September
21, 1998, or on such other date and time as may be mutually agreed upon by the
parties hereto.
2.7 Allocation of Purchase Price. The Purchase Price shall be allocated
among the various Assets as set forth on Exhibit F hereof. Each party hereby
agrees that it will not take a position on any income tax return, before any
governmental agency charged with the collection of any income tax, or in any
judicial proceeding that is inconsistent with the terms of this Section 2.7.
2.8 Further Assurances. From time to time after the Closing at Purchaser's
request and expense, Seller shall execute, acknowledge, and deliver to Purchaser
such other instruments of conveyance and transfer and shall take such other
actions and execute and deliver such other documents, certifications, and
further assurances as Purchaser may reasonably require to vest more effectively
in Purchaser, or to put Purchaser more fully in possession of, any of the
Assets, or to better enable Purchaser to complete, perform and discharge the
Assumed Liabilities. Each party hereto will cooperate with the other and execute
and deliver to the other party hereto such other instruments and documents and
take such other actions as may be reasonably requested from time to time by any
other party hereto as necessary to carry out, evidence, and confirm the intended
purpose of this Agreement.
ARTICLE III - REPRESENTATIONS AND WARRANTIES OF SELLER
Subject to the limitations and exceptions set forth in the Disclosure
Memorandum dated of even date hereof, as supplemented or amended from time to
time by Seller prior to the Closing Date, regardless of whether any Schedule
constituting a part of the Disclosure Memorandum is referenced in any specific
provision below, Seller hereby represents and warrants to Purchaser as follows:
3.1 Organization, Qualifications and Corporate Power. Seller is a
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corporation duly incorporated and organized, validly existing, and in good
standing under the laws of the State of Georgia. Seller has the corporate power
and authority to execute, deliver, and perform this Agreement, the Bill of Sale
and Assignment Agreement, the Deeds, and all other agreements, documents,
certificates, and other papers contemplated to be delivered by Seller pursuant
to this Agreement.
3.2 Authorization. The execution, delivery, and performance by Seller of
this Agreement, the Bill of Sale and Assignment Agreement, the Deeds, and all
other agreements, documents, certificates, and other papers contemplated to be
delivered by Seller pursuant to this Agreement have been duly authorized by the
Board of Directors of Seller.
3.3 Non-Contravention. Subject to obtaining the consents to assignment of
the Leases and Material Contracts set forth on Schedule 3.3, the execution,
delivery and performance of this Agreement will not violate or result in a
breach of any term of Seller's Articles of Incorporation or Bylaws, result in a
breach of any agreement or other instrument to which Seller is a party (except
for defaults under Minor Contracts where the consent of the other party or
parties to such contract to the assignment thereof will not be obtained) or
violate any law or any order, rule, or regulation applicable to Seller of any
Forum having jurisdiction over Seller; and will not result in the creation or
imposition of any lien, charge, or encumbrance of any nature whatsoever upon any
of the Assets. Except as set forth on Schedule 3.3 and except for consents
required under Minor Contracts, the execution, delivery and performance of this
Agreement and the other documents executed in connection herewith, and the
consummation of the transactions contemplated hereby and thereby do not require
any filing with, notice to or consent, waiver or approval of any third party,
including but not limited to, any Forum other than any filing required under the
HSR Act and the expiration of any applicable waiting period thereunder. Schedule
3.3 identifies separately each notice, consent, waiver, or approval by reference
to each Lease and to each Material Contract to which it is applicable.
3.4 Validity. This Agreement has been duly executed and delivered by the
Seller and constitutes the legal, valid, and binding obligation of Seller,
enforceable in accordance with its terms, subject to general equity principles
and to applicable bankruptcy, insolvency, reorganization, moratorium, and
similar laws from time to time in effect affecting the enforcement of creditors'
rights. When the Bill of Sale and Assignment Agreement and the Deeds have been
executed and delivered in accordance with this Agreement, they will constitute
the legal, valid, and binding obligation of Seller, enforceable in accordance
with its terms, subject to general equity principles and to applicable
bankruptcy, insolvency, reorganization, moratorium, and similar laws from time
to time in effect affecting the enforcement of creditors' rights.
3.5 Assets. (a) Seller has good and valid title to all of the Assets
constituting personal property, free and clear of any and all mortgages,
pledges, security interests, liens, charges, conditional sales agreements, and
other encumbrances except Permitted Encumbrances.
(b) The Assets located at each Restaurant constitute all tangible personal
property required on site to operate the Restaurant in accordance with the
Franchise Agreements.
(c) There are no assets or property of any nature which is not being
transferred to Purchaser hereunder that has been customarily used exclusively in
the operation or ownership of the Restaurants other than Permits and software
licenses that are not assignable.
(d) Each Asset constituting tangible personal property having a fair market
value of $5,000 or more is in good operating condition consistent with its age,
subject to normal wear and tear.
3.6 Contracts and Leases.
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(a) Each Material Contract and Lease is a valid and subsisting agreement,
without any material default of Seller thereunder, and to the knowledge of
Seller, without any default on the part of any other party thereto. To the
knowledge of Seller, no event or occurrence has transpired which with the
passage of time or giving of notice or both will constitute a default under any
Material Contract or Lease. A true and correct list of each Material Contract
and Lease and every amendment thereto or other agreement or document relating
thereto is set forth as Schedule 3.6 to this Agreement. True and correct copies
of the Material Contracts and Leases (and any amendments thereto) have been
provided to Purchaser. At the time of Closing, Seller shall have made all
payments and performed all obligations due through the Closing Date under each
Contract and Lease, except to the extent that any payment due is set forth on
Exhibit C and deducted in calculating the Purchase Price pursuant to Section
2.3.
(b) No Contract or Lease has been assigned by Seller or any interest
granted therein by Seller to any third party, or is subject to any mortgage,
pledge, hypothecation, security interest, lien, or other encumbrance or claim.
(c) Seller's possession of property subject to the Leases has not been
disturbed, nor has any claim been asserted against Seller adverse to its rights
in such leasehold interests.
(d) The Contracts have been entered into in the ordinary course of Seller's
business and, to Seller's knowledge, contain commercially reasonable terms.
3.7 Real Property.
(a) Schedule 3.7(a) sets forth with respect to each Restaurant, its
location, whether it is located on Owned Real Property or is on a site subject
to a Lease, and whether the improvements are owned or leased.
(b) The water, electric, gas, and sewer utility services, and storm
drainage facilities currently available to each parcel of Real Property are
adequate for the operation of the Restaurants as presently operated, and to
Seller's knowledge, there is no condition which will result in the termination
of the present access from each parcel of Real Property to such utility services
and other facilities.
(c) Seller, or the owner of the DR Holdings Tracts, has obtained all
authorizations and rights-of-way which are necessary to ensure vehicular and
pedestrian ingress and egress to and from the site of each Restaurant, all of
which are assignable and shall be assigned to Purchaser at the Closing.
(d) Neither Seller nor the holder of the DR Holdings Tracts has received
any notice that any governmental body having the power of eminent domain over
any parcel of Real Property has commenced or intends to exercise the power of
eminent domain or a similar power with respect to any part of the Real Property.
(e) The Real Property and the present uses thereof comply in all material
respects with all material laws and regulations (including zoning laws and
ordinances) of all governmental bodies having jurisdiction over the Real
Property, and Seller has received no notice from any governmental body alleging
that the Real Property or any improvements erected or situated thereon, or the
uses conducted thereon or therein, violate any regulations of any governmental
body having jurisdiction over the Real Property.
(f) To the knowledge of Seller, no work for municipal improvements has been
commenced on or in connection with any parcel of Real Property or any street
adjacent thereto and no such improvements are contemplated. No assessment for
public improvements has been made against the Real Property which remains
unpaid. No notice from any county, township, or other governmental body has been
served upon the Real Property or received by Sellers, or to the knowledge of
Seller received by any owner of any of the Real Property subject to a Lease,
requiring or calling attention to the need for any work, repair, construction,
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alteration, or installation on or in connection with the Real Property which has
not been complied with.
