SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
------------
FORM 8-K
Current Report Pursuant To Section 13 or 15(d) Of
The Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): April 1, 1998
ADVANTICA RESTAURANT GROUP, INC.
(Exact Name of registrant as specified in its charter)
DELAWARE 0-18051 13-3487402
(State or other jurisdiction (Commission File No.) (I.R.S. Employer
of incorporation) Identification No.)
203 East Main Street, Spartanburg, SC 29319-9966
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (864) 597-8000
Former name or former address, if changed since last report:
------------------------------------------------
<PAGE>
Item 2 Acquisition or Disposition of Assets
On April 1, 1998, the Registrant completed the sale to CKE Restaurants, Inc.
("CKE") of the stock of Flagstar Enterprises, Inc. ("FEI"), the wholly-owned
subsidiary which operates the Registrant's Hardee's restaurants under licenses
from Hardee's Food Systems, Inc. ("HFS") a wholly-owned subsidiary of CKE, for
$427 million, which includes the assumption by CKE of $46 million of debt.
$173.1 million of the proceeds was applied to in-substance defease the 10 1/4%
Guaranteed Secured Bonds due 2000 (the "Mortgage Financings") of Spardee's
Realty, Inc., a wholly-owned subsidiary of FEI, and Quincy's Realty, Inc., a
wholly-owned subsidiary of Quincy's Restaurants, Inc. Such Mortgage Financings
were collateralized by certain assets of Spardee's Realty, Inc. and certain
assets of Quincy's Realty, Inc. Such collateral was replaced by purchasing
Defeasance Eligible Investments (as defined in the documents governing such
Mortgage Financings) and depositing them in an irrevocable trust to satisfy
principal and interest payments under such Mortgage Financings through the
stated maturity date in the year 2000.
For certain pro forma financial information concerning the transaction, see Item
7, below. Such pro forma information also gives effect to the consummation of
the Registrant's Amended Joint Plan of Reorganization dated as of November 7,
1997 (the "Plan of Reorganization") (as further described therein) which was
confirmed on November 12, 1997 and became effective on January 7, 1998.
Item 7. Financial Statements and Exhibits
(b) Pro Forma Financial Information.
The following pro forma financial information is included herein:
Page
Number
in Filing
---------
(i) Pro Forma Condensed Consolidated Balance Sheets 5
(Unaudited) as of December 31, 1997, and
(ii) Pro Forma Condensed Statements of Consolidated 9
Operations (Unaudited) for the Year Ended
December 31, 1997.
(c) Exhibits
Listed below are all Exhibits filed as a part of this current report.
Exhibit Number Description
- -------------- -----------
99.1 Stock Purchase Agreement Among Advantica
Restaurant Group, Inc., Spartan Holdings,
Inc., Flagstar Enterprises, Inc. and CKE
Restaurants, Inc. dated as of February 18,
1998.
2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Advantica Restaurant Group, Inc.
By: /s/ Rhonda J. Parish
-----------------------------------------
Name: Rhonda J. Parish
Title: Executive Vice President, General Counsel
and Secretary
Date: April 16, 1998
<PAGE>
PRO FORMA FINANCIAL STATEMENTS
The unaudited pro forma condensed consolidated balance sheets and unaudited
pro forma condensed statements of consolidated operations presented on the
following pages are based upon the historical financial position and results of
operations of the Registrant for the year ended December 31, 1997. The pro forma
adjustments made to the historical results of operations (based on the
assumptions set forth below) give effect to the disposition of FEI and the
consummation of the Plan of Reorganization as if such disposition and the entire
series of Plan of Reorganization transactions, including (i) the merger of
Flagstar Corporation ("Flagstar") and Flagstar Companies, Inc. ("FCI") (the
Registrant's predecessor) into a single corporate entity; (ii) the issuance of
38,200,000 shares of $.01 par value common stock of the Registrant (the "Common
Stock") to holders of Flagstar's 11.25% Senior Subordinated Debentures due 2004
and 11 3/8% Senior Subordinated Debentures due 2003 (collectively, the "Senior
Subordinated Debentures"); (iii) the issuance of 1,800,000 shares of Common
Stock to holders of Flagstar's 10% Convertible Junior Subordinated Debentures
due 2014 (the "10% Convertible Debentures"); (iv) the issuance of new warrants
expiring January 7, 2005 that entitle the holders thereof to purchase in the
aggregate 4 million shares of Common Stock at an exercise price of $14.60 per
share (the "Warrants") to holders of the 10% Convertible Debentures; (v) the
issuance of the Registrant's 11 1/4% Senior Notes due 2007 (the "New Senior
Notes") to holders of Flagstar's 10 7/8% Senior Notes due 2002 and 10 3/4%
Senior Notes due 2001 (collectively, the "Old Senior Notes"); and (vi) the
cancellation of FCI's $2.25 Series A Cumulative Convertible Exchangeable
Preferred Stock (the "Old Preferred Stock") and FCI's $.50 par value common
stock (the "Old Common Stock"), had occurred on January 1, 1997. In addition,
since the Plan of Reorganization was effectuated under Chapter 11 of the
Bankruptcy Code, the provisions of Statement of Position 90-7, "Financial
Reporting by Entities in Reorganization Under the Bankruptcy Code" ("SOP 90-7"),
which require the application of fresh start reporting, have been reflected in
the pro forma condensed statements of consolidated operations as of January 1,
1997. The unaudited pro forma condensed consolidated balance sheets as of
December 31, 1997 presented below are based upon the historical balance sheet
as of December 31, 1997 and include pro forma adjustments as if such
disposition, reorganization transactions and adoption of fresh start reporting
had been completed on that date. The pro forma condensed statements of
consolidated operations and pro forma condensed consolidated balance sheets are
unaudited and were derived by adjusting the historical financial statements of
the Registrant for certain transactions as described in the respective notes
thereto. THESE PRO FORMA FINANCIAL STATEMENTS ARE PROVIDED FOR INFORMATIONAL
PURPOSES ONLY AND SHOULD NOT BE CONSTRUED TO BE INDICATIVE OF THE FINANCIAL
CONDITIONS OR RESULTS OF OPERATIONS OF THE COMPANY HAD THE TRANSACTIONS
DESCRIBED THEREIN BEEN CONSUMMATED ON THE RESPECTIVE DATES INDICATED AND ARE
NOT INTENDED TO BE PREDICTIVE OF THE FINANCIAL CONDITION OR RESULTS OF
OPERATIONS OF THE COMPANY AT ANY FUTURE DATE OR FOR ANY FUTURE PERIOD.
4
<PAGE>
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEETS
December 31, 1997
(Unaudited)
<TABLE>
<CAPTION>
December 31, 1997
---------------------------------------
Adjustments
for
Historical Reorganization
(In thousands) --------------- -----------------------
<S> <C> <C>
Assets
Current Assets:
Cash and cash equivalents ......... $ 54,079 $ (8,900)(1)
Net assets held for sale .......... 242,479
Other ............................. 78,721
Restricted investments
securing in-substance
defeased debt ................... --
-------------
375,279 (8,900)
------------- ---------------
Property -- net .................... 758,373
-------------
Other Assets:
Goodwill, net ..................... 207,918
Other intangible assets, net ...... 14,897
Other ............................. 82,601 (20,319)(2)
Restricted investments
securing in-substance
defeased debt ................... --
Reorganization value in
excess of amounts
allocable to identifiable
assets .......................... --
-------------
305,416 (20,319)
------------- ---------------
$ 1,439,068 $ (29,219)
============= ===============
Liabilities
Current Liabilities
Current maturities of notes
and debentures .................. $ 37,572
Current maturities of capital
lease obligations ............... 19,657
Current maturities of
in-substance defeased debt....... --
Other current liabilities ......... 324,464
-------------
381,693
-------------
Long-Term Liabilities:
Notes and debentures, less
current maturities .............. 510,533 $ 590,867(3)
Capital lease obligations, less
current maturities .............. 87,703
In-substance defeased debt,
less current maturities ......... --
Other non-current liabilities ..... 209,189
-------------
807,425 590,867
------------- -----------------
Total liabilities not subject to
compromise ........................ 1,189,118 590,867
Liabilities subject to
compromise ........................ 1,612,400 (1,612,400) (4)
------------- -----------------
Total liabilities ................. 2,801,518 (1,021,533)
------------- -----------------
Shareholders' Equity:
Capital stock ..................... 21,848 (21,448) (5)
Paid-In capital ................... 724,912 404,912 (6)
Deficit ........................... (2,107,815) 608,850 (7)
Minimum pension liability
adjustment ...................... (1,395)
-------------
(1,362,450) 992,314
------------- -----------------
$ 1,439,068 $ (29,219)
============= =================
<CAPTION>
December 31, 1997
----------------------------------------------------------------------------
After
After Reorganization,
Adjustments Reorganization Adjustments Fresh Start
for Fresh Start and Fresh Start for Disposition Reporting and
Reporting Reporting of FEI(21) Disposition
(In thousands) ----------------------- ----------------- ----------------- ----------------
<S> <C> <C> <C> <C>
Assets
Current Assets:
Cash and cash equivalents ......... $ 45,179 $ 202,041 $ 247,220
Net assets held for sale .......... $ 121,821(8) 364,300 (364,300) --
Other ............................. (1,004)(9) 77,717 (20,714) 57,003
Restricted investments
securing in-substance
defeased debt ................... -- 14,868 14,868
---------- ---------- ----------
120,817 487,196 (168,105) 319,091
--------------- ---------- ---------- ----------
Property -- net .................... 59,586 (10) 817,959 817,959
--------------- ---------- ----------
Other Assets:
Goodwill, net ..................... (207,918)(11) -- --
Other intangible assets, net ...... 207,925 (12) 222,822 222,822
Other ............................. (439) (13) 61,843 61,843
Restricted investments
securing in-substance
defeased debt ................... -- 184,605 184,605
Reorganization value in
excess of amounts
allocable to identifiable
assets .......................... 729,315 (14) 729,315 729,315
--------------- ---------- ----------
728,883 1,013,980 184,605 1,198,585
--------------- ---------- ---------- ----------
$ 909,286 $2,319,135 $ 16,500 $2,335,635
=============== ========== ========== ==========
Liabilities
Current Liabilities
Current maturities of notes
and debentures .................. $ 37,572 $ (12,548) $ 25,024
Current maturities of capital
lease obligations ............... 19,657 19,657
Current maturities of
in-substance defeased debt....... -- 12,548 12,548
Other current liabilities ......... $ 21,166(15) 345,630 16,500 362,130
---------------- ---------- ---------- ----------
21,166 402,859 16,500 419,359
---------------- ---------- ---------- ----------
Long-Term Liabilities:
Notes and debentures, less
current maturities .............. 72,286 (16) 1,173,686 (184,605) 989,081
Capital lease obligations, less
current maturities .............. 87,703 87,703
In-substance defeased debt,
less current maturities ......... -- 184,605 184,605
Other non-current liabilities ..... 35,466 (17) 244,655 244,655
---------------- ---------- ----------
107,752 1,506,044 -- 1,506,044
---------------- ---------- ---------- ----------
Total liabilities not subject to
compromise ........................ 128,918 1,908,903 16,500 1,925,403
Liabilities subject to
compromise ........................ --
----------
Total liabilities ................. 128,918 1,908,903 16,500 1,925,403
---------------- ---------- ---------- ----------
Shareholders' Equity:
Capital stock ..................... 400 400
Paid-In capital ................... (719,992) (18) 409,832 409,832
Deficit ........................... 1,498,965 (19) -- --
Minimum pension liability
adjustment ...................... 1,395 (20) -- --
---------------- ---------- ----------
780,368 410,232 410,232
---------------- ---------- ----------
$ 909,286 $2,319,135 $ 16,500 $2,335,635
================ ========== ========== ==========
</TABLE>
See notes to pro forma condensed consolidated balance sheets.
5
<PAGE>
NOTES TO PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEETS
Adjustments for the Reorganization
The pro forma adjustments related to the Plan of Reorganization and
related transactions are summarized in the following table and are more fully
described in the notes thereto. Column numbers refer to footnotes from the Pro
Forma Condensed Consolidated Balance Sheets.
<TABLE>
<CAPTION>
Footnote
Number (1) (2) (3) (4) (5) (6) (7)
Deferred Debt, less Liabilities
Financing Current Subject to Capital Paid-in
($ in thousands) Cash Costs Maturities Compromise Stock Capital Deficit
- ------------------ ------------ ------------- ------------ ---------------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
(a) ............. $ (8,900) $ 5,300 $ (3,600)
(b) ............. (20,311) $ (915,396) $ 382 $352,385 542,318
(c) ............. (5,308) (106,137) 18 30,679 70,132
(d) ............. (21,848) 21,848
(e) ............. $590,867 (590,867)
-------- ------------
Total ........... $ (8,900) $ (20,319) $590,867 $ (1,612,400) $ (21,448) $404,912 $608,850
======== ========= ======== ============ ========= ======== ========
</TABLE>
- ---------
(a) To record estimated fees and expenses consisting of estimated deferred
financing costs ($5.3 million) and expenses related to the Plan of
Reorganization ($3.6 million). Fees and expenses totaling $31.1 million
were incurred through December 31, 1997. Total estimated fees and expenses
are $40.0 million.
(b) To reflect the issuance of 38.2 million shares of Common Stock to the
holders of the Senior Subordinated Debentures and the estimated gain on
such transaction of $542.3 million. The gain is based on the difference
between the carrying value of the debt (including principal, accrued
interest and deferred financing costs) and the weighted average closing
price of the Common Stock from December 30, 1997 through January 13, 1998
(on a "when issued" basis through January 8).
(c) To reflect the issuance of 1.8 million shares of Common Stock and 4.0
million Warrants to the holders of the 10% Convertible Debentures and the
estimated gain on such transaction of $70.1 million. The gain is based on
the difference between the carrying value of the debt (including
principal, accrued interest and deferred financing costs) and the weighted
average closing price of the Common Stock and Warrants from December 30,
1997 through January 13, 1998 (on a "when issued" basis through January 8)
and from January 9 through January 15, respectively.
(d) To reflect the cancellation of the Old Common Stock and the Old Preferred
Stock.
(e) To reflect the issuance of the New Senior Notes in exchange for the Old
Senior Notes, including accrued and unpaid interest thereon through
December 31, 1997 of $40.8 million.
6
<PAGE>
Adjustments for Fresh Start Reporting
The specific pro forma adjustments related to fresh start reporting are
summarized in the following table and are more fully described in the notes
thereto. Column numbers refer to footnotes from the Pro Forma Condensed
Consolidated Balance Sheets.
<TABLE>
<CAPTION>
Footnote
Number (8) (9) (10) (11) (12) (13)
Net Assets Other
($ in thou- Held For Property Intangible
sands) Sale Other net Goodwill Assets, net Other
- --------------- ------------ ------------ ---------- -------------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
(a) ........... $ (207,918)
(b) ...........
(c) ...........
(d) ...........
(e) ...........
(f) ........... $121,821
(g) ........... $ (1,004)
(h) ........... $207,925
(i) ........... $ (3,925)
(j) ........... 3,486
(k) ...........
(l) ...........
(m) ...........
(n) ........... $59,586
-------
Total ......... $121,821 $ (1,004) $59,586 $ (207,918) $207,925 $ (439)
======== ======== ======= ========== ======== ========
<CAPTION>
Footnote
Number (14) (15) (16) (17) (18) (19) (20)
Notes
and
Reorgan- Debentures,
ization Other less Other Minimum
($ in thou- Value in Current Current Noncurrent Paid-in Pension
sands) Excess Liabilities Maturities Liabilities Capital Deficit Liability
- --------------- ----------------- ------------- ------------ ------------- -------------- ------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
(a) ........... $ 207,918
(b) ........... 72,286 $72,286
(c) ........... (719,992) $ (719,992)
(d) ........... 1,498,965 $1,498,965
(e) ........... 7,400 $ 6,005 $1,395
(f) ........... (121,821)
(g) ........... 1,004
(h) ........... (207,925)
(i) ........... 3,925
(j) ........... (3,486)
(k) ........... 26,733 $21,166 5,567
(l) ........... 28,739 28,739
(m) ........... (4,845) (4,845)
(n) ........... (59,586)
----------
Total ......... $ 729,315(o) $21,166 $72,286 $ 35,466 $ (719,992) $1,498,965 $1,395
========== ======= ======= ======== ========== ========== ======
</TABLE>
- ---------
(a) To write-off unamortized goodwill.
(b) To adjust outstanding debt to estimated fair value.
(c) To establish the value attributed to shareholders' equity.
(d) To eliminate historical deficit.
(e) To eliminate minimum pension liability adjustment and to record excess of
the projected benefit obligation over the fair value of plan assets for
the Company's defined benefit plans net of estimated curtailment gain
resulting from the disposition of FEI.
(f) To adjust the net assets of FEI to fair value less estimated costs of
disposal based on the terms of the stock purchase agreement.
(g) To adjust other current assets to estimated fair value.
(h) To adjust other intangible assets, primarily franchise rights and
tradenames, to estimated fair value.
(i) To reduce assets to reflect the impact of new accounting standards relating
to the costs of computer software obtained for internal use and preopening
costs.
(j) To adjust other assets to estimated fair value.
(k) To reflect liabilities associated with severance and other exit costs
($11.2 million), and adjustments to self-insured claims and contingent
liabilities resulting from a change in methodology ($15.5 million).
(l) To adjust unfavorable operating leases to estimated value.
(m) To record the tax effect of fresh start adjustments.
(n) To adjust property, net to estimated fair value.
(o) To record the reorganization value in excess of amounts allocable to
identifiable assets.
The Registrant will account for the consummation of the Plan of
Reorganization and related transactions using the principles of fresh start
reporting as required by SOP 90-7. The Registrant has estimated a range of
reorganization value between approximately $1,631 million and $1,776 million.
Such reorganization value is based upon a review of the operating performance
of seventeen companies in the restaurant industry that offer products and
service that are comparable to or competitive with the Registrant's various
operating concepts. The following multiples were established for these
companies: (i) enterprise value (defined as market value of outstanding equity,
plus debt, minus cash and cash equivalents)/revenues for the four most recent
fiscal quarters; (ii) enterprise value/earnings before interest, taxes,
depreciation, and amortization for the four most recent fiscal quarters; and
(iii) enterprise value/earnings before interest and taxes for the four most
recent fiscal
7
<PAGE>
quarters. The Registrant did not independently verify the information for the
comparative companies considered in its valuations, which information was
obtained from publicly available reports. The foregoing multiples were then
applied to the Registrant's financial forecast for each of its six restaurant
chains or concepts. Valuations achieved in selected merger and acquisition
transactions involving comparable businesses were used as further validation of
the valuation range. The valuation takes into account the following factors,
not listed in order of importance:
(A) The Registrant's emergence from Chapter 11 proceedings pursuant to the
Plan of Reorganization as described herein during the first quarter of 1998.
(B) The assumed continuity of the present senior management team.
(C) The tax position of the Registrant.
(D) The general financial and market conditions as of the date of
consummation of the Plan of Reorganization.
The total reorganization value of $1,729 million, the midpoint of the range
of $1,631 million and $1,776 million adjusted to reflect an enterprise value for
FEI based on the terms of the stock purchase agreement related to the
disposition thereof, includes a value attributed to shareholders' equity of $410
million and net long-term indebtedness contemplated by the Plan of
Reorganization of $1,319 million. In accordance with fresh start accounting
principles, this reorganization value has been allocated, based on estimated
fair market values, to specific tangible and identifiable intangible assets. The
fair values of assets and liabilities have been determined based on certain
valuations and other studies which are not yet complete. The Registrant has
recorded an intangible asset in the amount of $729 million which equals the
Registrant's reorganization value in excess of amounts allocable to identifiable
assets. The Registrant will continue to finalize the estimates of the fair value
of its assets and liabilities, and consequently the value of those assets and
the reorganization value in excess of amounts allocable to identifiable assets
are subject to change. The reorganization value in excess of amounts allocable
to identifiable assets will be amortized over five years. The amount of
shareholders' equity in the fresh start balance sheet is not an estimate of the
trading value of the Common Stock, which value is subject to many uncertainties
and cannot be reasonably estimated at this time. The Registrant does not make
any representation as to the trading value of the shares of Common Stock issued
under the Plan of Reorganization.
Adjustments for Disposition of FEI
As further described elsewhere in this Form 8-K, on April 1, 1998 the
Registrant consummated the sale of stock of FEI, a wholly-owned subsidiary which
operates the Registrant's Hardee's restaurants under licenses from HFS. The
Registrant received $380.8 million in cash (subject to adjustment as outlined in
such definitive stock purchase agreement) in exchange for all of the outstanding
stock of FEI. In addition, the purchaser assumed $45.6 million of capital
leases.
Certain Mortgage Financings of FEI with a book value of $101.6 million (and
a pro forma fair value of $113.8 million) at December 31, 1997 were
collateralized by certain assets of FEI and its subsidiary Spardee's Realty,
Inc. and were not assumed by the purchaser in the disposition. As a result, the
Registrant was required to replace such collateral and did so through the
purchase of Defeasance Eligible Investments which were deposited in an
irrevocable trust to satisfy principal and interest payments under such Mortage
Financings through the stated maturity. Such action constituted an in-substance
defeasance of such Mortgage Financings. At the same time, the Registrant also
effected an in-substance defeasance of related Mortgage Financings of Quincy's
Restaurants, Inc. with a book value of $76.0 million (and a pro forma fair value
of $85.1 million) at December 31, 1997.