(g) Seller holds all Environmental Permits necessary for conducting the
Business and has conducted, and is presently conducting, the Business in
material compliance with all applicable Environmental Laws and Environmental
Permits held by it, including, without limitation, all record keeping and filing
requirements. To the Seller's knowledge, all Hazardous Materials and Solid
Waste, on, in, or under Real Property have been properly removed and disposed
of, and to the Seller'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 will subject the Purchaser, or any subsequent owner, occupant, or
operator of the Real Property to corrective or compliance action or any other
liability. There are no presently pending, or to Seller's knowledge, threatened
Actions or Orders against or involving Seller relating to any alleged past or
ongoing violation of any Environmental Laws or Environmental Permits with
respect to the Real Property, nor to Seller's knowledge is Seller subject to any
liability for any such past or ongoing violation. Schedule 3.7(g) discloses all
environmental reports relating to the Restaurants.
(h) All improvements constituting a part of the Real Property, as completed
pursuant to this Agreement, are structurally sound and designed and constructed
for their intended purposes; and are in good operating condition consistent with
their age, subject to normal wear and tear.
3.8 Financial Statements. Schedule 3.8 contains for each Restaurant
unaudited statements of operations as of the end of the 1997 fiscal year and for
each fiscal month ended thereafter through the date hereof for which such
statements are available, prepared in accordance with generally accepted
accounting principles, except for the absence of explanatory notes and except as
otherwise expressly described therein (the "Financial Statements"). The
Financial Statements have been prepared in accordance with Seller's historical
practices and fairly present the operations of the Restaurants for the periods
presented.
3.9 Taxes. All Property Taxes relating to the Assets have been fully paid
for 1997 and all prior tax years and there are no delinquent property tax liens
or assessments. Seller has also timely filed (or will timely file) all other tax
returns and reports of whatever kind pertaining to the Assets and required to be
filed by Seller up to the Closing Date. Seller has paid (or will timely pay) all
taxes of whatever kind, including any interest, penalties, governmental charges,
duties, fees, and fines imposed by all governmental entities or taxing
authorities, which are due and payable prior to the Closing Date or for which
assessments relating to any period prior to the Closing Date have been received,
the nonpayment of which would result in lien on any of the Assets. There are no
audits, suits, actions, claims, investigations, inquiries, or proceedings
pending or, to Seller's knowledge, threatened against Seller with respect to
taxes, interest, penalties, governmental charges, duties, or fines, nor are any
such matters under discussion with any governmental authority, nor have any
claims for additional taxes, interest, penalties, charges, fines, fees, or
duties been received by assessed against Seller that in any such case affect the
Assets.
3.10 Litigation. Except as set forth on Schedule 3.10, there is no material
Action or Order pending or, to the knowledge of Seller, threatened against or
affecting Seller that pertains to the Restaurants, or any of the Assets before
any court or by or before any Forum.
3.11 Permits. Seller has all material Permits as are necessary to operate
the Restaurants. Seller has fulfilled and performed all of its material
obligations with respect to such Permits and, to the knowledge of Seller, no
event has occurred which allows, nor after notice or lapse of time or both would
allow, revocation or termination thereof or would result in any other impairment
of the rights of the holder of any such Permits.
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3.12 Health and Safety Requirements. Seller is in material compliance with
all laws, governmental standards, rules and regulations applicable to Seller or
to any of the Assets in respect to the Americans with Disabilities Act and
similar state laws, occupational health and safety laws, and environmental laws.
3.13 Employment Contracts, Etc. Seller is not is a party to any written
employment agreements related to the employees at the Restaurants, (or any oral
agreements providing for employment other than employment "at will") or any
deferred compensation agreements.
3.14 Labor Matters. Except as disclosed on Schedule 3.14 in the case of
each of the following, Seller is not and never has been a party to any
collective bargaining or other labor agreement affecting the Business. To the
knowledge of Seller, there is no pending or threatened labor dispute, strike,
work stoppage, union representation, election, organizing effort, negotiation of
collective bargaining agreement, or similar labor matter affecting the Business.
Seller is not involved in or aware of any controversy with or dispute with any
individual or group of its employees regarding any labor or employment matters.
Seller is not aware of any organization representing any employees involved in
the Business. Further, to the knowledge of Seller, Seller is in full compliance
with all applicable federal and state laws and regulations concerning the
employer-employee relationship. Seller is in compliance with all of its
agreements relating to the employment of its employees, including, without
limitation, provisions relating to wages, bonuses, hours of work and payment of
Social Security taxes, and Seller is not liable for any unpaid wages, bonuses or
commissions, or any tax, penalty, assessment or forfeiture for failure to comply
with any of the foregoing except as disclosed on Schedule 3.14.
3.15 Employee Benefits.
(a) Schedule 3.15 hereto contains a true and complete list of all the
following agreements or plans of Seller which are presently in effect and which
pertain to any of the ADI Personnel:
(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 Security 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, policy, or arrangement, whether written or
unwritten, formal or informal, which Sellers maintains or to which Seller 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) are herein
collectively referred to as the "Seller Plans").
(b) Seller does not presently contributes and/or has ever contributed or
been obligated to contribute to a multiemployer plan as defined in section
3(37)(A) of ERISA.
(c) No Seller Plan is subject to Title IV of ERISA.
3.16 Accuracy of Schedules, Certificates and Documents. All information
concerning Seller contained in any certificate furnished to Purchaser pursuant
to this Agreement or in the Disclosure Memorandum is or will be when furnished
both complete and accurate in all material respects; and all documents furnished
to Purchaser pursuant to this Agreement which are documents described in this
Agreement or in the Disclosure Memorandum are true and correct copies of the
documents which they purport to represent.
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ARTICLE IV - COVENANTS OF SELLER
4.1 Performance of Real Property Leases and Assumed Contracts. Seller
shall, through the Closing Date, continue to faithfully and diligently perform
each and every continuing obligation of Seller, if any, under each of the Leases
and Material Contracts, where the failure to do so would have a material adverse
affect on the operations of a Restaurant.
4.2 Transfer of Licenses and Permits. Seller shall use good faith
commercially reasonable efforts to cooperate in assisting Purchaser with the
assumption, transfer, or reissuance of any Licenses and all Permits required for
the operation of the Restaurants.
4.3 Liabilities of Seller. All liabilities of Seller related to the Assets
which are not Assumed Liabilities will be promptly paid by Seller as they come
due.
4.4 Agreements Respecting Employees of Seller.
(a) Prior to the Effective Time without the prior written approval of
Purchaser, Seller shall not transfer or reassign to operations outside the
Business any employee substantially involved in the operation or supervision of
the Restaurants ("ADI Personnel") At the Effective Time, Seller shall terminate
the employment of all ADI Personnel. For a period of 18 months following the
Closing, Seller shall not solicit for employment any person who is an employee
of Purchaser. Notwithstanding the foregoing, Purchaser acknowledges that Fred
Pearson is in the process of negotiating other employment arrangements which may
cause him to resign. Seller agrees to make every commercially reasonable effort
to cause Fred Pearson to remain in his position until such time as his other
employment arrangements begin and will replace Fred Pearson with a comparable
employee as soon as practicable in the event of his resignation.
(b) Seller shall be solely responsible for any severance amounts due or
granted by Seller to any ADI Personnel.
(c) Seller and Purchaser shall cooperate in the transition of coverage of
ADI Personnel from Seller's health, medical, life insurance and other welfare
plans to similar plans, if any, as may be from time to time maintained by
Purchaser to ensure that the benefits of such personnel are not reduced.
4.5 Conduct of Business. (a) From the date hereof until Closing, Seller
shall (i) operate the Restaurants as they are currently being operated and in
the ordinary course of business and in compliance with all terms and conditions
of the Franchise Agreements, using commercially reasonable efforts in keeping
with Seller's historical practices to preserve and maintain the services of its
employees and its relationships with suppliers and customers, (ii) pay all bills
and debts incurred by it related to the Business promptly as they become due,
and (iii) consult in advance with Purchaser on all decisions outside the
ordinary course of business relating to the Assets or the Restaurants.
(b) In particular, and without limiting the foregoing, with respect to the
Business, Seller shall:
(i) maintain the Assets consistent with past practices;
(ii) continue to purchase and maintain inventories for each Restaurant in
such quantities and quality as necessary to operate the Restaurants in
accordance with Seller's historical practice;
(iii) continue to operate the Restaurants in accordance with all material
applicable local, state, and federal laws and regulations; and
(c) Further, with respect to the Restaurants, Seller shall not, without the
express prior written approval of Purchaser:
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(i) change in any material manner the ownership of the Assets; or directly
or indirectly, solicit or entertain any offer from or negotiate with or in any
manner engage, discuss, accept or consider any proposal from any other person
relating to the acquisition of the Assets;
(ii) increase the rate of compensation to ADI Personnel beyond the usual
and customary annual merit increases or bonuses under established compensation
plans, except for payments under the stay-bonus plan which Seller agrees to pay
on or before six weeks from the Closing Date;
(iii) mortgage, pledge, or subject to lien any of the Assets;
(iv) sell or otherwise dispose of any Asset (a) with a value greater than
$5,000 in any one Restaurant or Assets having an aggregate value of $25,000 or
(b) dispose of any other Asset except in the ordinary course of business;
(v) enter into any Material Contract;
(vi) cancel or terminate or consent to or accept any cancellation or
termination of any Material Contract or Lease, amend or otherwise modify any of
its material terms or waive any breach of any of its material terms or
provisions or take any other action in connection with any Material Contract or
Lease that would materially impair the interests or rights of Seller to be
transferred to Purchaser hereunder.
4.6 Access to Information. Seller shall afford Purchaser, its counsel,
financial advisors, auditors, lenders, lenders' counsel and other authorized
representatives reasonable access for any purpose consistent with this Agreement
from the date hereof until the Closing, during normal business hours, to the
offices, properties, books, and records of Seller with respect to the Assets and
the Restaurants and shall furnish to Purchaser such additional financial and
operating data and other information as Seller may possess and as Purchaser may
reasonably request, subject to Purchaser's obligations regarding the
confidentiality of such information as set forth in Section 6.2 hereof;
provided, however, that such access shall be arranged in advance by Purchaser
with Seller and will be scheduled in a manner and with a frequency calculated to
cause the minimum disruption of the business of Seller.
4.7 Development Efforts. Seller shall use commercially reasonable efforts
to continue up to the Closing the development of the new Applebee's restaurant
in Olive Branch, Mississippi, in accordance with the timetable and budget set
forth on Schedule 4.7.
4.8 Reporting Requirements. Through the Closing Date, Seller shall furnish
to Purchaser:
(a) Promptly after the occurrence, or failure to occur, of any such event,
information respect to any event which has materially adversely affected the
Assets or the operations of the Restaurants.
(b) As soon as available and in any event within fifteen business days
after the end of each fiscal month, the statement of operations of each
Restaurant for such month in the Seller's regularly prepared format.
(c) Promptly after the commencement of each such matter, notice of all
actions, charges, orders or other directives affecting the Business or any
Restaurant that, if adversely determined, could materially adversely affect the
Assets, the operations, business, prospects or condition (financial or
otherwise) of the Restaurant or the ability of Seller to perform its obligations
hereunder;
(d) Such other information respecting the Assets or the operations,
business prospects, or condition (financial or otherwise) of the Restaurants as
the Purchaser may from time to time reasonably request.
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4.9 Cooperation. Insofar as such conditions are within its reasonable
control or influence, Seller will use good faith commercially reasonable efforts
during the Due Diligence Period to cause the conditions set forth in Article VII
to be satisfied and to facilitate and cause the consummation of the transactions
contemplated hereby, including obtaining the Consents. The parties acknowledge
that no consents will be sought with respect to any Minor Contract even if the
failure to so obtain a consent to assignment may result in a default or
termination thereunder. Seller will use good faith commercially reasonable
efforts to obtain required consents of landlords to the assignment of the Leases
and shall bear any expenses associated with obtaining such consents; however,
Seller shall not be required to make any payment to a landlord (other than
reimbursement of expenses), guarantee any Lease or remain liable for the payment
thereof following the Closing, or agree to any concessions or amendment to other
leases or arrangements with such landlord in order to obtain such consents.
Seller agrees that with respect to any single Lease for which Seller is unable
to obtain the landlord's consent to assignment of such Lease to the Purchaser
that Purchaser may elect not to purchase the Restaurant subject to such Lease
and that the Purchase Price shall be adjusted accordingly. Seller shall use good
faith commercially reasonable efforts to obtain a guarantee of that amount of
Seller's financing equal to five percent of the Purchase Price from Franchisor
per Seller's prior agreement with Franchisor. Seller further agrees to use good
faith commercially reasonable efforts to obtain any required consents regarding
the assignment of any Material Contracts to Purchaser.
4.10 Subsequent Contracts. From the date of this Agreement to the Closing
Date, Seller shall use good faith commercially reasonable efforts (a) to include
in any Material Contracts entered into by Seller ("Subsequent Contracts") which
are not subject to full performance prior to the Closing Date a provision
permitting the assignment of any such Subsequent Contract to Purchaser and
providing that upon such assignment, Purchaser shall succeed to all of Seller's
rights, title, and interests thereunder subject to the Purchaser's assumption of
all of Seller's duties, powers, and obligations under such Subsequent Contract,
and (b) to ensure that no Subsequent Contract contains any provision which would
limit in any way the rights, title, and interests of Seller in the Assets. All
Subsequent Contracts must be approved in writing by Purchaser prior to the
execution thereof by Seller.
4.11 Transition Services.
(a) For a period of three months after the Closing, if and to the extent
requested in writing by Purchaser, Seller agrees to provide to Purchaser
restaurant accounting, POS system support, and other services related to the
Restaurants as mutually agreed upon between Seller and Purchaser (the
"Services"). Purchaser shall give Seller forty-five (45) days advance written
notice of the Services requested. The Services shall be provided promptly as
requested and shall be provided in the same manner and with the same or similar
personnel as Seller previously utilized.
(b) Purchaser will pay for the Services on a monthly basis, after receipt
of an invoice from Seller, at Seller's direct personnel cost incurred in
connection with providing the requested Service, plus an amount of reasonable
overhead not to exceed 85% of the base salaries of the personnel providing the
Services. Seller's invoice shall detail the personnel used, the amount of time
spent, and its calculation of the cost thereof. Direct personnel cost shall
include only base salary and benefits normally paid to Seller employees in such
capacities.
(c) Seller is not required to maintain the employment of any specific
personnel in connection with providing the Services; provided, however, that if
requested by Purchaser, Seller shall offer to specifically designated personnel
a bonus incentive to remain for the three month period. The amount of such bonus
shall be at the discretion of Purchaser. Such bonus, if accepted by the
employee, shall be paid by Purchaser at the end of the three-month period, or
for such shorter period as Purchaser may determine.
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4.12 Delivery of Real Estate Documents. Within five business days of the
date hereof Seller shall provide to Purchaser legal descriptions of the Owned
Real Property and the Leased Real Property and copies of all surveys, title
policies, and environmental reports pertaining to the Owned Real Property and
the Lease Real Property in Seller's possession or reasonably available to Seller
within such time period.
ARTICLE V - REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser hereby represents and warrants to Sellers as follows:
5.1 Organization, Corporate Power, Authorization. Purchaser is a limited
liability company duly organized, validly existing, and in good standing under
the laws of the State of Tennessee and in each other jurisdiction in which it is
lawfully required to qualify to conduct business. Purchaser has the corporate
power and authority to execute and deliver this Agreement, the Bill of Sale and
Assignment Agreement, the Promissory Note, and the Mortgages, and to consummate
the transactions contemplated hereby. All corporate action on the part of
Purchaser necessary for the authorization, execution, and delivery of this
Agreement, the Bill of Sale and Assignment Agreement, the Promissory Note, and
the Mortgages and performance of all obligations of Purchaser thereunder has
been duly taken.