(21) To reflect the disposition of FEI, including the receipt of cash
proceeds $380.8 million and the incurrence of $16.5 million of estimated
transaction costs, and to reflect the use of $180 million of the proceeds of
such transaction (together with $20.7 million previously on deposit at December
31, 1997 with respect to the Mortgage Financings) to purchase Defeasance
Eligible Investments (as defined in documents governing such Mortgage
Financings) to effect an in-substance defeasance of such Mortgage Financings.
8
<PAGE>
PRO FORMA CONDENSED STATEMENTS OF CONSOLIDATED OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Year ended December 31, 1997
Pro Forma
----------------------------------
Adjustments
for
($ in thousands, except per share amounts) Historical Reorganization
- ------------------------------------------------ -------------- -------------------
<S> <C> <C>
Operating revenue ............................. $2,609,456
Operating expenses ............................ 2,479,028
---------- --
Operating income .............................. 130,428
----------
Other charges:
Interest and debt expense, net ............... 226,388 $ (48,984)(a)
Other, net ................................... 5,648
----------
232,036 (48,984)
---------- ----------
Income (loss) before reorganization
expenses and taxes ........................... (101,608) 48,984
Reorganization expenses ....................... 31,073 (31,073)(b)
---------- ----------
Income (loss) before income taxes ............. (132,681) 80,057
Provision for (benefit from) income taxes ..... 1,769
---------- ----------
Net (loss) income ............................. $ (134,450) $ 80,057
========== ==========
Basic and diluted loss per share applicable
to common shareholders ....................... $ (3.50)
==========
Average outstanding and equivalent
common shares ................................ 42,434
==========
<CAPTION>
Year ended December 31, 1997
Pro Forma
------------------------------------------------------------------
After
Adjustments After Adjustments Reorganization,
for Reorganization for Fresh Start
Fresh Start and Fresh Start Disposition Reporting and
($ in thousands, except per share amounts) Reporting Reporting of FEI (f) Disposition
- ------------------------------------------------ ----------------- ----------------- ------------- ----------------
<S> <C> <C> <C> <C>
Operating revenue ............................. $2,609,456 $ (546,268) $2,063,188
Operating expenses ............................ $ 161,587(c) 2,640,615 (516,901) 2,123,714
---------- ---------- ---------- ----------
Operating income .............................. (161,587) (31,159) (29,367) (60,526)
---------- ---------- ---------- ----------
Other charges:
Interest and debt expense, net ............... (12,430)(d) 164,974 (7,129) 157,845
Other, net ................................... 5,648 (2,023) 3,625
---------- ---------- ----------
(12,430) 170,622 (9,152) 161,470
---------- ---------- ---------- ----------
Income (loss) before reorganization
expenses and taxes ........................... (149,157) (201,781) (20,215) (221,996)
Reorganization expenses ....................... --
----------
Income (loss) before income taxes ............. (149,157) (201,781) (20,215) (221,996)
Provision for (benefit from) income taxes ..... 14 (e) 1,783 (40) 1,743
---------- ---------- ---------- ----------
Net (loss) income ............................. $ (149,171) $ (203,564) $ (20,175) $ (223,739)
========== ========== ========== ==========
Basic and diluted loss per share applicable
to common shareholders ....................... $ (5.09) $ (5.59)
========== ==========
Average outstanding and equivalent
common shares ................................ 40,000 40,000
========== ==========
</TABLE>
9
<PAGE>
NOTES TO PRO FORMA CONDENSED STATEMENTS OF CONSOLIDATED OPERATIONS
Adjustments for Reorganization
(a) The following table details the net adjustment to interest expense related
to the consummation of the Plan of Reorganization:
<TABLE>
<CAPTION>
Year Ended
($ in thousands) December 31, 1997
- -------------------------------------------------------------------------- ------------------
<S> <C>
Elimination of amortization of deferred financing cost on debt
securities retired ............................................. $ (1,903)
Elimination of interest on debt securities retired .............. (55,476)
Amortization of deferred financing cost of the new credit
facility ..................................................... 1,400
Increase in interest expense due to exchange of Old Senior Notes 6,995
---------
Net adjustment to interest expense .............................. $ (48,984)
=========
</TABLE>
- ---------
(b) To remove the impact of reorganization expenses which would not be
reflected in the post-reorganization statement of operations.
Adjustments for Fresh Start Reporting
(c) To reflect, for the year ended December 31, 1997; the removal of the
amortization of goodwill of $5.1 million; the estimated increase in
amortization of $11.4 million as a result of the revaluation of other
intangible assets to fair value; the estimated increase in depreciation
expense of $9.4 million as a result of the revaluation of property to
estimated fair value; and the addition of the amortization of reorganization
value in excess of amounts allocable to identifiable assets, assuming a
5-year life, of $145.9 million.
(d) To record, for the year ended December 31, 1997, the estimated impact on
interest expense of the amortization of the premium on long-term debt of
$12.4 million.
(e) To record the estimated income tax effects of fresh start reporting.
Adjustments for Disposition of FEI
(f) To remove the results of operations of FEI for the year ended December 31,
1997.
Material Non-Recurring Charges Not Reflected in the Pro Forma Condensed
Statements of Consolidated
Operations
Certain material non-recurring charges (gains) related to consummation of
the Plan of Reorganization are not reflected in the Pro Forma Condensed
Statements of Consolidated Operations as they are not expected to have a
continuing impact on the Registrant's operations. These charges (gains) will be
included in the Registrant's operating results for the period prior to
consummation of the Plan of Reorganization and are summarized below ($ in
millions):
<TABLE>
<S> <C>
Reorganization costs ................................ $ 40.0
Extraordinary gains on exchange of debt for equity
(including the elimination of accrued interest of $74.9
million) ............................................ (612.5)
Fresh start reporting adjustments. .................. 780.4
</TABLE>
10
<PAGE>
<PAGE>
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STOCK PURCHASE AGREEMENT
AMONG
ADVANTICA RESTAURANT GROUP, INC.,
SPARTAN HOLDINGS, INC.,
FLAGSTAR ENTERPRISES, INC.
AND
CKE RESTAURANTS, INC.
DATED AS OF FEBRUARY 18, 1998
- ------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
PAGE
ARTICLE I
DEFINITIONS
Section 1.1. Definitions...................................................1
Section 1.2. Other Terms...................................................9
Section 1.3. Other Definitional Provisions.................................9
ARTICLE II
PURCHASE AND SALE OF SHARES
Section 2.1. Purchase and Sale of Shares..................................10
Section 2.2. Closing; Delivery and Payment................................10
Section 2.3. Post-Closing Adjustment......................................11
Section 2.4. Certain Asset Dispositions...................................13
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLER PARTIES
Section 3.1. Organization and Authority of Seller Parties; No
Conflicts....................................................13
Section 3.2. Organization, Authority and Qualification of the Company;
No Conflicts.................................................14
Section 3.3. Capitalization of the Company................................14
Section 3.4. Subsidiaries of the Company..................................14
Section 3.5. Financial Statements; Certain Financial Information..........15
Section 3.6. Absence of Certain Changes or Events.........................15
Section 3.7. Title to Properties; Absence of Liens and Encumbrances,
Etc..........................................................16
Section 3.8. Litigation...................................................17
Section 3.9. Compliance with Law..........................................17
Section 3.10. Contracts....................................................17
Section 3.11. Consents and Approvals.......................................18
Section 3.12. Tax Matters..................................................18
Section 3.13. Intellectual Property........................................19
Section 3.14. Labor Matters................................................19
Section 3.15. Employee Benefits............................................20
Section 3.16. Environmental Matters........................................21
Section 3.17. Insurance....................................................21
Section 3.18. Brokers and Finders..........................................21
Section 3.19. Government Regulations.......................................22
Section 3.20. Books and Records............................................22
Section 3.21. Disclosure...................................................22
Section 3.22. Seller Parties' Investigation................................22
Section 3.23. No Other Representations or Warranties.......................22
-i-
<PAGE>
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUYER
Section 4.1. Organization and Authority of Buyer; No Conflicts............23
Section 4.2. Brokers and Finders..........................................23
Section 4.3. Securities Act...............................................23
Section 4.4. Consents and Approvals.......................................23
Section 4.5. Disclosure...................................................23
Section 4.6. Buyer's Investigation........................................24
Section 4.7. No Other Representations or Warranties.......................24
ARTICLE V
TAX MATTERS
Section 5.1. Cooperation With Respect to Tax Matters......................24
Section 5.2. Tax Related Agreements.......................................30
ARTICLE VI
CERTAIN COVENANTS AND AGREEMENTS OF SELLER PARTIES
AND BUYER
Section 6.1. Access and Information.......................................30
Section 6.2. Consents.....................................................31
Section 6.3. Conduct of Business..........................................31
Section 6.4. Related Transactions.........................................33
Section 6.5. Certain Buyer and Seller Obligations and Agreements..........34
Section 6.6. Employee Benefit Plans.......................................34
Section 6.7. Retention of Books and Records...............................36
Section 6.8. Closing Date Financial Statements............................36
Section 6.9. Environmental Investigations.................................36
Section 6.10. Covenant Not to Compete; Non-solicitation....................37
Section 6.11. Exclusivity..................................................38
Section 6.12. Limitation of Liabilities....................................38
Section 6.13. Cash Sweeps..................................................40
Section 6.14. New Bank Accounts............................................40
Section 6.15. Further Assurances...........................................40
ARTICLE VII
CONDITIONS TO CLOSING
Section 7.1. Conditions to Obligations of Buyer...........................40
Section 7.2. Conditions to Obligations of Seller..........................41
-ii-
<PAGE>
ARTICLE VIII
TERMINATION
Section 8.1. Termination..................................................42
Section 8.2. Effect of Termination........................................43
ARTICLE IX
SURVIVAL AND INDEMNIFICATION
Section 9.1. Limited Survival of Representations, Warranties,
Covenants and Agreements; Knowledge of Breach................43
Section 9.2. Indemnification by Buyer.....................................45
Section 9.3. Indemnification by Seller....................................45
Section 9.4. Indemnification as Sole Remedy...............................45
Section 9.5. Method of Asserting Claims, Etc..............................45
ARTICLE X
MISCELLANEOUS
Section 10.1. Amendment and Waiver.........................................47
Section 10.2. Expenses.....................................................47
Section 10.3. Public Disclosure............................................47
Section 10.4. Assignment...................................................47
Section 10.5. Entire Agreement.............................................47
Section 10.6. Fulfillment of Obligations...................................47
Section 10.7. Parties in Interest; No Third Party Beneficiaries............47
Section 10.8. Schedules....................................................48
Section 10.9. Counterparts.................................................48
Section 10.10. Section Headings.............................................48
Section 10.11. Notices......................................................48
Section 10.12. Governing Law; Submission To Jurisdiction; Selection
of Forum.....................................................49
Section 10.13. Severability.................................................49
Section 10.14. Attorneys' Fees..............................................49
EXHIBIT A --- Balance Sheet and Statement of Net Operating Liabilities
EXHIBIT B --- List of Capital Leases
EXHIBIT C --- Statement of Assets Held for Resale
EXHIBIT D --- Territory
EXHIBIT E --- Management Employees
-iii-
<PAGE>
STOCK PURCHASE AGREEMENT
STOCK PURCHASE AGREEMENT (the "Agreement"), dated as of February 18,
1998, among ADVANTICA RESTAURANT GROUP, INC., a Delaware corporation formerly
known as Flagstar Companies, Inc. ("Advantica"), SPARTAN HOLDINGS, INC., a New
York corporation and wholly-owned subsidiary of Advantica (the "Seller"),
FLAGSTAR ENTERPRISES, INC., an Alabama corporation formerly known as Spardee's
Restaurants, Inc. (the "Company"), and CKE RESTAURANTS, INC., a Delaware
corporation (the "Buyer").
R E C I T A L S:
A. The Company operates 557 Hardee's quick-service restaurants (the
"Restaurants"), as a licensee of Hardee's Food Systems, Inc., a North Carolina
corporation and wholly-owned subsidiary of Buyer ("Hardee's");
B. Seller owns all of the issued and outstanding shares of capital
stock of the Company; and
C. Seller desires to sell and transfer to Buyer, and Buyer desires to
purchase from Seller, all of the issued and outstanding shares of capital stock
of the Company, as more specifically provided herein.
NOW, THEREFORE, in consideration of the mutual covenants and
undertakings contained herein, and subject to and on the terms and conditions
herein set forth, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
Section 1.1. Definitions. As used in this Agreement, the
following terms shall have the meanings set forth or referenced below:
"Acquisition Proposal" shall have the meaning set forth in Section
6.11.
"Advantica" shall have the meaning set forth in the Preamble.
"Advantica Credit Agreement" shall mean that certain Credit Agreement,
dated as of January 7, 1998, by and among Advantica, as guarantor, the Company
and other indirect subsidiaries of Advantica, as borrowers, the Lenders named
therein, and The Chase Manhattan Bank, as administrative agent, as may be
amended from time to time.
"Affiliate" shall mean, as applied to any Person, any other Person
directly or indirectly controlling, controlled by or under common control with
such Person.
"Agreement" shall mean this Agreement and all Exhibits and Schedules
hereto.
<PAGE>
"Antitrust Division" shall mean the Antitrust Division of the United
States Department of Justice.
"Applicable Rate" shall mean the prime rate of The Chase Manhattan Bank
on the Closing Date.
"Asset Adjustment Amount" shall mean, with respect to any asset the
sale or other disposition of which by the Company Group requires an adjustment
to the Purchase Price pursuant to Section 2.4 hereof, an amount equal to the
greater of (a) the net book value of such asset, as determined in accordance
with GAAP, as of the date of sale or disposition, or (b) the proceeds received
by the Company Group as a result of such sale or disposition.
"Assets Held for Resale" shall mean the assets of the Company, with an
aggregate net book value of $1,075,539 as of December 31, 1997 as determined in
accordance with GAAP, which are reflected as "Assets Held for Resale" in the
Balance Sheet and are described in the Statement of Assets Held for Resale.
"Balance Sheet" shall mean the consolidated balance sheet of the
Company as of November 26, 1997, a copy of which is attached hereto as Exhibit
A.
"Bankruptcy Code" shall mean Title 11 of the United States Code.
"Base Value" shall mean the sum of (a) $45,646,033, representing the
aggregate amount of the Retained Liabilities as of the date of the Balance
Sheet, plus (b) $25,364,679, representing the aggregate amount of the Net
Operating Liabilities as of the date of the Balance Sheet, as reflected in the
Statement of Net Operating Liabilities.
"Business Day" shall mean any day other than a Saturday, a Sunday or a
day on which banks in the City of New York are authorized or obligated by law or
executive order to close.
"Buyer" shall have the meaning set forth in the Preamble.
"Capital Leases" shall mean the leases set forth on Exhibit B attached
hereto, the capitalized amount of the obligations of which as of the date of the
Balance Sheet are $45.6 million.
"Chosen Courts" shall have the meaning set forth in Section 10.12.
"Claim Notice" shall have the meaning set forth in Section 9.5.
"Closing" shall have the meaning set forth in Section 2.2(a).
"Closing Date" shall have the meaning set forth in Section 2.2(a).
"Closing Date Balance Sheet" shall mean a balance sheet of the Company
as of the Closing Date prepared in accordance with GAAP.
2
<PAGE>
"Closing Date Value" shall mean the sum of (a) the aggregate amount of
the Retained Liabilities as of the Closing Date, plus (b) the aggregate amount
of the Net Operating Liabilities as of the Closing Date.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Company" shall have the meaning set forth in the Preamble.
"Company Group" shall mean, individually or together, as the context
permits or implies, the Company and Spardee's Realty.
"Company Plans" shall have the meaning set forth in Section 3.15.
"Competitive Action" shall have the meaning set forth in Section 6.10.
"Confidentiality Agreement" shall mean that certain Confidentiality and
Nondisclosure Agreement, dated as of July 30, 1997, by and among Advantica, the
Company and Carl Karcher Enterprises, Inc.
"Contract" shall mean any agreement, commitment, lease, contract, note,
mortgage, indenture or other obligation.
"CPA Firm" shall have the meaning set forth in Section 2.3(d).
"DLJ" shall mean Donaldson, Lufkin & Jenrette Securities Corporation.
"Deductible" shall mean the amount of $4,500,000.
"Disclosure Schedule" shall mean the disclosure schedule document
executed by the parties hereto as of the date hereof.
"Encumbrance" shall mean any lien, pledge, security interest, claim or
other encumbrance.
"Environmental Law" means any law, regulation, code, license, permit,
order, judgment, decree or injunction of the United States or any State or
political subdivision thereof (including any court thereof and any Governmental
Entity) relating primarily to the protection of the environment (including air,
water, soil and natural resources) or the use, storage, handling, release or
disposal of any hazardous or toxic substance as in effect on the date hereof.
"Environmental Losses" shall mean all Losses actually sustained or
incurred by the Company Group or Buyer in connection with any remedial,
response, removal, corrective, abatement or compliance action, any activity to
cleanup, detoxify, decontaminate, contain or otherwise remediate any Hazardous
Substance or to prevent, cure or mitigate any release of Hazardous Substance, or
any investigation, assessment, sampling and testing or evaluation relating to
any Hazardous Substance or any other action (including, without limitation,
fines, payments or penalties to any Governmental Entity, contributions, payments
or awards or damages to other Persons, and attorneys' and consulting fees)
required in any such case in order to comply with any applicable Environmental
Law with respect to the Existing Conditions.
3
<PAGE>
"ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as amended.
"ERISA Affiliate" shall have the meaning set forth in Section 3.15.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
"Excluded Liabilities" shall mean (a) all liabilities and obligations
of the Company Group which are listed in or described in Section 6.12(b) of the
Disclosure Schedule, and (b) all liabilities and obligations which do not relate
to the business or assets of any member of the Company Group, whether or not
required by GAAP to be reflected on a balance sheet or disclosed in the
footnotes thereto. The Excluded Liabilities include, but are not limited to, all
liabilities and obligations of the Company Group, whether for principal,
interest, fees, expenses, charges or otherwise, under or incurred pursuant to
the Advantica Credit Agreement or the Spardee's Loan Agreement.
"Existing Concept" shall mean any Person which, as of the date of this
Agreement, is an Affiliate of Advantica (other than the Company Group) engaged
in the business of owning or operating restaurants, other than restaurants for
which the primary menu items offered to customers and promoted by such Person
are hamburger products.
"Existing Conditions" shall mean all environmental contaminations,
emissions, discharges, dispositions or other environmental conditions at or from
any of the Leased Real Property and Owned Real Property which are identified,
referred to or described in Section 3.16 of the Disclosure Schedule.
"Financial Statements" shall have the meaning set forth in Section 3.5.
"FTC" shall mean the United States Federal Trade Commission.
"GAAP" shall mean United States generally accepted accounting
principles.
"Governmental Entity" shall mean any governmental or regulatory
authority, agency, commission, body or other governmental entity of the United
States of America or any State or political subdivision thereof.
"Hardee's" shall have the meaning set forth in the Recitals.
"Hazardous Substance" means any substance listed, defined, designated
or classified as hazardous, toxic or radioactive under any applicable
Environmental Law, including petroleum and any derivative or by-products
thereof.
"HSR Act" shall mean the Hart-Scott-Rodino Antitrust Improvements Act
of 1976, as amended.
"Indemnified Party" shall have the meaning set forth in Section 9.3(a).
"Indemnifying Party" shall have the meaning set forth in Section 9.5.
4
<PAGE>
"Intellectual Property" shall mean trademarks, service marks, brand
names, certification marks, trade dress, assumed names, trade names and other
indications of origin, the goodwill associated with the foregoing and
registrations in the United States of, and applications in the United States to
register, the foregoing, including any extension, modification or renewal of any
such registration or application; inventions, discoveries and ideas, whether
patentable or not in the United States; patents, applications for patents
(including, without limitation, divisions, continuations, continuations in-part
and renewal applications), and any renewals, extensions or reissues thereof, in
the United States; non-public information, trade secrets and confidential
information and rights in the United States to limit the use or disclosure
thereof by any Person; writings and other works, whether copyrightable or not in
the United States; registrations or applications for registration of copyrights
in the United States, and any renewals or extensions thereof; any similar
intellectual property or proprietary rights; and any claims or causes of action
arising out of or related to any infringement or misappropriation of any of the
foregoing.
"IRS" shall mean the Internal Revenue Service.
"Knowledge" shall mean, with respect to any Person, the actual
knowledge of such Person's executive officers.
"Law" shall mean any law, rule, regulation, judgment, injunction,
order, decree or other restriction of any court or Governmental Entity.
"Leased Real Property" shall have the meaning set forth in Section
3.7(a).
"License Agreements" shall mean the License Agreements between
Hardee's, as licensor, and the Company, as licensee, pursuant to which the
Company operates a Restaurant.
"Loan Documents" shall have the meaning set forth in the Advantica
Credit Agreement.
"Losses" shall have the meaning set forth in Section 9.2(a).
"MADSP" shall have the meaning set forth in Section 5.1(b).
"MBM" shall mean Meadowbrook Meat Company, Inc., a North Carolina
corporation.
"MBM Agreement" shall mean that certain Distribution Agreement dated
September 8, 1995, by and between MBM and the Company.
"Management Employees" shall mean those employees of the Company
identified on Exhibit E attached hereto.
"Material Adverse Effect" shall mean a material adverse effect on the
business, financial condition, assets, or results of operations of the Company
Group, taken as a whole.
"Net Operating Liabilities" shall mean, as of any date of
determination, the excess of Operating Liabilities over the Operating Assets,
which shall be determined in accordance with GAAP, consistently applied and
determined on a basis consistent with the determination of Base Value.
5
<PAGE>
"Notice Period" shall have the meaning set forth in Section 9.5.
"Offering Memorandum" shall mean any offering circular or memorandum
which Buyer may prepare in connection with its obtaining financing for the
transactions contemplated by this Agreement.
"Owned Real Property" shall have the meaning set forth in Section
3.7(a).
"Operating Assets" shall mean, as of any date of determination, the
aggregate of the net book values of the items listed under the captions "Current
Assets" and "Non-current Assets" set forth in the "CKE Assumed Net Operating
Liabilities" column on the Statement of Net Operating Liabilities (which amounts
shall be based upon and determined on a basis consistent with the same items set
forth on the Statement of Net Operating Liabilities).
"Operating Employees" shall mean all employees of the Company other
than Management Employees. Operating Employees shall include both active
employees and also employees who on the Closing Date are on approved leave or
sick leave under the Company's general policies.
"Operating Liabilities" shall mean, as of any date of determination,
the aggregate of the net book values of the items listed under the captions
"Current Liabilities" and "Non-current Liabilities" set forth in the "CKE
Assumed Net Operating Liabilities" column on the Statement of Net Operating
Liabilities (which amounts shall be based upon and determined on a basis
consistent with the same items set forth on the Statement of Net Operating
Liabilities).
"Pending Arbitration" shall mean the arbitration proceedings initiated
by the Company against Hardee's as Case No. 31 Y 114 00043 97 before the
American Arbitration Association pursuant to a Demand for Arbitration dated
March 19, 1997.
"Permitted Encumbrances" shall mean (i) any Encumbrances related to
liabilities reflected in the Financial Statements; (ii) any Encumbrances
incurred or created since December 31, 1996 in the ordinary course of business
and which, alone or in the aggregate, would not be reasonably likely to have a
Material Adverse Effect; (iii) any Encumbrances for taxes, assessments and other
governmental charges not yet due and payable or due but not delinquent or being
contested in good faith by appropriate proceedings; (iv) any mechanic's,
workmen's, repairmen's, warehousemen's, carrier's or other like liens and
encumbrances imposed by operation of law arising in the ordinary course of
business with respect to obligations not yet overdue for a period exceeding 45
days or being contested in good faith by appropriate proceedings; (v)
restrictions, easements, covenants, reservations, rights of way or other similar
matters of title to the Leased Real Property and Owned Real Property (a) of
record which are described in, or which are revealed by surveys which are
included in, the Title Documents, or (b) which do not materially affect the
title to, or the use of, such Leased Real Property and Owned Real Property; (vi)
zoning ordinances, restrictions, prohibitions and other requirements imposed by
any Governmental Entity; (vii) rights of others in party walls, if any, relative
to the Owned Real Property or Leased Real Property; and (viii) deposits of cash
or securities with third parties to secure the performance of obligations other
than Excluded Liabilities.
"Person" means any individual, corporation, partnership, firm, joint
venture, limited liability company, association, joint-stock company, trust,
unincorporated organization or Governmental Entity.
6
<PAGE>
"Phase I Reports" means Phase I Environmental Site Assessments which
shall conform to the standards established by the American Society for Testing
and Materials Standard E 1527-93 for Phase I Environmental Site Assessments.
"Plan of Reorganization" shall mean that certain Flagstar Companies,
Inc. and Flagstar Corporation's Amended Joint Plan of Reorganization, dated as
of July 11, 1997 (amended November 7, 1997), as confirmed by the United States
Bankruptcy Court for the District of South Carolina by order entered on November
12, 1997.
"Post-Closing Adjustment" shall have the meaning set forth in Section
2.3(e).
"Post-Closing Period" shall have the meaning set forth in Section
5.1(e).
"Pre-Closing Period" shall have the meaning set forth in Section
5.1(e).
"Pre-Closing Periods" shall mean all taxable years or periods ending on
or prior to the Closing Date and any portion of a period covered by a Straddle
Tax Return that ends on the Closing Date.
"Purchase Price" shall have the meaning set forth in Section 2.1(b).
"Related Agreements" shall mean the Termination Agreement, the
Transitional Services Agreement and the trademark license agreement described in
Section 6.4(b).
"Related Transactions" shall mean the transactions described in Section
6.4.
"Resolution Period" shall have the meaning set forth in Section 2.3(c).
"Restaurants" shall have the meaning set forth in the Recitals.
"Restricted Period" shall have the meaning set forth in Section 6.10.
"Retained Group" shall mean collectively the Seller Parties and each
Affiliate of any of the Seller Parties other than and expressly excluding
members of the Company Group.
"Retained Liabilities" shall mean all payment obligations of the
Company Group under the Capital Leases, which as of any date of determination
shall be the capitalized amount thereof determined in accordance with GAAP
consistently applied and determined on a basis consistent with the determination
of Base Value.
"SFI" shall mean Simeus Foods International, Inc., formerly known as
Portiontrol Foods, Inc.
"SFI Agreement" shall mean that certain Purchasing Agreement dated
September 27, 1996, by and between the Company and SFI.
"Section 338(h)(10) Elections" shall have the meaning set forth in
Section 5.1(a).
"Schroder" shall mean Schroder & Co., Inc.
7
<PAGE>
"Secured Restaurants Trust" shall mean Secured Restaurants Trust, a
Delaware statutory business trust established by the Seller on August 16, 1990.
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Securities Filings" shall mean any public offering by Buyer under or
pursuant to the Securities Act or the Exchange Act.
"Security Documents" shall have the meaning set forth in the Spartan
Indenture and shall be deemed to include all Contracts to which the Company
Group is a party which evidence or secure the obligations under the Spartan
Indenture or the Spardee's Loan Agreement.
"Seller" shall have the meaning set forth in the Preamble.
"Seller Parties" shall mean Seller and Advantica.
"Seller's Group" shall mean any "affiliated group" (as defined in
Section 1504(a) of the Code without regard to the limitations contained in
Section 1504(b) of the Code) that includes Seller and the Company.
"Shares" shall have the meaning set forth in Section 2.1(a).
"Spardee's Loan Agreement" shall mean the Loan Agreement, dated as of
November 1, 1990, between Secured Restaurants Trust and Spardee's Realty.
"Spardee's Realty" shall mean Spardee's Realty, Inc., an Alabama
corporation and a direct, wholly-owned Subsidiary of the Company.
"Spartan Indenture" shall mean the Indenture, dated as of November 1,
1990, between Secured Restaurants Trust, as issuer, and the Bank of New York
Trust Company of Florida, as successor Trustee.
"Statement of Assets Held for Resale" shall mean the Statement of
Assets Held for Resale attached hereto as Exhibit C.
"Statement of Net Operating Liabilities" shall mean the portion of the
Balance Sheet under the caption "CKE Assumed Net Operating Liabilities" and
descriptions of the line items set forth in such Balance Sheet which are
associated with the data under such caption.
"Straddle Tax Return" shall have the meaning set forth in Section
5.1(e).
"Subsidiary" shall mean, with respect to any Person, each other Person
(other than a natural person) of which the Person owns, beneficially and of
record, securities representing 50% or more of the aggregate voting power.
"Tax Audit" means any audit, assessment of taxes, reassessment of
taxes, or other examination by any taxing authority or any judicial or
administrative proceedings or appeal of such proceedings in respect of any Taxes
or Tax Returns.
8
<PAGE>
"Tax Returns" means all returns, declarations, reports, statements and
other documents required under a Tax Law either (a) to be filed with a
Governmental Entity in respect of Taxes or (b) to be provided to a Person other
than a Governmental Entity.
"Tax Law" means a statute, regulation or administrative rule enacted or
promulgated for the determination, imposition, assessment or collection of any
Taxes.
"Taxes" means federal, state, local or foreign income, gross receipts,
windfall or excess profits, severance, property, production, sales, use,
license, excise, franchise, employment, withholding or similar taxes, together
with any interest, additions or penalties with respect thereto and any interest
in respect of such additions or penalties.
"Termination Agreement" shall mean a Termination Agreement and Mutual
General Release, in form and substance reasonably acceptable to the Seller
Parties and Buyer, pursuant to which (a) the Pending Arbitration shall be
terminated and the Seller Parties and their respective Affiliates and the Buyer
and the Company and their respective Affiliates shall grant mutual general
releases with respect to the Pending Arbitration and no payments shall be due
from either party with respect thereto, and (b) the License Agreements shall be
terminated and Seller Parties and their respective subsidiaries and Affiliates
and the Buyer and the Company and their respective subsidiaries and Affiliates
shall grant mutual general releases with respect to all obligations and
liabilities, if any, under the License Agreements.
"Territory" shall mean any or all of the designated market areas listed
in Exhibit D attached hereto.
"Third Party Claim Notice" shall have the meaning set forth in Section
9.5.
"Threshold Amount" shall mean the amount of $25,000.
"Title Documents" shall mean all title insurance policies, surveys and
other documents which relate to or describe the existence of Encumbrances on the
Owned Real Property, and all files and records relating to the Owned Real
Property, in the possession or control of the Seller Parties or the Company
Group.
"Transitional Services Agreement" shall mean a transitional services
agreement consistent with the terms and provisions described in Section 6.5(c)
and Section 6.6, in form and substance reasonably acceptable to the Seller
Parties and Buyer.
"Unresolved Changes" shall have the meaning set forth in Section
2.3(d).
Section 1.2. Other Terms. Other terms may be defined elsewhere
in the text of this Agreement and, unless otherwise indicated, shall have such
meaning indicated throughout this Agreement.
9
<PAGE>
Section 1.3. Other Definitional Provisions.
(a) The words "hereof", "herein", and "hereunder" and words of
similar import, when used in this Agreement, shall refer to this Agreement as a
whole and not to any particular provision of this Agreement.
(b) The terms defined in the singular shall have a comparable
meaning when used in the plural, and vice versa.
(c) The terms "dollars" and "$" shall mean United States
Dollars.
ARTICLE II
PURCHASE AND SALE OF SHARES
Section 2.1. Purchase and Sale of Shares.
(a) Upon the terms and subject to the conditions set forth in
this Agreement, Buyer agrees to purchase from Seller, and Seller agrees to sell,
assign, transfer, convey and deliver to Buyer, on the Closing Date, all of the
issued and outstanding shares of Common Stock, par value $.01 per share (the
"Shares"), of the Company.
(b) In consideration for the sale of the Shares, Buyer shall
pay to Seller on the Closing Date an aggregate purchase price of $380,799,679
(the "Purchase Price"). The Purchase Price shall be payable in cash, by wire
transfer to such account or accounts as Seller shall have designated to Buyer at
least two Business Days prior to the Closing Date, and shall be subject to
adjustment as provided herein.
Section 2.2. Closing; Delivery and Payment.
(a) The delivery of the Shares and payment therefor (the
"Closing") shall take place at the offices of Parker, Poe, Adams & Bernstein
L.L.P., 201 South College Street, 2500 Charlotte Plaza, Charlotte, North
Carolina 28244 at 10:00 a.m. local time, on April 1, 1998 or at such other date,
time and place upon which the parties hereto shall mutually agree. The date on
which the Closing occurs is called the "Closing Date".
(b) At the Closing:
(i) Seller shall deliver to Buyer (A)
certificates representing the Shares, duly endorsed and in form for transfer
to Buyer, (B) the stock books, stock ledgers, minute books and corporate seals
of the Company Group; and (C) the following documents:
(1) bills of sale, assignments and
other instruments relating to and evidencing the Related Transactions, each
in form and substance reasonably satisfactory to Buyer, duly executed by the
Seller Parties or other members of the Retained Group, as the case may be;
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(2) the Related Agreements, duly
executed by the Seller Parties or other members of the Retained Group, as the
case may be;
(3) assumption agreements and other
instruments relating to the assumption of the Excluded Liabilities pursuant to
Section 6.12(b), each in form and substance reasonably satisfactory to Buyer;
(4) good standing certificates with
respect to the Seller Parties and the Company Group, dated within 15 days of the
Closing Date, of the Secretaries of State of the States in which each of the
Seller Parties is organized and of the States in which each member of the
Company Group is organized or qualified to transact business; and
(5) the certificates, resignations,
consents, approvals, waivers, forms, evidence, opinions and other documents
described in paragraphs (a), (b), (e), (f), (g) and (h) of Section 7.1; and
(ii) Buyer shall deliver to Seller Parties (A)
payment of the Purchase Price as provided in Section 2.1(b), and (B) the
following documents:
(1) the Related Agreements, duly
executed on behalf of Buyer or the Company Group, as the case may be;
(2) good standing certificate with
respect to the Buyer, dated within 15 days of the Closing Date, of the
Secretary of State of the State of Delaware; and
(3) the certificates, consents,
approvals, waivers and opinions described in paragraphs (a), (d) and (e) of
Section 7.2.
(c) On the Closing Date, all intercompany accounts between any
member of the Company Group, on the one hand, and any member of the Retained
Group, on the other hand, shall be canceled, and the respective amounts shall be
recorded as contributions to capital.
Section 2.3. Post-Closing Adjustment.
(a) As soon as practicable, but in no event later than 90 days
following the Closing Date, the Seller Parties shall prepare and deliver to the
Company a statement of Closing Date Value, which statement shall be audited and
certified by Deloitte & Touche LLP. Such statement shall exclude any adjustments
related to fresh-start accounting relating to Advantica's bankruptcy. The costs
and expenses of such audit shall be borne equally between the Company and the
Seller Parties. The statement of Closing Date Value shall be set forth in
reasonable detail to permit the calculations required by this Section 2.3.
(b) During the preparation of the statement of Closing Date
Value as provided in Section 2.3(a) and the period of any review or dispute as
provided in this Section 2.3, each of the Seller Parties, the Company and Buyer
shall cooperate fully with each other and provide the other parties and their
respective authorized representatives with full access to the books and records
of the Company Group used in the preparation of such statement, including the
provision on a timely basis of all necessary or useful information.
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(c) After receipt of the statement of Closing Date Value from
Seller Parties, Buyer shall have 30 days to review the statement of Closing Date
Value, together with the workpapers used in the preparation thereof. Unless
Buyer delivers written notice to the Seller Parties on or prior to the 30th day
after Buyer's receipt from the Seller Parties of the statement of Closing Date
Value stating that Buyer has objections to the statement of Closing Date Value
and describing any such objections in reasonable detail, Buyer shall be deemed
to have accepted and agreed to the statement of Closing Date Value. If on or
prior to the 30th day after Buyer's receipt from the Seller Parties of the
statement of Closing Date Value, Buyer notifies the Seller Parties of its
objections to the statement of Closing Date Value, Buyer and Seller Parties
shall, within 20 days (or such longer period as the parties may agree) following
such notice (the "Resolution Period"), attempt to resolve their differences, and
any resolution by them as to any disputed amounts shall be final, binding and
conclusive.
(d) Any amounts remaining in dispute at the conclusion of the
Resolution Period ("Unresolved Changes") shall be submitted to a nationally
recognized firm of independent accountants independent of, and reasonably
satisfactory to, Seller Parties, Buyer and their respective Affiliates (such
firm being referred to as the "CPA Firm"), within 10 days after the expiration
of the Resolution Period. The parties acknowledge that Ernst & Young is a
mutually acceptable firm to be designated as the CPA Firm, subject to
verification of its independence. Each party agrees to execute, if requested by
the CPA Firm, an engagement letter containing reasonable terms. All fees and
expenses relating to the work, if any, to be performed by the CPA Firm shall be
borne pro rata by Seller Parties and Buyer in proportion to the allocation of
the dollar amount of the Unresolved Changes between Buyer and Seller Parties
made by the CPA Firm, such that the prevailing party shall pay the lesser
proportion of the fees and expenses. The CPA Firm shall act as an arbitrator to
determine, based on the provisions of this Section 2.3, only the Unresolved
Changes and the determination of each amount in the Unresolved Changes shall
made in accordance with GAAP and in any event shall be no less than the lesser
of the amount claimed by either Buyer or Seller Parties and shall be no greater
than the greater amount claimed by either Buyer or Seller Parties. The CPA
Firm's determination of the Unresolved Changes shall be made within 30 days of
the submission of the Unresolved Changes thereto, shall be set forth in a
written statement delivered to Seller Parties and Buyer and shall be final,
binding and conclusive on the parties for all purposes. Notwithstanding any
provision herein to the contrary, no Unresolved Change shall result in an
adjustment to the Purchase Price or the Closing Date Value unless (i) in the
case of an asset (or contra-liability) line item (as such line items are set
forth on Exhibit A attached hereto), the amount determined by the CPA Firm is
lower than 50% of the corresponding amount reflected in the statement of Closing
Date Value prepared by Seller Parties which is the subject of such Unresolved
Change, in which event the amount of the adjustment shall be the difference
between the amount of such asset (or contra-liability) line item determined by
the CPA Firm and the amount reflected in the statement of Closing Date Value
prepared by Seller Parties, and (ii) in the case of a liability (or
contra-asset) line item (as such line items are set forth on Exhibit A attached
hereto), the amount determined by the CPA Firm is more than 150% of the
corresponding amount reflected in the statement of Closing Date Value prepared
by Seller Parties which is the subject of such Unresolved Change, in which event
the amount of the adjustment shall be the difference between the amount of such
liability (or contra-asset) line item determined by the CPA Firm and the amount
reflected in the statement of Closing Date Value prepare by Seller Parties.
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(e) In the event that Buyer and Seller Parties agree to the
statement of Closing Date Value, then within five (5) Business Days following
such agreement (i) Seller Parties shall pay to Buyer the amount, if any, by
which the Closing Date Value exceeds the Base Value, or (ii) Buyer shall pay to
Seller Parties the amount, if any, by which the Base Value exceeds the Closing
Date Value (each, a "Post-Closing Adjustment"). In the event that there are
Unresolved Changes at the end of the Resolution Period, then (1) if Buyer and
Seller Parties agree that a Post-Closing Adjustment is owed to one Party
regardless of the ultimate resolution of any Unresolved Changes, then the
minimum amount which Buyer and Seller Parties agree is owed to such party shall
be paid within five (5) Business Days after the end of the Resolution Period and
any additional amounts owing to such party with respect to the Unresolved
Changes shall be paid within five (5) Business Days after resolution thereof by
the CPA Firm, or (2) in all other cases, any and all payments shall be made
within five (5) Business Days after resolution of the Unresolved Changes by the
CPA Firm.
(f) Any payments made pursuant to this Section 2.3 shall be
accompanied by interest at the Applicable Rate from the Closing Date up to and
including the date of payment.
(g) Any payments made in respect of the Post-Closing
Adjustment or Unresolved Changes shall be deemed to be adjustments to the
Purchase Price for all Tax purposes.
Section 2.4. Certain Asset Dispositions. Seller Parties shall have the
right to cause the Company to sell or otherwise dispose of all (but not less
than all) of the Assets Held for Resale prior to the Closing, in which case the
Purchase Price shall be reduced by an amount equal to the Asset Adjustment
Amount.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLER PARTIES
The Seller Parties jointly and severally represent and warrant to Buyer
as of the date hereof (except that representations and warranties that are made
as of a specific date need be true only as of such date) as follows:
Section 3.1. Organization and Authority of Seller Parties; No
Conflicts.
(a) Organization and Authority. Each of the Seller Parties is
a corporation duly organized, validly existing and in good standing under the
laws of its jurisdiction of incorporation, has all requisite corporate power and
authority to carry on its business as it is now being conducted, and has taken
all corporate action necessary in order to execute, deliver and perform its
obligations under this Agreement. This Agreement has been duly executed and
delivered by each of the Seller Parties and is a legal, valid and binding
obligation of each of the Seller Parties, enforceable against the Seller
Parties, as applicable, in accordance with its terms, subject to bankruptcy,
insolvency, fraudulent transfer, reorganization, moratorium and similar laws of
general applicability relating to or affecting creditors' rights and to general
equity principles. All conditions to the Effective Date (as defined in the Plan
of Reorganization) have been satisfied or waived and the Plan of Reorganization
has been confirmed and is effective in accordance with the Bankruptcy Code and
the Federal Rules of Bankruptcy Procedure.
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(b) No Conflicts. Except as set forth in Section 3.1 of the
Disclosure Schedule, the execution, delivery and performance of this Agreement
by the Seller Parties do not, and the consummation by the Seller Parties of the
transactions contemplated hereby will not, constitute or result in (i) a breach
or violation of, or a default under, the certificate of incorporation or by-laws
of the Seller or Advantica, (ii) a breach of, or a default under, the
acceleration of any obligations or the creation of a lien, pledge, security
interest or other encumbrance on the assets of the Seller or Advantica (with or
without notice, lapse of time or both) pursuant to, any Contracts binding upon
Seller or Advantica, or (iii) to the Knowledge of the Seller Parties and the
Company, a violation of any applicable Law or any governmental or
non-governmental permit or license to which Seller or Advantica is subject,
except, in the case of clause (ii) or (iii) above, for any breach, violation,
default, acceleration, creation or change that, individually or in the
aggregate, is not reasonably likely to materially delay or impair the ability of
the Seller Parties to consummate the transactions contemplated by this
Agreement.