5.2 Non-Contravention. The execution and delivery of this Agreement, the
Bill of Sale and Assignment Agreement, the Promissory Note, and the Mortgages by
Purchaser do not and the consummation by Purchaser of the transactions
contemplated hereby and thereby will not violate any provision of its articles
of incorporation or bylaws.
5.3 Validity. This Agreement has been duly executed and delivered by
Purchaser, and constitutes the legal, valid, and binding obligation of
Purchaser, enforceable against it in accordance with its terms, subject to
general equity principles and to applicable bankruptcy, insolvency,
reorganization, moratorium, and similar laws from time to time in effect
affecting the enforcement of creditors' rights. When each of the Bill of Sale
and Assignment Agreement, the Bill of Sale and Assignment Agreement, the
Promissory Note, and the Mortgages has been executed and delivered in accordance
with this Agreement, it will constitute the legal, valid, and binding obligation
of Purchaser, enforceable in accordance with its terms, subject to general
equity principles and to applicable bankruptcy, insolvency, reorganization,
moratorium, and similar laws from time to time in effect affecting the
enforcement of creditors' rights.
5.4 Litigation Relating to the Agreement. Purchaser is not a party to, or
subject to any judgment, decree, or order entered in any lawsuit or proceeding
brought by any governmental agency or instrumentality or other party seeking to
prevent the execution of this Agreement or the consummation of the transactions
contemplated hereby.
ARTICLE VI - COVENANTS OF PURCHASER
6.1 Purchaser Performance. After the Closing Date, Purchaser shall promptly
pay as they become due and otherwise perform all obligations of Seller under the
Assumed Liabilities and otherwise perform and fulfill all other obligations with
respect to the Assets pertaining to the period after the Closing Date.
6.2 Confidentiality. In connection with the negotiation of this Agreement,
Seller may disclose Confidential Information, as defined below, to Purchaser.
Purchaser agrees that if the transactions contemplated herein are not
consummated, it will return to Seller all documents and other written
information furnished to it. Purchaser further agrees to maintain the
confidentiality of any and all Confidential Information of Seller and not
disclose any Confidential Information to any Person other than such Person to
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whom Confidential Information must be disclosed to effect the transactions and
who are bound by appropriate non-disclosure agreement or obligations. Purchaser
shall not use such Confidential Information for financial gain or in any manner
adverse to Seller. The foregoing obligations shall not apply to (i) any
information which was known by Purchaser prior to its disclosure by Seller; (ii)
any information which was in the public domain prior to the disclosure thereof;
(iii) any information which comes into the public domain through no fault of
Purchaser; (iv) any information which is disclosed to Purchaser 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.
For purposes of this Section, "Confidential Information" shall mean any and all
technical, business, and other information which is (a) possessed or hereafter
acquired by Seller and disclosed to Purchaser and (b) derives economic value,
actual or potential, from not being generally known to Persons other than
Seller, 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 Seller, and the existence of discussions and negotiations between the parties
hereto relating to the terms hereof. The restrictions of this Section 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. Purchaser agrees to execute a confidentiality agreement with respect to all
information received in connection with due diligence.
6.3 Seller Employees.
(a) Purchaser shall be obligated to initially offer employment to all ADI
Personnel upon terms and conditions substantially equivalent to those provided
by Seller; however, Purchaser shall not be required to provide stock options or
any stock purchase rights. Purchaser shall have no obligation to employ any ADI
Personnel for any minimum length of time and, unless specifically agreed to with
any employee otherwise, Purchaser shall employ ADI Personnel on an at-will
basis. Purchaser further reserves the right to amend, increase, decrease or
terminate any employee benefit provided to its employees at any time. For a
period of 12 months following the Closing, Purchaser will agree not to hire any
person who was an employee of Seller or any subsidiary of Seller within the
previous three months (other than ADI Personnel).
(b) Purchaser shall maintain employee records transferred to Purchaser
hereunder for a period of not less than four years and during that period will
afford Seller reasonable access to such records during Purchaser's normal
business hours. Purchaser shall maintain the confidentiality of such records and
limit access thereto in a manner consistent with Purchaser's treatment of its
employee records.
(c) Purchaser agrees with respect to ADI Personnel hired by Purchaser: (i)
to give such employees credit under Purchaser's benefits plans, programs, and
arrangements, including credit for accrued vacation which has been charged to
Seller under Section 2.3, for such employees' period of service with Seller,
provided that such credit shall only be taken into account under any
tax-qualified plan maintained by Purchaser for purposes of determining such
employees' eligibility for participation and eligibility to satisfy any hours of
service requirement in order to receive an allocation of an employer
contribution; (ii) to provide coverage to such employees who are eligible under
Purchaser's health, medical, life insurance, and other welfare plans (A) without
the need to undergo a physical examination or otherwise provide evidence of
insurability; (B) any pre-existing condition or similar limitations or
exclusions will be applied by taking into account the period of coverage under
Seller's plan; (C) by applying and giving credit for amounts paid for the plan
year in which the Closing Date occurs as deductibles, out of pocket expenses,
and similar amounts paid by individuals and their beneficiaries.
(d) Purchaser agrees with respect to ADI personnel hired by Purchaser; (i)
to give such employees credit for accrued vacation which has been charged to
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Seller under Section 2.3 for such employee's service with Seller; and (ii) to
offer to such employees benefits under Purchaser's applicable health, medical,
life insurance or other welfare plans now or then existing at the date of
closing which may be amended or terminated by Purchaser at any time. The
Purchaser is under no obligation to continue or adopt any of Seller's health,
medical, life insurance, pension or other welfare plans offered by Seller to ADI
personnel.
6.4 Cooperation. Insofar as such conditions are within its reasonable
control or influence, Purchaser shall use commercially reasonable efforts to
cause the conditions set forth in Article VII to be satisfied and to facilitate
and cause the consummation of the transactions contemplated hereby.
Specifically, but not by way of limitation, Purchaser will (i) use commercially
reasonable efforts to obtain a signed commitment letter (the "Financing
Commitment") for financing on terms acceptable to Seller and to obtain financing
on such terms, (ii) promptly provide Franchisor with all information required by
Franchisor to determine whether Purchaser will be approved as a franchisee with
respect to the Territory, (iii) actively pursue an agreement with Franchisor as
to the principal terms of franchise and development agreements with respect to
the Territory, and (iv) file all documents required to obtain approval of the
transactions contemplated hereby under the HSR Act within 15 days of the date
hereof.