Section 3.2. Organization, Authority and Qualification of the
Company; No Conflicts.
(a) Organization and Authority. The Company (i) is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Alabama, (ii) has all requisite corporate power and authority to
carry on its business as it is now being conducted, and (iii) has taken all
corporate action necessary in order to execute, deliver and perform its
obligations under this Agreement. This Agreement has been duly executed and
delivered by the Company and is a legal, valid and binding obligation of the
Company, enforceable in accordance with its terms, subject to bankruptcy,
insolvency, fraudulent transfer, reorganization, moratorium and similar laws of
general applicability relating to or affecting creditors' rights and to general
equity principles.
(b) No Conflicts and Qualification. Except as set forth in
Section 3.2 of the Disclosure Schedule, the execution, delivery and performance
of this Agreement by the Company do not, and the consummation by the Company of
the transactions contemplated hereby will not, constitute or result in (i) a
breach or violation of, or a default under, the certificate of incorporation or
by-laws of the Company, (ii) a breach of, or a default under, the acceleration
of any obligations or the creation of a lien, pledge, security interest or other
encumbrance on the assets of the Company Group (with or without notice, lapse of
time or both) pursuant to, any Contracts binding upon the Company Group, or any
change in the rights or obligations of any party thereunder, or (iii) to the
Knowledge of the Seller Parties and the Company, a violation of any applicable
Law or governmental or non-governmental permit or license to which the Company
Group is subject, except, in the case of clause (ii) or (iii) above, for any
breach, violation, default, acceleration, creation or change that, individually
or in the aggregate, is not reasonably likely to materially delay or impair the
ability of the Company to consummate the transactions contemplated by this
Agreement. The Company is duly qualified or licensed to do business and is in
good standing in each jurisdiction in which the conduct of its business or the
ownership or leasing of its assets makes such qualification or licensing
necessary, other than in jurisdictions where the failure to be qualified or
licensed, individually or in the aggregate, is not reasonably likely to have a
Material Adverse Effect,
Section 3.3. Capitalization of the Company. The authorized capital
stock of the Company consists of 20,000 shares of Common Stock, par value $.01
per share, of which 20,000 Shares are issued and outstanding. The Shares have
been duly authorized and validly issued, are fully paid and
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nonassessable and are owned by Seller free and clear of any Encumbrances, other
than pursuant to this Agreement and Encumbrances that will be fully released at
or prior to the Closing. There are no preemptive or other outstanding rights,
options, warrants, conversion rights, stock appreciation rights, redemption
rights, agreements, arrangements or commitments to issue or sell any shares of
capital stock or other securities of the Company Group or any securities or
obligations convertible or exchangeable into or exercisable for, or giving any
Person a right to subscribe for or acquire, any securities of the Company Group,
and no securities or obligations evidencing such rights are authorized, issued
or outstanding. The Company does not have outstanding any bonds, debentures,
notes or other obligations the holders of which have the right to vote (or which
are convertible into or exercisable for securities having the right to vote)
with the stockholders of the Company on any matter.
Section 3.4. Subsidiaries of the Company. All shares of capital stock
of Spardee's Realty are owned by the Company free and clear of all Encumbrances
other than pursuant to this Agreement and Encumbrances that will be fully
released at or prior to the Closing, and all such capital stock is duly
authorized, validly issued, fully paid and nonassessable. Spardee's Realty is
(i) a corporation duly organized, validly existing and in good standing under
the laws of the State of Alabama, (ii) has all requisite power and authority to
carry on its business as it is now being conducted and (iii) is duly qualified
or licensed to do business and is in good standing in each jurisdiction in which
the conduct of its business or the ownership or leasing of its assets makes such
qualification or licensing necessary, other than in jurisdictions where the
failure to be qualified or licensed, individually or in the aggregate, is not
reasonably likely to have a Material Adverse Effect. The Company does not own,
directly or indirectly, an equity or other ownership interest in any Person
other than Spardee's Realty.
Section 3.5. Financial Statements; Certain Financial Information.
Attached hereto as Section 3.5 of the Disclosure Schedule are copies of the
audited balance sheets of the Company and its consolidated Subsidiaries as of
December 31, 1995 and 1996 and the audited statements of operations,
stockholder's equity and cash flows of the Company and its consolidated
Subsidiaries for each of the fiscal years ended December 31, 1994, 1995 and
1996, together with the unaudited balance sheets and statement of operations,
stockholder's equity and cash flows of the Company and its consolidated
Subsidiaries as of and for the eleven month period ended November 26, 1997
(collectively, with the notes thereto, the "Financial Statements"). Except as
set forth in Section 3.5 of the Disclosure Schedule, the Financial Statements
have been prepared in accordance with GAAP (except as may be noted therein), and
present fairly, in all material respects, the financial position of the Company
and its consolidated Subsidiaries as of December 31, 1995, December 31, 1996 and
November 26, 1997, respectively, and the results of operations of the Company
and its consolidated Subsidiaries for each of the periods then ended. Except as
set forth in Section 3.5 of the Disclosure Schedule, except as disclosed in the
Financial Statements and except for liabilities incurred in the ordinary course
of business by the Company Group after December 31, 1996, the Company Group has
not incurred any liability (contingent or otherwise) that would be required by
GAAP to be reflected on a balance sheet of the Company or described in the notes
thereto. The Statement of Net Operating Liabilities was prepared in accordance
with GAAP consistently applied and presents fairly the amounts of the Company's
Operating Liabilities and Operating Assets as of the date of the Balance Sheet.
The Operating Liabilities set forth in the Statement of Net Operating
Liabilities were, and the Operating Liabilities to be set forth in the statement
of Closing Date Value will have
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been, incurred in the ordinary course of business and represent the amounts
payable in respect thereof as of the respective dates presented.
Section 3.6. Absence of Certain Changes or Events. Except as set forth
in Section 3.6 of the Disclosure Schedule, since November 26, 1997 the Company
Group has conducted its businesses only in, and has not engaged in any
transaction other than according to, the ordinary course of such businesses and
there has not been: (i) any change in the financial condition, properties,
assets, business or results of operations of the Company Group, except those
changes that, individually or in the aggregate, have not had and are not
reasonably likely to have a Material Adverse Effect; (ii) any material damage,
destruction or other casualty loss with respect to any material asset or
property owned, leased or otherwise used by the Company Group, whether or not
covered by insurance; (iii) any declaration, setting aside or payment of any
dividend or other distribution in respect of the capital stock of the Company;
(iv) any material change by the Company in accounting principles, practices or
methods or change in depreciation or amortization policies or rates theretofore
adopted, in each case for financial reporting purposes, unless otherwise
required by GAAP; (v) any labor dispute other than routine matters which have
not had and are not reasonably likely to have a Material Adverse Effect; (vi)
except for increases or amendments in the ordinary course of business consistent
with past practice or as required by law, any material increase in the
compensation payable or to become payable by the Company Group to any of their
directors, officers or employees or any increase in the benefits under, or
adoption or amendment of, any bonus, insurance, pension or other employee
benefit plan, payment or arrangement, for or with any such directors, officers
or employees; (vii) any amendment or termination of any material Contract to
which the Company Group is a party; (viii) any amendment of the certificate of
incorporation or by-laws of the Company Group; (ix) any mortgage, pledge or
other encumbering of any material property of any of the Company Group (except
for the incurrence of Permitted Encumbrances); (x) any material indebtedness or
liability incurred by the Company Group (except liabilities incurred in the
ordinary course of business), or any cancellation or compromise by the Company
Group of any material debt or claim owed to or held by it; (xi) any sale,
transfer, lease, abandonment or other disposal of any properties or assets of
the Company Group (real, personal or mixed, tangible or intangible), other than
sales of Operating Assets in the ordinary course of business; (xii) any
transfer, disposal or grant of any material rights under any patent, trademark,
trade name, copyright, service mark, invention or license owned by the Company
Group, or any disclosure to any Person of any material trade secret, formula,
process or know-how owned by the Company Group not theretofore a matter of
public knowledge; in each case except in the ordinary course of business; (xiii)
any single capital expenditure made, or any commitment to make any capital
expenditure, by the Company Group in excess of $100,000 for any tangible or
intangible capital assets, additions or improvements; (xiv) any entry by the
Company Group into any binding agreement, whether in writing or otherwise, to
take any action described in this Section 3.6; or (xv) any transactions between
any member of the Retained Group and any member of the Company Group, other than
in the ordinary course of business consistent with past practices.
Section 3.7. Title to Properties; Absence of Liens and
Encumbrances, Etc.
(a) Section 3.7(a)(i) of the Disclosure Schedule lists all
leases and subleases of real property entered into by the Company Group at the
locations described thereon (the "Leased Real Property") as tenant thereunder.
Section 3.7(a)(ii) of the Disclosure Schedule hereto lists all real property
owned by the Company Group (the "Owned Real Property"). Except as set forth in
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Section 3.7(a)(iii) of the Disclosure Schedule, the Company Group has good and
marketable title to all of the Owned Real Property, free and clear of any
Encumbrances, except for Permitted Encumbrances. Except as set forth in Section
3.7(a)(iv) of the Disclosure Schedule, the Company Group has a valid leasehold
interest in all of the Leased Real Property free and clear of any Encumbrances,
except for Permitted Encumbrances. Except as set forth in Section 3.7(a)(v) of
the Disclosure Schedule, no member of the Retained Group owns or controls any
interest in any assets or properties used in the operations of the businesses of
the Company Group or the operations of the Restaurants.
(b) The Company Group operates 557 Hardee's Restaurants at the
locations listed in Section 3.7(b) of the Disclosure Schedule, and Section
3.7(b) of the Disclosure Schedule describes the nature of the Company Group's
interest in the applicable real property for each such Restaurant.
(c) Neither the Company nor Spardee's Realty is in default
under any leases under which the Company Group is the lessee of real or personal
property, except defaults (other than payment defaults) which, alone or in the
aggregate, would not have a Material Adverse Effect.
(d) Seller Parties have provided or made available to Buyer
true and correct copies of all Title Documents.
Section 3.8. Litigation. Except as set forth in Section 3.8 of the
Disclosure Schedule, there are no claims, actions, suits, arbitrations,
proceedings or investigations pending or, to the Knowledge of the Seller Parties
and the Company, threatened against the Company Group at law, in equity or
otherwise, in, before, or by, any court or Governmental Entity or authority.
None of the Company Group or their respective assets or properties is subject to
any order, writ, judgment, injunction, decree or award that would have a
Material Adverse Effect.
Section 3.9. Compliance with Law. Except as set forth in Section 3.9 of
the Disclosure Schedule, (i) the Company Group is not in violation of any
applicable Law, except for any violations which, alone or in the aggregate, do
not and would not have a Material Adverse Effect, and (ii) the Company Group has
all governmental permits and licenses required for the operation of its
businesses, except for any permits and licenses the absence of which, alone or
in the aggregate does not and would not have a Material Adverse Effect, and has
not received written notice of any material violation of the terms under which
it holds any such permit or license or of any enforcement action that would
result in the suspension or termination of any such permit or license.
Section 3.10. Contracts.
(a) Except for the Contracts listed in Section 3.10 of the
Disclosure Schedule, as of the date hereof, none of the Company Group is a party
to:
(i) any Contract relating to indebtedness of, or
to the borrowing or lending of, $100,000 or more by the
Company Group or the guarantee by the Company Group of the
obligations or indebtedness of any other Person;
(ii) any Contract the performance of which is
expected to involve consideration in excess of $50,000 per
annum or total future payments in excess of
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$100,000, other than those terminable without payment or
penalty upon no more than 30 days' notice;
(iii) any Contract which materially restricts or
contains material limitations on the ability of the Company
Group to freely conduct business in the United States;
(iv) any employment agreement or collective
bargaining agreement;
(v) any Contract between or among any member of
the Company Group, on the one hand, and any member of the
Retained Group, on the other hand, including, without
limitation, any Contract relating to or providing for the use
of property or equipment, the provision of services or
resources or the allocation of expenses;
(vi) any Contract for the sale of any assets of the
Company Group or the grant of any rights to purchase any of
the assets of the Company Group, other than Contracts for
sales or other dispositions of assets in the ordinary course
of business or which are permitted by Section 6.3(e) or for
Related Transactions;
(vii) any Contract that is otherwise material to the
Company Group and is terminable by the other party thereto
upon the occurrence of the transactions contemplated by this
Agreement and, if terminated, would have a Material Adverse
Effect; or
(viii) any Contract providing for or relating to the
supply or distribution of food products and other products to
the Company.
(b) Seller has made available to Buyer a correct and complete
copy of each Contract listed in Section 3.10 of the Disclosure Schedule,
together with any and all amendments or modifications thereto. Subject to such
exceptions (other than exceptions for payment defaults) that, individually or in
the aggregate, would not have a Material Adverse Effect, (i) each such Contract
is valid, binding, enforceable, and in full force and effect, subject to
bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and
similar laws of general applicability relating to or affecting creditors' rights
and to general equity principles, (ii) none of the Company Group nor, to the
Knowledge of the Seller Parties and the Company, any third party, is in breach
or default in any respect under any such Contract, and (iii) no event has
occurred which, with notice or lapse of time or both, would constitute a breach
or default, or permit termination, modification, or acceleration, under such
Contract by the Company Group.
Section 3.11. Consents and Approvals. Other than the filings and/or
notices (i) set forth in Section 3.11 of the Disclosure Schedule or (ii) under
the HSR Act, no notices, reports or other filings are required to be made by
Seller, Advantica or the Company Group with, nor are any consents, registrations
or approvals required to be obtained by Seller, Advantica or the Company Group
from, any Person, in connection with the execution and delivery of this
Agreement by the Seller Parties and the Company and the consummation by the
Seller Parties and the Company of the transactions contemplated hereby.
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Section 3.12. Tax Matters.
(a) Except as set forth in Section 3.12 to the Disclosure
Schedule, insofar as is relevant to the Company Group, the Seller Parties have
(i) filed all federal income Tax Returns and all other material Tax Returns
required to be filed in respect of any Taxes and each such Tax Return is true,
complete and accurate in all material respects, and (ii) paid all Taxes due and
payable in respect of periods for which such Tax Returns were due.
(b) Except as set forth in Section 3.12 of the Disclosure
Schedule insofar as is related to the Company Group, (i) no written notice of
any material proposed deficiency, claim, assessment or levy with respect to
Taxes has been received by the Seller Parties or the Company Group, (ii) to the
Knowledge of the Seller Parties and the Company, there is no claim or assessment
threatened against the Company Group, (iii) none of the Seller Parties or the
Company Group has been since 1992 or is currently the subject of a Tax Audit or
any examination of any Tax Return and none of them has received a written notice
that it is being or will be audited by a relevant taxing authority, (iv) all
deficiencies asserted or assessments made as a result of any Tax Audit have been
paid in full, (v) no issues that have been raised by the relevant taxing
authority in connection with any Tax Audit are currently pending, and (vi) none
of the Seller Parties or the Company Group has agreed to any extensions of time
or waivers of any applicable statute of limitations periods.
(c) The Company Group has duly withheld from each payment from
which such withholding is required by Law (including, without limitation,
income, social security and employment tax withholding) all material Taxes so
required to be withheld and has paid the same, to the extent due, together with
the employer's share of the same, if any, to the proper taxing authority.
(d) Since January 1, 1990, the Company Group has been a member
of an "affiliated group" as that term is described under Section 1504 of the
Code, filing a consolidated federal income Tax Return, the common parent of
which is Advantica and has not been a member of any other affiliated group.
(e) There is no ruling issued to the Company Group (or closing
agreement or gain recognition agreement to which the Company Group is a party)
nor are any contemplated concerning Taxes from or with any Governmental Entity
which will have an effect on the Company Group after the Closing Date.
(f) The Company Group has not made any payments, and is not a
party to any agreement that obligates it to make any payments, that would not be
deductible, in whole or in part, under Sections 280G or 162(m) of the Code.
(g) Seller is not a foreign person subject to withholding
under Section 1445 of the Code.
Section 3.13. Intellectual Property.
(a) Section 3.13(a) of the Disclosure Schedule sets forth a
list and brief description (including, where applicable, the country of
registration) of (i) all patents, patent applications, registered trademarks,
trademark applications, registered copyrights, copyright applications, trade
names, service marks and other intellectual property rights that are owned, or
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licensed for use, by the Company Group and (ii) all agreements under which the
Company Group is licensed or otherwise permitted to use Intellectual Property.
Except as set forth in Section 3.13(a) of the Disclosure Schedule, at the
Closing Date the Company Group will have valid and subsisting rights to all
Intellectual Property used in the operation of the Restaurants.
(b) Except as set forth in Section 3.13(b) of the Disclosure
Schedule, with respect to Intellectual Property of the Company Group, (i) no
product (or component thereof or process) used, sold or manufactured by the
Company Group infringes on or otherwise violates the Intellectual Property of
any other Person or any confidentiality obligation enforceable against the
Company Group, (ii) there are no restrictions that would materially impair the
use of the Company's Intellectual Property in connection with the business of
the Company Group and (iii) to the Knowledge of the Company and the Seller
Parties, no Person is challenging the ownership or rights to use, or infringing
or otherwise violating, the Intellectual Property of the Company Group.
Section 3.14. Labor Matters. No member of the Company Group is a party
to any collective bargaining agreement respecting its employees, nor is there
pending, or to the Knowledge of the Company and the Seller Parties threatened,
any strike, walkout or other work stoppage, or any union organizing effort by or
respecting the employees of the Company Group.
Section 3.15. Employee Benefits.
(a) Section 3.15 of the Disclosure Schedule contains a list of
each material employee benefit, stock purchase, stock option, severance,
change-in-control, fringe benefit, bonus, incentive and deferred compensation
plan, agreement, program, policy or other arrangement for current or former
employees of the Company Group which is maintained, sponsored or contributed to
by the Seller Parties or the Company Group. All such plans, agreements,
programs, policies and arrangements shall be collectively referred to as the
"Company Plans." The Company has furnished to Buyer all employment agreements
covering Operating Employees maintained by the Company Group.
(b) There is no "multiemployer plan", within the meaning of
Section 3(37) of ERISA, covering employees of the Company Group.
(c) With respect to each Company Plan, the Company has
delivered or made available to Buyer a complete copy (or, to the extent no such
copy exists, a summary description) thereof and, to the extent applicable: (i)
any related trust agreement or other funding instrument; (ii) the most recent
determination letter; (iii) any summary plan description; and for the most
recent plan year; (iv) the Form 5500 and attached schedules; (v) audited
financial statements; and (vi) actuarial valuation reports.
(d) All Company Plans are in compliance in all material
respects with the Code and ERISA. The Company has received a favorable
determination letter from the IRS with respect to the qualified status of each
Company Plan which is an "employee pension benefit plan" within the meaning of
Section 3(2) of ERISA (a "Pension Plan") and which is intended to be qualified
under Section 401(a) of the Code and the Company is not aware of any
circumstances which would adversely affect such determination letter. There is
no pending, threatened or anticipated action, suit or claim relating to the
Company Plans. No member of the Company Group has engaged in any
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transactions with respect to any Company Plan that, assuming the "taxable
period" (as defined in Section 4975(f) of the Code) with respect to such
transaction expired as of the date hereof, could subject the Company Group to a
material tax or penalty imposed by Section 4975 of the Code.
(e) As of the date hereof, no liability under Title IV of
ERISA has been or is expected to be incurred by the Company Group with respect
to any ongoing, frozen or terminated "single-employer plan", within the meaning
of Section 4001(a)(15) of ERISA, currently or formerly maintained by any of
them, or the single-employer plan of any entity which is considered one employer
with the Company under Section 4001 of ERISA or Section 414 of the Code (an
"ERISA Affiliate"), other than the payment of premiums to the Pension Benefit
Guaranty Corporation contributed to by the Company Group or any ERISA Affiliate.
No member of the Company Group has contributed, or been obligated to contribute,
to a "multiemployer plan" (within the meaning of Section 3(37) of ERISA) at any
time during the six-year period prior to the date hereof.
(f) All contributions required to be made by the Company Group
under the terms of any Company Plan have been timely made or have been reflected
in the Financial Statements. Neither any Pension Plan nor any single employer
plan of an ERISA Affiliate has an "accumulated funding deficiency" (within the
meaning of Section 412 of the Code or Section 302 of ERISA) whether or not
waived. No member of the Company Group has provided, or is required to provide,
security to any Pension Plan or to any single-employer plan of an ERISA
Affiliate pursuant to Section 401(a)(29) of the Code.
(g) Except as set forth in Section 3.15 of the Disclosure
Schedule, no member of the Company Group has any obligations for retiree health
and life benefits under any Company Plan.
(h) Except as set forth in Section 3.15 of the Disclosure
Schedule, no member of the Company Group is a party to any litigation relating
to or seeking benefits under any of the Company Plans.
(i) To the Knowledge of the Company, none of the Company Plans
holds as an asset any interest in any annuity contract, guaranteed investment
contract or any other investment or insurance contract issued by an insurance
company that is the subject of bankruptcy, conservatorship or rehabilitation
proceedings.
(j) Except as set forth in Section 3.15 of the Disclosure
Schedule, the consummation of the transactions contemplated by this Agreement
will not (i) entitle any of the Operating Employees of the Company Group to
severance pay or (ii) accelerate or provide any other rights or credits under,
or increase the amount payable or trigger any other obligation pursuant to, any
of the Company Plans.