ARTICLE VII - CONDITIONS PRECEDENT TO THE CLOSING
7.1 Title Examination and Property Inspection. (a) Purchaser shall have 30
days following receipt of the documents referred to in Section 4.12 (the "Title
Inspection Period") to obtain and review (i) current surveys and title insurance
commitments with respect to the Owned Real Property ("Owner's Title
Commitments") pursuant to which the Title Company will agree to issue at Closing
owner's policies of title insurance ("Owner's Title Policies") on American Land
Title Association standard Form B-1990, without exceptions except as shown in
the Owner's Title Commitments, to be issued by a reputable title insurance
company of Purchaser's choice ("Title Company") in an amount in the case of each
parcel equal to the purchase price allocated to such parcel of the Owned Real
Property pursuant to Section 2.7, and (ii) current surveys and title insurance
commitments with respect to the Real Property subject to a Lease (collectively,
the "Leased Real Property") (the "Lessee Title Commitments", and collectively
with the Owner's Title Commitments, the "Title Commitments") pursuant to which
the Title Company will agree to issue at Closing lessee's policies of title
insurance ("Lessee's Title Policies") on American Land Title Association
standard form of leasehold owner's policy to insure leasehold estates, showing
no exceptions except as shown in the Lessee Title Commitments. The Owner's Title
Policies shall insure the Purchaser that, upon consummation of the purchase and
sale herein contemplated, Purchaser will be vested with good, fee simple,
marketable, and insurable title to the Owned Real Property, subject only to the
Permitted Encumbrances or arising out of acts of the insured. The Lessee's Title
Policies shall insure the Purchaser that, upon consummation of the transactions
herein contemplated, Purchaser will be vested with a good, valid, marketable and
insurable leasehold estate in and to the Leased Real Property, subject only to
the Permitted Encumbrances. Purchaser shall have until the end of the Title
Inspection Period in which to furnish Seller a written statement of objections
to exceptions which, in Purchaser's reasonable judgment, would interfere with or
impair Purchaser's use of the Real Property for the operation of Applebee's
restaurants ("Objections"). Seller shall have until 15 days following the end of
the Title Inspection Period in which to furnish Purchaser with a written
statement regarding the Seller's response to the Purchaser's Objections. If
Seller notifies Purchaser within such 15-day period that it is unable or
unwilling to satisfy all Objections in all material respects on or prior to the
Termination Date, then Purchaser's sole right and remedy shall be to either (i)
waive the Objections and elect to close, or (ii) terminate this Agreement by
giving written notice of such termination to Seller. If Purchaser fails to
furnish Seller a written statement of Objections by the end of the Title
Inspection Period with respect to any matter appearing as an exception on a
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Title Commitment, such matter shall be deemed waived by Purchaser and shall be a
Permitted Encumbrance. If Seller fails to provide written notice to Purchaser
within such 15-day period of its unwillingness or inability to satisfy any
Objections, it shall be deemed to have agreed to satisfy such Objections prior
to the Termination Date. The parties acknowledge that some of the Leased Real
Property may be located in shopping centers, and as such, unless the leased
premises are a free standing building located on a separate pad with its own
legal description ("Free Standing Premises") the Lessee Title Commitments for
such Leased Real Property will contain encumbrances for entire shopping centers.
(b) Property Inspection.
(A) Between the date of this Agreement and the Closing Date, Purchaser and
Purchaser's agents, employees, contractors, representatives and other designees
(hereinafter collectively called "Purchaser's Designees") shall have the right
to enter the Real Property for the purposes of inspecting the Real Property,
conducting soil tests, conducting surveys, mechanical and structural engineering
studies, environmental studies, and conducting any other investigations,
examinations, tests, and inspections as Purchaser may reasonably require to
assess the condition of the Real Property; provided, however, that (i) any
activities by or on behalf of Purchaser, including, without limitation, the
entry by Purchaser or Purchaser's Designees onto the Real Property, or the other
activities of Purchaser or Purchaser's Designees with respect to the Real
Property (hereinafter called "Purchaser's Activities") shall not damage the Real
Property in any manner whatsoever or disturb or interfere with the rights of any
lessor of Leased Real Property; (ii) in the event the Real Property is altered
or disturbed in any manner in connection with any Purchaser's Activities,
Purchaser shall immediately return the Real Property to the condition existing
prior to Purchaser's Activities; (iii) Purchaser shall in no event without
Seller's prior written consent disclose the results of any of its
investigations, examinations, tests, or inspections to any party (including any
Government unless required by law) other than to its lenders, attorneys,
consultants, and investors; and (iv) Purchaser shall indemnify, defend, and hold
Seller harmless from and against any and all claims, liabilities, damages,
losses, costs, and expenses of any kind or nature whatsoever (including, without
limitation, attorneys' fees, and expenses and court costs) suffered, incurred or
sustained by Seller as a result of, by reason of, or in connection with any
Purchaser's Activities. Notwithstanding any provision of this Agreement to the
contrary, Purchaser shall not have the right to undertake any environmental
studies or testing beyond the scope of a standard "Phase I" evaluation without
the prior written consent of Seller and, if applicable, the lessor of any Leased
Real Property.
(B) Purchaser shall have until 45 days following the signing of this
Agreement (hereinafter called the "Due Diligence Date"), to perform such
investigations, examinations, tests and inspections as Purchaser shall deem
necessary or desirable to determine whether the Real Property is suitable and
satisfactory to Purchaser and can be used for Applebee's franchise restaurants.
In the event Purchaser shall determine that the Real Property is not reasonably
suitable and satisfactory to Purchaser, Purchaser shall have the right to
terminate this Agreement by giving written notice to Seller on or before the Due
Diligence Date If Purchaser does not terminate this Agreement in accordance with
this Section 7.1(b) on or before the Due Diligence Date, Purchaser shall have no
further right to terminate this Agreement pursuant to this Section 7.1(b).
(C) Prior to any entry by Purchaser or any of Purchaser's Designees onto
the Real Property, Purchaser shall: (i) procure a policy of commercial general
liability insurance, issued by an insurer reasonably satisfactory to Seller,
covering all Purchaser's Activities, with a single limit of liability (per
occurrence and aggregate) of not less than $1,000,000.00; and (ii) deliver to
Seller a Certificate of Insurance, evidencing that such insurance is in force
and effect, and evidencing that Seller has been named as an additional insured
thereunder with respect to any Purchaser's Activities. Such insurance shall be
written on an "occurrence" basis, and shall be maintained in force until the
earlier of (i) the termination of this Agreement and the conclusion of all
Purchaser's Activities; or (ii) Closing.
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(D) Purchaser acknowledges that Seller may deliver to Purchaser certain
documents and information in possession of Seller or Seller's agents with regard
to the Real Property (hereinafter called the "Due Diligence Materials"). The Due
Diligence Materials will be provided to Purchaser without any representation or
warranty of any kind or nature whatsoever and are merely provided to Purchaser
for Purchaser's informational purposes. Until Closing, Purchaser and Purchaser's
Designees shall maintain all Due Diligence Materials as Confidential
Information.
7.2 Purchaser's Conditions to Closing. The obligations of Purchaser
hereunder are subject to satisfaction of each of the following conditions at or
before Closing, the occurrence of which may, at the option of Purchaser, be
waived:
(a) Subject to the matters disclosed in the Disclosure Memorandum as
supplemented by Seller from time to time, all representations and warranties of
Seller in this Agreement shall be true in all material respects on and as of the
Closing.
(b) Any supplement to the Disclosure Memorandum delivered by Seller shall
not reflect in Purchaser's reasonable judgment any material adverse change in
the Assets or the Business. For purposes of this Section 7.2(b), "material
adverse change" shall mean any condition set forth in the Disclosure Memorandum
which results either (i) in a decrease in the aggregate monthly sales of all the
Restaurants taken as a group by 10% or more when compared to the average
aggregate monthly sales of the Restaurants for the comparable period during
fiscal year 1997 or (ii) in a decrease of 2.5% or more in the fair market value
of the Assets from the value of the Assets on the Due Diligence Date to the
value of the Assets on the date of the Closing. Notwithstanding the foregoing,
any adverse change in the business and financial condition of the Restaurants
resulting from national and regional economic conditions, events, or other
factors affecting the casual dining restaurant industry in general, or the
Applebee's system in particular, shall not be deemed to be a material adverse
change hereunder.
(c) Seller shall have performed and complied in all material respects with
all of its obligations under this Agreement which are to be performed or
complied with by Seller prior to or on the Closing Date.
(d) Seller shall have obtained and delivered to Purchaser all consents
necessary to transfer and assign the Assets (except for Minor Contracts) to
Purchaser.
(e) Purchaser and Franchisor shall have entered into a franchise agreement
with respect to each Restaurant and development agreements with respect to each
ADI in the Territory.
(f) Purchaser shall have obtained, either from Seller or directly from the
issuing authority, all permits, licenses, including liquor licenses, beer
permits and approvals of all governmental and quasi-governmental authorities
necessary for the operation of the Restaurants in accordance with franchise
requirements; provided, however, that if Purchaser is unable to obtain from
local municipal or county authorities a permit necessary for such operation of
the Restaurants, and Purchaser reasonably believes that it will be able to
obtain such a permit within two months of the Closing Date, Closing of the
transactions contemplated hereunder will not be delayed if Seller delivers to
Purchaser a duly executed liquor license management agreement or agreements in
form reasonably satisfactory to Purchaser and Seller.
(g) The waiting period under the HSR Act shall have expired or a
notification of early termination of the waiting period shall have been received
by Purchaser.
(h) Purchaser shall have obtained the Financing Commitment upon terms and
conditions reasonably acceptable to Purchaser or other financing reasonably
acceptable to Purchaser.
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(i) Purchaser shall have been issued the Title Policies.
(j) Seller shall have delivered the items required by Section 2.4(a).
7.3 Seller's Conditions to Closing. The obligations of Seller hereunder are
subject to satisfaction of each of the following conditions at or before
Closing, the occurrence of which may, at the option of Seller, be waived:
(a) All representations and warranties of Purchaser in this Agreement shall
be true in all material respects on and as of the Closing, and Purchaser shall
have delivered to Seller a certificate to such effect dated as of the Closing
Date.
(b) Purchaser shall have performed and complied in all material respects
with all of its obligations under this Agreement which are to be performed or
complied with by Purchaser prior to or on the Closing Date.
(c) Franchisor shall have agreed to terminate the Franchise Agreements
effective as of the Closing.
(d) Seller shall have obtained all the Consents.
(e) The waiting period under the HSR Act shall have expired or a
notification of early termination of the waiting period shall have been received
by Seller.
(f) Purchaser shall have delivered the items required by Section 2.4(b).
ARTICLE VIII - DEFAULTS/REMEDIES
8.1 Purchaser Claims.
(a) Seller shall be liable to Purchaser and shall indemnify and hold
harmless Purchaser, its successors and assigns, against, and in respect of:
(i) Any and all damages, losses, liabilities, costs, and expenses incurred
or suffered by Purchaser that result from, relate to, or arise out of:
(A) any and all liabilities and obligations of Seller of any nature
whatsoever, except for the Assumed Liabilities;
(B) any failure by Seller to carry out any covenant or agreement contained
in this Agreement;
(C) any misrepresentation or breach of warranty by Seller contained in this
Agreement, the Disclosure Memorandum, or any certificate, furnished to Purchaser
by Seller pursuant hereto; or
(D) any claim by any Person for any brokerage or finder's fee or commission
in respect of the transactions contemplated hereby as a result of Seller's
dealings, agreement, or arrangement with such Person.
(ii) Any and all actions, suits, claims, proceedings, investigations,
demands, assessments, audits, fines, judgments, costs, and other expenses
(including, without limitation, reasonable legal fees and expenses) incident to
any of the foregoing including all such expenses reasonably incurred in
mitigating any damages resulting to Purchaser from any matter set forth in
subsection (i) above.
(b) Notwithstanding the foregoing, Seller shall have no liability for
damages, indemnification or otherwise with respect to Section 8.1(a)(i)(C) (and
Section 8.1(a)(ii) to the extent the items covered thereby relate back to
Section 8.1(a)(i)(C)) until the aggregate liability of Seller thereunder exceeds
$175,000 and then only to the extent that the aggregate liability of Seller
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thereunder exceeds such amount; provided, however, that liabilities arising with
respect to Sections 3.1 through 3.4 hereof shall not be subject to the foregoing
threshold and any liabilities arising with respect to such matters shall not be
taken into account in computing aggregate liabilities for the purpose of
applying such threshold amount to liabilities arising under other Sections
subject thereto. In no event shall the aggregate liability of Seller under
Section 8.1(a)(i)(C) (and Section 8.1(a)(ii) to the extent the items covered
thereby relate back to Section 8.1(a)(i)(C)) exceed $7,000,000. Notwithstanding
the foregoing, the preceding sentence shall not apply to any claim resulting
from any fraudulent behavior or intentional breach of this Agreement by Seller.
(c) The amount of any liability of Seller under this Section 8.1 shall be
computed net of any tax benefit to Purchaser from the matter giving rise to the
claim for indemnification hereunder and net of any insurance proceeds received
by Purchaser with respect to the matter out of which such liability arose.
(d) The representations and warranties of Seller contained in this
Agreement, the Disclosure Memorandum, or any certificate delivered by or on
behalf of Seller pursuant to this Agreement or in connection with the
transactions contemplated herein shall survive the consummation of the
transactions contemplated herein and shall continue in full force and effect for
the periods specified below ("Survival Period"):
(i) the representations and warranties contained in Section 3.5(d) shall be
of no further force and effect after 60 days from the date of the Closing;
(ii) the representations and warranties contained in Sections 3.1, through
3.4 and Section 3.7(g) shall survive until the expiration of any applicable
statues of limitation provided by law; and
(iii) all other representations and warranties of Seller shall be of no
further force and effect after 18 months from the date of the Closing.
Anything to the contrary notwithstanding, the Survival Period shall be
extended automatically to include any time period necessary to resolve a written
claim for indemnification which was made in reasonable detail before expiration
of the Survival Period but not resolved prior to its expiration, and any such
extension shall apply only as to the claims so 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.
(e) Purchaser may not assert any claim against Seller for breach of any
covenant contained in Article IV (except for Sections 4.1, 4.3, 4.4, 4.10 and
4.11) and all such claims shall be deemed to be waived as a result of the
Closing. The other covenants contained in Article IV and liability therefor
shall survive the Closing.
(f) Purchaser shall provide written notice to Seller of any claim for
damages or indemnification under this Article as soon as practicable; provided,
however, that failure to provide such notice on a timely basis shall not bar
Purchaser's ability to assert any such claim except to the extent that Seller is
actually prejudiced thereby. Purchaser shall make commercially reasonable
efforts to mitigate any damages, expenses, etc. resulting from any matter giving
rise to liability of Seller under this Article.
(g) Notwithstanding any other provision of this Article VIII, the aggregate
principal amount of the obligation of Seller under this Article VIII shall not
exceed the gross proceeds actually received by the Seller in connection with
this Agreement and the transaction contemplated hereby.
(h) In addition to any other rights and remedies provided herein, Purchaser
shall be entitled to recover from Seller all costs and expenses of enforcing
this Agreement, including without limitation court costs and attorneys' fees;
and Seller shall have a reciprocal right.
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8.2 Defense of Third Party Claims. With respect to any claim by Purchaser
under Section 8.1, relating to a third party claim or demand, Purchaser shall
provide Seller with prompt written notice thereof in accordance with Section
10.4 and Seller may defend diligently and, in good faith and at its expense, by
legal counsel chosen by it and reasonably acceptable to Purchaser any such claim
or demand, and Purchaser, at its expense, shall have the right to participate in
the defense of any such third party claim. So long as Seller is defending
diligently and in good faith any such third party claim, Purchaser shall not
settle or compromise such third party claim. In any event Purchaser shall
cooperate in the settlement or compromise of, or defense against, any such
asserted claim.
8.3 Seller Claims. Purchaser shall indemnify and hold harmless Seller
against, and in respect of, any and all damages, claims, losses, liabilities,
and expenses, including without limitation, legal, accounting and other
expenses, which may arise out of: (i) any breach or violation by Purchaser of
any covenant set forth herein or any failure to fulfill any obligation set forth
herein, including, but not limited to, the obligation to satisfy the Assumed
Liabilities; (ii) any breach of any of the representations or warranties made in
this Agreement by Purchaser; or (iii) any claim by any Person for any brokerage
or finder's fee or commission in respect of the transactions contemplated hereby
as a result of Purchaser's dealings, agreement, or arrangement with such Person.
8.4 Exclusive Remedies. The rights and remedies of the parties under this
Article VIII shall be the sole and exclusive rights and remedies that either
party may seek for any misrepresentation, breach of warranty, or failure to
fulfill any covenant or agreement under this Agreement, except that either party
may seek specific performance or injunctive relief.
8.5 Settlement of Disputes.
(a) Arbitration. All disputes with respect to any claim for indemnification
under this Article VIII and all other disputes and controversies of every kind
and nature between the parties hereto arising out of or in connection with this
Agreement 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 Louisville, Kentucky (in the
case of arbitration initiated by Seller) or in Atlanta, Georgia (in the case of
arbitration initiated by Purchaser) 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 Georgia (excluding conflict of laws
provisions) shall apply;
(iv) 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 in a court of
competent jurisdiction; and
(v) Except as set forth in subsection (b) below, the parties stipulate that
the provisions of this Section 8.5 shall be a complete defense to any suit,
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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.