Section 3.16. Environmental Matters. Except as disclosed in Section
3.16 of the Disclosure Schedule, the Company Group: (i) is in compliance with
applicable Environmental Laws, except where any failure to comply, individually
or in the aggregate, would not have a Material Adverse Effect; (ii) has not
received any written notices from any Government Entity alleging the material
violation of any applicable Environmental Law which has not been resolved and no
allegations reflected in such notices are pending or, to the Knowledge of Seller
Parties and the Company, threatened by any Person; (iii) is not the subject of
any court order, administrative
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order or decree arising under any Environmental Law; (iv) is not the subject of
any environmental site investigations or remediation activities by a Person that
is not a Governmental Entity; and (v) has not generated, stored, used, emitted,
discharged or disposed of any Hazardous Substance except as permitted under
applicable Environmental Laws. Except as disclosed in Schedule 3.16, during or,
to the Knowledge of the Seller Parties and the Company, prior to the period of
(i) the Company Group's ownership or operation of the Owned Real Property or the
Leased Real Property, or (ii) the Company Group's participation in the
management of any of the Owned Real Property or Leased Real Property, there has
been no release or threatened release of any Hazardous Substance in, on, or
affecting any such property in excess of a reportable quantity for which the
Company Group could reasonably be expected to have a liability which would have
a Material Adverse Effect.
Section 3.17. Insurance. Section 3.17 of the Disclosure Schedule lists
all insurance policies and self-insurance programs maintained by or on behalf of
the Company Group, true and correct copies of which have been provided to Buyer.
Such policies and programs provide coverage for the businesses of the Company
Group in amounts and against risks consistent with past practice. Except as set
forth in Section 3.17 of the Disclosure Schedule, the Company has insured
against the same risks covered by the policies listed in Section 3.17 of the
Disclosure Schedule at all times during the four-year period prior to the date
of this Agreement, in policy amounts and with policy limits substantially
similar, in the aggregate, to the policies listed in Section 3.17 of the
Disclosure Schedule.
Section 3.18. Brokers and Finders. Other than DLJ, neither the Seller
Parties nor the Company Group have employed any broker, finder, consultant or
intermediary in connection with the transactions contemplated by this Agreement
who would be entitled to a broker's, finder's or similar fee or commission in
connection therewith or upon the consummation thereof. The Seller Parties are
solely responsible for the payment of any fee, commission or reimbursement that
may be due to or become payable to DLJ in connection with the transactions
contemplated by this Agreement.
Section 3.19. Government Regulations. No member of the Company Group is
subject to regulation under the Investment Company Act of 1940, as amended, the
Public Utility Holding Act of 1935, as amended, the Federal Power Act, the
Interstate Commerce Act, the Commodity Exchange Act or any Law limiting its
ability to incur or assume indebtedness for borrowed money.
Section 3.20. Books and Records. Subject to the prior destruction of
certain documents consistent with the Company's document retention program, the
Seller Parties have furnished or made available to the Buyer true and correct
copies of all minute books, all accounting books and records and other similar
records of the Company Group, all of which have been maintained in all material
respects in accordance with applicable Law.
Section 3.21. Disclosure. No representation or warranty of any of the
Seller Parties contained in this Agreement contains any untrue statement of
material fact or omits to state any material fact necessary to make the
statements herein, taken as a whole and in light of the circumstances under
which they were made, not misleading.
Section 3.22. Seller Parties' Investigation. The Seller Parties are
informed and sophisticated sellers and are experienced in the sale of companies
such as the Company and
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Spardee's Realty. The Seller Parties acknowledge that the Buyer (and any of its
agents, officers, directors, employees, Affiliates or representatives) has not
made any representation or warranty as to the Buyer or this Agreement except as
expressly set forth in this Agreement, and the Seller Parties agree, to the
fullest extent permitted by Law, that, except as expressly provided for herein
or pursuant to the express provisions hereof, none of the Buyer or the Company
Group (and any of their respective agents, officers, directors, employees,
Affiliates or representatives) shall have any liability to the Seller Parties
(or any of their respective agents, officers, directors, employees, Affiliates
or representatives) on any basis based upon any information made available or
statements made to the Seller Parties (or any of their respective agents,
officers, directors, employees, Affiliates or representatives).
Section 3.23. No Other Representations or Warranties. Except for the
representations and warranties contained in this Article III, none of the Seller
Parties nor any other Person makes any other express or implied representation
or warranty on behalf of any of the Seller Parties or any member of the Company
Group.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to the Seller Parties as of the date
hereof (except that representations and warranties that are made as of a
specific date need be true only as of such date) as follows:
Section 4.1. Organization and Authority of Buyer; No Conflicts.
(a) Organization and Authority. Buyer is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware, has all requisite corporate power and authority to carry on its
business as it is now being conducted, and has taken all corporate action
necessary in order to execute, deliver and perform its obligations under this
Agreement. This Agreement has been duly executed and delivered by Buyer and is a
legal, valid and binding obligation of Buyer, enforceable in accordance with its
terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium and similar laws of general applicability relating to or affecting
creditor's rights and to general equity principles.
(b) No Conflicts. Except as set forth in Section 4.4 of the
Disclosure Schedule, the execution, delivery and performance of this Agreement
by Buyer do not, and the consummation by Buyer of the transactions contemplated
hereby will not, constitute or result in (i) a breach or violation of, or a
default under, the certificate of incorporation or by-laws of Buyer, (ii) a
breach of, or a default under, the acceleration of any obligations or the
creation of a lien, pledge, security interest or other encumbrance on the assets
of Buyer (with or without notice, lapse of time or both) pursuant to, any
Contracts binding upon Buyer, (iii) to the Knowledge of Buyer, a violation of
any applicable Law or governmental or non-governmental permit or license to
which Buyer is subject, except, in the case of clause (ii) or (iii) above, for
any breach, violation, default, acceleration, creation or change that,
individually or in the aggregate, is not reasonably likely to materially delay
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or materially impair the ability of Buyer to consummate the transactions
contemplated by this Agreement.
Section 4.2. Brokers and Finders. Other than Schroder, Buyer has not
employed any broker, finder, consultant or intermediary in connection with the
transactions contemplated by this Agreement who would be entitled to a broker's,
finder's or similar fee or commission in connection therewith or upon the
consummation thereof. Buyer is solely responsible for the payment of any fee,
commission or reimbursement that may be due to or become payable to Schroder in
connection with the transactions contemplated by this Agreement.
Section 4.3. Securities Act. Buyer is acquiring the Shares solely for
the purpose of investment and not with a view to, or for sale in connection
with, any distribution thereof in violation of the Securities Act. Buyer
acknowledges that the Shares are not registered under the Securities Act or any
applicable state securities law, and that such Shares may not be transferred or
sold except pursuant to the registration provisions of the Securities Act or
pursuant to an applicable exemption therefrom and pursuant to state securities
laws and regulations as applicable.
Section 4.4. Consents and Approvals. Other than the filings and/or
notices (i) set forth in Section 4.4 of the Disclosure Schedule and (ii) under
the HSR Act, no notices, reports or other filings are required to be made by
Buyer with, nor are any consents, registrations, approvals, permits or
authorizations required to be obtained by Buyer from, any Person, in connection
with the execution and delivery of this Agreement by Buyer and the consummation
by Buyer of the transactions contemplated hereby except those that the failure
to make or obtain are not, individually or in the aggregate, reasonably likely
to prevent, materially delay or materially impair the ability of Buyer to
consummate the transactions contemplated by this Agreement.
Section 4.5. Disclosure. No representation or warranty of the Buyer
contained in this Agreement contains any untrue statement of material fact or
omits to state any material fact necessary to make the statements herein, taken
as whole and in light of the circumstances under which they were made, not
misleading.
Section 4.6. Buyer's Investigation. Buyer is an informed and
sophisticated purchaser and is experienced in the evaluation and purchase of
companies such as the Company and Spardee's Realty. Except for the environmental
investigations described in Section 6.9 below, Buyer has undertaken such
investigation as it has deemed necessary to enable it to make an informed and
intelligent decision with respect to this Agreement, and Buyer acknowledges that
the Seller Parties and the Company Group have allowed Buyer such access as has
been reasonably requested by Buyer to the personnel, properties, premises and
records of the Company Group for this purpose. To the extent expressly permitted
hereafter under this Agreement, Buyer will undertake such further investigation
as it deems necessary. Buyer acknowledges that in entering this Agreement, in
acquiring the Shares and in consummating the other transactions contemplated
herein, Buyer has relied solely upon its own investigation and analysis and, to
the extent expressly permitted by this Agreement, the representations and
warranties contained in this Agreement, and that none of the Seller Parties and
the Company Group (and any of their respective agents, officers, directors,
employees, Affiliates or representatives) has made any representation or
warranty as to the Seller Parties, the Company Group, the Shares, this Agreement
or the business of the Company Group except as expressly set forth in this
Agreement, and Buyer agrees, to the fullest extent permitted by
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Law, that, except as expressly provided for herein or pursuant to the express
provisions hereof, none of the Seller Parties (and any of their respective
agents, officers, directors, employees, Affiliates or representatives) shall
have any liability to Buyer (or any of its agents, officers, directors,
employees, Affiliates or representatives) on any basis based upon any
information made available or statements made to Buyer (or any of its agents,
officers, directors, employees, Affiliates or representatives).
Section 4.7. No Other Representations or Warranties. Except for the
representations and warranties contained in this Article IV, neither Buyer nor
any other Person makes any other express or implied representation or warranty
on behalf of Buyer.
ARTICLE V
TAX MATTERS
Section 5.1. Cooperation With Respect to Tax Matters.
(a) Seller and Buyer agree that it is their mutual intention
that the purchase of the Shares shall be treated for federal income tax
purposes, as well as for all relevant state, local and foreign income tax
purposes, as a purchase and sale of the assets of the Company Group. Advantica
and Buyer shall jointly make timely Section 338(h)(10) Elections (the "Section
338(h)(10) Elections") in accordance with the Code (and any corresponding
elections under state, local and foreign tax law where applicable) with respect
to the purchase and sale of the Shares and with respect to the deemed purchase
and sale of the assets of the Company Group. The Seller Parties represent that
its sale of the Shares is eligible for, and Buyer represents that it is
qualified to make, such elections. The Seller Parties and the Company Group
shall report, for federal income tax purposes (and for state, local and foreign
income tax purposes where permitted by applicable law), the transaction under
this Agreement consistent with the Section 338(h)(10) Elections; and none of the
Seller Parties, the Company Group or Buyer will take a position under the Code
contrary thereto unless required to do so by applicable Tax Laws pursuant to a
determination as defined in Section 1313(a) of the Code. Except for the Share
purchase and Section 338(h)(10) Elections contemplated by this Agreement, Buyer
shall not cause or permit the Company Group to engage, on the Closing Date, in
any transaction outside the ordinary course of business that could affect the
federal taxable income or loss of the Company Group included in Advantica's
federal consolidated income Tax Return.
(b) Within a reasonable time following the determination of
the Post-Closing Adjustment of the Purchase Price pursuant to Section 2.3 hereof
(but, in any event, not less than sixty (60) days prior to the due date
(including extensions) for the filing of any Tax Return with respect to which
such allocation shall be applicable), Buyer and Seller shall agree concerning
the computation of the Modified Aggregate Deemed Sale Price (as defined under
applicable treasury regulations) ("MADSP") of the assets of the Company Group
and the allocation of MADSP among such assets. The Seller Parties shall use
their reasonable efforts to obtain the maximum extensions of time to file any
Tax Returns with respect to which such allocation is applicable. If there is a
dispute as to the computation of the MADSP or its allocation among such assets,
the fair market value of the assets of the Company Group shall be determined by
an appraisal conducted by the CPA Firm and based on such appraisal, such firm
shall determine MADSP and its allocation among the
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assets. The fees and expenses of such appraisal and determination shall be paid
one-half by Seller and one-half by Buyer. Advantica's consolidated federal
income Tax Return (and where permitted by law, all state, local and foreign
income Tax Returns of Advantica and Seller for such jurisdictions that compute
Tax on a unitary or consolidated basis) and all filings for which Buyer is
responsible under (c) below shall, when required to reflect MADSP or its
allocations, reflect such items as determined pursuant to this paragraph (b).
(c) Seller (or Advantica) and Buyer agree to take all action
and file all necessary Tax Returns, forms and reports to validly elect to treat
the transaction as a sale of assets as opposed to a sale of the Shares for tax
purposes. Seller (or Advantica) and Buyer shall file all such Tax Returns, forms
and reports in a timely manner and shall provide assurance to the other party
that it has done so. Buyer shall be responsible for the preparation and timely
filing of all documents, Tax Returns and other forms and schedules required to
be submitted to the IRS (and, where applicable, all state, local and foreign
taxing authorities) in connection with the Section 338(h)(10) Elections in
accordance with the Code (or similar provisions of state, local or foreign law)
and the terms of this Agreement, including the IRS Form 8023 (but excluding
Advantica and Seller for such jurisdictions that compute Tax on a unitary
basis), which documents, Tax Returns, forms and schedules shall reflect MADSP
and its allocation. If any changes are required to these forms subsequent to
their filing, the parties shall promptly agree and cooperate with respect to
such changes. To the extent not executed and completed as of the date hereof,
Advantica shall execute and deliver to Buyer such documents or forms, including
any amended or replacement Forms 8023, as are reasonably requested by Buyer and
as are required by the Code, or under similar provisions of state, local or
foreign law, in order to properly complete these Section 338 forms and schedules
at least twenty (20) days prior to the date such forms are required to be filed.
Advantica shall provide Buyer with such information as Buyer reasonably requests
in order to prepare any remaining Section 338 forms and schedules within thirty
(30) days of Buyer's request for such further information or within such shorter
period as is necessary to comply with applicable law. Notwithstanding the
foregoing, Buyer shall request any such information as promptly as practicable
following the final determination of the Closing Date Value under Section 2.3.
(d) In no event shall the Company Group or the Buyer have any
liability directly or indirectly (pursuant to a tax sharing agreement or
otherwise) for state, local or foreign income Taxes resulting from the Section
338(h)(10) Elections, or from an election or deemed election under Section
338(g) of the Code with respect to the purchase and sale of the Shares hereunder
and the deemed purchase and sale of the assets of the Company and Spardee's
Realty, where the state, local or foreign income tax jurisdictions do not
provide or recognize the Section 338(h)(10) Elections or do not apply their
respective provisions corresponding to Section 338(h)(10) of the Code to the
purchase and sale of Shares or the deemed purchase and sale of the assets of the
Company and Spardee's Realty (for example, because the Company Group files a
separate company income Tax Return in such jurisdiction), and any such liability
shall be paid by Advantica and Seller.
(e) Buyer recognizes that the Company Group have joined with
Seller, Advantica, and Advantica's Affiliates in filing unitary, consolidated,
or combined Tax Returns. After the Closing Date, (i) Advantica shall include (to
the extent required by Law) the taxable income or loss, and all other items, of
the Company Group for periods ending before or on the Closing Date, in its
unitary, consolidated or combined Tax Returns, including without limitation
income and loss attributable to the Section 338(h)(10) Elections, (ii) in the
case of those jurisdictions
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not described in (i) that permit or require a short period Tax Return ending on
the Closing Date, Advantica and the Company Group and its Affiliates shall
include the taxable income or loss, and all other items, of the Company Group,
for periods ending before or on the Closing Date, on such Tax Returns, including
without limitation income and loss attributable to Section 338(h)(10) Elections,
and (iii) with respect to any other Tax Returns for any taxable period that
includes but does not end on the Closing Date (the "Straddle Tax Return"),
Advantica shall in consultation with Buyer prepare a schedule setting forth, on
a basis consistent with the preparation of Advantica's consolidated federal
income Tax Return for the taxable period ending on the Closing Date, the taxable
income or loss, and all other items, of the Company Group, for the period
commencing with the first day of the taxable period covered by such Straddle Tax
Return up to and including the Closing Date ("Pre-Closing Period") and the
period commencing with the first day after the Closing Date and ending with the
last day of the taxable period covered by such Straddle Tax Return (the
"Post-Closing Period"). The income and loss of the Company Group will be
allocated to the Pre-Closing Period, to the extent practicable by closing the
books as of the end of the Closing Date. To the extent an allocation in
accordance with the provision of the foregoing sentence is not practicable, such
taxable income and loss shall be allocated on the basis of the number of days
(other than any items specifically allocable to the Pre-Closing Period or
Post-Closing Period) in the Pre-Closing Period compared to the number of days in
the entire applicable period.
(f) Advantica shall pay any and all federal, state, local and
foreign Taxes attributable to the income and operations described in Section
5.1(e)(i) and 5.1(e)(ii) above (net of any Tax refunds received by the Company
Group or Buyer with respect to such Taxes). In no event will Buyer or the
Company Group pay directly or indirectly (pursuant to a tax sharing agreement or
otherwise) or be obligated to pay or have any liability for any amount described
in the first sentence of this Section 5.1(f), including, without limitation, any
Tax liability attributable to the Section 338(h)(10) Elections. In the case of
the Straddle Tax Returns, upon notice from Buyer, Advantica or Seller shall pay
Buyer an amount which reflects the Taxes attributable to the income, operations
and properties of the Company Group for the Pre-Closing Period, including,
without limitation, any Tax liability attributable to the Section 338(h)(10)
Elections. Advantica shall pay Buyer or the Governmental Entity directly the
Taxes which are payable with Tax Returns to be filed by the Company Group
pursuant to this Section 5.1(f) within three (3) Business Days prior to the due
date for the filing of such Tax Returns.
(g) Advantica shall be responsible for, and shall have
ultimate discretion with respect to, (i) the preparation and filing of all Tax
Returns required or permitted by applicable Law to be filed by the Company Group
(or by Advantica or its Affiliates on their behalf) with respect to periods that
end on or before the Closing Date (and the payment of all Taxes reported on such
Tax Returns), and (ii) any Tax Audit, including the execution of any waiver of
limitation with respect to any Tax Audit, relating to any such Tax Returns.
Notwithstanding the foregoing, the Seller and Advantica shall not, without the
prior written consent of the Buyer, be entitled to settle either
administratively or after the commencement of litigation any claim for Taxes
which would adversely affect the liability for Taxes of Buyer or the Company
Group for the Post-Closing Period or any subsequent year that result from the
reduction of asset basis or cost adjustments, the lengthening of any
amortization or depreciation periods, the denial of amortization or depreciation
deductions, or the reduction of loss or credit carryforwards. Such consent shall
not be unreasonably withheld and shall not be necessary to the extent the Seller
has indemnified the Buyer against the effect of any such settlement.
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(h) Buyer and the Company Group shall be responsible for, and
shall have ultimate discretion with respect to, (i) the preparation and filing
of all Tax Returns required to be filed by the Company Group with respect to
periods that begin after the Closing Date (and the payment of all Taxes reported
on any such Tax Return), and (ii) the preparation and filing of the Straddle Tax
Returns, if any, and (iii) any Tax audit (including the execution of any waiver
of limitation with respect to any Tax Audit) relating to any such Tax Returns;
provided, however, that in the case of any Straddle Tax Return, the preparation
and filing of such Return shall be subject to review and approval of Advantica
(which approval shall not be unreasonably withheld), (iv) filing all employment
Tax Returns including but not limited to IRS forms 940, 941, W-2 and W-3 and all
similar state and local employment Tax Returns for the calendar year ended 1998
including activity required to be reported for the Pre-Closing Period, and (v)
filing all information reporting Tax Returns including but not limited to IRS
forms 1096 and 1099 and all similar state and local information returns for the
calendar year ended 1998 including activity required to be reported for the
Pre-Closing Period. Notwithstanding the foregoing, the Buyer and the Company
Group shall not, without the prior written consent of the Seller, be entitled to
settle either administratively or after the commencement of litigation any claim
for Taxes which would adversely affect the liability for Taxes of Seller and
Advantica for any Pre-Closing Periods or their portion of any Straddle Period
that result from the reduction of asset basis or cost adjustments, the
lengthening of any amortization or depreciation periods, the denial of
amortization or depreciation deductions, or the reduction of loss or credit
carryforwards. Such consent shall not be unreasonably withheld and shall not be
necessary to the extent the Buyer has indemnified the Seller against the effect
of any such settlement.
(i) Advantica and Seller shall be liable for and indemnify,
defend and hold harmless Buyer, and the Company Group from and against any
liability arising for any taxable year or period in the Pre-Closing Periods
pursuant to Treasury Regulation Section 1.1502-6(a) and any similar provision
existing under the Laws of any state with respect to unitary, combined or
similar returns. Advantica and Seller shall be liable for and indemnify, defend
and hold harmless Buyer and the Company Group from and against any and all Taxes
attributable to operations for the periods of time ending on or before the
Closing Date, including any Taxes attributable to the Section 338(h)(10)
Elections. In addition, Advantica and Seller shall indemnify, defend and hold
harmless Buyer and the Company Group from and against any liability for Taxes of
Advantica (or its Affiliates) or the Company Group for the periods described in
Section 5.1(e)(i) and for the Pre-Closing Periods. Advantica and Seller shall
also indemnify and hold harmless Buyer and the Company Group from and against
all costs and expenses incurred by them (including reasonable attorneys' fees
and expenses) in connection with any liability to, or claim by, any Governmental
Entity, for Taxes for which Advantica and Seller are required to indemnify Buyer
and the Company Group under this Article V. For purposes of the foregoing, any
amounts paid to Buyer or the Company Group or their respective Affiliates shall
be treated as an adjustment to the Purchase Price of the Shares. Advantica and
Seller shall be entitled to any refunds of Taxes of Advantica (or its
Affiliates) or the Company Group for the periods described in Section 5.1(e)(i);
provided, however, that if the Seller or Advantica becomes entitled to a refund
or credit of Taxes for any Pre-Closing Periods and such Taxes are (i)
attributable solely to the carryback of losses, credits or similar items
attributable to the Company Group from the Post-Closing Period or any subsequent
taxable year, and (ii) relate to a jurisdiction in which the Company Group files
a separate Company Income Tax Return, the Seller or Advantica shall promptly pay
to Buyer an amount of such refund or credit together with any interest thereon.
For purposes of calculating such refund or credit, the amount
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shall be the difference between the Taxes of the Company Group for such period
with and without such item, after all other tax attributes of Advantica or its
Affiliates for such period is taken into account. In the event that any refund
or credit of Taxes for which a payment has been made is subsequently reduced or
disallowed, Buyer shall indemnify and hold harmless the Seller and Advantica for
any tax liability, including interest and penalties, assessed against the Seller
and Advantica by reason of the reduction or disallowance.
(j) Buyer and the Company Group shall be liable for and
indemnify the Seller Parties for all Taxes imposed on the Company Group (or for
which the Company Group may otherwise be liable) for any taxable year or period
that begins after the Closing Date and, with respect to that portion of a
Straddle Tax Return relating to the Post-Closing Period. Buyer shall also
indemnify and hold harmless the Seller Parties from and against all costs and
expenses incurred by the Seller Group (including reasonable attorneys' fees and
expenses) in connection with any liability to, or claim by, any Governmental
Entity, for Taxes for which Buyer and the Company Group is required to indemnify
the Seller Parties under this Article V.
(k) Buyer and Advantica shall consult prior to filing their
Tax Returns for the period immediately before and immediately after the Closing
Date and shall agree on the inclusion of items of income and deduction and all
other items consistent with Section 5.1(e) for each of the respective periods
pursuant to the permanent books and records of the Company Group so as to avoid
double inclusion or double exclusion of income and deductions and all other
items. In the event that Buyer and Advantica are unable to agree on the
allocation of such items, then the items of disagreement shall be referred
promptly to the CPA Firm. The CPA Firm shall settle the items of disagreement
within 10 days and the decision of the CPA Firm shall be conclusive on the
parties with respect to the items of dispute. The fees and expenses incurred
with respect to these determinations shall be borne equally by Seller and Buyer.
(l) After the Closing Date, each of Buyer, the Company Group
on the one hand, and Advantica and Seller, on the other shall (i) provide, or
cause to be provided, to each other's respective officers, employees,
representatives and Affiliates, such assistance as may reasonably be requested,
including making available employees and the books and records of the Company,
Spardee's Realty, Advantica or Seller, by any of them in connection with the
preparation of any Tax Return or any Tax Audit of the Company Group, Advantica
or Seller, in respect of which any party is responsible pursuant to Section 5.1,
and (ii) retain, or cause to be retained, for so long as any such taxable years
or Tax Audits shall remain open for adjustments, any records or information
which may be relevant to any such Tax Returns or Tax Audits.
(m) Each of Buyer and the Company Group, on the one hand, and
Advantica and Seller, on the other, shall promptly inform, keep regularly
apprised of the progress with respect to, and notify the other party in writing
not later than (i) ten (10) Business Days after the receipt of any notice of any
Tax Audit or (ii) fifteen (15) Business Days prior to the settlement or final
determination of any Tax Audit for which it was responsible pursuant to Section
5.1 which could affect the Taxes of such other party for any taxable year.
Failure by Buyer or the Company Group to timely provide notice to Advantica or
Seller or any of their Affiliates such that administrative remedies to resolve,
protest, appeal or otherwise reduce the Taxes payable are no longer available
will prohibit Buyer from asserting its claim under this Section 5.1; provided
that such failure will prohibit such claim only if such failure materially and
adversely affects Advantica or Seller. Failure
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by Advantica, Seller or any of their Affiliates to provide such notice to Buyer
or the Company Group such that administrative remedies to resolve, protest,
appeal or otherwise reduce Taxes payable are no longer available will prohibit
Seller from asserting its claim under this Section 5.1; provided that such
failure will prohibit such claim only if such failure materially and adversely
affects the Buyer or the Company Group.
(n) All transfer Taxes (including, but not limited to, sales
taxes) which may be imposed or assessed as a result of Buyer's acquisition shall
be borne by Advantica or the Seller.
(o) Advantica and its Affiliates shall have the sole right to
represent the Company Group's interest in any Tax Audit, administrative or court
proceeding relating to the Pre-Closing Periods and to employ counsel of its
choice at its own expense. Buyer will timely execute all appropriate powers of
attorney to allow Advantica or its Affiliates to represent the Company Group on
all matters pertaining to Taxes for the Pre-Closing Periods.
(p) The Seller Parties, Buyer and the Company Group agree to
cooperate and to share all tax information materials necessary or desirable in
connection with all tax compliance matters.
(q) The Buyer or the Company Group will reimburse Advantica
for any franchise Taxes paid to Alabama, Georgia, Louisiana, Mississippi, North
Carolina, Ohio and South Carolina which may be paid with the Company Group's
Pre-Closing Periods Tax Returns, but are for the privilege of conducting
business for the Post-Closing Period and for any other similar Taxes which are
not reflected on the Closing Date Balance Sheet; provided, that such
reimbursement shall be limited to the amount of such Taxes attributable to the
Post-Closing Period.
(r) Advantica and Seller may retain all original Tax Returns
and Tax Return supporting documentation for the Tax Returns filed for the
Pre-Closing Periods for which Advantica and Seller have responsibility for
payments or refunds under this Article V. Advantica and Seller will also retain
all original invoices, fixed asset records, computer tapes, microfiche, computer
optional records or any other media used to store or record Pre-Closing Periods
information which may be required in connection with a Tax Audit of the Company
Group's Tax Returns or Taxes for Pre-Closing Periods. Any books or records not
retained by Advantica or Seller will be subject to the retention and
availability provisions described in Section 6.7 of this Agreement. Upon request
of the Buyer and at the Buyer's expense, Advantica will make copies of any books
and records to be retained by Advantica pursuant to this Section 5.1(r).
(s) The obligations of the parties set forth in this Article V
shall be unconditional and absolute and shall remain in effect without
limitation as to time.
Section 5.2. Tax Related Agreements.
(a) Effective as of the Closing Date, the Company Group shall
not have any obligation or liability in respect of any tax sharing or tax
allocation agreement between Advantica, the Seller or any member of their
affiliated group.
(b) Any and all tax sharing agreements, overhead allocation
agreements, cost reimbursement agreements and other intercompany agreements
between the Company Group on the
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one hand, and Advantica or its Affiliates, on the other hand, entered into prior
to the Closing Date shall be deemed terminated with respect to the Company Group
as of the Closing Date.
ARTICLE VI
CERTAIN COVENANTS AND AGREEMENTS OF SELLER PARTIES AND BUYER
Section 6.1. Access and Information.
(a) The Seller Parties shall permit Buyer and its
representatives to have reasonable access during regular business hours, to all
properties owned or leased by the Company Group and to the officers of the
Company Group, and shall furnish, or cause to be furnished, to Buyer and its
representatives any financial and operating data, books, Contracts and other
records and information with respect to the business and properties of the
Company Group as Buyer shall from time to time reasonably request.
(b) In the event of the termination of this Agreement, Buyer
shall deliver (without retaining any copies thereof) to Seller, or confirm in
writing to Seller that it has destroyed, all information furnished to Buyer or
its representatives by the Seller Parties, the Company Group or any of their
respective agents, employees or representatives as a result hereof or in
connection herewith, whether so obtained before or after the execution hereof,
and all analyses, compilations, forecasts, studies, reports, memos, notes or
other documents prepared by Buyer or its representatives which contain, refer to
or reflect any such information. Buyer shall at all times prior to the Closing
Date, and in the event of termination of this Agreement, cause any information
so obtained to be kept confidential and will not use, or permit the use of, such
information in its business or in any other manner or for any other purpose
except as contemplated hereby.
(c) The Seller Parties shall cause the Company to (i) permit
Buyer's independent public accountants to have access to the books and records
of the Company so that, if required by Buyer, any unaudited historical financial
statements and other financial information of the Company Group, if any, can be
reviewed or audited by Buyer's independent public accountants and (ii) permit
such financial statements, the Financial Statements and other information of or
concerning the Company or its businesses to be disclosed in any Securities
Filings or in any Offering Memorandum to the extent Buyer reasonably determines
such disclosure is necessary or required (after the Seller Parties have had a
reasonable opportunity to review and approve the accuracy of and revise, as
appropriate, any such disclosure which is to be filed or used prior to the
Closing). In addition, the Seller Parties shall cooperate with Buyer, and
request the Company's independent public accountants to provide, at the Buyer's
expense, such information (including, without limitation, such accountants'
workpapers) and assistance, including the execution and delivery of opinions and
consents, with respect to the Company's historical consolidated financial
statements as may be reasonably required by Buyer, in connection with the
preparation of financial statements for, and their inclusion in, any such
Securities Filings or Offering Memorandum. The Seller Parties also shall cause
the Company to provide to Buyer such reasonable assistance and information
concerning the Company and the Restaurants of the type and nature that would be
required to be included in a Registration Statement that the Company would be
required by the Securities Act to file on Form S-1 for a public offering of its
equity securities, for inclusion in any Securities Filing or Offering
Memorandum. Disclosure
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of such financial statements and information furnished hereunder in any
Securities Filing or Offering Memorandum (after the Seller Parties have had a
reasonable opportunity to review and approve the accuracy of and revise, as
appropriate, such disclosure) which is required to be filed or is used prior to
the Closing shall not constitute a breach or violation of the Confidentiality
Agreement.
(d) The Seller Parties promptly shall inform Buyer in writing
if either of the Seller Parties becomes aware of any breach of any of their
representations or warranties contained in this Agreement.
(e) The Buyer promptly shall inform the Seller Parties in
writing if the Buyer becomes aware of any breach of any of its representations
or warranties contained in this Agreement.
Section 6.2. Consents. The Seller Parties and Buyer shall each use
their reasonable best efforts whether before or, at the Closing, to take, or
cause to be taken, all actions and to do, or cause to be done, all things
necessary to fulfill the conditions precedent to the other party's obligations
hereunder and to consummate and make effective as promptly as practicable the
transactions contemplated by this Agreement and to cooperate with each other in
connection with the foregoing. Without limiting the generality of the foregoing,
Buyer and Seller Parties shall each use their reasonable best efforts (i) to
secure all consents, approvals, waivers and authorizations required or necessary
from other parties to Contracts or under applicable Law in order to consummate
the transactions contemplated hereby, (ii) to prevent the entry, enactment or
promulgation of any threatened or pending injunction or order that would
adversely affect the ability of the parties hereto to consummate the
transactions contemplated by this Agreement, (iii) to lift or rescind any
injunction or order adversely affecting the ability of the parties hereto to
consummate the transactions contemplated by this Agreement and (iv) to effect
all necessary registration and filings and submissions of information required
or requested by any Governmental Entity, including those required under the HSR
Act. Buyer and Seller Parties shall use their reasonable best efforts to
promptly take, or cause to be taken, all other actions and do, or cause to be
done, all other things necessary, proper or appropriate under applicable laws
and regulations to consummate and make effective the transactions contemplated
by this Agreement as soon as practicable.
Section 6.3. Conduct of Business. From the date of this Agreement
through the Closing, and except as otherwise expressly provided for by this
Agreement or consented to or approved by Buyer in writing, the Seller Parties
covenant and agree that the Company Group shall: (i) cause the Company Group to
operate their businesses in the ordinary course; (ii) use their reasonable
efforts to preserve intact their current business organizations and preserve
their relationships with customers, suppliers, distributors and others having
business dealings with them to the end that their goodwill and ongoing
businesses shall not be impaired in any material respect at or after the
Closing; (iii) cause the Company Group to retain at each of the Restaurants an
adequate supply of good and useable operating inventories consistent with the
Restaurants' reasonably anticipated usage requirements; and (iv) not
deliberately breach any representation, warranty or obligation contained in this
Agreement. Except as otherwise provided herein and except as provided in Section
6.3 of the Disclosure Schedule, Seller agrees that, between the date of this
Agreement and the Closing Date and without the prior written consent of Buyer,
it will not permit any member of the Company Group to:
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(a) (i) declare, set aside or pay any dividends on, or make
any other distributions in respect of, any of its capital stock, (ii) split,
combine or reclassify any of its capital stock or issue or authorize the
issuance of any other securities in respect of, in lieu of or in substitution
for shares of its capital stock or (iii) purchase, redeem or otherwise acquire
any shares of capital stock of any member of the Company Group or any other
securities thereof or any rights, warrants or options to acquire any such shares
or other securities;
(b) authorize for issuance, issue, deliver, sell, pledge or
otherwise encumber any shares of its capital stock, any other voting securities
or any securities convertible into, or any rights, warrants or options to
acquire, any such shares, voting securities or convertible securities or any
other securities or equity equivalents (including without limitation stock
appreciation rights) or contractual obligation valued or measured by the value
or market price of its capital stock;
(c) amend its certificate of incorporation, by-laws or other
comparable charter or organizational documents;
(d) except as contemplated by Section 6.4(a) hereof, acquire
or agree to acquire by merging or consolidating with, or by purchasing a
substantial portion of the stock or assets of, or by any other manner, any
business or any Person or division thereof;
(e) sell, lease, license, mortgage or otherwise encumber or
subject to any Encumbrance (other than Permitted Encumbrances) or otherwise
dispose of any of its properties or assets, except for (i) sales of inventory in
the ordinary course of business, (ii) sales or other dispositions of Assets Held
for Resale as contemplated by Section 2.4 hereof, (iii) transfers and
assignments contemplated by Section 6.4 hereof, and (iv) sales or other
dispositions in the ordinary course of business of assets which are no longer
necessary for the operation of the Restaurants (provided, however, that (A) the
aggregate net book value of assets which the Company may sell or otherwise
dispose of in reliance upon clause (iv) above shall not exceed $100,000 for any
single item or $500,000 in the aggregate for all such items without the Buyer's
prior written consent), and (B) in no event shall clause (iv) above permit sales
or other dispositions of any Restaurant or any asset the sale or other
disposition of which would cause a material disruption of or disable the
operations of any Restaurant);
(f) (i) incur any indebtedness for borrowed money or guarantee
any such indebtedness of another Person, issue or sell any debt securities or
warrants or other rights to acquire any of its debt securities, guarantee any
debt securities of another Person, enter into any agreement to maintain any
financial statement condition of another Person or enter into any arrangement
having the economic effect of any of the foregoing, except for short-term
borrowings incurred in the ordinary course of business, or (ii) make any loans,
advances or capital contributions to, or investments in, any other Person;
(g) acquire or agree to acquire any assets that are material,
individually or in the aggregate, to the Company Group taken as a whole, or make
or agree to make any capital expenditures, except in the ordinary course of
business;
(h) pay, discharge or satisfy any claims (including claims of
stockholders), liabilities or obligations (absolute, accrued, asserted or
unasserted, contingent or otherwise), except
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for the payment, discharge or satisfaction, of (A) liabilities or obligations in
the ordinary course of business or in accordance with their terms as in effect
on the date hereof, (B) liabilities reflected or reserved against in the most
recent consolidated audited financial statements (or the notes thereof) of the
Company, or waive, release, grant, or transfer any rights of material value or
modify or change in any material respect any existing license, lease, franchise
agreement, contract or other document, other than in the ordinary course of
business;
(i) adopt or amend in any material respect (except as may be
required by Law or required or permitted by this Agreement) any Company Plans
for the benefit or welfare of any employee, director or former director or
employee or, other than increases for individuals in the ordinary course of
business, increase the compensation of fringe benefits of any director, employee
or former director or employee; pay any benefit not required by any existing
plan, arrangement or agreement, grant any new or modified severance or
termination arrangement or increase or accelerate any benefits payable under its
severance or termination pay policies in effect on the date hereof, other than
any such increase or acceleration provided for under such policies as in effect
on the date of this Agreement;
(j) change any material accounting method, principle or
practice used by it, except as may be required pursuant to GAAP;
(k) except in the ordinary course of business and consistent
with past practice, settle or compromise any federal, state, local or foreign
income tax liability where the payment will exceed $50,000;
(l) except in the ordinary course of business, effect any
transactions with the Retained Group; or
(m) commit or agree to take any of the foregoing actions.
Section 6.4. Related Transactions.
(a) Transfer of Certain Assets and Restaurants. Prior to or
contemporaneously with the Closing, the Seller Parties shall cause to be
transferred and assigned to the Company valid title, free and clear of all
Encumbrances (other than Permitted Encumbrances), to the assets and properties
listed or described in Section 6.4(a) of the Disclosure Schedule.
(b) Trademarks. Prior to or contemporaneously with the
Closing, the Seller Parties shall cause the Retained Group to permit reasonable
and royalty-free use by Hardee's and the Company of the trademark "ULTIMATE
OMELETTE" (U.S. Registration No. 1,645,411 in Cl. 29) for a period of one year
from and after the Closing Date, whereupon Hardee's and the Company may elect to
continue such use of such trademark for such royalties or other consideration
and on such other terms and conditions as shall be reasonably agreed upon by
Buyer and Advantica.
(c) Certain Assets. Prior to the Closing, the Seller Parties
shall cause to be transferred and assigned by the Company Group to Seller or
another member of the Retained Group the assets and properties of the Company
Group listed or described in Section 6.4(c) of the Disclosure Schedule.
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Section 6.5. Certain Buyer and Seller Obligations and Agreements.
(a) Supply and Distribution Agreements. Buyer acknowledges
that the Company will continue after the Closing to be bound by the supply and
distribution agreements listed in Section 3.10 of the Disclosure Schedule,
including without limitation, the MBM Agreement and the SFI Agreement. Prior to
the Closing, the Company shall not, and the Seller Parties shall not permit the
Company to, extend, renew or otherwise amend any of the supply or distribution
agreements or arrangements to which the Company Group is a party without the
prior written consent of the Buyer, which consent shall not be unreasonably
withheld.
(b) Termination of Pending Arbitration and License Agreements.
Upon the Closing (i) the Seller Parties and Buyer shall cause the Pending
Arbitration to be dismissed with prejudice and terminated, and (ii) Advantica
and its Subsidiaries, on the one hand, and Buyer and its Subsidiaries and the
Company Group, on the other, shall execute and deliver the Termination
Agreement.
(c) Transitional Services. Upon the Closing, the Seller
Parties and the Company shall enter into a Transitional Services Agreement, for
a term of up to 60 days from the Closing Date, pursuant to which the Seller or
Advantica shall provide to the Company, at no cost to the Company, accounting,
data base, payroll and related systems support services. Such services shall be
provided with the same quality and frequency and in the same general manner as
such services have been provided to the Company prior to the date of this
Agreement. The Transitional Services Agreement shall not require Seller or
Advantica to withhold or transmit withholdings for HMO's, medical or 401(k)
benefit plans or arrangements, or insurance carriers other than those to which
the Seller Parties currently transmit, nor shall the Transitional Services
Agreement otherwise require Seller or Advantica to modify its current systems in
any material respect.
Section 6.6. Employee Benefit Plans.
(a) Termination of Participation in Company Plans. The Seller
Parties shall cause the Company Group to terminate its participation in all
Company Plans immediately prior to the Closing, with no resulting cost,
liability or expense to the Company except to the extent provided by this
Agreement.
(b) Establishment of New Plans. Concurrently with the Closing,
Buyer shall cause the Company to establish the plans and programs (the "New
Plans") providing the following benefits: medical, dental, vision, long-term
disability, short-term disability, and life insurance. The New Plans' provisions
shall provide for employee participation and benefits identical to those
provided by the Company prior to Closing. The New Plans' benefits shall be on a
"no loss/no gain basis" so that there are no new preexisting condition
exclusions or waiting periods imposed on, or evidence of insurability required
of participants covered in the comparable Company Plans prior to Closing (except
to the extent those periods, conditions and other limitations were imposed prior
to Closing), and so that benefits paid prior to Closing by the comparable
Company Plans are credited towards deductibles, co-payment, out-of-pocket, and
similar limitations. Notwithstanding the foregoing, nothing in this Agreement
shall prevent the Company or Buyer from amending or terminating the New Plans
after the Transition Period provided for in the Transitional Services Agreement
under Section 6.5 following the Closing. The foregoing is on the basis that all
insurers
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under the Company Plans will be insurers under the New Plans and that any such
insurer agrees to the foregoing requirements without any material incremental
cost to the Company. If any insurer will not so do, the parties will mutually
and reasonably agree to any variation from the foregoing requirement.
(c) Handling of Medical and Similar Claims. The Company Plans
will process and pay medical and other benefit claims in the normal course
through the day prior to the Closing. On and after the Closing, the New Plans
shall be liable for any claims of Operating Employees (and eligible spouses and
dependents of Operating Employees, COBRA continuees who would have been
Operating Employees if employed by the Company Group as of the Closing and
"Qualified Beneficiaries" under ERISA of such COBRA continuees) which had not
yet been finally processed and paid by the comparable Company Plans (regardless
of whether those claims were incurred on or before the Closing, and regardless
of whether claims had yet been filed). The Company Plans shall not pay or be
responsible for any such claim which it had not yet processed and paid prior to
the Closing, and shall forward such claims to the New Plans.