(b) Emergency Relief. Notwithstanding anything in this Section 8.5 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.
ARTICLE IX - TERMINATION
9.1 Termination.
(a) This Agreement may be terminated as follows:
(i) At any time by the mutual consent of Seller and Purchaser;
(ii) By Purchaser pursuant to Section 7.1;
(iii) By Seller if Purchaser shall not (i) have obtained and provided a
copy of a Financing Commitment to Seller within 21 days from the date hereof
(the "Financing Commitment Due Date"), (ii) been approved hereof as a franchisee
with respect to the Territory by Franchisor within 40 days of the date hereof,
(iii) reached agreement with Franchisor as to a development schedule and other
material terms of franchise and development agreements with respect to the
Territory within 40 days from the date hereof; or
(iv) By either Seller or Purchaser, at its sole election, at any time after
the Termination Date, if the Closing shall not have occurred on or prior to such
date.
Notwithstanding the foregoing, the parties agree that if on the Financing
Commitment Due Date Purchaser has failed to obtain a Financing Commitment but
has made good faith efforts to do so, then Purchaser may on such date send a
letter to Seller certifying that such good faith efforts to obtain a Financing
Commitment have been made and requesting an extension of the Financing
Commitment Due Date until the 30th day from the date of signing of the
Agreement.
(b) In the event of the termination of this Agreement pursuant to
subparagraph (a)(iv) above because Seller or Purchaser, as the case may be,
shall have willingly failed to fulfill its obligations hereunder, the other
party shall, subject to Section 8.5, be entitled to pursue, exercise, and
enforce any and all remedies, rights, powers, and privileges available to it at
law or in equity.
(c) Section 6.2, Article VIII, and Article X hereof shall survive the
termination of this Agreement.
ARTICLE X - MISCELLANEOUS
10.1 Expenses. (a) Each party hereto shall pay its own legal, accounting,
and similar expenses incidental to the preparation of this Agreement, the
carrying out of the provisions of this Agreement, and the consummation of the
transactions contemplated hereby.
(b) Purchaser shall pay the costs of all filing fees required under the HSR
Act.
(c) Purchaser shall pay the costs of obtaining title insurance with respect
24
<PAGE>
to the Real Property and all recording fees per page with respect to the
transfer of the Owned Real Property and the Leases. Purchaser shall also pay the
cost of all surveys, all environmental investigations, studies, and reports, and
all other costs of any investigation of the Assets, the Restaurants, or the
Business by Purchaser.
(d) Purchaser shall pay any costs associated with the transfer of any
Permits and the cost of obtaining liquor licenses or other Permits that are not
assignable.
(e) The parties shall split equally the cost of any sales taxes, transfer
taxes, documentary stamp taxes, or other taxes imposed with respect to the
transfer of any Assets constituting personal property.
(f) Seller shall pay the costs of obtaining any Consents.
(g) Seller shall pay all transfer taxes, documentary taxes, stamps and fees
(other than per page recording fees) with respect to the transfer of the Owned
Real Property and the Leases.
(h) Following the Closing, Seller shall pay to Purchaser on a monthly basis
as billed the amount of all gift certificates issued by Seller prior to the
Closing and redeemed thereafter.
10.2 Contents of Agreement; Parties in Interest; etc. This Agreement sets
forth the entire understanding of the parties hereto with respect to the
transactions contemplated hereby and constitutes a complete statement of the
terms of such transaction. This Agreement shall not be amended or modified
except by written instrument duly executed by each of the parties hereto. Any
and all previous agreements and understandings between the parties regarding the
subject matter hereof, whether written or oral, are superseded by this
Agreement. Neither party has been induced to enter into this Agreement in
reliance on, and has not relied upon, any statement, representation, or warranty
of the other party not set forth in this Agreement, the Disclosure Memorandum,
or any certificate delivered pursuant to this Agreement.
10.3 Assignment and Binding Effect. Purchaser may assign the right to
receive any of the Assets at Closing to any affiliate or other third party
reasonably acceptable to Seller and acceptable to Franchisor, provided that no
such assignment shall affect Purchaser's liability hereunder. Subject to the
foregoing, all of the terms and provisions of this Agreement shall be binding
upon and inure to the benefit of and be enforceable by the successors and
assigns of Seller and Purchaser.
10.4 Notices. Any notice, request, demand, waiver, consent, approval, or
other communication which is required or permitted hereunder shall be in writing
and shall be deemed given only if delivered personally or sent by telecopy or by
first class registered or certified United States Mail, with proper postage
prepaid, as follows:
25
<PAGE>
If to Seller, to: With a required copy to:
Apple South, Inc. Kilpatrick Stockton LLP
Hancock at Washington 1100 Peachtree Street, Suite 2800
Madison, Georgia 30650 Atlanta, Georgia 30309
Attention: Louis J. (Dusty) Profumo Attention: Larry D. Ledbetter, Esq.
Fax: 706-343-2434 Fax: 404-815-6555
If to Purchaser: With required copies to:
Delta Bluff, LLC Glankler Brown PLLC
7725 Abbott Aveneu North Suite 1700
Brooklyn Park, Minnesota 55443 One Commerce Square
Attention: A. Van Vincent Memphis, Tennessee 38103
Fax: (612) 315-8718 Attention: R. Hunter Humphreys, Esq.
Fax: 901-525-2389; and
James L. Hudson
2200 20th Street, N.W.
Washington, D.C. 20011
or to such other address or person as the addressee may have specified in a
notice duly given to the sender as provided herein. Such notice, request,
demand, waiver, consent, approval or other communication will be deemed to have
been given as of the date actually delivered, or if mailed, four days after
deposit in the U. S. Mail properly addressed with adequate postage affixed.
10.5 GEORGIA LAW TO GOVERN. THIS AGREEMENT SHALL BE GOVERNED BY AND
INTERPRETED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF GEORGIA
WITHOUT REGARD TO CONFLICT OF LAW PRINCIPLES.
10.6 Headings. All section headings contained in this Agreement are for
convenience of reference only, do not form a part of this Agreement, and shall
not affect in any way the meaning or interpretation of this Agreement.
10.7 Schedules and Exhibits. All Exhibits and Schedules referred to herein
are intended to be and hereby are specifically made a part of this Agreement.
10.8 Severability. Any provision of this Agreement which is invalid or
unenforceable in any jurisdiction shall be ineffective to the extent of such
invalidity or unenforceability without invalidating or rendering unenforceable
the remaining provisions hereof, and any such invalidity or unenforceability in
any jurisdiction shall not invalidate or render unenforceable such provision in
any other jurisdiction.
10.9 Public Announcements. Purchaser and Seller will coordinate with each
other all press releases relating to the transactions contemplated by this
Agreement and, except to the extent required by law, refrain from issuing any
press release, publicity statement, or other public notice relating to this
Agreement or the transactions contemplated hereby without providing the other
party reasonable opportunity to review and comment thereon.
10.10 Construction. The parties hereto have participated jointly in the
negotiation and drafting of this Agreement. In the event that any ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the parties hereto and no presumption or burden of
proof shall arise favoring or disfavoring any party hereto by virtue of the
authorship of any of the provisions of this Agreement.
10.11 Disclaimer of Warranties. OTHER THAN TO THE EXTENT OF ANY EXPRESS
REPRESENTATIONS AND WARRANTIES OF SELLER SET FORTH IN THIS AGREEMENT, THE
CLOSING CERTIFICATE REQUIRED BY SECTION 2.4(a)(i) OR ANY DOCUMENT OR INSTRUMENT
DELIVERED BY SELLER PURSUANT HERETO, SELLER DOES NOT MAKE ANY REPRESENTATION OR
WARRANTY, EXPRESS OR IMPLIED, OF ANY KIND OR NATURE WHATSOEVER, WITH RESPECT TO
THE ASSETS, AND ALL SUCH WARRANTIES ARE HEREBY DISCLAIMED. PURCHASER WILL
CONDUCT SUCH INSPECTIONS AND INVESTIGATIONS OF THE ASSETS (INCLUDING, BUT NOT
26
<PAGE>
LIMITED TO, THE PHYSICAL AND ENVIRONMENTAL CONDITION THEREOF) AND RELY UPON SAME
AND, UPON CLOSING, SHALL ASSUME THE RISK THAT ADVERSE MATTERS MAY NOT HAVE BEEN
REVEALED BY PURCHASER'S INSPECTIONS AND INVESTIGATIONS EXCEPT TO THE EXTENT OF
SELLER'S REPRESENTATIONS AND WARRANTIES MADE HEREIN. SELLER SHALL SELL AND
CONVEY TO PURCHASER, AND PURCHASER SHALL ACCEPT, THE ASSETS "AS IS", "WHERE IS",
AND WITH ALL FAULTS EXCEPT TO THE EXTENT OF SELLER'S REPRESENTATIONS AND
WARRANTIES MADE HEREIN, AND THERE ARE NO ORAL AGREEMENTS, WARRANTIES OR
REPRESENTATIONS, COLLATERAL TO OR AFFECTING THE ASSETS BY SELLER OR ANY THIRD
PARTY. WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, AND EXCEPT AS OTHERWISE
PROVIDED HEREIN, IN THE CLOSING CERTIFICATE OR IN ANY DOCUMENTS OR INSTRUMENTS
DELIVERED BY SELLER PURSUANT TO THIS AGREEMENT, SELLER MAKES, AND SHALL MAKE, NO
EXPRESS OR IMPLIED WARRANTY OF SUITABILITY OR FITNESS OF ANY OF THE ASSETS FOR
ANY PURPOSE, OR AS TO THE MERCHANTABILITY, ENVIRONMENTAL CONDITION, TITLE,
VALUE, QUALITY, QUANTITY, CONDITION OR SALABILITY OF ANY OF THE ASSETS, OR AS TO
THE PRESENCE ON OR ABSENCE FROM THE ASSETS OF ANY HAZARDOUS MATERIAL. THE TERMS
AND CONDITIONS OF THIS SECTION 10.11 SHALL SURVIVE THE CONSUMMATION OF THE
PURCHASE AND SALE OF THE ASSETS ON THE CLOSING DATE WITHOUT REGARD TO ANY
GENERAL LIMITATIONS UPON SURVIVAL SET FORTH IN THIS AGREEMENT. THE LIMITATIONS
SET FORTH IN THIS SECTION SHALL IN NO WAY LIMIT ANY WARRANTY FROM ANY THIRD
PARTY.
10.12 Time. Time is and shall be of the essence of this Agreement.
10.13 Minimum Equity Investment. Purchaser agrees to enter into a side
letter agreement substantially in the form as attached hereto as Exhibit H ( the
"Letter Agreement") on or before the date of the signing of this Agreement
pursuant to which Purchaser will agree that there shall be a minimum equity
investment of $50,000 in Purchaser according to the conditions set forth in the
Letter Agreement.
10.14 Guarantee. James L. Hudson, Harold Jordan, Elmer Jordan and A. Van
Vincent (each a "Guarantor") agree to severally guarantee in substantially the
form as attached hereto as Exhibit I (the "Guarantee") the performance and
obligations of Purchaser with respect to this Agreement; provided, that, (i)
such Guarantee shall terminate after the Closing Date, (ii) the aggregate amount
of such Guarantee shall not exceed $50,000 and (iii) the obligation of each
Guarantor shall not exceed $12,500.
[Signatures Located on Following Pages]
27
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first written above.
SELLER:
APPLE SOUTH, INC.
By:
Name:
Title:
PURCHASER:
DELTA BLUFF, LLC.
By:
Name:
Title:
28
<PAGE>
Apple South agrees to supplementally furnish to the Commission a copy of any
omitted exhibit or schedule to this Agreement upon the request of the
Commission. The following is a list briefly identifying the contents of all
omitted exhibits and schedules:
EXHIBIT TABLE OF CONTENTS
EXHIBIT TITLE
A Bill of Sale and Assignment Agreement
B Form of Promissory Note
C Adjustment to Purchase Price
D Opinion of Seller's Counsel
E Opinion of Purchaser's Counsel
F Allocation of Purchase Price
G Form of Cross-Receipt
H Form of Letter Agreement
I Form of Guarantee
29
<PAGE>
DISCLOSURE MEMORANDUM
Table of Contents
Schedule Title
1.1(i) Tangible Personal Property
1.1A Restaurants by Address
1.1B Leases
1.1C Legal Description of Owned Real Property
1.1D Material Contracts
1.1E Territory
3.3 Consents Required to Assign Leases and Material Contracts
3.6 List of Material Contract and Leases and amendments thereto
3.7(a) Location and Ownership of Restaurants
3.7(g) List of Environmental Matters and Reports
3.8 Financial Statements
3.10 Litigation
3.14 Labor Matters
3.15 Seller Plans
4.7 Budget and Schedule for Development Property
30
<TABLE>
Exhibit 11.1
Computation of Earnings Per Common Share
(In thousands, except per share data)
<CAPTION>
Quarter Ended Nine Months Ended
- ------------------------------------------------------------------------------------------------------------------------------------
Sept. 27, Sept. 28, Sept. 27, Sept. 28,
1998 1997 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Average number of common shares used in basic calculation 36,547 38,636 37,627 38,568
Net additional shares issuable pursuant to employee stock
option plans at period-end market price 16 419 25 441
Shares issuable on assumed conversion of convertible
preferred securities 7,774 7,774 7,774 5,496
====================================================================================================================================
Average number of common shares used in diluted calculation 44,337 46,829 45,426 44,505
====================================================================================================================================
Earnings before cumulative effect of change in accounting principle $ 24,438 10,660 69,302 28,152
Cumulative effect of change in accounting principle, net of tax benefit - - 1,461 -
- ------------------------------------------------------------------------------------------------------------------------------------
Net earnings 24,438 10,660 67,841 28,152
Distribution savings on assumed conversion of convertible
preferred securities, net of income taxes 1,328 1,361 3,985 2,975
====================================================================================================================================
Net earnings for computation of diluted earnings per common share $ 25,766 12,021 71,826 31,127
====================================================================================================================================
Basic earnings before cumulative effect of change in accounting principle $ 0.67 0.28 1.84 0.73
Cumulative effect of change in accounting principle - - (0.04) -
====================================================================================================================================
Basic earnings per common share $ 0.67 0.28 1.80 0.73
====================================================================================================================================
Diluted earnings before cumulative effect of change in accounting principle $ 0.58 0.26 1.61 0.70
Cumulative effect of change in accounting principle - - (0.03) -
====================================================================================================================================
Diluted earnings per common share $ 0.58 0.26 1.58 0.70
====================================================================================================================================
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
(THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM
10-Q FOR THE PERIOD ENDING SEPTEMBER 27, 1998 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS).
</LEGEND>
<CIK> 0000849101
<NAME> Avado Brnads, Inc.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> Jan-03-1999
<PERIOD-START> Dec-29-1997
<PERIOD-END> Sep-27-1998
<CASH> 1,399
<SECURITIES> 27
<RECEIVABLES> 12,524
<ALLOWANCES> 0
<INVENTORY> 10,063
<CURRENT-ASSETS> 148,587
<PP&E> 346,357
<DEPRECIATION> 0
<TOTAL-ASSETS> 682,263
<CURRENT-LIABILITIES> 88,594
<BONDS> 203,964
115,000
0
<COMMON> 405
<OTHER-SE> 143,219
<TOTAL-LIABILITY-AND-EQUITY> 682,263
<SALES> 685,961
<TOTAL-REVENUES> 685,961
<CGS> 191,939
<TOTAL-COSTS> 588,390
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 20,278
<INCOME-PRETAX> 109,752
<INCOME-TAX> 40,450
<INCOME-CONTINUING> 69,302
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 1,461
<NET-INCOME> 67,841
<EPS-PRIMARY> 1.80
<EPS-DILUTED> 1.58
</TABLE>