(d) Seller Parties' Cooperation Regarding New Plans. The
Seller Parties will cooperate with the Company and Buyer in establishing the New
Plans and utilizing the Company Plans' current third party service providers (to
the extent such third parties agree to do so) during the Transition Period
provided for in the Transitional Services Agreement under Section 6.5. However,
the Seller Parties disclaim any responsibility for enrollment following the
Closing and any undertaking to provide services which could cause the Seller
Parties to become fiduciaries with respect to the New Plans. Nothing in this
Agreement or in any services provided by the Seller Parties shall be construed
to imply that, on or after Closing, the Company is a sponsor or co-sponsor of
any Company Plan or any plan maintained by Advantica or its Affiliates. The
Company and Buyer agree to pay all third party service providers directly to the
greatest extent possible. Additional requirements regarding the New Plans may be
specified in the Transitional Services Agreement, including the Company's and
Buyer's indemnification of the Seller Parties and Advantica.
(e) Management Employees. At or prior to the Closing, the
Seller Parties shall cause the Company to terminate the employment of all
Management Employees. Seller Parties shall be responsible for and shall defend,
indemnify and hold Buyer and the Company harmless from and against all
obligations and liabilities, under the Company Plans or otherwise, with respect
to the termination of employment of the Management Employees. With respect to
any Management Employee (including any beneficiary or dependent thereof), Seller
Parties shall be responsible for and shall defend, indemnify and hold Buyer and
the Company harmless from and against all liabilities and obligations relating
to claims, expenses, illnesses, injuries and any other occurrences on or prior
to the Closing and any liabilities under Company Plans arising out of periods
prior to the Closing. Notwithstanding the foregoing, with respect to any
Management Employee who is terminated by the Company at or prior to the Closing
and not thereafter employed by the Retained Group and who is hired by Buyer, the
Company Group or any of their Affiliates within six (6) months immediately after
the Closing Date, Buyer or the Company Group shall reimburse the Seller Parties
for any and all obligations incurred by any member of the Retained Group in
connection with such termination of the employment of such Management Employee.
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(f) Operating Employees. From and after the Closing Date,
Buyer agrees that all Operating Employees shall be eligible to participate in
the Buyer's employee benefit plans and programs (including eligibility for
vacation and sick leave) and shall be given credit for past service with the
Company for purposes of eligibility, vesting, deductibles, copayments and
pre-existing conditions as if such employee had been employed by Buyer to the
extent permitted by applicable nondiscrimination rules under the Code and to the
extent permitted by such plans and programs.
(g) No Third Party Beneficiaries. No provision of this
Agreement shall create any third party beneficiary or other rights in any
employee or former employee (including any beneficiary or dependent thereof) of
Seller or the Company in respect of continued employment (or resumed employment)
with either Buyer or the Company or any of Buyer's or Seller's Affiliates and no
provision of this Agreement shall create any such rights in any such employee or
former employee in respect of any benefits that may be provided, directly or
indirectly, under any Company Plan or any plan or arrangement which may be
established by Buyer or the Company. No provision of this Agreement shall
constitute a limitation on rights to amend, modify or terminate after the
Closing Date any such plans or arrangements of Seller, Buyer or any of their
respective Affiliates or the Company.
Section 6.7. Retention of Books and Records. Buyer shall cause the
Company Group to retain, until all applicable tax statutes of limitations
(including periods of waiver) have expired, all books, records and other
documents pertaining to the Company Group in existence on the Closing Date that
are required to be retained under current retention policies and to make the
same available after the Closing Date for inspection and copying by Seller or
its agents at Seller's expense, during regular business hours and upon
reasonable request and upon reasonable advance written notice. After the
expiration of such period, no such books and records shall be destroyed by Buyer
without first advising Seller and giving Seller an opportunity to obtain
possession thereof. Seller agrees that the confidentiality of such records will
be maintained and that such records will be used only for tax or other
reasonable business purposes.
Section 6.8. Closing Date Financial Statements. After the Closing Date,
each of Buyer and the Seller Parties shall (i) provide, or cause to be provided,
to each other's respective Subsidiaries, officers, employees, representatives
and affiliates, such assistance as may reasonably be requested, including making
available employees and the books and records of the Company, by any of them in
connection with the preparation of any tax return or any audit of the Company in
respect of which the Buyer, the Company or the Seller, as the case may be, is
responsible and (ii) retain, or cause to be retained, for so long as any such
taxable years or audits shall remain open for adjustments, any records or
information which may be relevant to any such tax returns or audits.
Section 6.9. Environmental Investigations.
(a) The Seller Parties shall conduct Phase I Reports of all of
the Owned Real Property and Leased Real Property. The Phase I Reports shall
include (at the Buyer's discretion) bulk sampling of suspected asbestos
containing materials. The Seller shall use its best efforts to have preliminary
drafts of all Phase I Reports prepared, with copies provided to the Buyer, by
March 1, 1998 and to have copies of all final Phase I Reports provided to the
Buyer by March 15, 1998. Buyer shall reimburse the Seller Parties at the Closing
for the costs of the Phase I Reports.
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(b) The Seller Parties shall reimburse the Company Group for
fifty percent (50%) of Environmental Losses, as and when incurred by Buyer or
the Company Group and invoiced to the Seller Parties; provided, however, that
none of the Seller Parties shall have any liability for Environmental Losses
that are not either (i) actually paid by Buyer or the Company Group no later
than the third anniversary of the Closing or (ii) actually committed to be paid
by the Buyer or the Company Group (with written evidence of such commitment
delivered to the Seller Parties) no later than the third anniversary of the
Closing and actually paid by the Buyer or the Company Group no later than the
fourth anniversary of the Closing. Nothing in this Section 6.9(b) shall affect
the obligations of the Seller Parties under Article IX below with respect to any
breach of the representations and warranties set forth in Section 3.16 above.
Section 6.10. Covenant Not to Compete; Non-solicitation.
(a) Covenant Not to Compete. Each of the Seller Parties
covenants and agrees that, for a period commencing on the Closing Date and
expiring on the second (2nd) anniversary of the Closing Date (the "Restricted
Period"), none of the Seller Parties will, directly or indirectly, own, manage,
operate, franchise, license, control or engage or participate in the ownership,
management, operation, franchising, licensing, or control of, or be connected as
a stockholder, agent, partner, joint venturer, employee, officer, director,
consultant or otherwise with, any Person which engages in the quick-service
hamburger restaurant business in the Territory (a "Competitive Action");
provided, however, that none of the following activities shall constitute a
violation of this Section 6.10:
(i) the acquisition or ownership by the Seller
Parties or their Affiliates of less than two percent (2%) of
the outstanding shares of any Person engaged in the
quick-service hamburger restaurant business whose shares are
publicly traded on a national securities exchange; or
(ii) the offering of hamburger products to customers
as a menu item by any Existing Concept; or
(iii) the operation by the Retained Group of any
Hardee's Restaurant pursuant to a License Agreement with
Hardee's.
In the event that the Buyer ascertains the start of a Competitive Action on the
part of any such Persons, Buyer shall be entitled to obtain injunctive relief
without any objection from any of the Seller Parties or their respective
Subsidiaries and Affiliates. The parties hereto further agree that, if a court
of competent jurisdiction determines that this covenant is unenforceable in any
respect, the remainder of this covenant shall not thereby be affected and shall
be given full effect, without regard to any invalid portions, and this covenant
may be modified by such court in any necessary respect in order to render it
enforceable in its least reduced form. If the courts of any one or more
jurisdictions determine that this covenant is unenforceable, it is the intention
of Buyer, on the one hand, and the Seller Parties, on the other hand, that such
determination not bar or in any way affect Buyer's right to the relief provided
above in the courts of any other jurisdiction as to breaches of this covenant in
such other respective jurisdiction, it being the intention of Buyer, on the one
hand, and the Seller Parties, on the other hand, that this covenant be
considered a separate and independent covenant insofar as it relates to each
such jurisdiction.
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(b) Non-solicitation. For a period commencing on the Closing
Date and expiring on the first (1st) anniversary of the Closing Date, none of
the Retained Group, directly or indirectly, will solicit any officer or
executive employee of the Company to leave the employ of the Company or to work
for any member of the Retained Group.
Section 6.11. Exclusivity. The Seller Parties and the Company shall
not, and shall direct their respective officers, directors, financial advisors,
accountants and counsel not to, (i) solicit submissions or proposals or offers
from any Person other than the Buyer relating to any acquisition or purchase of
all or any part of the Shares or all or any part of the assets or properties of
the Company or the sale or issuance of any capital stock of the Company or of
any Person formed by the Seller Parties or an Affiliate of the Seller Parties to
which any assets or properties of the Company is to be contributed, or any
merger or consolidation of the Company or of any Person formed by the Seller
Parties or an Affiliate of the Seller Parties to which any assets or properties
of the Company is to be contributed (each, an "Acquisition Proposal"), (ii)
participate in any negotiations regarding any Acquisition Proposal by any Person
other than the Buyer, or (iii) enter into any Contract or understanding, either
oral or written, that would prevent, hinder or delay the transactions
contemplated hereby. If, notwithstanding the foregoing, the Seller Parties or
the Company shall receive any Acquisition Proposal or any inquiry regarding any
such proposal from any Person, the Seller Parties or the Company, as applicable,
shall promptly give notice thereof to the Buyer.
Section 6.12. Limitation of Liabilities.
(a) From and after the Closing Date, except as expressly
provided in this Agreement (including, without limitation, provisions relating
to Environmental Losses and Excluded Liabilities), no member of the Retained
Group shall have any obligation or liability whatsoever relating to the business
or assets of any member of the Company Group as the same shall exist on the
Closing Date or arise thereafter, including, without limitation, obligations or
liabilities for any deductibles with respect to any insurance policies
(including, without limitation, any arrangement between any member of the
Company Group, on the one hand, and any member of the Retained Group, on the
other hand, with respect to self-insurance) and obligations or liabilities under
any guarantees by any member of the Retained Group of any obligations or
liabilities (other than Excluded Liabilities) of the Company Group. From and
after the Closing Date, the Company shall indemnify and hold the Retained Group
harmless from all such obligations and liabilities (including the cost of
defense thereof and reasonable attorneys' fees and expenses incurred in
litigation or otherwise) that are alleged against or might otherwise be imposed
on any member of the Retained Group. Buyer shall cooperate with Retained Group,
both before and after the Closing Date, by taking, and after Closing, causing
the Company Group to take, all actions which the Seller Parties shall reasonably
request to effect the termination, contingent upon Closing, of any such Retained
Group guarantee, obligation or liability and, both before and after the Closing,
Buyer shall use its reasonable efforts to provide, contingent upon Closing, a
substitute guarantee or other arrangement to release the Retained Group from any
liability or obligation under any such guarantee, obligation or liability. To
the Knowledge of the Company and the Seller Parties, Section 6.12(a) of the
Disclosure Schedule includes a complete list of all guarantees or other
agreements binding upon the members of the Retained Group in respect to
obligations (other than Excluded Liabilities) of the Company Group. In addition,
on or prior to Closing, Buyer will obtain, or will cause the Company Group to
obtain, one or more insurance policies or other arrangements covering
substantially all liabilities and obligations (other than Excluded Liabilities)
of the Company Group which are
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currently insured pursuant to insurance policies or arrangements provided or
paid for by any member of the Retained Group. At Closing, Buyer shall provide to
the Seller Parties certificates of insurance evidencing that substitute coverage
has been obtained. The parties agree that the Company Group will be removed from
the insurance policies maintained or provided by the Retained Group as of the
Closing Date. The elimination of the Company Group from coverage maintained or
provided by the Retained Group shall be without prejudice to the indemnification
and reimbursement obligations of the Company Group.
(b) Prior to or contemporaneously with the Closing, the Seller
Parties shall (i) assume and agree to timely pay and perform or defease, and
cause the Company Group to be released and discharged from, all liabilities,
restrictions and obligations under or incurred pursuant to the Advantica Credit
Agreement, the Loan Documents, the Spartan Indenture, the Spardee's Loan
Agreement and the Security Documents, and cause to be delivered at the Closing
release documents, duly executed by or on behalf of the applicable secured
parties, providing for the release of all Encumbrances on any assets of the
Company Group which secure the payment or performance of such liabilities and
obligations, and (ii) assume and agree to timely pay and perform or defease, and
use best efforts to cause the Company Group to be released and discharged from,
the obligations and liabilities of the Company Group listed or described in
Section 6.12(b) of the Disclosure Schedule (other than those described in the
preceding clause (i)) and use best efforts to cause to be terminated, released
or otherwise removed all Encumbrances on any assets of the Company Group which
secure the payment or performance of such liabilities and obligations, in each
of the foregoing cases in accordance with the terms and provisions of the
instruments evidencing the liabilities and obligations to be so assumed or
defeased or as otherwise agreed by the applicable parties thereto and without
liability, cost or expense to Buyer or the Company Group and without the sale or
other disposition of the assets so encumbered. From and after the Closing Date,
except as expressly provided in this Agreement, no member of the Company Group
shall have any obligation or liability with respect to the Excluded Liabilities
or whatsoever relating to the business or assets of any member of the Retained
Group as the same exist at the Closing Date or arise thereafter, including,
without limitation, obligations or liabilities under any guarantees by any
member of the Company Group of any obligations or liabilities of the Retained
Group. From and after the Closing Date, the Seller Parties shall indemnify and
hold Buyer and the Company Group harmless from the Excluded Liabilities and all
such obligations or liabilities (including the cost of defense thereof and
reasonable attorneys' fees and expenses incurred in litigation or otherwise)
that are alleged against or might otherwise be imposed on the Company Group. The
Seller Parties shall cooperate with Buyer and the Company Group, both before and
after Closing, by taking, and after Closing, causing the Retained Group to take,
all actions necessary or appropriate, or which Buyer or the Company Group shall
reasonably request, to effect the termination, contingent upon Closing, of any
such Company Group guarantee, obligation or liability and, both before and after
the Closing, the Seller Parties shall use their reasonable efforts to provide,
contingent upon Closing, a substitute guarantee or other arrangement to release
the Company Group from any liability or obligation under any such guarantee,
obligation or liability. In addition, on or prior to Closing, Seller Parties
will obtain, or cause the Retained Group to obtain, one or more insurance
policies or other arrangements covering substantially all Excluded Liabilities
which are currently insured pursuant to insurance policies or arrangements
provided or paid for by any member of the Retained Group or the Company Group.
At the Closing, Seller Parties shall provide to the Buyer certificates of
insurance evidencing that substitute coverage has been obtained.
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Section 6.13. Cash Sweeps. Notwithstanding any other provisions of this
Agreement to the contrary, prior to the Closing, the bank accounts of the
Company Group will continue to be swept on a daily basis, consistent with past
practice.
Section 6.14. New Bank Accounts. Buyer acknowledges and agrees that the
bank accounts identified in Section 6.14 of the Disclosure Schedule shall be
transferred to the Retained Group effective upon Closing. Consequently, on or
before the Closing Date, Buyer shall establish, with the cooperation of the
Seller Parties, suitable bank accounts such that, commencing immediately after
the Closing Date, Buyer can utilize such accounts in connection with the
operation of the business of the Company Group and will no longer need to
utilize the bank accounts identified in Section 6.14 of the Disclosure Schedule.
All collections attributable to the operation of the business of the Company
Group up to and including the close of business on the Closing Date shall be for
the benefit of the Retained Group, and all collections attributable to the
operation of the business after the close of business on the Closing Date shall
be for the benefit of the Company Group and Buyer. The Seller Parties and the
Company Group agree to make appropriate payments to reflect such intention.
Section 6.15. Further Assurances. At any time after the Closing Date,
the Seller Parties and Buyer shall, and Buyer shall cause the Company Group to,
promptly execute, acknowledge and deliver any other assurances or documents
reasonably requested by Buyer or Seller Parties, as the case may be, and
necessary for Buyer or Seller Parties, as the case may be, to satisfy its
obligations hereunder or obtain the benefits contemplated hereby.
ARTICLE VII
CONDITIONS TO CLOSING
Section 7.1. Conditions to Obligations of Buyer. The obligation of
Buyer to consummate the transactions contemplated by this Agreement shall be
subject to the satisfaction or waiver by Buyer in writing on or prior to the
Closing Date of each of the following conditions:
(a) Each of the representations and warranties of the Seller
Parties contained in this Agreement shall be true and correct in all material
respects when made and as of the Closing Date, in each case with the same effect
as though such representations and warranties had been made on and as of the
Closing Date (except that representations and warranties that are made as of a
specific date need be true in all material respects only as of such date); each
of the covenants and agreements of the Seller Parties to be performed on or
prior to the Closing Date shall have been duly performed in all material
respects; and Buyer shall have received at the Closing certificates to the
foregoing effect, dated as of the Closing Date and executed on behalf of each of
Seller Parties by its Chief Executive Officer, its President or any of its Vice
Presidents and its Secretary or any of its Assistant Secretaries.
(b) Seller shall have delivered to Buyer resignations of all
directors of the Company Group and all officers of the Company Group who are not
also employees of the Company Group.
(c) The waiting period under the HSR Act, if applicable to the
purchase and sale of the Shares, and any extensions thereof, shall have expired
or been terminated and there shall have
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been no conditions to approval of the Acquisition set by the FTC or the
Antitrust Division that are not reasonably acceptable to the Buyer.
(d) No court or governmental authority of competent
jurisdiction shall have enacted, issued, promulgated, enforced or entered any
statute, rule, regulation, or non-appealable judgment, decree, injunction or
other order which is in effect on the Closing Date and prohibits the
consummation of the Closing.
(e) All consents, approvals and waivers from third parties and
any Governmental Entity and other parties set forth in Section 3.11 of the
Disclosure Schedule which are identified therein as "critical" shall have been
obtained.
(f) The Buyer shall have received from Parker, Poe, Adams &
Bernstein L.L.P., counsel to the Seller Parties, an opinion, dated the Closing
Date, in form and substance reasonably acceptable to Buyer.
(g) The Seller shall have delivered to the Buyer (i) certified
copies of resolutions of its Board of Directors authorizing the execution,
delivery and performance of this Agreement and the consummation of the
transactions contemplated thereby and (ii) a certified charter and a certificate
of good standing of the Secretary of State of the state in which the Seller is
organized.
(h) The Buyer shall have received, in form and substance
reasonably satisfactory to the Buyer, forms of release documents with respect to
all Encumbrances on the assets of the Company Group which are required by this
Agreement to be released upon the Closing, by the filing or recording of
documents with applicable Governmental Entities immediately following the
Closing or otherwise, each duly executed by or on behalf of the applicable
secured party, and evidence, in form and substance reasonably satisfactory by
the Buyer, that the Company Group shall have been (or upon the Closing will be)
discharged from all liabilities, restrictions and obligations (including any
obligations in the nature of a guaranty of the obligations of any member of the
Retained Group) under or incurred pursuant to (i) the Advantica Credit Agreement
and the Loan Documents and (ii) the Spartan Indenture, the Spardee's Loan
Agreement and the Security Documents.
(i) The Buyer shall have had possession of the Phase I Reports
for not less than ten Business Days, and the Phase I Reports shall not have
revealed liabilities under Environmental Laws that, individually or in the
aggregate, would reasonably be expected to have a Material Adverse Effect.
Section 7.2. Conditions to Obligations of Seller. The obligation of
Seller to consummate the transactions contemplated by this Agreement shall be
subject to the satisfaction or waiver in writing by Seller on or prior to the
Closing Date of each of the following conditions:
(a) Each of the representations and warranties of Buyer
contained in this Agreement shall be true and correct in all material respects
when made and as of the Closing Date, in each case with the same effect as
though such representations and warranties had been made on and as of the
Closing Date (except that representations and warranties that are made as of a
specific date need be true in all material respects only as of such date); each
of the covenants and agreements of Buyer to be performed on or prior to the
Closing Date shall have been duly performed in all material respects; and Seller
shall have received at the Closing certificates to the foregoing effect,
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dated as of the Closing Date and executed on behalf of Buyer by its Chief
Executive Officer, its President or any of its Vice Presidents and its Secretary
or any of its Assistant Secretaries.
(b) The waiting period under the HSR Act, if applicable to the
purchase and sale of the Shares, and any extensions thereof, shall have expired
or been terminated and there shall have been no conditions to approval of the
Acquisition set by the FTC.
(c) No court or governmental authority of competent
jurisdiction shall have enacted, issued, promulgated, enforced or entered any
statute, rule, regulation, or non-appealable judgment, decree, injunction or
other order which is in effect on the Closing Date and prohibits the
consummation of the Closing.
(d) All consents, approvals and waivers from third parties and
any Governmental Entity and other parties set forth in Section 3.11 of the
Disclosure Schedule which are identified therein as "critical" shall have been
obtained.
(e) Seller shall have received from Stradling Yocca Carlson &
Rauth, counsel to Buyer, an opinion, dated as of the Closing Date, in form and
substance reasonably acceptable to the Seller Parties.
ARTICLE VIII
TERMINATION
Section 8.1. Termination. This Agreement may be terminated at any time
prior to the Closing:
(a) by mutual written consent of the Seller Parties and the
Buyer;
(b) by either Buyer or the Seller Parties, by giving written
notice of such termination to the other party, if such other party shall breach
any of its representations, warranties, covenants, obligations or agreements
under this Agreement in any material respect and such breach shall be incapable
of cure or has not been cured within thirty (30) days following the giving of
written notice of such breach to the breaching party;
(c) by either Buyer or the Seller Parties, by giving written
notice of such termination to the other party, if there shall be in effect any
law or regulation that prohibits the consummation of the Closing or if
consummation of the Closing would violate any non-appealable final order, decree
or judgment of any court or governmental body having competent jurisdiction; or
(d) by either Buyer or the Seller Parties, by giving written
notice of such termination to the other party, if the Closing shall not have
occurred on or prior to the date 120 days subsequent to the date hereof,
provided that the failure of the Closing to occur on or before such date is not
the result of a breach of any covenant, obligation, agreement, representation or
warranty hereunder by the Party seeking termination.
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Section 8.2. Effect of Termination. In the event of the termination of
this Agreement in accordance with Section 8.1 hereof, this Agreement shall
thereafter become void and have no effect, and no party hereto shall have any
liability to the other party hereto or their respective Affiliates, directors,
officers or employees, except for the obligations of the parties hereto
contained in this Section 8.2 and in Sections 6.1(b), 10.2, 10.3 and 10.11
hereof, and except that nothing herein will relieve any party from liability for
any breach of this Agreement prior to such termination.
ARTICLE IX
SURVIVAL AND INDEMNIFICATION
Section 9.1. Limited Survival of Representations, Warranties,
Covenants and Agreements; Knowledge of Breach.
(a) Notwithstanding any otherwise applicable statute of
limitations, the representations and warranties included or provided for herein
shall survive the Closing until one year after the Closing Date; provided,
however, that (i) any representation or warranty contained in Sections 3.12,
3.18 and 4.2 shall survive the Closing until the expiration of the applicable
statute of limitations (including any waivers or extensions thereof) with
respect to such matters, (ii) the representations and warranties contained in
Section 3.16 shall survive the Closing until two (2) years after the Closing
Date and (iii) the representations and warranties contained in Sections 3.1(a),
3.2(a), 3.3 and 4.1(a) shall survive the Closing indefinitely. The covenants and
other agreements contained in this Agreement to be performed on or after Closing
shall survive the Closing until the date or dates specified therein or the
expiration of the applicable statute of limitations (including any waivers or
extensions thereof) with respect to such matters, whichever is later.
(b) No party hereto shall be deemed to have breached any
representation, warranty, covenant or agreement if (i) such party shall have
notified the other parties hereto in writing, on or prior to the Closing Date,
of the breach of, or inaccuracy in, or of any facts or circumstances
constituting or resulting in the breach of or inaccuracy in, such
representation, warranty, covenant or agreement, specifically referring to the
provisions of this Agreement so breached or rendered inaccurate, and (ii) such
other parties have permitted the Closing to occur and, for purposes of this
Agreement, are thereby deemed to have waived such breach or inaccuracy;
provided, however, that a disclosure pursuant to this Section 9.1(b) shall not
prejudice the rights of the parties pursuant to Article VII hereof not to
consummate the transactions contemplated by this Agreement or to recover damages
incurred as a result of such breach or inaccuracy.
(c) Notwithstanding the foregoing, no party hereto shall have
liability under Section 9.1(a), Section 9.2(a) or Section 9.3(a) hereof with
respect to any Loss unless such Loss exceeds the Threshold Amount; provided,
however, that Losses arising out of a single or related set of facts,
circumstances, or events shall be aggregated for purposes of determining whether
the Losses exceed the Threshold Amount and that in the event such Losses exceed
the Threshold Amount, the entire amount of the obligation shall be indemnifiable
to the extent and as provided in this Agreement.
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(d) No party hereto shall have liability under Section 9.1(a),
Section 9.2(a) or Section 9.3(a) hereof for Losses sustained or incurred arising
out of the breach of any representation or warranty or any inadvertent breach of
the covenants described in Section 6.3 hereof which arises or results from the
occurrence of any circumstance or event which is outside the control of the
Seller Parties, the Company Group or their respective Affiliates, officers,
directors, employees or representatives, unless and until all such Losses for
which damages are recoverable hereunder against such party shall exceed the
Deductible; provided, however, that Buyer or Seller Parties, as the case may be,
shall be liable only for the amount by which all such recoverable Losses exceed
the Deductible.
(e) No party hereto shall have liability under Section 9.1(a),
Section 9.2(a) or Section 9.3(a) hereof in any amount which, when aggregated
with all other recoverable Losses, would exceed $140,000,000.
(f) For purposes of this Section 9.1, any and all Losses
relating to, resulting from or arising out of the matters described in any
subparagraph of paragraph (a) of Section 9.1 which are suffered or incurred by
any member of the Company Group shall be deemed to have been suffered or
incurred by Buyer on a non-duplicative dollar for dollar basis.
(g) For purposes of this Section 9.1, if a representation or
warranty set for the herein has been breached, the amount of recoverable Losses
to which an Indemnified Party is entitled with respect to such breach of
representation or warranty shall be determined without regard to any
qualification as to materiality or the presence of a Material Adverse Effect
which is included in the applicable representation or warranty. Notwithstanding
any provision of this Agreement to the contrary, the limitations set forth in
this Section 9.1 (other than paragraph (i) thereof) shall not apply to the
indemnification provisions of Article V and Section 6.12 hereof, and no
recoverable Losses to which Buyer or Seller Parties, as the case may be, are
entitled by reason of the foregoing shall be applied against or reduce the
Deductible or the maximum amount of Losses recoverable under this Article IX.
Notwithstanding any provision of this Agreement to the contrary, the limitations
set forth in this Section 9.1 (other than paragraphs (a), (f) and (i) thereof)
shall not apply to any breach of the representations or warranties set forth in
Section 3.1(b)(ii) or Section 3.2(b)(ii) arising from the failure to obtain any
consent, waiver or approval which is required by the terms of any lease
agreement for Leased Real Property to be obtained in order to consummate the
transactions expressly contemplated hereby, and no recoverable Losses to which
Buyer or Seller Parties, as the case may be, are entitled by reason of the
foregoing shall be applied against or reduce the Deductible or the maximum
amount of Losses recoverable under this Article IX.
(h) For purposes of this Section 9.1 and Sections 9.2 and 9.3,
Losses shall include, and an Indemnified Party shall be entitled to recover
(subject to limitations set forth in Sections 9.1(c), 9.1(d) and 9.1(e)), all
losses, damages, liabilities, costs and expenses (including reasonable
attorneys' fees and reasonable expenses incurred in investigating, preparing or
defending any such claim) sustained or incurred by an Indemnified Party by
reason of its indemnification obligations to its Affiliates and their respective
directors, officers, employees, shareholders, attorneys, accountants and agents.
(i) With respect to each specific claim by an Indemnified
Party for indemnification from an Indemnifying Party hereunder, the
indemnification of the Indemnified Party
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by the Indemnifying Party shall be net of any recovery of the Indemnified Party
with respect to such specific claim under any third party insurance policy.
Section 9.2. Indemnification by Buyer.
(a) For the period commencing on the Closing Date and ending,
as the case may be, upon the expiration of the periods specified in Section
9.1(a) hereof Buyer shall, subject to the limitations set forth in Section 9.1
hereof, indemnify, defend and hold harmless Seller Parties against and in
respect of all losses, damages, liabilities, costs and expenses (including
reasonable attorneys' fees and reasonable expenses incurred in investigating,
preparing or defending any claims covered hereby) (collectively, "Losses")
sustained or incurred arising out of any breaches of Buyer's representations,
warranties, covenants and agreements set forth in this Agreement (other than
representations, warranties, covenants and agreements set forth in (A) Article
V, as to which the indemnification provisions set forth in Article V shall
govern, or (B) Section 6.12 hereof, as to which the indemnification provisions
set forth in Section 6.12 shall govern).
(b) Any payments pursuant to this Section 9.2 or Article V
shall be treated as an adjustment to the Purchase Price for all Tax purposes.
Section 9.3. Indemnification by Seller.
(a) For the period commencing on the Closing Date and ending,
as the case may be, upon the expiration of the periods specified in Section
9.1(a) hereof Seller Parties shall, subject to the limitations set forth in
Section 9.1 hereof, indemnify, defend and hold harmless Buyer and the Company
Group against and in respect of all Losses sustained or incurred arising out of
any breaches of the Seller Parties' representations, warranties, covenants and
agreements set forth in this Agreement (other than representations, warranties,
covenants and agreements set forth in (A) Article V, as to which the
indemnification provisions set forth in Article V shall govern, or (B) Section
6.12 hereof, as to which the indemnification provisions set forth in Section
6.12 shall govern).
(b) Any payments pursuant to this Section 9.3 or Article V
shall be treated as an adjustment to the Purchase Price for all Tax purposes.
Section 9.4. Indemnification as Sole Remedy. The indemnity provided
herein and in Section 6.12 and Article V hereof as it relates to this Agreement
and the transactions contemplated by this Agreement shall be the sole and
exclusive remedy of the parties hereto, their successors and assigns with
respect to any and all claims for losses, damages, liabilities, costs and
expenses sustained or incurred arising out of this Agreement and the
transactions contemplated by this Agreement, except for the right of the parties
hereto to seek specific performance of the obligations set forth in Article II
and Sections 6.2, 6.5 and 6.6 of this Agreement.
Section 9.5. Method of Asserting Claims, Etc. All claims for
indemnification by the Seller Parties, on the one hand, or the Buyer and the
Company Group, on the other hand (as the case may be, the "Indemnified
Parties"), hereunder shall be asserted and resolved as set forth in this Section
9.5, except for claims pursuant to Article V hereof (as to which the provisions
of Article V shall be applicable). In the event that any written claim or demand
for which Buyer or Seller Parties, as the case may be (the "Indemnifying Party")
would be liable to any Indemnified Party hereunder is
46
asserted against or sought to be collected from any Indemnified Party by a third
party, such Indemnified Party shall promptly, but in no event more than fifteen
(15) days following such Indemnified Party's receipt of such claim or demand,
notify the Indemnifying Party of such claim or demand and the amount or the
estimated amount thereof to the extent then feasible (which estimate shall not
in any manner prejudice the right of the Indemnified Party to indemnification to
the fullest extent provided hereunder) (the "Third Party Claim Notice") and in
the event that an Indemnified Party shall assert a claim for indemnity under
this Article IX, not including a third party claim, the Indemnified Party shall
notify the Indemnifying Party promptly following its discovery of the facts or
circumstances giving rise thereto (together, with a Third Party Claim Notice, a
"Claim Notice"); provided, that the failure to notify on the part of the
Indemnified Party in the manner set forth herein shall not foreclose any rights
otherwise available to such Indemnified Party hereunder, except to the extent
that the Indemnifying Party is prejudiced by such failure to notify. The
Indemnifying Party shall have thirty (30) days from the personal delivery or
mailing of the Third Party Claim Notice (except that such a period shall be
decreased to a time ten (10) days before a scheduled appearance date in a
litigated matter) (the "Notice Period") to notify the Indemnified Party (i)
whether or not the Indemnifying Party disputes the liability of the Indemnifying
Party to the Indemnified Party hereunder with respect to such claim or demand
and (ii) whether or not it desires to defend the Indemnified Party against such
claim or demand, which it shall not be entitled to do until the Deductible is
exceeded. All costs and expenses incurred by the Indemnifying Party in defending
such claim or demand shall be a liability of, and shall be paid by, the
Indemnifying Party; provided, however, that the amount of such expenses shall be
a liability of the Indemnifying Party hereunder, subject to the limitations set
forth in Section 9.1 hereof. In the event that the Indemnifying Party notifies
the Indemnified Party within the Notice Period that it desires to defend the
Indemnified Party against such claim or demand, which it shall not be entitled
to do until the Deductible is exceeded and except as hereinafter provided, the
Indemnifying Party shall have the right to defend the Indemnified Party by
appropriate proceedings and by counsel reasonably acceptable to the Indemnified
Party. If any Indemnified Party desires to participate in, but not control, any
such defense or settlement it may do so at its sole cost and expense. The
Indemnified Party shall not settle a claim or demand without the consent of the
Indemnifying Party, which shall not be withheld unreasonably. The Indemnifying
Party shall not, without the prior written consent of the Indemnified Party,
settle, compromise or offer to settle or compromise any such claim or demand on
a basis which would result in the imposition of a consent order, injunction or
decree which would restrict the future activity or conduct of, or which would
otherwise have a material adverse effect on, the Indemnified Party or any
Subsidiary or Affiliate thereof. If the Indemnifying Party elects not to defend
the Indemnified Party against such claim or demand, whether by not giving the
Indemnified Party timely notice as provided above or otherwise, then the amount
of any such claim or demand, or, if the same be contested by the Indemnified
Party, then that portion of any such claim or demand as to which such defense is
unsuccessful (and all reasonable costs and expenses pertaining to such defense)
shall be the liability of the Indemnifying Party hereunder, subject to the
limitations set forth in Section 9.1 hereof. To the extent the Indemnifying
Party shall control or participate in the defense or settlement of any third
party claim or demand, the Indemnified Party will give to the Indemnifying Party
and its counsel reasonable access to all business records and other documents
relevant to such defense or settlement, and shall permit them to consult with
the employees and counsel of the Indemnified Party. The Indemnified Party shall
use its reasonable efforts in the defense of all such claims, and in connection
therewith shall be entitled to reimbursement by the
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Indemnifying Party of out-of-pocket expenses directly related to efforts
undertaken at the specific request of the Indemnifying Party.
ARTICLE X
MISCELLANEOUS
Section 10.1. Amendment and Waiver. Any provision of this Agreement may
be amended or waived if, and only if, such amendment or waiver is in writing and
signed, in the case of an amendment, by the Seller Parties and Buyer, or in the
case of a waiver, by the party against whom the waiver is to be effective. No
failure or delay by any party in exercising any right, power or privilege
hereunder shall operate as a waiver thereof nor shall any single or partial
exercise thereof preclude any other or further exercise thereof or the exercise
of any other right, power or privilege.
Section 10.2. Expenses. Except as otherwise expressly provided in this
Agreement, whether or not the transactions contemplated by this Agreement are
consummated, the parties shall bear their own respective expenses (including,
but not limited to, all compensation and expenses of counsel, financial
advisors, consultants, actuaries and independent accountants) incurred in
connection with this Agreement and the transactions contemplated hereby.
Section 10.3. Public Disclosure. Each of the parties to this Agreement
hereby agrees with the other parties hereto that, except as may be required to
comply with the requirements of applicable law or the rules and regulations of
each stock exchange upon which the securities of one of the parties or its
Affiliates is listed, no press release or similar public announcement or
communication will be made or caused to be made concerning the execution or
performance of this Agreement unless specifically approved in advance by all
parties hereto; provided, however, that to the extent that either party to this
Agreement is required by law or the rules and regulations of any stock exchange
upon which the securities of one of the parties or its Affiliates is listed to
make such a public disclosure, such public disclosure shall only be made after
prior consultation with the other party to this Agreement.
Section 10.4. Assignment. No party to this Agreement may assign any of
its rights or obligations under this Agreement without the prior written consent
of the other party hereto; provided, however, that Buyer shall have the right to
assign any of its rights under this Agreement to any of its Affiliates, so long
as Buyer remains liable for such Affiliate's obligations hereunder.
Section 10.5. Entire Agreement. This Agreement (including all Exhibits
and Schedules hereto) contains the entire agreement between the parties hereto
with respect to the subject matter hereof and supersedes all prior agreements
and understandings, oral or written, with respect to such matters, except for
the Confidentiality Agreement which will remain in full force and effect for the
term provided for therein.
Section 10.6. Fulfillment of Obligations. Any obligation of any party
to any other party under this Agreement, which obligation is performed,
satisfied or fulfilled by an Affiliate of such party, shall be deemed to have
been performed, satisfied or fulfilled by such party.
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Section 10.7. Parties in Interest; No Third Party Beneficiaries. This
Agreement shall inure to the benefit of and be binding upon the parties hereto
and their respective successors and permitted assigns. Nothing in this
Agreement, express or implied, is intended to confer upon any Person other than
Buyer, the Seller Parties, or their successors or permitted assigns, any rights
or remedies under or by reason of this Agreement.
Section 10.8. Schedules. The inclusion of any matter in any schedule to
this Agreement shall be deemed to be an inclusion for all purposes of this
Agreement, including each representation and warranty to which it may relate,
but inclusion therein shall expressly not be deemed to constitute an admission
by Seller, or otherwise imply, that any such matter is material or creates a
measure for materiality for the purposes of this Agreement.
Section 10.9. Counterparts. This Agreement and any amendments
hereto may be executed in one or more counterparts, each of which shall be
deemed to be an original by the parties executing such counterpart, but all of
which shall be considered one and the same instrument.
Section 10.10. Section Headings. The section and paragraph headings and
table of contents contained in this Agreement are for reference purposes only
and shall not in any way affect the meaning or interpretation of this Agreement.
Section 10.11. Notices. All notices hereunder shall be deemed given if
in writing and delivered personally or sent by facsimile or by registered or
certified mail (return receipt requested) to the parties at the following
addresses (or at such other addresses as shall be specified by like notice):
(a) if to a Seller Party or, prior to Closing, the Company,
to:
Advantica Restaurant Group, Inc.
203 East Main Street
Spartanburg, South Carolina 29319-9966
Fax (864) 597-8216
Attention: Rhonda J. Parish
Senior Vice President, General Counsel
and Secretary
With a copy to:
Parker, Poe, Adams & Bernstein L.L.P.
2500 Charlotte Plaza
Charlotte, North Carolina 28244
Fax (704) 334-4706
Attention: Gary C. Ivey, Esq.
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(b) if to Buyer or, after the Closing, the Company, to:
CKE Restaurants, Inc.
3916 State Street, Suite 300
Santa Barbara, California 92803
Fax (805) 898-7149
Attention: Andrew F. Puzder
Executive Vice President and General
Counsel
With a copy to:
Stradling Yocca Carlson & Rauth
660 Newport Center Drive, Suite 1600
Newport Beach, California 92660
Fax (714) 725-4100
Attention: C. Craig Carlson, Esq.
Any notice given by mail shall be effective when received.
Section 10.12. GOVERNING LAW; SUBMISSION TO JURISDICTION; SELECTION OF
FORUM. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH,
THE LAWS OF THE STATE OF NORTH CAROLINA, WITHOUT REFERENCE TO THE CHOICE OF LAW
PRINCIPLES THEREOF. EACH PARTY HERETO AGREES THAT IT SHALL BRING ANY ACTION OR
PROCEEDING IN RESPECT OF ANY CLAIM ARISING OUT OF OR RELATED TO THIS AGREEMENT
OR THE TRANSACTIONS CONTAINED IN OR CONTEMPLATED BY THIS AGREEMENT, WHETHER IN
TORT OR CONTRACT OR AT LAW OR IN EQUITY, EXCLUSIVELY IN THE UNITED STATES
DISTRICT COURT FOR THE WESTERN DISTRICT OF NORTH CAROLINA OR THE SUPERIOR COURT
OF THE STATE OF NORTH CAROLINA LOCATED IN CHARLOTTE, NORTH CAROLINA (THE "CHOSEN
COURTS") AND (I) IRREVOCABLY SUBMITS TO THE EXCLUSIVE JURISDICTION OF THE CHOSEN
COURTS, (II) AGREES THAT VENUE IS PROPER IN THE CHOSEN COURTS, (III) WAIVES ANY
OBJECTION THAT THE CHOSEN COURTS ARE AN INCONVENIENT FORUM OR DO NOT HAVE
JURISDICTION OVER ANY PARTY HERETO AND (IV) AGREES THAT SERVICE OF PROCESS UPON
SUCH PARTY IN ANY SUCH ACTION OR PROCEEDING SHALL BE EFFECTIVE IF NOTICE IS
GIVEN IN ACCORDANCE WITH SECTION 10.11 OF THIS AGREEMENT.
Section 10.13. Severability. The provisions of this Agreement shall be
deemed severable and the invalidity or unenforceability of any provision shall
not affect the validity or enforceability of the other provisions hereof. If any
provision of this Agreement, or the application thereof to any person or entity
or any circumstance, is invalid or unenforceable, (i) a suitable and equitable
provision shall be substituted therefor in order to carry out, so far as may be
valid and enforceable, the intent and purpose of such invalid or unenforceable
provision and (ii) the remainder of this Agreement and the application of such
provision to other persons, entities or circumstances shall not be affected by
such invalidity or unenforceability.
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Section 10.14. Attorneys' Fees. In the event that any party to this
Agreement institutes any legal proceeding to enforce any of the provisions of
this Agreement, then the prevailing party in such proceeding shall be entitled
to collect and receive its reasonable attorneys' fees and costs, through and
including all appeals, and the other party shall pay for same.
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IN WITNESS WHEREOF, this Agreement has been signed on behalf of each of
the parties hereto as of the date first written above.
ADVANTICA RESTAURANT GROUP, INC.
By: __________________________________
Name:
Title:
SPARTAN HOLDINGS, INC.
By: __________________________________
Name:
Title:
FLAGSTAR ENTERPRISES, INC.
By: __________________________________
Name:
Title:
CKE RESTAURANTS, INC.
By: __________________________________
Name:
Title:
