UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) December 23, 1997
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Commission File Number: 000-17962
Applebee's International, Inc.
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(Exact name of registrant as specified in its charter)
Delaware 43-1461763
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
4551 W. 107th Street, Suite 100, Overland Park, Kansas 66207
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(Address of principal executive offices and zip code)
(913) 967-4000
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(Registrant's telephone number, including area code)
None
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(Former name or former address, if changed since last report)
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Item 5. Other Events
On December 23, 1997, Applebee's International, Inc. (the "Company")
entered into a definitive agreement (the "Agreement") with Apple South, Inc.
("Apple South"), the Company's largest franchisee, to acquire 31 Applebee's
restaurants plus one restaurant under construction. The restaurants are located
in the Virginia markets of Norfolk, Richmond, Roanoke and Charlottesville. The
Agreement also provides for Apple South's divestment of its other Applebee's
restaurants over time, resulting in its exit as an Applebee's franchisee.
The acquisition of the Virginia restaurants is anticipated to close in
the first quarter of 1998, subject to obtaining financing, operating licenses
and third-party consents. After closing, the Company will continue the
development of the Virginia market, and believes the territory will support up
to a total of 45 Applebee's restaurants.
Under the terms of the Agreement, the Company will purchase the assets
of the 31 operating restaurants and the one restaurant under construction for
approximately $93.4 million, subject to certain closing adjustments. The
acquisition will be accounted for as a purchase, and the purchase price will be
allocated based on an independent appraisal. The Company preliminarily expects
goodwill to be in the range of $55 to $65 million (which will be amortized over
20 years). The Company anticipates the addition of these restaurants to be
accretive to 1998 earnings.
The Company expects to obtain financing to fund the purchase price,
refinance certain existing debt, pay related fees and expenses and provide
working capital to be used for general corporate purposes. In addition, the
Company's board of directors has authorized an open market share repurchase
program of up to an aggregate of $15 million. Under the program, the Company
may, from time to time purchase shares of its common stock, subject to market
conditions. In conjunction with the financing of the acquisition of the Virginia
restaurants, the Company plans to borrow an additional $35 million to be
available for further share repurchases in the future.
Of the 32 restaurants, 25 are owned and seven are leased properties.
Total sales for the 31 restaurants currently open (including three restaurants
which opened during 1997) were $61.3 million for the fiscal year ended December
28, 1997, and average annualized restaurant sales were $2,095,000 in 1997.
Comparable restaurant sales increased 5.7% in 1997 in comparison to 1996.
Restaurant operating margins have historically been in excess of 20.0% after a
4% royalty payable to the Company.
John G. Kretsinger, currently a Vice President of Operations for the
Applebee's Division of Apple South, will join the Company upon closing, and
restaurant and multi-unit management of the Virginia market are also anticipated
to join the Company upon the closing of the transaction.
The divestment plan also stipulates that Apple South will use its best
efforts to sell the remaining restaurants as soon as practical. To the extent
any restaurants are not divested by Apple South by December 31, 1999, the
Company has an option to purchase the remaining restaurants at a pre-determined
formula. The Agreement commits Apple South to operate its remaining restaurants
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in accordance with historical operating standards until they are sold. The
Company and Apple South have committed to work together to identify and approve
qualified franchise groups to acquire the remaining Apple South restaurants and
to effect an efficient transition of ownership.
As a part of the divestment plan, Apple South will be released from any
noncompetition obligations imposed by the franchise agreements with the Company,
but will be restricted from negotiating with or acquiring certain restaurant
concepts for up to one year.
The statements contained in this filing regarding financial results for
the 1998 fiscal year are forward looking and based on current expectations.
There are several risks and uncertainties that could cause actual results to
differ materially from those described. For a discussion of the principal
factors that could cause actual results to be materially different, the reader
is referred to the Company's current report on Form 8-K filed with the
Securities and Exchange Commission on October 7, 1997.
Item 7. Financial Statements and Exhibits
(c) Exhibits
Exhibit Description
1 Asset Purchase Agreement dated December 23, 1997 by and
among Applebee's International, Inc. and Apple South, Inc.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
APPLEBEE'S INTERNATIONAL, INC.
(Registrant)
Date: January 12, 1998 By: /s/ George D. Shadid
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George D. Shadid
Executive Vice President and
Chief Financial Officer
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APPLEBEE'S INTERNATIONAL, INC.
AND
APPLE SOUTH, INC.
ASSET PURCHASE AGREEMENT
DECEMBER 23, 1997
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TABLE OF CONTENTS
ARTICLE I......................................................................1
PURCHASE AND SALE OF ASSETS..................................................1
Section 1.1 Assets...................................................1
ARTICLE II.....................................................................3
PURCHASE PRICE OF ASSETS.....................................................3
Section 2.1 Purchase Price...........................................3
Section 2.2 Adjustment of Purchase Price. ..........................3
Section 2.3 Obligations Satisfied by Seller..........................3
Section 2.4 Certain Liabilities and Obligations......................3
Section 2.5 Taxes....................................................3
Section 2.6 Allocation of Purchase Price.............................4
ARTICLE III....................................................................4
CLOSING ....................................................................4
Section 3.1 Date, Time and Place of Closing..........................4
Section 3.2 Deliveries by Seller at Closing..........................4
Section 3.3 Deliveries by Buyer at Closing...........................6
Section 3.4 Transfer of Operations...................................7
ARTICLE IV....................................................................7
REPRESENTATIONS AND WARRANTIES OF SELLER.....................................7
Section 4.1 Existence................................................7
Section 4.2 Power and Authority......................................7
Section 4.3 Execution and Delivery Permitted; Consents...............7
Section 4.4 The Assets...............................................8
Section 4.5 Binding Effect...........................................9
Section 4.6 Condition of Assets......................................9
Section 4.7 Absence of Other Assets.................................10
Section 4.8 Ownership of Assets.....................................10
Section 4.9 Real Property...........................................10
Section 4.10 Multi-Unit Contracts....................................11
Section 4.11 Documents Sufficient....................................11
Section 4.12 Litigation or Condemnation..............................11
Section 4.13 Taxes...................................................11
Section 4.14 Contracts...............................................12
Section 4.15 Accuracy of Information and Representations and
Warranties............................................12
Section 4.16 Employment Matters......................................12
Section 4.17 Employee Benefit Plans..................................13
(i)
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Section 4.18 Licensure...............................................14
Section 4.19 Insurance Coverage......................................15
Section 4.20 Environmental Matters...................................15
Section 4.21 Restaurant..............................................16
Section 4.22 Development Efforts.....................................17
Section 4.23 Affiliated Transactions.................................17
Section 4.24 Subsidiaries............................................17
Section 4.25 Seller Appraisals.......................................17
Section 4.26 Employee Transfers......................................17
Section 4.27 ADI Financial Statements................................17
ARTICLE V.....................................................................18
COVENANTS OF SELLER.........................................................18
Section 5.1 Employee Benefit Plans..................................18
Section 5.2 Performance of Real Property Leases and Assumed
Contracts.............................................18
Section 5.3 Transfer of Licenses and Permits........................18
Section 5.4 Liabilities of Seller...................................18
Section 5.5 Agreements Respecting Employees of Seller...............19
Section 5.6 Conduct of Business.....................................19
Section 5.7 Broker's Fees...........................................21
Section 5.8 Access to Information...................................21
Section 5.9 DR Holdings Properties..................................21
Section 5.10 No Sale Negotiations....................................21
Section 5.11 RESERVED................................................21
Section 5.12 Financial Statements....................................22
Section 5.13 Change of Name..........................................22
Section 5.14 Insurance...............................................22
Section 5.15 Renegotiation of Assumed Leases.........................22
Section 5.16 Confidentiality.........................................22
Section 5.17 Management of Development Efforts.......................22
Section 5.18 RESERVED................................................23
Section 5.19 Survey and Title Report.................................23
Section 5.20 RESERVED................................................24
Section 5.21 Reporting Requirements..................................24
Section 5.22 Cooperation.............................................24
Section 5.23 Subsequent Contracts....................................24
Section 5.24 Proration and Purchase Price Adjustment Data............25
Section 5.25 Seller Franchising......................................25
Section 5.26 RESERVED................................................25
Section 5.27 Transition Services.....................................25
(ii)
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ARTICLE VI....................................................................26
REPRESENTATIONS AND WARRANTIES OF BUYER.....................................26
Section 6.1 Corporate Existence.....................................26
Section 6.2 Corporate Power and Authority...........................26
Section 6.3 Execution and Delivery Permitted........................26
Section 6.4 Binding Effect..........................................26
ARTICLE VII...................................................................27
COVENANTS OF BUYER..........................................................27
Section 7.1 Buyer Performance.......................................27
Section 7.2 Confidentiality.........................................27
Section 7.3 Seller Employees........................................27
Section 7.4 Development Efforts.....................................28
Section 7.5 Remediation List........................................28
Section 7.6 Cooperation.............................................28
Section 7.7 Broker's Fees...........................................28
ARTICLE VIII..................................................................28
PRORATIONS AND PURCHASE PRICE ADJUSTMENT CONDITIONS TO CLOSING..............28
Section 8.1 Prorations and Purchase Price Adjustments...............28
Section 8.2 Post-Closing Adjustments................................29
Section 8.3 Buyer's Conditions to Closing...........................30
Section 8.4 Seller's Conditions to Closing..........................31
ARTICLE IX....................................................................32
INDEMNIFICATION AGAINST LOSS................................................32
Section 9.1 Indemnification by Seller...............................32
Section 9.2 Indemnification by Buyer................................33
Section 9.3 Limitation on Indemnification...........................33
Section 9.4 Time to Assert Claims...................................33
Section 9.5 Resolution of Claims....................................34
Section 9.6 Third Party Claim Indemnification Procedure.............34
Section 9.7 Exclusive Remedies......................................34
ARTICLE X.....................................................................34
MISCELLANEOUS...............................................................34
Section 10.1 Notices.................................................34
Section 10.2 Applicable Law..........................................35
Section 10.3 Binding on Successors; Assignment.......................35
Section 10.4 Payment of Costs; Post-Closing Payments.................35
(iii)
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Section 10.5 Closing Not to Prejudice Claim for Damages..................37
Section 10.6 Survival of Representations, Warranties, Covenants and
Undertakings..........................................37
Section 10.7 Additional Documents....................................37
Section 10.8 Time is of the Essence..................................37
Section 10.9 Interpretation..........................................37
Section 10.10 Entire Agreement........................................37
Section 10.11 Counterparts............................................38
Section 10.12 Termination.............................................38
Section 10.13 Public Announcements....................................38
ARTICLE XI
DIVESTITURE OF REMAINDER RESTAURANTS........................................39
Section 11.1 Seller Exit from Applebee's System......................39
Section 11.2 Seller Financing Guarantee..............................39
Section 11.3 Continued Operation of Remaining Restaurants............39
Section 11.4 Employee Solicitation by Seller.........................40
Section 11.5 Continued Restaurant Development........................40
Section 11.6 Buyer Financing Guarantee...............................41
Section 11.7 Approval of Qualified Buyers............................41
Section 11.8 Seller De-identification of Remaining Restaurants.......42
Section 11.9 Employee Solicitation by Buyer..........................43
Section 11.10 Covenant Not to Compete.................................43
Section 11.11 Seller Put Rights.......................................43
Section 11.12 Buyer Call Rights.......................................44
LIST OF EXHIBITS AND SCHEDULES................................................48
(iv)
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ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (the "Agreement") is made and entered
into this 23rd day of December, 1997, by and among APPLE SOUTH, INC., a Georgia
corporation (the "Seller"), and APPLEBEE'S INTERNATIONAL, INC., a Delaware
corporation ("Buyer").
WHEREAS, Seller owns various items of personal property and interests
in real property (the "Assets" as more fully defined below) used in the
operation or development of the Applebee's Neighborhood Grill & Bar restaurants
listed on Exhibit 1.1 ("Restaurants") pursuant to the Development Agreements and
Franchise Agreements (together the "Franchise Agreements") listed on Exhibit
1.1(a) to this Agreement;
WHEREAS, Seller operates the Restaurants in four Arbitron Ratings Areas
of Dominant Influence (the "ADIs"), consisting of Charlottesville, Norfolk,
Richmond and Roanoke, Virginia;
WHEREAS, Seller desires to sell the Assets to Buyer and Buyer desires
to purchase the Assets from Seller; and
WHEREAS, Seller desires to dispose of all of its Applebee's
Neighborhood Grill & Bar restaurants through the sale to Buyer of the
Restaurants and the sale of the remainder of Seller's Applebee's Neighborhood
Grill & Bar restaurants (the "Remaining Restaurants") to various third parties.
NOW, THEREFORE, in consideration of the foregoing and the mutual
agreements, covenants, representations, warranties and promises set forth
herein, and in order to prescribe the terms and conditions of such purchase and
sale, the parties hereto agree as follows:
ARTICLE I
PURCHASE AND SALE OF ASSETS
Section 1.1 Assets. Subject to the terms and conditions set forth in
this Agreement, Seller hereby agrees that at the Closing (as defined in Section
3.1, below) it shall sell, transfer, convey, and assign to Buyer free and clear
of all mortgages, liens, security interests, pledges and encumbrances, except
for Permitted Encumbrances, as defined in Section 3.2(a), and Buyer hereby
agrees at the Closing to purchase and accept from Seller all of Seller's right,
title and interest in and to the following items of personal property, whether
tangible or intangible, and interests in real estate, whether owned in fee or
held under lease or license (the "Assets"):
(a) The Franchise Agreements as listed on Exhibit 1.1(a) and
the items described in Section 3.2(i), below;
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(b) Seller's interest as lessee in and to the Real Property
Leases (as defined in Section 4.4(c), below), including all of Seller's
interest under the Real Property Leases in the buildings, fixtures,
signs, parking facilities, trash facilities, fences, other leasehold
improvements, appurtenances and hereditaments subject to such Real
Property Leases;
(c) All Owned Real Property (as defined in Section 4.4(a),
below), including all of Seller's interest in the buildings, fixtures,
signs, parking facilities, trash facilities, fences, other
improvements, appurtenances and hereditaments related to the Owned Real
Property;
(d) All Minor Contracts and Material Contracts;
(e) All equipment and leasehold improvements installed or
normally installed in the Restaurants, including but not limited to the
furniture, machinery, equipment, tables, chairs, cash registers,
computer equipment and licenses of related software (subject to
Seller's ability to assign or transfer such licenses), ovens,
refrigerators, display cases, shelves, utensils, tools, pans, lights,
uniforms, signs, menus, glasses, plates, dishes, silverware, pitchers,
books, cabinets, racks, towels, ornaments, bars, and bar equipment (the
"Equipment");
(f) All inventories of foodstuffs, beverages, paper products,
cleaning supplies and other supplies (the "Inventories") which are in
the Restaurants on the Closing Date (as defined in Section 3.1, below);
(g) All of Seller's other rights and property interests of any
nature which are customarily and exclusively used in the operation of
the Restaurants, including, but not limited to rights to use existing
Restaurant telephone numbers and rights arising under equipment
warranties;
(h) All data transmission equipment and related software and
software licenses ("Transferred Licenses"), computer software (subject
to Seller's ability to assign or transfer such software) and related
manuals and portable computers used by field personnel and used only in
connection with the operation of the Restaurants, including those items
set forth on Schedule 1.1(h) hereto;
(i) All records and files related to the Real Property (as
defined in Section 4.4(b), below) such as rent calculations, landlord
correspondence, purchase agreements, deeds, construction documents,
title reports, environmental and engineering reports, appraisals,
surveys, etc., and all personnel records and files related to Seller
employees in or assigned to the ADIs who accept employment with Buyer
as of the Effective Time (as defined below in Section 3.4 below); and
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(j) All rights under all warranties, express or implied, or
other claims for damages or loss related to any of the Assets; and
(k) All cash in amounts normally used to open the Restaurants
(not including prior day's receipts held for deposit).
ARTICLE II
PURCHASE PRICE OF ASSETS
Section 2.1 Purchase Price. The purchase price paid for the Assets
shall be Ninety-Three Million Four Hundred Thousand Dollars ($93,400,000),
adjusted as set forth in Section 2.2, below (the "Purchase Price"). The Purchase
Price shall be paid at Closing by wire transfer of federal funds.
Section 2.2 Adjustment of Purchase Price. At the Closing, Buyer and
Seller shall prepare and sign an itemized statement of purchase price
adjustments and prorations as set forth in Section 8.1 of this Agreement. A
statement with respect to the items in Section 8.2 shall be prepared and signed
within 60 days of the Closing.
Section 2.3 Obligations Satisfied by Seller. With respect to the Assets
or the ADIs, Seller shall pay all trade payables, accounts payable, utility
payments, tax withholding, payroll taxes, wages and similar operating expenses
and all accrued liabilities which, in each such case, are incurred or related to
a time on or before the Effective Time.
Section 2.4 Certain Liabilities and Obligations.
(a) Liabilities Not Assumed. Except for the liabilities and
obligations specifically assumed pursuant to and referred to in Section
2.4(b), Buyer shall not take subject to and shall not be liable for,
any liabilities or obligations of any kind or nature, whether absolute,
contingent, accrued, known or unknown, of Seller.
(b) Assumed Liabilities. On the Closing Date, Buyer shall
assume all of the Seller's obligations with respect to the Real
Property Leases, Transferred Licenses and the Minor Contracts and
Material Contracts (the "Assumed Liabilities"); however, Buyer shall
not be responsible for any obligation, whether under the Real Property
Leases, Equipment Leases, Transferred Licenses, the Minor Contracts,
the Material Contracts, or otherwise, relating to events or operation
of the Restaurants occurring on or prior to the Closing Date.
Section 2.5 Taxes. Seller and Buyer equally shall be liable for and
shall pay all transfer or sales taxes and all filing fee and documentary fees or
taxes related to the recording of all deeds and lease assignments payable in
connection with the purchase, sale or transfer of the Assets to, and the
assumption of the Assumed Liabilities by, Buyer pursuant to this Agreement.
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Section 2.6 Allocation of Purchase Price. Buyer and Seller agree that
the Purchase Price shall be allocated to the Assets pursuant to an appraisal to
be performed after the Closing by a reputable third-party appraiser or
appraisers selected by Buyer (the "Buyer Appraisals"); provided, however, if
Seller has had any appraisals performed by reputable appraisers acceptable to
Buyer on any of the Assets and the valuations set forth in such appraisals were
completed within twenty-four (24) months of the Closing Date ("Seller
Appraisals"), Buyer may, in its sole discretion, use such appraisals for the
purpose of the post-Closing appraisal. The post-Closing appraisal is anticipated
to be Asset by Asset. Buyer will pay the cost of the Buyer Appraisals. Buyer
will have completed its valuation of the Assets based on such appraisal no later
than December 31, 1998. The amount of the Purchase Price that is in excess of
the value of the tangible assets as determined by the appraisal will be
allocated to goodwill. Such allocation shall be binding on Buyer and Seller for
all purposes including the reporting of gain or loss and determination of basis
for income tax purposes, and each of the parties hereto agrees that it or they
will file a statement setting forth such allocation with its or their federal
income tax returns and will also file such further information or take such
further actions as may be necessary to comply with the Treasury Regulations that
have been promulgated pursuant to Section 1060 of the Internal Revenue Code of
1986, as amended (the "Code").
ARTICLE III
CLOSING
Section 3.1 Date, Time and Place of Closing. The consummation of the
transactions contemplated hereby (the "Closing") shall be held on the Monday
first following the fifth business day following the day on which all conditions
to closing described in Sections 8.3 and 8.4 have been satisfied or waived (the
"Closing Date"), beginning at 9:00 a.m. eastern time in the offices of [Seller's
counsel] or at such other place, time or date as the parties hereto shall
mutually agree.
Section 3.2 Deliveries by Seller at Closing. At the Closing, and
thereafter as may be reasonably requested by Buyer, Seller shall convey,
transfer, assign, and deliver all of its right, title and interest in and
possession of the Assets to Buyer, and shall also deliver to Buyer the
following:
(a) Such bills of sale, assignments, lease assignments and
acceptances, estoppel certificates, consents to assignments (if consent
to assignment is required under the terms of any Material Contract or
Real Property Lease), special warranty deeds regarding the real
property and improvements to be conveyed in fee simple, and other
appropriate instruments of transfer as Buyer has reasonably requested,
all in recordable form, of content reasonably acceptable to Buyer and
Seller and their respective counsel and sufficient to vest in Buyer
good and marketable title to all of the Assets which, with regard to
interests in Real Property, is subject to no exception to title
insurance coverage, other than Permitted Encumbrances, which could
substantially affect the operation of the subject Restaurant, and, with
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regard to both real and personal property, is free and clear of all
mortgages, deeds of trust, liens, security agreements, charges, or
other encumbrances, except for Permitted Encumbrances. For the purposes
of this Agreement, "Permitted Encumbrances" shall mean: (i) the
standard or printed exclusions and standard or printed exceptions in
the form of owner's policy of title insurance generally in use in the
jurisdiction in which the subject Owned Real Property is located; (ii)
such matters as disclosed by a survey of the subject Owned Real
Property as reviewed and accepted by Buyer in accordance with Section
5.19; (iii) the lien for real property ad valorem taxes and other taxes
and assessments, and for private assessments, not due and payable on or
before the Closing Date; (iv) zoning ordinances affecting the subject
Owned Real Property; (v) all easements, covenants, restrictions,
reservations, rights-of-way and other similar matters of record as
shown on the title policy for each parcel of Owned Real Property [as
reviewed and accepted by Buyer in accordance with Section 5.19;
(b) Certified copies of duly adopted resolutions of the
Seller's Board of Directors authorizing, approving, and consenting to
the execution and delivery of this Agreement, to the consummation of
the transactions contemplated herein, and to performance of the
agreements set forth herein;
(c) The waiver, release, consent, estoppel certificate or
other document of any person, corporation, association, or other entity
of any nature whatsoever which is necessary to consummate the
transactions contemplated hereby, and to make the warranties and
representations made in this Agreement true;
(d) Proof that all real and personal property taxes upon the
Assets which are due and payable as of the Closing Date have been paid;
(e) Certificates of good standing dated within thirty (30)
days of the Closing Date for Seller from the states listed on Schedule
4.1;
(f) An opinion of Seller's counsel dated as of the Closing
Date in substantially the form set forth on Exhibit 3.2(f) to this
Agreement;
(g) An ALTA policy of title insurance regarding each
Restaurant, insuring fee or leasehold title, as applicable, to each
such property and containing only such exceptions and exclusions as
could not, in Buyer's reasonable judgment, substantially adversely
affect the operation of the Restaurant or the transfer of title to
Buyer;
(h) A duly executed Cross-Receipt;
(i) As related to the Restaurants, all operating manuals,
recipes, proprietary information (excluding Seller's corporate crisis
procedures and corporate operations manual) and similar documents and
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information held by Seller in connection with Seller's status as a
franchisee of Buyer and all copies and extracts therefrom;
(j) To the extent necessary pursuant to Section 8.3(h) below,
a mutually acceptable liquor license management agreement or
agreements;
(k) Wire transfer instructions regarding delivery of the
Purchase Price;
(l) A copy on computer disk, or other electronic medium
acceptable to Buyer, of (1) Seller's detailed fixed asset records
related to the Assets updated through the Closing Date and (2) the
payroll records of the ADI Personnel, as defined in Section 5.5, below;
(m) A duly executed Mutual Release in the form attached as
Exhibit 3.2(m) hereto; and
(n) Any waiver or modification requested by Buyer pursuant to
Section 5.9 hereof.
Section 3.3 Deliveries by Buyer at Closing. Buyer shall deliver to
Seller at Closing:
(a) The Purchase Price;
(b) Assignments and Acceptances of the Real Property Leases,
Minor Contracts and Material Contracts in form reasonably satisfactory
to Seller;
(c) A duly executed Cross-Receipt;
(d) An opinion of Buyer's counsel dated as of the Closing Date
in substantially the form set forth on Exhibit 3.3(d) to this
Agreement;
(e) Certified copies of duly adopted resolutions of Buyer's
Board of Directors authorizing, approving, and consenting to the
execution and delivery of this Agreement, to the consummation of the
transactions contemplated herein, and to performance of the agreements
set forth herein;
(f) To the extent necessary pursuant to Section 8.3(h) below,
a mutually acceptable liquor license management agreement or
agreements; and
(g) A duly executed Mutual Release in the form attached as
Exhibit 3.2(m) hereto.
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Section 3.4 Transfer of Operations. Buyer shall be entitled to
immediate possession of, and to exercise all rights arising under, the Assets
from and after the time that the Restaurants open for business on the Closing
Date, and operation of the Restaurants shall transfer at such time (the
"Effective Time"). Except as provided hereby, all profits, losses, liabilities,
claims, or injuries arising before the Effective Time shall be solely to the
benefit or the risk of Seller. All such occurrences after the Effective Time
shall be solely to the benefit or the risk of Buyer. The risk of loss or damage
by fire, storm, flood, theft, or other casualty or cause shall be in all
respects upon Seller prior to the Effective Time and upon the Buyer thereafter.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF SELLER
As an inducement to Buyer to enter this Agreement and to consummate the
transactions contemplated hereby, Seller represents and warrants to Buyer as
follows:
Section 4.1 Existence. Seller is duly organized, validly existing, and
in good standing under the laws of the State of Georgia and is qualified to do
business and is in good standing in the states listed in Schedule 4.1, which
Schedule includes all jurisdictions within the ADIs.
Section 4.2 Power and Authority. Seller has the corporate power and
authority to own its properties and assets, specifically including but not
limited to the Assets, and to carry on its business as now conducted. Seller has
the requisite corporate power and authority to convey, assign, and transfer the
Assets as set forth in this Agreement.
Section 4.3 Execution and Delivery Permitted; Consents. The execution,
delivery and performance of this Agreement will not violate or result in a
breach of any term of Seller's Articles of Incorporation or Bylaws, result in a
breach of or constitute a default under any term in any agreement or other
instrument to which Seller is a party (except for defaults under Minor Contracts
where the consent to assignment thereof of the other party or parties to such
contract is not obtained), such default having not been previously waived by the
other party to any such agreement, or violate any law or any order, rule or
regulation applicable to Seller, of any court or of any regulatory body,
administrative agency or other governmental instrumentality having jurisdiction
over Seller or its properties; and will not result in the creation or imposition
of any lien, charge, or encumbrance of any nature whatsoever upon any of the
Assets. The Board of Directors has taken all action required by law and by
Seller's Articles of Incorporation and Bylaws to authorize the execution and
delivery of this Agreement, and the transfer of the Assets to Buyer in
accordance with this Agreement. Except as set forth on Schedule 4.3, and except
for consents required under Minor Contracts, the execution, delivery and
performance of this Agreement and the other agreements executed in connection
herewith, and the consummation of the transactions contemplated hereby and
thereby do not require any filing with, notice to or consent, waiver or approval
of any third party, including but not limited to, any governmental body or
entity other than any filing required under the Hart-Scott-Rodino Antitrust
Improvement Act of 1977, as amended (the "HSR Act"), and the expiration of any
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applicable waiting period thereunder. Schedule 4.3 identifies separately each
notice, consent, waiver or approval by reference to each Real Property Lease and
to each Material Contract to which it is applicable.
Section 4.4 The Assets.
(a) Attached hereto as Schedule 4.4(a) is a complete and
accurate list of each parcel of real property owned by Seller on which
a Restaurant is located or which is being held for development of a
Restaurant (the "Owned Real Property"), separated by ADI, listing the
street address and providing the true legal description of each such
parcel, and stating whether any improvements are located thereon and,
if so, whether such improvements are owned or leased by Seller;
(b) Attached hereto as Schedule 4.4(b) is a complete and
accurate list of each parcel of real estate leased by Seller or in
which it has a leasehold or other interest on which a Restaurant is
located or which is being held for development of a Restaurant (the
"Leased Real Property"), and stating whether any improvements are
located thereon and, if so, whether such improvements are owned or
leased by Seller, separated by ADI, listing the street address of such
property and the name and address of the landlord's agent to which
Seller is obligated to provide notices regarding the Leased Real
Property, (collectively, the Owned Real Property and the Leased Real
Property are referred to as the "Real Property");
(c) Attached hereto as Schedule 4.4(c) is a complete and
accurate list of all agreements or documents under which Seller claims
or holds such leasehold or other interest or right to the use of the
Leased Real Property (the "Real Property Leases") separated by ADI and
showing the street address, exact name of the parties to such Real
Property Lease, the date of such Lease, each amendment, modification or
extension thereof and the exact name of the parties thereto, and the
dates of each such amendment, modification or extension;
(d) Attached hereto as Schedule 4.4(d) is a complete and
accurate list by Restaurant of the original basis and accumulated
depreciation for financial reporting purposes of (i) fixed assets
(other than inventory and supplies) being conveyed hereunder as of
September 28, 1997, and (ii) land, buildings and leaseholds being
conveyed hereunder as of September 28, 1997;
(e) Attached hereto as Schedule 4.4(e) is a complete and
accurate list of all material liens, claims, encumbrances and
restrictions on the Equipment;
(f) Attached hereto as Schedule 4.4(f) is a complete and
accurate list of all material leases of personal property used in the
operation of the Restaurants (the "Equipment Leases"), identified by
parcel of Owned Real Property or Leased Real Property where the leased
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equipment is located, separated by ADI and identifying the parties
thereto, the property leased thereunder, the rental and other payment
terms, expiration date and cancellation and renewal terms thereof;
(g) Attached hereto as Schedule 4.4(g) is a complete and
accurate list of all loan agreements, indentures, mortgages, pledges,
security agreements, guarantees, leases or lease purchase agreements
(not listed on Schedule 4.4(c) or 4.4(f)) to which Seller is a party
and by which any of the Assets are bound;
(h) Attached hereto as Schedule 4.4(h) is a complete and
accurate list of all other contracts, agreements, commitments or other
understandings or arrangements to which Seller is a party that relate
only to the Restaurants and by which any of the Assets are bound or
affected, (other than the Minor Contracts which are such contracts,
agreements or commitments terminable on thirty (30) days' notice or
having annual payment obligations of less than $10,000, identified by
parcel of Owned Real Property or Leased Real Property to which such is
applicable; and each item on such Schedule that applies to any
restaurants or assets of Seller that are not being conveyed to Buyer
hereunder is so noted. The contracts listed on Schedules 4.4(f) and
4.4(h) are the Material Contracts, which will be transferred to Buyer
hereunder.
(i) There are no contracts, agreements, commitments,
understandings or arrangements affecting or relating to the Assets or
the Restaurants to which any Affiliate of Seller is a party or by which
any such Affiliate is bound; and
(j) The items listed in the above Schedules constitute all of
the matters required to be shown on such Schedules. A true and complete
copy, or with respect to oral agreements an accurate summary, of each
item listed on the above Schedules has been made available to Buyer.
Each Real Property Lease separately is acknowledged by Seller to be
material to operation of the applicable Restaurant, and to the Assets
and financial condition of Seller's business in the ADIs.
Section 4.5 Binding Effect. This Agreement and each other agreement
required to be executed and delivered by Seller in connection herewith, when
executed and delivered, will be the legal, valid and binding obligation of
Seller, enforceable against it in accordance with its terms, except as
enforceability may be limited by (i) applicable bankruptcy, reorganization,
insolvency, moratorium and similar laws affecting the enforcement of creditors'
rights generally, and (ii) general equitable principles (regardless of whether
enforceability is considered in a proceeding in equity or at law).
Section 4.6 Condition of Assets.
(a) Each Restaurant contains all Equipment and Inventories
required by the applicable Franchise Agreement or necessary to operate
the Restaurant in accordance with Seller's historical practices. The
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Equipment is in good operating condition, commensurate with its age,
with reasonable wear and tear excepted, and the Equipment complies with
all material federal, state and local laws, rules and regulations, and
all material occupational safety and health act regulations.
(b) Substantially all Inventories are saleable or usable in
the ordinary course of business for their intended use and exist in
such quantity as necessary to operate the Restaurants in accordance
with Seller's historical practices.
(c) The buildings, fixtures, parking facilities, trash
facilities, fences and other improvements, appurtenances and
hereditaments at or on each Restaurant are in good condition,
commensurate with their age, with reasonable wear and tear excepted,
and in compliance in all material respects with all federal, state and
local laws, rules and regulations and leases and lease provisions.
Section 4.7 Absence of Other Assets. Except as specifically provided in
this Agreement, there is no asset, property, or right of any nature which is not
being transferred to Buyer hereunder that has been customarily employed, owned,
held, or used exclusively in connection with the operation or ownership of any
Restaurant, other than permits that are not transferable or assignable. All
Equipment and Inventories used in the operation of any Restaurant are situated
entirely upon the premises of such Restaurant.
Section 4.8 Ownership of Assets. Seller has good title to the Assets
(other than the Owned Real Property), which title is, or will be at Closing,
free and clear of all deeds of trust, mortgages, liens, security interests,
charges, and encumbrances of any nature whatsoever; Seller has the full,
absolute and unrestricted right to assign, transfer and convey to Buyer the
Assets, subject only to such consents as Seller shall deliver to Buyer at
Closing (except for such consents as may be required under the Minor Contracts
that are not being obtained); no person or entity other than the Seller has any
interest in the Assets other than the lessors under Real Property Leases and
Equipment Leases and the other parties to the Minor Contracts and Material
Contracts.
Section 4.9 Real Property. Seller has good and marketable title to all
of the Owned Real Property, subject to Permitted Encumbrances, and has the full,
absolute and unrestricted right to assign, transfer and convey to Buyer said
Owned Real Property, subject only to such consents as Seller shall deliver to
Buyer at Closing. Each Real Property Lease is in full force and effect; the
terms contained in the Real Property Leases have not been modified or amended in
any respect except as disclosed on Schedule 4.4(c), and each constitutes the
legal, valid, binding and enforceable obligation of the parties thereto. Seller
is current in all material obligations under each Real Property Lease. There
have been no events of default since January 1, 1995, and, to the best of
Seller's knowledge, no state of facts exists which with notice or the passage of
time, or both, would constitute an event of default under any Real Property
Lease. Subject to the consents listed on Schedule 4.3, the consummation of the
transactions contemplated by this Agreement will not (and will not give any
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person a right to) terminate or modify any rights of, or accelerate or increase
any obligation of Seller under any Real Property Lease.
Section 4.10 Multi-Unit Contracts. Schedule 4.10 hereto sets forth a
complete and accurate list of all material agreements under which any goods or
services are currently being provided both to the Restaurants and (i) the
Remaining Restaurants or (ii) other restaurants operated by the Seller
("Multi-Unit Contracts"), setting forth (1) a brief description of the goods or
services provided, (2) the number of Restaurants and Remaining Restaurants or
other restaurants covered by the agreement, and (3) whether such agreement is
being transferred to Buyer hereunder. Seller shall provide complete copies of
the Multi-Unit Contracts to Buyer no later than January 5, 1998.
Section 4.11 Documents Sufficient. The documents delivered by Seller to
Buyer pursuant to Section 3.2 of this Agreement will be valid, sufficient and
effective to completely transfer to Buyer all of Seller's right, title and
interest in and to all of the Assets.
Section 4.12 Litigation or Condemnation. Except as set forth on
Schedule 4.12(a) to this Agreement, there are no suits, actions, condemnation
actions, investigations, complaints, or other proceedings of any nature
whatsoever in law or in equity, which are pending or, to the best of Seller's
knowledge, threatened against Seller, which affect any of the Assets, by or
before any federal, state, municipal, or other governmental court, department,
commission, board, bureau, agency, or other instrumentality (whether domestic or
foreign). Seller is not in default with respect to any order, writ, injunction,
garnishment, levy, or decree of any federal, state, municipal, or other
governmental court, department, commission, board, bureau, agency, or
instrumentality, and the use, occupancy, ownership, or transfer of the Assets do
not constitute a default thereunder. To the best of Seller's knowledge, the
operations of the Restaurants and the condition of the Assets do not violate in
any material respect any federal, state, or municipal law, regulation or rule
(including any applicable zoning or similar use regulation or law). Except as
set forth on Schedule 4.12(b), (which Schedule, is not attached hereto but shall
be provided to Buyer no later than January 5, 1998) since January 1, 1996,
Seller's operations of the Restaurants have not received a citation, warning, or
reprimand for, or otherwise been notified of, any violation of any law, rule or
regulation governing alcoholic beverages, or any health, environmental, or
similar municipal, state, or federal law or regulation. To the best of its
knowledge, Seller has not served any food or foodstuff which is adulterated,
spoiled, or contains foreign substances, nor has Seller served any food item
which has or, except as set forth on Schedule 4.12(c) (which Schedule, is not
attached hereto but shall be provided to Buyer no later than January 5, 1998),
is claimed to have caused any illness or injury to the consumer thereof.
Section 4.13 Taxes. All ad valorem and other property taxes relating to
the Assets have been fully paid for 1996 and all prior tax years and there are
no delinquent property tax liens or assessments. Seller has also timely filed
(or will timely file) all federal, state, local and other tax returns and
reports of whatever kind pertaining to the Assets and required to be filed by
Seller for all periods up to and including the Closing Date. Seller has paid (or
will timely pay) all taxes of whatever kind, including any interest, penalties,
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governmental charges, duties, fees, and fines imposed by the United States,
foreign countries, states, counties, municipalities, and subdivisions, and by
all other governmental entities or taxing authorities, which are due and payable
(or which relate to any period prior to the Closing Date) or for which
assessments relating to any period prior to the Closing Date have been received,
the nonpayment of which would result in a lien on any of the Assets. There are
no audits, suits, actions, claims, investigations, inquiries, or proceedings
pending or to the best of its knowledge, threatened against Seller with respect
to taxes, interest, penalties, governmental charges, duties, or fines, nor are
any such matters under discussion with any governmental authority, nor have any
claims for additional taxes, interest, penalties, charges, fines, fees or duties
been received by or assessed against Seller that in any such case affect the
Assets.
Section 4.14 Contracts. The Minor Contracts and the Material Contracts
have been entered into in the ordinary course of Seller's business and, to
Seller's knowledge, contain commercially reasonable terms. Subject to the
consents delivered to Buyer at Closing, Seller has full, absolute and
unrestricted right to assign, transfer and convey to Buyer the Material
Contracts. Each Material Contract is in full force and effect; the terms
contained in the Material Contracts have not been modified or amended in any
respect except as disclosed on Schedule 4.4(f) or (h) and each constitutes the
legal, valid, binding and enforceable obligation of the parties thereto. Seller
is current in all obligations under each Material Contract. There have been no
events of default, and, to the best knowledge of Seller, no state of facts
exists which with notice or the passage of time, or both, would constitute an
event of default under any Material Contract. The consummation of the
transactions contemplated by this Agreement will not (and will not give any
person a right to) terminate or modify any rights of, or accelerate or increase
any obligation of Seller under any Material Contract.
Section 4.15 Accuracy of Information and Representations and
Warranties. All representations and warranties made by Seller in this Agreement
or any Schedule or Exhibit hereto or in any certificate or other document
furnished by Seller pursuant to this Agreement are true and correct in all
material respects on and as of the date hereof. To Seller's knowledge all
information other than financial projections given to Buyer by Seller or its
representatives, including the information in the Schedules to this Agreement,
is true, correct and complete in all material respects.
Section 4.16 Employment Matters.
(a) No employees of the Restaurants are on strike, nor to the
best knowledge of Seller are such employees threatening to strike.
Seller has no knowledge that any labor union has recently attempted, or
is presently attempting, to organize the ADI Personnel into a
collective bargaining unit, and no group of ADI Personnel is presently
organized into a collective bargaining unit.
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(b) Schedule 4.16(b) hereto is a true and complete list (i) of
each person employed in connection with the operation of the
Restaurants, from and including each assistant manager and assistant
kitchen manager up through Vice President of Operations for the ADIs;
and (ii) of each other salaried employee whose duties are primarily
related to Seller's operation in the ADIs who could during the current
fiscal year receive, compensation (including all bonuses, perquisites,
and other items of value) in excess of Thirty Thousand Dollars
($30,000). For each such person, Schedule 4.16(b) shows the full name,
job title or duty, salary, bonus, ESOP and 401(k) plan contributions
and account balances, and stock options.
(c) To Seller's knowledge, Seller has operated all Restaurants
in accordance with all local, state and federal laws and regulations
related to employment matters including, but not limited to, payment of
wages and benefits and employee discrimination.
Section 4.17 Employee Benefit Plans.
(a) Schedule 4.17(a) contains a true and complete list of each
pension, profit sharing, other deferred compensation, bonus, incentive
compensation, stock purchase, stock option, supplemental retirement,
severance or termination pay, medical, hospitalization, life insurance,
dental, disability, salary continuation, vacation, supplemental
unemployment benefits plan, program, arrangement or contract, and each
other employee benefit plan, program, arrangement or contract,
maintained, contributed to, or required to be contributed to, by Seller
or any Related Party (hereinafter defined) for the benefit of any
current or former employee of Seller in the ADIs, whether or not any of
the foregoing is funded, whether or not subject to the Employee
Retirement Income Security Act of 1974, as amended ("ERISA")
(collectively, the "Benefit Plans"). Seller and its Related Parties do
not have any express or implied plan or contract, whether legally
binding or not, to create any additional Benefit Plan or modify any
existing Benefit Plan, other than as may be required to comply with the
Tax Reform Act of 1986. Seller has delivered or made available to
Buyer, with respect to each Benefit Plan to the extent applicable (1)
true and complete copies of all documents embodying or relating to each
Benefit Plan including, without limitation, the plan and trust or other
funding arrangement relating thereto, summary plan descriptions,
employee handbooks or personnel manuals and all amendments and
supplements thereto; (2) the most recent annual report (Series 5500 and
all schedules thereto), if any, required by ERISA; and (3) the most
recent determination letter received from the Internal Revenue Service
("IRS"), if any. "Related Party" means any member of a controlled group
of corporations, a group of trades or businesses under common control
or an affiliated service group, within the meaning of Section 414(b),
(c), (m) or (o) of the Code, of Seller;
(b) The Benefit Plans that are intended by Seller or any
Related Party to meet the requirements of Section 401(a) of the Code
now meet and since their inception have met, the requirements for
qualification under Section 401(a) of the Code and the related trusts
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are now, and since their inception have been, exempt from taxation
under Section 501(a) of the Code and the transactions contemplated by
this Agreement will not have an adverse affect on the qualified status
of any such Benefit Plan.
(c) Seller and any Related Party have performed in all
material respects obligations required to be performed by them under,
and are not in default under or in violation of, any and all of the
Benefit Plans, and each Benefit Plan has been operated in all material
respects in accordance with its provisions and in compliance with all
applicable laws and regulations. Neither any Benefit Plan or fiduciary
nor Seller or any Related Party has taken any action, or failed to take
any action, that could subject it or any other person to any liability
for any excise tax under Chapter 43 of the Code or for breach of
fiduciary duty with respect to or in connection with a Benefit Plan;
(d) At no time since January 1, 1980, has Seller or any
Related Party been required to contribute to any "multi-employer plan"
(within the meaning of Section 3(37) of ERISA) and Seller and its
Related Parties have no liability (contingent or otherwise) relating to
the withdrawal or partial withdrawal from a multi-employer plan. Seller
and its Related Parties do not participate in any "multiple employer
plans," within the meaning of ERISA;
(e) No Benefit Plan provides or is required to provide group
health, medical, death or survivor benefits to any former or retired
employee of Seller in the ADIs or beneficiary thereof, except to the
extent (1) required under any state insurance law providing for a
conversion option under a group insurance policy or (2) under Section
601 of ERISA; and
(f) No "reportable event" (as defined in ERISA) has occurred
with respect to any Benefit Plan. No liability to the Pension Benefit
Guaranty Corporation ("PBGC") has been incurred, or is expected by
Seller or any Related Party to be incurred, by Seller or any Related
Party with respect to any Benefit Plan and no Benefit Plan has
"unfunded benefit liabilities" within the meaning of Title IV of ERISA.
No steps have been taken to terminate any Benefit Plan which is subject
to Title IV of ERISA and no proceeding has been initiated by the PBGC
to terminate any such Benefit Plan or to appoint a Trustee to
administer any such Benefit Plan;
Section 4.18 Licensure. Seller possesses all material governmental
permits and licenses necessary to operate each Restaurant (the "Licenses"). Such
material permits and licenses are listed on Schedule 4.18 (which Schedule is not
attached hereto but shall be provided to Buyer no later than January 5, 1998),
identified by Restaurant and separated by ADI. Seller has all such Licenses
current and in full force and effect and is in material compliance with all
requirements and limitations set forth in such Licenses. All Licenses are now,
and at Closing will be, in full force and effect.
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Section 4.19 Insurance Coverage. Schedule 4.19 is a true and accurate
list and brief description of all property, fire, casualty, liability, life,
worker's compensation, and other forms of insurance of any kind owned or held by
Seller regarding the Assets or the Restaurants. All such policies (a) are in
full force and effect, (b) are valid and outstanding policies, (c) insure
against risks of the kind customarily insured against and in the amounts
customarily carried by entities similarly situated, and (d) provide that they
will remain in full force and effect through the respective dates set forth in
Schedule 4.19.
Section 4.20 Environmental Matters.
(a) Hazardous Materials (as defined below) have not been at
any time during Seller's ownership of the Owned Real Property or
Seller's possession of the Leased Real Property, and to Seller's best
knowledge and belief have not been during any other time, generated,
stored, discharged, disposed of, spilled, dumped, poured, emptied, or
released and are not currently present at, on, in, beside, above, or
under the real estate underlying or used in connection with the
Restaurant Locations (the "Real Estate"). Underground storage tanks are
not and have not been at any time during Seller's ownership of the
Owned Real Property or Seller's possession of the Leased Real Property,
and to Seller's best knowledge and belief have not been during any
other time, located on the Real Estate. Seller has at all times
operated the Real Estate in compliance with all Environmental Laws (as
defined below).
(b) Seller unconditionally agrees to indemnify and hold
harmless Buyer, for any and all losses, claims, damages, penalties,
liabilities, costs and expenses (including attorney's fees,
administrative expenses, prejudgment interest and court costs), fines,
injuries, penalties, response costs (including the cost of any required
or necessary investigation, testing, monitoring, repair, clean up,
detoxification, decontamination, preparation of any closure or other
required plans, removal, response or remedial action at or relating to
the Real Estate) (collectively, "Claims and Costs"), with respect to,
as a direct or indirect result of, or arising out of any contamination,
requirement, lawsuit, notice of violation, notice letter, warning
letter, administrative order, compliance order, enforcement action,
settlement, agreement, consent order, decree or judgment, injunction,
restraining order or prohibition (collectively "Action") relating to
the generation, presence, storage, management, disposal, release,
discharge, escape, emission, spilling, seepage, leakage, dumping,
pumping, pouring, emptying or clean up of Hazardous Materials (as
herein defined) at, on, in, beside, above, from or under all or a
portion of the Real Estate which occurs from activities undertaken
during Seller's ownership or possession of the Real Estate prior to
Closing.
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(c) For the purpose of this Agreement, the term "Hazardous
Materials" shall include, but not be limited to:
any substance defined as "hazardous substances," "hazardous
air pollutant," "pollutants," "contaminants," "hazardous
materials," "hazardous wastes," "toxic chemicals," "petroleum
or petroleum products," "toxics," "hazardous chemicals,"
"extremely hazardous substances," "pesticides" or related
materials, including but not limited to radon and asbestos, as
now, in the past, or hereafter defined in any applicable
federal, state or local law, regulation, ordinance, policy or
directive, including, but not limited to, the Comprehensive
Environmental Response, Compensation and Liability Act of
1980, as amended by the Superfund Amendments and
Reauthorization Act of 1986, 42 U.S.C. ss. 9601 et. seq.; the
Emergency Planning and Community Right-to-Know Act, 42 U.S.C.
ss. 1101 et. seq.; the Resource Conservation and Recovery Act,
42 U.S.C. ss. 6901 et. seq.; the Hazardous Materials
Transportation Act of 1974, 49 U.S.C. ss. 1801 et. seq.; the
Federal Water Pollution Control Act, 33 U.S.C. ss. 1251 et.
seq.; the Clean Air Act, 42 U.S.C. ss. 4701 et. seq.; the
Federal Insecticide, Fungicide and Rodenticide Act, 7 U.S.C.
ss. 136 et. seq.; the Safe Drinking Water Act, 42 U.S.C. ss.
3001 et. seq.; the Toxic Substances Control Act, 15 U.S.C. ss.
2601 et. seq.; the Oil Pollution Act of 1990, 33 U.S.C. ss.
2701 et. seq.; and any laws regulating the use of biological
agents or substances including medical or infectious wastes
and the corresponding State laws, regulations and local
ordinances, etc. which may be applicable, ("Environmental
Laws") as any such acts may be amended.
(d) Seller agrees and consents to the performance of
environmental testing on the Real Estate at Buyer's expense; provided,
however, that neither the performance of nor failure to perform such
tests by Buyer will negate or affect Seller's representations or
warranties or agreement to indemnify contained herein.
Section 4.21 Restaurant Operations. The activities carried on in all
buildings, structures or improvements included as part of, or located on or at
the Restaurants, and the buildings, structures and improvements themselves, are
not in material violation of, or in conflict with, any applicable zoning or
health regulation or ordinance or any other similar law. There is no pending, or
to the best of Seller's knowledge, threatened or proposed proceeding or
governmental action to modify the zoning classification of, or to condemn or
take by the power of eminent domain (or to purchase in lieu thereof), or to
impose special assessments on, or otherwise to take or restrict in any way the
right to use, alter or occupy all or any part of any of the Restaurants.
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Section 4.22 Development Efforts. Schedule 4.22 contains a complete and
accurate list and description of each restaurant site ("Development Site" or,
collectively, "Development Sites") currently under development or consideration
for development by Seller in the ADIs (whether or not presented to Buyer for
approval), including the following information regarding each such Development
Site: (i) a legal description, if available, and address of the Development
Site, (ii) whether the Development Site is leased or owned by Seller or under
contract to be owned by Seller or, if none of those, whether it is intended to
be leased or owned, and the purchase price or rental terms, as appropriate,
(iii) whether the Development Site has been submitted to Buyer for approval
pursuant to the normal site approval process (but the lack of such submittal
shall not serve as a reason for a Development Site being excluded from this
Schedule), (iv) the status of the development of the Development Site, and (v)
the projected opening date of the Development Site. Said Schedule shall also
identify all contracts, letters of intent or interest, all transactions with
Affiliates, pending negotiations, amounts invested, budgeted expenditures and
other such pertinent material regarding each of such Development Sites.
Section 4.23 Affiliated Transactions. Except as set forth on Schedule
4.23, since January 1, 1995, Seller has not been a party to, and there does not
now exist, any transaction affecting the Restaurants or the Assets (including
without limitation the purchase, sale or exchange of property or the rendering
of any service) with any Affiliate of Seller or any entity in which any of them
owns a beneficial interest. For purposes of this Agreement, "Affiliate" means
any person or entity that owns or controls more than a 10% interest in Seller (a
"Controlling Affiliate") or in which Seller or a Controlling Affiliate owns or
controls more than a 5% interest.
Section 4.24 Subsidiaries. No subsidiary of Seller nor any entity in
which Seller has a direct or indirect interest has any direct or indirect
interest in any of the Assets.
Section 4.25 Seller Appraisals. Schedule 4.25 is a complete and
accurate list of all Seller Appraisals as defined in Section 2.6.
Section 4.26 Employee Transfers. Since December 12, 1997, Seller has
not transferred or reassigned any ADI Personnel (as defined in Section 5.5,
below) to responsibilities outside of the ADIs.
Section 4.27 ADI Financial Statements. Attached hereto as Schedule
4.27, identified by individual Restaurant and consolidated by ADI, are unaudited
financial statements, including statements of operations, a schedule of capital
expenditures and a schedule of the clearing account by quarters (to be delivered
no later than January 5, 1998) as of the end of the 1996 fiscal year and each of
the three fiscal quarters through September 28, 1997 and each fiscal month of
October and November, 1997, prepared in accordance with generally accepted
accounting principles, except for the absence of explanatory notes and except as
otherwise expressly described therein (the "Unaudited Financial Statements").
Such financial statements have been prepared in accordance with Seller's
historical practices and fairly present the operations and financial condition
of the ADIs for the periods presented and as of their respective dates, and the
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books and records of Sellers from which such financial statements were prepared
are true, correct and complete in all material respects, and such financial
statements do not and will not reflect any adjustment for income or costs
related to the matters raised in the April 16, 1997 memorandum of Mary Puissegur
to Phil Ammons and Tim Ligon.
ARTICLE V
COVENANTS OF SELLER
Seller covenants and agrees as follows:
Section 5.1 Employee Benefit Plans.
(a) Buyer is not obligated to assume any liability, obligation
or other responsibility under any Benefit Plan. The active
participation in each Benefit Plan of all ADI Personnel, as defined
below, shall cease as of the Closing Date for all periods of time on or
after the Closing Date. Seller shall remain responsible and liable for
all payments required under the terms of any "employee welfare benefit
plan" as defined in Section 3(1) of ERISA for claims incurred and
expenses and payments accrued on and prior to the Closing Date.
(b) Seller and its Related Parties agree to indemnify and hold
harmless Buyer from and against all losses, expenses and liabilities,
arising under Section 4980B of the Code arising from Seller's failure
to comply with the continuation requirements of Section 4980B of the
Code and sections 601 through 608 of ERISA with respect to ADI
Personnel for events occurring on or prior to the date of Closing.
(c) Seller shall pay at Closing approximately $2,500 to each
of Randolph Hill and Doug Staib, and $30,000 to John Kretzinger as
compensation for cancellation of unvested options.
Section 5.2 Performance of Real Property Leases and Assumed Contracts.
Seller shall, through the Closing Date, continue to faithfully and diligently
perform each and every continuing obligation of Seller, if any, under each of
the Real Property Leases, Minor Contracts and Material Contracts, where the
failure to do so would have a material adverse affect on the operations of a
Restaurant.
Section 5.3 Transfer of Licenses and Permits. Seller and its affiliates
shall use their reasonable efforts and cooperate in assisting Buyer with the
assumption, transfer or reissuance of any and all required state, county or city
licenses or permits required for the operation of the Restaurant Locations,
including those shown on Schedule 4.18.
Section 5.4 Liabilities of Seller. All liabilities of Seller related to
the Assets or Restaurants prior to the Effective Time will be promptly paid by
Seller as they come due; and all liabilities secured by the Assets not expressly
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assumed by Buyer hereunder have been satisfied prior to, or will be satisfied in
conjunction with, the Closing.
Section 5.5 Agreements Respecting Employees of Seller.
(a) Prior to the Effective Time, the prior written approval of
Buyer, Seller shall not transfer or reassign or otherwise employ or
offer to employ, any employee solely involved in the operation or
supervision of the Restaurants ("ADI Personnel"). At the Effective
Time, Seller shall terminate all ADI Personnel. Through the earlier of
(i) the end of the Seller Put Period (as defined in Section 11.11,
below), or (ii) December 31, 1999, Seller will not solicit for
employment any ADI Personnel without the prior written approval of
Buyer.
(b) Seller shall be solely responsible for any severance
amounts due or granted by Seller to any ADI Personnel.
(c) Seller and Buyer agree to cooperate in the transition of
coverage of ADI Personnel from Seller's health, medical, life insurance
and other welfare plans to plans maintained by Buyer.
(d) Seller agrees that the employee bonus plan recently
implemented by Seller as described on Schedule 5.5(d) will remain in
place for all employees of Restaurants so long as Seller continues to
operate the Restaurants, and Seller shall fully implement and fund such
bonus plan in accordance with its terms including paying any bonuses at
Closing.
Section 5.6 Conduct of Business. From the execution of this Agreement
until Closing, Seller shall operate the Restaurants as they are currently being
operated and only in the ordinary course and in compliance with all terms and
conditions of the Franchise Agreements, using reasonable commercial efforts in
keeping with Seller's historical practices to preserve and maintain the services
of its employees, its relationships with suppliers and customers, and will use
reasonable commercial efforts to preserve its current level of sales volume and
historical operating margins, and shall continue to insure the Assets under
existing policies of insurance at current levels. Seller shall pay all bills and
debts incurred by it and related to the operation of the Restaurants promptly as
they become due. Seller shall consult in advance with Buyer on all extraordinary
decisions relating to the Assets or the Restaurants.
(a) In particular, and without limiting the foregoing, with
respect to the ADIs, Seller shall:
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(i) continue to conduct the advertising activities and
efforts as set forth on Schedule 5.6(a)(i) (to be
agreed upon prior to January 5, 1998);
(ii) maintain the Assets consistent with past practices
and in accordance with the maintenance capital
expenditure budget set forth on Schedule 5.6(b)(ii);
(iii) continue to conduct on a timely basis all normal
periodic Asset maintenance and implement Project
Exceed for all restaurants and continue the
operation of Project Exceed;
(iv) continue to conduct on a timely basis all Restaurant
remodeling and refurbishments as set forth on
Schedule 5.6(b)(iv), which Schedule shows the
remodel and refurbishment activities for Seller with
respect to the ADIs as budgeted or scheduled by
Seller as of December 1, 1997, for the six (6) month
period following the execution hereof;
(v) continue to purchase and maintain inventories for
each Restaurant in such quantities and quality as
necessary to operate the Restaurants in accordance
with Seller's historical practice; and
(vi) continue to operate the Restaurants in accordance
with all material applicable local, state and
federal laws and regulations.
(b) Further, with respect to the ADIs, Seller shall not,
without the express prior written approval of Buyer:
(i) change in any material manner the ownership of the
Assets;
(ii) increase the rate of compensation to employees in
the ADI beyond the usual and customary annual merit
increases or bonuses under established compensation
plans, except for payments under the plan described
on Schedule 5.5(d), which have been approved;
(iii) mortgage, pledge or subject to lien any of the
Assets;
(iv) sell or otherwise dispose of any Asset except in the
ordinary course of business;
(v) enter into or commit to enter into any contract,
agreement or commitment that would be required to be
set forth on Schedule 4.4(h) hereto;
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(vi) Other than in the ordinary course of business,
cancel or terminate or consent to or accept any
cancellation or termination of any Material Contract
or any Real Property Lease, amend or otherwise
modify any of its material terms or provisions or
give any consent, waiver or approval with respect to
the agreement, waive any breach of any of its
material terms or provisions or take any other
action in connection with any Material Contract or
any Real Property Lease that would materially impair
the interests or rights of Seller to be transferred
to Buyer hereunder.
Section 5.7 Broker's Fees. Seller shall indemnify and hold Buyer
harmless in respect to any claim for brokerage or finder's fees or commissions
with respect to the transactions contemplated herein by anyone claiming to have
acted on behalf of Seller.
Section 5.8 Access to Information. Seller shall afford Buyer, its
counsel, financial advisors, auditors, lenders, lenders' counsel and other
authorized representatives reasonable access for any purpose consistent with
this Agreement from the date hereof until the Closing, during normal business
hours, to the offices, properties, books, and records of Seller with respect to
the Assets and the Restaurants and shall furnish to Buyer such additional
financial and operating data and other information as Seller may possess and as
Buyer may reasonably request, subject to Buyer's obligations regarding the
confidentiality of such information as set forth in Section 7.2 hereof;
provided, however, that such access shall be arranged in advance by Buyer with
Seller and will be scheduled in a manner and with a frequency calculated to
cause the minimum disruption of the business of Seller.
Section 5.9 DR Holdings Properties. Seller shall be responsible for all
costs incurred in connection with obtaining any consents or waivers necessary
for the transfer of any Leased Real Property for which DR Holdings is the
landlord, either with respect to the lease or related Lease Participation
Agreement or Loan Agreement. Seller agrees to obtain prior to Closing any
waivers or modifications from the other parties to those agreements as Buyer may
reasonably request, including but not limited to a waiver of any cross-default
provisions or other provisions which could cause a default under the lease with
DR Holdings by the actions of Seller or any other third party not under the
control of Buyer.
Section 5.10 No Sale Negotiations. Seller and its representatives and
agents shall not solicit, entertain or undertake any negotiations, discussions
or contact with any party other than Buyer and their representatives, with
respect to the sale, transfer or other disposition of any of the Assets (other
than in the ordinary course of Restaurant operations), the Restaurants, or any
interest, legal, equitable or beneficial, in any of the above.
Section 5.11 RESERVED.
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Section 5.12 Financial Statements. Seller shall obtain and deliver to
Buyer three days prior to Closing or within 60 days after the end of the 1997
fiscal year, whichever is earlier, audited financial statements for the ADIs on
a consolidated basis, for the 1997 fiscal year, with an unqualified opinion
thereon from a Big 6 accounting firm acceptable to Buyer. Such financial
statements shall be prepared in accordance with generally accepted accounting
principles and with Regulation S-X promulgated by the Securities and Exchange
Commission. All accounting services and reports related to the audited financial
statements shall be at the expense of Buyer.
Section 5.13 Change of Name. Seller shall change its corporate name and
shall cause to be changed the name of any affiliated entities, prior to December
31, 1998, to delete the use of the name "Apple," "Applebee's" and other similar
or derivative names.
Section 5.14 Insurance. Seller shall continuously keep in force through
the Closing Date the insurance policies listed on Schedule 4.19 at Seller's sole
cost.
Section 5.15 Renegotiation of Assumed Leases. Seller will provide
reasonable assistance as requested by Buyer in Buyer's efforts to renegotiate
the Real Property Leases.
Section 5.16 Confidentiality. Seller shall maintain all Confidential
Information (as defined below) gained from Buyer in strict confidence, and shall
take all precautions necessary to prevent disclosure, access to, or transmission
of the Confidential Information, or any part thereof, to any third party, except
as required by order of any court having competent jurisdiction or as may be
otherwise required by law or as may be necessary to consult with their
professional advisors in their capacity as such (provided that they shall use
their best efforts to ensure that their professional advisors shall keep the
Confidential Information confidential), regardless of the availability of any
such information from any other source. In the event the Closing does not occur
for any reason, Seller shall, immediately upon Buyer's request, return all
copies and recordings of the Confidential Information in its possession or under
its control and delete all records thereof in any data storage system maintained
by or for Seller. The term "Confidential Information" means the terms and
conditions of this Agreement or any related agreement and the negotiations,
discussions and understandings related hereto or thereto, including without
limitation the Purchase Price and any valuation methodology used in connection
with the transactions contemplated hereunder or thereunder.
Section 5.17 Management of Development Efforts. If any of the
Development Efforts are complete and new Restaurants are opened prior to the
Closing Date, Seller shall operate such Restaurants in the ordinary course of
business. Seller will keep Buyer fully informed with respect to the Development
Efforts, including but not limited to prompt notification of any significant
cost overruns or construction delays. Seller will obtain Buyer's prior written
consent before entering into any agreement with respect to any Development
Effort or agreeing to any modification of any significant existing agreement.
Seller shall use commercially reasonable efforts to complete on a timely basis
the Development Efforts. Seller shall pay all costs incurred in the Development
Efforts related to Chester, Virginia.
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Section 5.18 RESERVED.
Section 5.19 Survey and Title Report.
(a) Seller, at Seller's and Buyer's equally shared cost and
expense, within 45 days after the date of this Agreement, will deliver
to Buyer a current ALTA on-the- ground/as built survey (collectively,
the "Surveys" and each, a "Survey") of each free-standing Restaurant,
prepared by licensed surveyors who are acceptable to Buyer and Buyer's
selected title company (the "Title Company"), for the modification to
the extent permitted by insurance regulations, of the survey exception
to the title policies to be delivered pursuant to the terms of this
Agreement.
(b) If any Survey discloses that a portion of a Restaurant
lies within a 100 year flood plain or any area having special flood
hazards as designated by a government agency, Seller shall provide
information to Buyer of all flood insurance in place with respect to
such Restaurant.
(c) Seller, at Seller's and Buyer's equally shared cost and
expense, within thirty (30) days after the date of this Agreement, will
deliver to Buyer a preliminary title report or title policy commitment
issued by the Title Company for each parcel of Owned Real Property and
Leased Real Property (collectively, the "Title Reports" and each, a
"Title Report"), describing such parcel, listing Buyer and Buyer's
designated lender as the prospective named insured and showing as the
proposed policy amount an amount to be determined by Buyer. Seller
shall also furnish to Buyer and Buyer's attorney a legible and true
copy of all documents and other instruments referenced in the Title
Report.
(d) Buyer and Buyer's attorney shall have thirty (30) days
after the date of receipt of the Surveys, the Title Reports and copies
of all documents to review the same and to notify Seller in writing of
any objections to condition of the title or matters shown on the Survey
or in the Title Report which, in Buyer's reasonable judgment, could
substantially adversely affect the operation of the Restaurant or the
transfer of title to Buyer. Seller shall have thirty (30) days
following receipt of Buyer's notice to rectify Buyer's objections at
Seller's sole cost. The parties agree that if necessary, the time of
Closing shall be extended accordingly.
(e) If Seller cannot rectify Buyer's objections within thirty
(30) days, Buyer, at Buyer's option, may: (a) with respect to any
Restaurant for which the objections have not been cured or the Surveys
or Title Reports have not been delivered, require Seller to De-identify
(as defined in Section 11.8) such Restaurant, in which case the
Purchase Price shall be reduced by an amount equal to 6.7 times the LTM
Cash Flow (as defined in Schedule 11.11) for such Restaurant; or (b) if
there are 5 or more Restaurants referenced in (a) above, terminate this
Agreement.
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Section 5.20 RESERVED.
Section 5.21 Reporting Requirements. Through the Closing Date, Seller
shall furnish to Buyer:
(a) Adverse events. Promptly after the occurrence, or failure
to occur, of any such event, information respect to any event (i) which
materially adversely affected, or could materially adversely affect,
the Assets or the operations of the Restaurants in the ADIs or the
ability of Seller to perform any of its material obligations hereunder,
(ii) which, if known as of the date of this Agreement, would have been
required to be disclosed to Buyer or (iii) which causes any
representation or warranty contained herein to be untrue or inaccurate
in any material respect;
(b) Monthly financial statements. As soon as available and in
any event within 15 business days after the end of each fiscal month,
the statement of operations of each Restaurant (singly and combined by
ADI) for such month, together with monthly information on the "clearing
account" and a capital expenditures statement, all in the Seller's
regularly prepared format.
(c) Notice of litigation. Promptly after the commencement of
each such matter, notice of all actions, charges, orders or other
directives affecting any Restaurant that, if adversely determined,
could materially adversely affect the Assets, the operations, business,
prospects or condition (financial or otherwise) of the Restaurant or
the ability of Seller to perform its obligations hereunder;
(d) General information. Such other information respecting the
Assets or the operations, business prospects or condition (financial or
otherwise) of the ADIs as the Buyer may from time to time reasonably
request.
Section 5.22 Cooperation. Seller will use its best efforts to
facilitate and cause the consummation of the transactions contemplated hereby;
and obtain from all persons, and take all other actions with respect to, all
consent or approvals required on the part of such party with respect to the
consummation of those transactions (except for the consent of other parties to
Minor Contracts, which consents shall not be required to be obtained hereunder
even if required by the terms of such Minor Agreements).
Section 5.23 Subsequent Contracts. From the date of this Agreement to
the Closing Date, Seller shall use its best efforts (a) to include in any
agreements entered into by Seller relating in any way to the ADI or the
Restaurants ("Subsequent Contracts") a provision permitting the assignment of
any such Subsequent Contract to Buyer and providing that upon such assignment,
Buyer shall succeed to all of Seller's rights, title and interests thereunder
subject to the Buyer's assumption of all of Seller's duties, powers and
obligations under such Subsequent Contract, and (b) to ensure that no Subsequent
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Contract contains any provision which would limit in any way the rights, title
and interests of Seller in the Assets.
Section 5.24 Proration and Purchase Price Adjustment Data. At least 10
days prior to the Closing Date, Seller shall deliver to Buyer all information
and documents necessary for the preparation of the itemized statement required
under Section 2.2, above, regarding the prorations and Purchase Price
adjustments set forth in Sections 8.1 below.
Section 5.25 Seller Franchising. Until August 31, 1998, Seller will not
franchise, license, lease or otherwise make available any restaurant concept to
any person or entity that is a franchisee of Buyer, or a Principal Shareholder
of any franchisee of Buyer as defined in Buyer's standard form franchise and
development agreement; provided, however that this Section 5.25 shall not apply
to any entity that is a franchisee of an entity which is acquired by Seller that
is also currently a franchisee of Buyer.
Section 5.26 RESERVED.
Section 5.27 Transition Services.
(a) For a period of six months after the Closing, if and to
the extent requested in writing by Buyer, Seller agrees to provide to Buyer
restaurant accounting, POS system support and other services related to the
Restaurants and the ADIs as mutually agreed upon between Seller and Buyer (the
"Services"). Buyer shall give Seller 30 days advance written notice of the
Services requested. The Services shall be provided promptly as requested and
shall be provided in the same manner and with the same or similar personnel as
Seller previously utilized.
(b) Buyer will pay for the Services on a monthly basis, after
receipt of an invoice from Seller, at Seller's direct personnel cost incurred in
connection with providing the requested Service, plus an amount of reasonable
overhead not to exceed 85% of the base salaries of the personnel providing the
Services. Seller's invoice shall detail the personnel used, the amount of time
spent and its calculation of the cost thereof. Direct personnel cost shall
include only base salary and benefits normally paid to Seller employees in such
capacities.
(c) Seller is not required to maintain the employment of any
specific personnel in connection with providing the Services; provided, however,
that if requested by Buyer, Seller shall offer to specifically designated
personnel a bonus incentive to remain for the six month period. The amount of
such bonus shall be at the discretion of Buyer. Such bonus, if accepted by the
employee, shall be paid by Buyer at the end of the six month period, or for such
shorter period as Buyer may determine.
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ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF BUYER
As an inducement to Seller to enter into this Agreement and to
consummate the transactions contemplated hereby, Buyer represents and warrants
to Seller as follows:
Section 6.1 Corporate Existence. Buyer is a corporation validly
existing and in good standing under the laws of the State of Delaware.
Section 6.2 Corporate Power and Authority. Buyer has all requisite
corporate power and authority to own its properties and assets, and to carry on
the business in which it is now engaged. Buyer has the corporate power and
authority to perform the respective covenants of Buyer set forth in this
Agreement.
Section 6.3 Execution and Delivery Permitted. The execution, delivery
and performance of this Agreement will not violate or result in a breach of any
term of Buyer's Certificate of Incorporation or Bylaws or result in a breach of
or constitute a default under any term in any agreement or other instrument to
which Buyer is a party, such default having not been previously waived by the
other party to such agreements, or violate any law or any order, rule or
regulation applicable to Buyer, of any court or of any regulatory body,
administrative agency or other governmental instrumentality having jurisdiction
over Buyer or its properties, or result in the creation or imposition of any
mortgage, lien, charge, or encumbrance of any nature whatsoever upon any of the
Assets purchased by Buyer hereunder. Buyer's Board of Directors, or authorized
committees thereof, has taken all action required by law, and by Buyer's
Certificate of Incorporation, Bylaws, and otherwise to authorize the purchase of
the Assets in accordance with this Agreement.
Section 6.4 Binding Effect. This Agreement and each other agreement
required to be executed and delivered by Buyer in connection herewith, when
executed and delivered, will be the legal, valid and binding obligation of
Buyer, enforceable against it in accordance with its terms, except as
enforceability may be limited by (i) applicable bankruptcy, reorganization,
insolvency, moratorium and similar laws affecting the enforcement of creditors'
rights generally, and (ii) general equitable principles (regardless of whether
enforceability is considered in a proceeding in equity or at law). Except as set
forth on Schedule 6.4, the execution, delivery and performance of this Agreement
and the other agreements executed in connection herewith, and the consummation
by Buyer of the transactions contemplated hereby and thereby do not require any
filing with, notice to or consent, waiver or approval of any third party,
including but not limited to, any governmental body or entity other than any
filing required under the Hart-Scott- Rodino Antitrust Improvement Act of 1977,
as amended (the "HSR Act"), and the expiration of any applicable waiting period
thereunder.
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ARTICLE VII
COVENANTS OF BUYER
Section 7.1 Buyer Performance. Buyer hereby covenants and agrees to
accept conveyance of the Assets and assignment of the Real Property Leases, and
to assume and perform the obligations of Seller under the Minor Contracts and
the Material Contracts after the Closing Date and otherwise perform and fulfill
all other obligations with respect to the Assets pertaining to the period after
the Closing Date.
Section 7.2 Confidentiality. Buyer shall each maintain all information
gained from Seller in connection with its evaluation of the transactions
contemplated by this Agreement (the "Confidential Information") in strict
confidence, and shall take all precautions necessary to prevent disclosure,
access to, or transmission of the Confidential Information, or any part thereof,
to any third party, except for the exclusive purpose of evaluating the Assets
and the business of Seller. In the event the Closing does not occur for any
reason, Buyer shall, immediately upon Seller's request, return all copies and
recordings of the Confidential Information in its possession or under its
control and delete all records thereof in any data storage system maintained by
or for Buyer.
Section 7.3 Seller Employees.
(a) Buyer shall offer employment to all ADI Personnel upon
terms and conditions substantially equivalent to those provided by
Seller of which Buyer has been informed in writing.
(b) Buyer shall maintain employee records transferred to Buyer
hereunder for a period of not less than four years and during that
period will afford Seller reasonable access to such records during
Buyer's normal business hours. Buyer shall maintain the confidentiality
of such records and limit access thereto in a manner consistent with
Buyer's treatment of its employee records.
(c) Buyer agrees with respect to Restaurant Employees hired by
Buyer within six (6) months of the Closing Date: (1) to give such
Employees credit under Buyer's benefits plans, programs, and
arrangements, including credit for accrued vacation which has been paid
by Seller under Section 8.2(a) hereto, for such Employees' period of
service with Seller or any Related Party, provided that such credit
shall only be taken into account under any tax-qualified plan
maintained by Buyer for purposes of determining such employees'
eligibility for participation and eligibility to satisfy any hours of
service requirement in order to receive an allocation of an employer
contribution; (2) to provide coverage to such Employees who are
eligible under Buyer's health, medical, life insurance and other
welfare plans (A) without the need to undergo a physical examination or
otherwise provide evidence of insurability; (B) any pre-existing
condition or similar limitations or exclusions will be applied by
taking into account the period of coverage under Seller's plan; (C) by
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applying and giving credit for amounts paid for the plan year in which
the Closing Date occurs as deductibles, out of pocket expenses and
similar amounts paid by individuals and their beneficiaries.
Section 7.4 Development Efforts. At Closing, Buyer shall reimburse
Seller for its reasonable and demonstrable out-of-pocket costs capitalized in
accordance with generally accepted accounting principles and Seller's historical
practices, directly related to any Development Effort listed on Schedule 4.22
that Buyer determines to purchase in its discretion (excluding any amounts
related to Chester, Virginia) not including any amounts paid or accrued to
Affiliates of Seller, plus a reasonable overhead allocation not to exceed
$70,000.00 per Restaurant site (which will be reduced proportionately depending
on the completeness of the development of a particular site).
Section 7.5 Remediation List. Buyer shall deliver to Seller a list
setting forth all remedial actions that would require repair and replacement
within 60 days of the date thereof with respect to any of the Assets under
reasonable operating standards of a prudent operator, and the estimated cost of
each such action (the "Remediation List"); provided, however, that each remedial
action with respect to any Restaurant must be in excess of $10,000 per item. The
aggregate amount set forth on the Remediation List shall be a Purchase Price
adjustment pursuant to Section 8.1 of this Agreement, unless repaired by Seller
to Buyer's satisfaction prior to Closing. Buyer shall use its best efforts to
deliver the Remediation List by January 31, 1998.
Section 7.6 Cooperation. Buyer shall use its best efforts to cause the
conditions set forth in Section 8.3 to be satisfied and to facilitate and cause
the consummation of the transactions contemplated hereby. Specifically, Buyer
has obtained a "highly confident" letter from Merrill Lynch, Pierce, Fenner,
Smith Incorporated that the transactions contemplated hereby can be financed by
Buyer, which is attached as Schedule 7.6 hereto.
Section 7.7 Broker's Fees. Buyer shall indemnify and hold Seller
harmless in respect to any claim for brokerage or finder's fees or commissions
with respect to the transactions contemplated herein by anyone claiming to have
acted on behalf of Buyer.
ARTICLE VIII
PRORATIONS AND PURCHASE PRICE ADJUSTMENT;
CONDITIONS TO CLOSING
Section 8.1 Prorations and Purchase Price Adjustments. The items listed
below shall be prorated between Buyer and Seller as of the Closing Date, or paid
by one party, as set forth, and shall constitute an adjustment to the Purchase
Price.
(a) All ad valorem, real and personal property taxes, general
and special public and private assessments, and any other property
taxes on the Assets for the tax year in which the Closing occurs;
however, if the amount of such tax for tax year is not determinable, it
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shall be prorated on the basis of the tax for the immediately preceding
tax year;
(b) All rentals or other amounts paid with respect to the Real
Property Leases which apply to periods past the Closing Date, including
prepaid rentals, percentage rents, and common area maintenance charges;
(c) All prepaid insurance premiums on insurance policies
covering the Assets and regarding welfare benefit programs, but only if
Buyer elects to have said coverage remain in effect;
(d) Any amounts paid with respect to the Minor Contracts and
Material Con tracts for services extending beyond the Closing Date;
(e) Any prepaid expenses including deposits, associated with
the operation of a Restaurant which were paid by Seller in the ordinary
course of business, including telephone expenses, billboard advertising
expenses, cooperative fees, advertising expenses, and utility charges,
but only to the extent of appropriate documentation of the transfer of
the benefit of such item to Buyer; and
(f) All amounts on the Remediation List, as defined in Section
7.8, shall be paid by Seller as a reduction to the Purchase Price,
unless repaired to Buyer's reasonable satisfaction prior to the
Closing.
Seller shall bear the cost and expense of all prorated items applicable to
periods ending on or before the Closing Date, and shall receive the benefits
thereof, and Buyer shall bear the cost and expense of payment of all prorated
items applicable to periods from and after the Closing Date, and receive the
benefits thereof.
Section 8.2 Post-Closing Adjustments.
Within 60 days after the Closing Date, Seller and Buyer shall mutually
agree on the following items and the aggregate amount owed shall be paid by the
owing party within 10 days thereafter:
(a) Seller shall pay the value of all vacation and other paid
time off benefits, accrued in accordance with Seller's standard policy,
and unused as of the Closing, of all employees of Seller who are hired
by Buyer;
(b) Seller shall pay the amount equal to the value of all
outstanding gift certificates, coupons, discounts, complimentary meal
allowances and the like, issued by Seller through the Closing Date and
used at any Restaurant;
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(c) Buyer or Seller, as the case may be, shall pay to the
other the amount by which Seller's account balance in the National
Marketing Fund of Buyer related to Applebee's Neighborhood Grill and
Bar restaurants is more than or less than expenditures made from such
Fund through the Closing Date allocated to the ADIs in accordance with
Buyer's historical practice; and
(d) Seller shall pay the replacement cost of any Assets that
have been substantially damaged as a result of fire, explosion,
earthquake, disaster, accident, any action by the United States or any
other governmental authority, earthquake, flood, drought, embargo,
riot, civil disturbance, uprising, activity of armed forces, act of
God, or public enemies;
Section 8.3 Buyer's Conditions to Closing. The obligations of Buyer
hereunder are subject to satisfaction of each of the following conditions at or
before Closing, the occurrence of which may, at the option of Buyer, be waived:
(a) All representations and warranties of Seller in this
Agreement shall be true in all material respects on and as of the
Closing as if made as of the Closing, and Seller shall have delivered
to Buyer a certificate to such effect dated as of the Closing Date;
provided however, that Seller may, not later than five days prior to
the Closing, deliver to Buyer updated Schedules which may only reflect
matters that arise after the date hereof (and that Seller could not
reasonably have known or anticipated as of the date hereof) and,
provided that such Schedules are reasonably acceptable to Buyer, such
Schedules shall supersede and replace the Schedules delivered by Seller
at the signing of this Agreement;
(b) There shall be no material adverse change in the Assets or
the operations of the Seller at the Restaurants or the business,
prospects and financial condition of the ADIs from the date hereof to
the Closing Date; provided that (i) any such adverse change must affect
more than five percent of the Restaurants, (ii) any adverse change in
the business and financial condition of the ADIs resulting from
national and regional economic conditions, events, or other factors
affecting the casual dining restaurant industry in general or the
Applebee's system in particular shall not be deemed to be a material
adverse change hereunder, and (iii) any such material adverse change
resulting from the actions or omissions of Buyer as franchisor or
otherwise shall not be a condition to Buyer's obligations hereunder;
(c) Seller shall have performed and complied in all material
respects with all of its obligations under this Agreement which are to
be performed or complied with by Seller prior to or on the Closing
Date;
(d) Seller shall be willing and able to deliver all of the
items required to be delivered by it pursuant to Section 3.2 of this
Agreement;
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(e) The form and substance of the documents delivered by
Seller pursuant to this Agreement shall be reasonably acceptable to
Buyer and Buyer's counsel;
(f) Seller shall have terminated the employment of all
employees as described in Section 5.5;
(g) Buyer shall have obtained, either from Seller or directly
from the issuing authority, all permits, licenses, including liquor
licenses, and approvals of all governmental and quasi-governmental
authorities necessary for the operation of the Restaurants as intended
by Buyer; provided, however, that if Buyer is unable to obtain from
local municipal or county authorities a permit necessary for such
operation of the Restaurants, and Buyer reasonably believes that it
will be able to obtain such a permit within two months of the Closing
Date, Closing of the transactions contemplated hereunder will not be
delayed if Seller delivers to Buyer a duly executed and mutually
acceptable liquor license management agreement or agreements;
(h) There shall be no claims, actions or suits pending or
threatened regarding the Assets or the Restaurants or that otherwise
would restrict or prohibit Seller from consummating the transactions
contemplated herein;
(i) The waiting period under the HSR Act shall have expired or
a notification of early termination of the waiting period shall have
been received by Buyer;
(j) Seller shall have obtained and delivered to Buyer all
necessary consents to transfer the Assets and assign the Material
Contracts to Buyer;
(k) Seller shall have delivered to Buyer audited financial
statements described in Section 5.12, in form and content sufficient to
satisfy the requirements of the Securities and Exchange Commission
applicable to Buyer and which are not substantially different from the
Unaudited Financial Statements, except for normal year end audit
adjustments in amount and nature consistent with Seller's historical
practice and for divisional overhead allocations; and
(l) Buyer shall have obtained the financing necessary for
Buyer to complete this transaction upon terms and conditions reasonably
acceptable to Buyer.
Section 8.4 Seller's Conditions to Closing. The obligations of Seller
hereunder are subject to satisfaction of each of the following conditions at or
before Closing, the occurrence of which may, at the option of Seller, be waived:
(a) All representations and warranties of Buyer in this
Agreement shall be true on and as of the Closing, and Buyer shall have
delivered to Seller a certificate to such effect dated as of the
Closing Date;
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(b) Buyer shall have performed and complied in all material
respects with all of its obligations under this Agreement which are to
be performed or complied with by Buyer prior to or on the Closing Date;
(c) Buyer shall be willing and able to deliver all of the
documents required to be delivered by it under Section 3.3 of this
Agreement;
(d) The form and substance of the documents delivered by Buyer
pursuant to this Agreement shall be reasonably acceptable to Seller and
Seller's counsel;
(e) The waiting period under the HSR Act shall have expired or
a notification of early termination of the waiting period shall have
been received by Buyer; and
(f) There shall be no claims, actions or suits pending or
threatened that would prohibit Seller from consummating the
transactions contemplated herein.
ARTICLE IX
INDEMNIFICATION AGAINST LOSS
Section 9.1 Indemnification by Seller. Seller agrees to defend,
indemnify, and hold harmless Buyer and its officers, directors, agents,
employees, and affiliates (collectively "Buyer Indemnified Parties"), against
and in respect of any and all loss, liability, lien, damage, cost and expense
(each, a "Claim") incurred or resulting from:
(a) Any misrepresentation or breach of warranty made by Seller
in this Agreement or in any certificate or Schedule delivered
hereunder;
(b) Any nonfulfillment of any covenant or agreement by Seller
under this Agreement or any liability related to noncompliance with any
bulk sales laws;
(c) Any tax liability of Seller (including, without
limitation, liabilities for taxes, interest, penalties, governmental
charges, duties, fees, and fines imposed by the United States, foreign
countries, states, counties, municipalities, and subdivisions, and by
all other governmental entities or taxing authorities), except to the
extent that such tax is expressly allocated to Buyer hereunder;
(d) Any liability of Seller (not expressly assumed hereunder)
to a third party related to operation of the Restaurants through the
Effective Time; and
(e) Any liability of Seller not expressly assumed by Buyer
hereunder, including but not limited to obligations arising with regard
to Seller's responsibilities under the Real Property Leases, Minor
Contracts and Material Contracts through the Effective Time.
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Section 9.2 Indemnification by Buyer. Buyer agrees to defend,
indemnify, and hold harmless Seller and its officers, directors, agents,
employees and affiliates against and in respect of any and all loss, liability,
lien, damage, costs and expense (each a "Claim") incurred or resulting from:
(a) Any misrepresentation or breach of warranty made by Buyer
in this Agreement or in any certificate or Schedule delivered
hereunder;
(b) Any nonfulfillment of any covenant or agreement by Buyer
under this Agreement;
(c) Any tax liability of Buyer (including, without limitation,
liabilities for taxes, interest, penalties, governmental charges,
duties, fees, and fines imposed by the United States, foreign
countries, states, counties, municipalities, and subdivisions, and by
all other governmental entities or taxing authorities), except to the
extent that such tax is expressly allocated to Seller hereunder;
(d) Any liability of Buyer (not expressly assumed hereunder)
to a third party related to operation of the Restaurants after the
Effective Time; and
(e) Any liability of Buyer not expressly assumed by Seller
hereunder, including but not limited to obligations arising with regard
to Seller's responsibilities under the Real Property Leases, Minor
Contracts and Material Contracts after the Effective Time.
Section 9.3 Limitation on Indemnification.
(a) No Buyer Indemnified Party shall be entitled to make any
Claim against Seller pursuant to Section 9.1(a) unless and until all
such Claims aggregate $1,000,000 (the "Threshold Amount"); provided,
however, that once such Claims exceed the Threshold Amount, the Buyer
Indemnified Parties may make all Claims against the Seller from the
first dollar of the first Allowed Claim. There shall be no limitation
imposed on the ability of Buyer Indemnified Parties to make claims
under any Section hereof other than Section 9.1(a).
(b) Notwithstanding subparagraph (a), above, there shall be no
limits or thresholds imposed on Claims made with respect to breaches of
Sections 4.2, 4.3, 4.5, 4.6(b), 4.9, 4.13 and 4.27.
Section 9.4 Time to Assert Claims. Any Claims made pursuant to Section
9.1, or otherwise hereunder, must be asserted by providing written notice to
party against which the Claim is made within the time period set forth on
Schedule 9.4. Any matters as to which a Claim has been asserted on or before the
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applicable deadline shall continue to be covered by Section 9.1, until finally
terminated or resolved.
Section 9.5 Resolution of Claims. In the event any party seeks
indemnification from the other for any Claim, the parties agree to meet with
each other, in the absence of attorneys and other non-employee advisors, to
discuss the basis for the Claim and to attempt in good faith to reach a
negotiated settlement of the Claim. During this process, either party may
request that an independent third party be used to mediate the dispute. If the
Claim has not been resolved to either party's satisfaction within sixty (60)
days from when the claimant first notified the other party of the existence of
the Claim, either party may seek judicial action to enforce or declare its
rights.
Section 9.6 Third Party Claim Indemnification Procedure. An indemnified
person shall promptly notify the indemnifying party of the existence of any
Claim resulting from a claim made by a third party and shall give the
indemnifying party the opportunity to defend the same at its own expense and
with counsel of its own selection, provided that such indemnified person shall
at all times also have the right to participate fully in the defense of the
Claim at his, her or its own expense. If the indemnifying party shall, within
fifteen (15) days after such notice, fail to acknowledge its indemnification
obligation hereunder in writing or thereafter fail to defend such Claim
adequately and reasonably, and such indemnified person is entitled to such
defense, such indemnified person shall have the right, but not the obligation,
to undertake the defense of, and to compromise or settle (exercising reasonable
business judgment) such Claim on behalf, for the account, and the sole risk and
expense, of the indemnifying party.
Section 9.7 Exclusive Remedies. The rights and remedies of the parties
under this Article IX shall be the sole and exclusive rights and remedies that
either party may seek for any misrepresentation, breach of warranty or failure
to fulfill any covenant or agreement under this Agreement, except that either
party may seek specific performance or injunctive relief.
ARTICLE X
MISCELLANEOUS
Section 10.1 Notices. Except as otherwise expressly provided, all
notices, consents, requests, demands and other communications hereunder shall be
in writing and shall be deemed to have been duly given (i) upon personal
delivery, (ii) upon facsimile transmission with confirmation of receipt, (iii)
one day after delivery to a commercial overnight delivery service with confirmed
receipt, or (iv) three days after delivery to the U.S. mail of notice sent by
certified U.S. mail, return receipt requested, with first class postage prepaid,
and in all cases, addressed as follows:
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(a) If to Seller: Apple South, Inc.
Hancock @ Washington
Madison, GA 30650-1304
Attn: Erich J. Booth
Fax: (706) 342-9283
With a copy to: Larry D. Ledbetter
Kilpatrick Stockton LLP
1100 Peachtree Street, Suite 2800
Atlanta, GA 30309
Fax: (404) 815-6555
(b) If to Buyer: Applebee's International, Inc.
4551 West 107th St., Suite 100
Overland Park, KS 66207
Attention: Robert T. Steinkamp
FAX: (913) 341-1696
With a copy to: James M. Ash
Blackwell Sanders Matheny Weary & Lombardi LLP
2300 Main Street, Suite 1100
Kansas City, MO 64108
FAX: (816) 983-9137
or to such other address as Buyer or Seller shall have last designated by notice
to the other party.
Section 10.2 Applicable Law. This Agreement shall be governed by, and
construed and enforced in accordance with, the internal laws of the State of
Delaware.
Section 10.3 Binding on Successors; Assignment. All of the terms,
provisions and conditions of this Agreement shall be binding upon and shall
inure to the benefit of the parties hereto, their respective successors, assigns
and legal representatives. Buyer may assign this Agreement or any of its rights
or obligations hereunder to any entity that controls, is controlled by, or is
under common control with Buyer; provided, however, such assignment shall not
relieve Buyer of its liabilities hereunder.
Section 10.4 Payment of Costs; Post-Closing Payments.
(a) Seller Costs. In addition to all other matters payable by
Seller hereunder, Seller shall pay:
(1) All of Seller's legal expenses;
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(2) One-half of all cost of the commitments to provide and
the costs of obtaining title insurance on the Real Property
for benefit of Buyer, with endorsements for surveys and
mechanics' lien, except for costs related to extraordinary
endorsements required by Buyer's lenders;
(3) One-half of all sales, transfer or other taxes arising
from the transactions contemplated hereby arising under state
law;
(4) One-half of all fees, costs and expenses incurred in
recording all real estate documents related to the
transactions contemplated hereby;
(5) All other costs and expenses incurred by Seller in
negotiating this Agreement and in consummating the
transactions contemplated hereby, including any costs
associated with obtaining any consent, waiver or approval
shown on Schedule 4.3, and fees or commissions payable to any
party representing Seller in connection with arranging or
negotiating this Agreement and the transactions contemplated
hereby, including without limitation all investment banker or
financial advisor fees; and
(6) The costs required for Seller to perform any of its
covenants under Article V, hereof.
(b) Buyer Costs. In addition to all other matters payable by
Buyer hereunder, Buyer shall pay:
(1) All of Buyer's legal expenses;
(2) All of the cost of the appraisal described in Section
2.6 of this Agreement;
(3) One-half of all fees, costs and expenses incurred in
recording all real estate documents related to the
transactions contemplated hereby;
(4) One-half of all cost of the commitments to provide and
the costs of obtaining title insurance on the Real Property
for benefit of Buyer, with endorsements for surveys and
mechanics' lien; and Buyer shall pay all costs related to
extraordinary endorsements required by Buyer's lenders;
(5) One-half of all sales, transfer or other taxes arising
from the transactions contemplated hereby arising under state
law;
(6) The cost of any environmental investigations required
by Buyer with respect to the Real Property; and
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(7) All other costs and expenses incurred by Buyer in
negotiating this Agreement and in consummating the
transactions contemplated hereby, including any fees or
commissions payable to any party representing Buyer in
connection with arranging or negotiating this Agreement and
the transactions contemplated hereby, including without
limitation all investment banker or financial advisor fees.
(c) Post-Closing Payments. Within 30 days after the end of
each of the first four fiscal quarters following the fiscal quarter in
which the Closing occurs, Buyer shall submit, in writing, a statement
of any payments made by Buyer in such quarter in satisfaction of any
Seller obligation under Section 10.4(a), and giving Seller credit for
any amounts paid by Seller in such quarter in satisfaction of any Buyer
obligation under Section 10.4(b), together with supporting
documentation in reasonable detail. The party shown as owing any amount
to the other on such statement shall pay such amount within 15 days of
the date of such statement.
Section 10.5 Closing Not to Prejudice Claim for Damages. Closing of the
transactions contemplated by this Agreement shall not prejudice any claim for
damages which either party may have hereunder, in law or in equity, due to a
material default in observance in the due and timely performance of any of the
covenants and agreements herein contained or for the breach of any warranty or
representation hereunder, unless such observance, performance, warranty, or
representation is specifically waived in writing by the party making such claim.
Section 10.6 Survival of Representations, Warranties, Covenants and
Undertakings. All of the representations, warranties, covenants and undertakings
not specifically addressed on Schedule 9.4, above, hereto shall survive the
execution of this Agreement and Closing indefinitely.
Section 10.7 Additional Documents. After Closing, each party agrees to
furnish such additional documents as are necessary to complete the transactions
contemplated hereby.
Section 10.8 Time is of the Essence. Time is of the essence in the
performance of the obligations of the parties hereunder.
Section 10.9 Interpretation. The title of the sections of this
Agreement are for convenience of reference only, and are not to be considered in
construing this Agreement. Whenever required by the context of this Agreement,
the singular shall include the plural and the masculine shall include the
feminine and vice versa.
Section 10.10 Entire Agreement. This Agreement and the Exhibits and
Schedules attached hereto and incorporated herein by this reference contain the
entire Agreement of the parties hereto with respect to the transactions
contemplated hereby and supersede any and all prior agreements, arrangements,
and understandings between the parties. No inducements contrary to the terms of
this Agreement exist. No waiver of any term, provision, or condition of this
Agreement, whether by conduct or otherwise, in any one or more instances shall
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be deemed to be construed as a further or continuing waiver of any such term,
provision or condition or any other term, provision or condition of this
Agreement. In connection with the execution and delivery of this Agreement,
neither party has relied on any promise, inducement, representation or warranty
of the other party not set forth in this Agreement, its Schedules and Exhibits.
This Agreement may not be modified orally and may only be amended in a writing
executed by all parties hereto.
Section 10.11 Counterparts. This Agreement may be executed in one or
more counterparts which in the aggregate shall comprise one Agreement.
Section 10.12 Termination.
(a) This Agreement may be terminated prior to the Closing as
follows:
(i) At any time by the mutual consent of Seller and Buyer;
(ii) By either Seller or Buyer, at its sole election, at
any time after April 30, 1998, if the Closing shall not have
occurred on or prior to such date;
(iii) By Buyer if any condition set forth in Section 8.3
hereof shall not have been met as of the Closing; or
(iv) By Seller if any condition set forth in Section 8.4
hereof shall not have been met as of the Closing.
(b) In the event of the termination of this Agreement pursuant
to subparagraph (iii) or (iv) above because Seller or Buyer, as the
case may be, shall have willingly or in bad faith failed to satisfy a
condition to the Closing, the other party shall be entitled to pursue,
exercise, and enforce any and all remedies, rights, powers, and
privileges available to it at law or in equity.
Section 10.13 Public Announcements. Buyer and Seller will coordinate
with each other all press releases relating to the transactions contemplated by
this Agreement and, except to the extent required by law in the written opinion
of independent legal counsel (which opinion shall promptly be provided to the
other party), refrain from issuing any press release, publicity statement or
other public notice relating to this Agreement or the transactions contemplated
hereby without providing the other party reasonable opportunity to review and
comment thereon.
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ARTICLE XI
DIVESTITURE OF REMAINDER
RESTAURANTS
Section 11.1 Seller Exit from Applebee's System. After the Closing,
Seller will continue to operate the Remaining Restaurants as a part of Buyer's
Applebee's Neighborhood Grill & Bar franchise system (the "System") and, except
as otherwise provided herein, or in the Mutual Release delivered herewith, in
accordance with the terms and conditions of the Franchise Agreements and as a
separate division (the "Applebee's Division") in various Arbitron Ratings Areas
of Dominant Influence (the "Remaining ADIs"). Seller agrees that it will use its
reasonable best efforts to divest itself completely of all Remaining Restaurants
as soon as is practicable and in accordance with the terms and conditions of
this Agreement. In keeping with its obligation to divest the Remaining
Restaurants, Seller will diligently seek Qualified Buyers (as defined in
Schedule 11.2 attached hereto) for the Remaining Restaurants and will negotiate
with such parties in good faith to effect the intent of Seller's complete
divestiture of the Remaining Restaurants before December 31, 1999. In addition,
upon the execution of this Agreement, Seller shall no longer be a member of, or
be allowed to appoint or vote on any members of the Applebee's Franchise
Business Council.
Section 11.2 Seller Financing Guarantee. To facilitate its complete
exit from the System, Seller shall take the following actions:
(a) Seller shall provide financing assistance to Qualified
Buyers affiliated with Seller's existing management personnel in its
Applebee's Division consisting of a financial guarantee of up to 10% of
the borrowings being financed by such Qualified Buyer for any Remaining
Restaurants;
(b) In no event shall Seller be required to guarantee more
than $10,000,000 in the aggregate for all Qualified Buyers related to
Applebee's Division management;
(c) In no event shall Seller or any affiliate of Seller
provide any equity financing or debt financing convertible into equity
to any Qualified Buyer, regardless of its affiliation with Seller's
Applebee's Division management;
(d) Seller's obligations under Section 11.2(a) are limited to
(and required to be of equal dollar value to) those instances in which
Buyer has also provided a guarantee to such Qualified Buyer under
Section 11.6(a).
Section 11.3 Continued Operation of Remaining Restaurants. In order to
maintain the value of the Remaining Restaurants and to facilitate their sale to
and post-sale operation by Qualified Buyers, Seller shall operate each Remaining
Restaurant through the effective date of its sale in accordance with Seller's
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historical practices and at least in accordance with the requirements of the
applicable Applebee's franchise agreement, and, in any event, Seller shall:
(a) Continue to implement in a timely fashion, as currently
scheduled or budgeted in 1998, or in 1999 in accordance with historical
operating standards, and in each year in accordance with System
requirements, the restaurant remodeling program on all Remaining
Restaurants so long as they are owned by Seller;
(b) Maintain advertising expenditures in the Remaining ADI's
in accordance with the franchise agreement obligations;
(c) Maintain field operation staffing at levels consistent
with historical practices;
(d) Not transfer any restaurant personnel from Seller's
Applebee's Division to any other concept or to a position in Seller's
corporate offices; and
(e) Maintain in accordance with good business practice the
smallwares, inventories, furniture, fixtures and equipment and real
estate improvements related to each Remaining Restaurant.
Section 11.4 Employee Solicitation by Seller. From the date hereof
until the earlier of (i) the expiration of the Seller Put Period (as defined
below) or (ii) December 31, 1999, in both cases with respect to persons employed
on the date hereof or hired hereafter, and who are assigned to the Applebee's
Division, (A) Seller will encourage such persons to accept employment with the
party that acquires the Remaining Restaurant or is granted the Remaining ADI to
which they are assigned, and (B) once employed by such party or by another party
operating Applebee's restaurants, Seller shall not solicit such persons for
employment by Seller or any affiliated entity nor encourage in any manner such
persons to leave the employ of such Applebee's operator.
Section 11.5 Continued Restaurant Development.
(a) Seller shall continue to develop and open Applebee's
restaurants in its Remaining ADI's as set forth on Schedule 11.5
attached hereto. All such development efforts will be undertaken by
Seller in accordance with Applebee's standard System specifications and
its historical practice and level of effort and Seller will continue to
use its reasonable best efforts to maintain the development and opening
schedules of such restaurants as shown on Schedule 11.5.
(b) To the extent that Seller has identified or otherwise
begun the process of developing a location for an Applebee's restaurant
in a Remaining ADI, Seller shall offer the party that purchases the
Remaining Restaurants in such Remaining ADI the right to assume
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Seller's interest in such site at a cost no greater than Seller's
out-of-pocket invested cost therein and a reasonable internal overhead
allocation.
(c) Buyer acknowledges that the development requirements set
forth herein are in place of the requirements set forth in the
Development Agreements and the Universal Agreement between Buyer and
Seller and such requirements in such Agreements are hereby terminated.
Section 11.6 Buyer Financing Guarantee. To facilitate the exit of
Seller from the System, Buyer shall take the following actions:
(a) Buyer, if requested by Seller and the Qualified Buyer,
shall provide financing assistance to Qualified Buyers (except for any
entity set forth on Schedule 11.6(a) hereto) consisting of a financial
guarantee of up to 10% of the third party borrowings with credible
institutional lenders by such Qualified Buyer used to purchase any
Remaining Restaurants.
(b) In no event shall Buyer be required to guarantee more than
5% of such borrowing with respect to any Qualified Buyer affiliated
with any individual identified on Schedule 11.6(b) attached hereto.
(c) In no event shall Buyer be required to guarantee more than
$10,000,000 in the aggregate for all Qualified Buyers.
Section 11.7 Approval of Qualified Buyers.
(a) Buyer shall use its reasonable best efforts to consider
for approval in an expeditious manner sale transactions between Seller
and Qualified Buyers (which may include members of Seller's Applebee's
Division management), provided that such requests for approval are
submitted by Seller and such Qualified Buyer in accordance with the
terms and conditions of the applicable franchise agreement and together
with all reasonably requested information and documentation.
(b) Approval by Buyer of a sale by Seller to a Qualified Buyer
shall be dependent upon, among other matters, the agreement by the
Qualified Buyer to development obligations for Applebee's restaurants
in the applicable Remaining ADI no greater than the number set forth on
Schedule 11.7(b) attached hereto, to be developed in a reasonable and
customary time period considering all factors that the Buyer normally
considers.
(c) In no event shall Buyer be required to approve a sale
transaction by Seller (i) to any person or entity who in the sole
discretion of Buyer does not meet the standard of a Qualified Buyer or
(ii) that does not include all of the Remaining Restaurants (exclusive
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of those to be de-identified by Seller in conjunction with such sale
pursuant to Section 11.8) in the applicable Remaining ADI, to the
extent Seller controls all territory in the applicable Remaining ADI.
(d) Buyer agrees that the entities listed on Schedule 11.7(d)
are Qualified Buyers and that they will be approved as purchasers of
the Remaining Restaurants described in and on the terms and conditions
set forth in the letters of intent dated December 10, 1997 and December
16, 1997, respectively, between Seller and each of them, subject to (i)
Buyer and such purchaser reaching an agreement as to the development
obligations shown on Schedule 11.7(b) hereto, and (ii) Buyer's
acceptance of such purchaser's financial structure and financing plans.
(e) Any Qualified Buyer who is approved by Buyer for the
purchase of any Remaining Restaurants and who completes such purchase
prior to the earlier of (i) the end of the Seller Put Period, or (ii)
December 31, 1999, will be required to execute Buyer's then standard
form of franchise agreement except that the royalty rates and
advertising fees will not be greater for those Qualified Buyers than
the royalty rates and advertising fees described in Schedule 11.7(e)
attached hereto.
(f) Buyer will use its reasonable best efforts to provide or
otherwise make available to Seller any information received by Seller
concerning requests for acquisition of existing Applebee's restaurants.
(g) Seller agrees that in no event shall it institute
litigation against Buyer in connection with Buyer's failure to approve
Rob Andreatolla or any affiliated group as a buyer for any Remaining
Restaurants.
Section 11.8 Seller De-identification of Remaining Restaurants. Solely
in connection with the sale to third parties of Remaining Restaurants, Seller
may remove all Applebee's logos and other identifying marks and take the other
actions described below ("De-identification" or "De-identify") for up to an
aggregate of eleven Remaining Restaurants. Upon such De- identification, the
franchise agreement with respect to such Remaining Restaurant shall be
terminated. Such De-identification shall only be effected upon the closing of a
transaction with a third party in which all Remaining Restaurants in that
Remaining ADI are sold. Whenever Seller is to De-identify a Remaining
Restaurant, either under this Section or another provision of this Agreement,
Seller must, at a minimum, take the following actions:
(i) within 5 days after closing of the third party sale, close such
restaurant to the public;
(ii) within 5 days following closure, remove all signage, menus,
awnings, smallwares and paper products containing any logos or
otherwise trademarked design of Buyer, and all decor items (such as
lamps, wall decorations, statues, plate glass, stained glass, etc.)
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that are required or suggested as a part of the standard or optional
decor package for an Applebee's Neighborhood Grill & Bar restaurant;
and
(iii) within 180 days following removal, certify in writing to Buyer
the sale of such items to a then existing franchisee in the System or
the destruction of such items.
Section 11.9 Employee Solicitation by Buyer. From the date hereof until
the earlier of (i) the expiration of the Seller Put Period, or (ii) December 31,
1999, with respect to persons employed on the date hereof in Seller's Applebee's
Division, Buyer will not solicit such persons for employment by Buyer nor
encourage in any manner such persons to leave the employ of Seller, except with
respect to Seller's ADI Personnel.
Section 11.10 Covenant Not to Compete. Seller agrees that it will not,
and that it will cause its agents, affiliates, or employees not to on its
behalf, (i) for a period of six months following the execution of this
Agreement, conduct any discussion or negotiation with any representative of any
person or entity owning or operating, or that owns any interest in any entity
that owns or operates, any Chili's Grill & Bar restaurant business or any TGI
Friday's restaurant business, concerning any acquisition of or investment in
such entity or any of such person's or entity's assets related to the ownership
of such restaurant business, and (ii) during the period of one year following
the execution of this Agreement, announce or consummate any transaction with any
person or entity owning or operating, or that owns any interest in any entity
that owns or operates, any Houlihan's restaurant business or any Ruby Tuesday's
restaurant business, concerning any acquisition of or investment in any such
entity or any of such person's or entity's assets related to the ownership or
operation of such restaurant business.
Section 11.11 Seller Put Rights.
(a) Seller Put. At such time as Seller owns and operates 15 or
fewer Remaining Restaurants, Seller shall have up to six months, but in
no event later than December 31, 1999 (the "Seller Put Period') in
which to exercise an option (the "Seller Put"), subject to the
conditions set forth in this Section below, (i) to require Buyer to
purchase each Remaining Restaurant at a price as set forth on Schedule
11.11 hereto; or (ii) to De-identify up to 10 Remaining Restaurants (in
addition to those De-identified pursuant to Section 11.8 above) in the
aggregate, at Seller's expense but without payment of any amount to
Buyer.
(b) ADI Designation. Seller may exercise the Seller Put only
on a Remaining ADI by Remaining ADI basis, such that all Remaining
Restaurants within a particular Remaining ADI are either purchased by
Buyer or De-identified by Seller.
(c) Notification of Exercise. Seller shall notify Buyer in
writing of its exercise of the Seller Put as soon as possible but in no
event later than the last day of the Seller Put Period. Such notice
shall specify the Remaining Restaurants being sold to Buyer or De-
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identified by Seller by Remaining ADI and shall set forth Seller's
calculation of the LTM Cash Flow (as defined on Schedule 11.11) for
each Remaining Restaurant and Remaining ADI being sold with appropriate
explanatory and supporting materials.
(d) Asset Purchase Agreement. The purchase of any Remaining
Restaurants by Buyer pursuant to the Seller Put is subject to the
execution by Seller and Buyer of an asset purchase agreement with
respect to such Remaining Restaurants substantially similar to this
Agreement; provided, however, that the indemnification basket will be
equal to one percent of the purchase price. Seller shall provide Buyer
with a draft of the asset purchase agreement and Seller and Buyer shall
both use reasonable efforts to complete the transfer of any Remaining
Restaurants as soon as possible. If a Remaining Restaurant is not
purchased because of the failure to meet a closing condition of the
asset purchase agreement, such Remaining Restaurant shall be
De-identified by Seller.
Section 11.12 Buyer Call Rights.
(a) Buyer Call. At the earlier of (i) the end of the Seller
Put Period, if Seller has not exercised the Seller Put, or (ii) January
1, 2000, if Seller continues to own and operate in excess of 15
Remaining Restaurants, Buyer has the option (the "Buyer Call") to
purchase all of the Remaining Restaurants, subject to the conditions
set forth in this Section below, as follows:
(1) If Seller operates 15 or fewer Remaining Restaurants,
such Remaining Restaurants shall be purchased at a
price as set forth on Schedule 11.12 hereto.
(2) If Seller operates in excess of 15 Remaining
Restaurants, Buyer may designate (a "Designation") up
to 15 Remaining Restaurants as "A Restaurants", which
shall be purchased by Buyer at a price as set forth
on Schedule 11.12 hereto.
(3) Buyer may then Designate up to an additional 35
Remaining Restaurants as "B Restaurants", which shall
be purchased by Buyer at a price as set forth on
Schedule 11.12 hereto.
(4) If Seller owns and operates in excess of 50 Remaining
Restaurants, Buyer may Designate any additional
Remaining Restaurants over 50 as "C Restaurants",
which shall be purchased by Buyer at a price as set
forth on Schedule 11.12 hereto.
(b) Remaining ADI Designation. Buyer retains the exclusive
right to determine the Designation of any particular Remaining
Restaurant as an A, B or C Restaurant. Buyer shall make such
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determination on a Remaining ADI by Remaining ADI basis, so that all
Remaining Restaurants in a particular Remaining ADI are in the same
Designation; provided, however, that Buyer may divide the Remaining
Restaurants among Designations in one Remaining ADI as needed to meet
the entire number of Remaining Restaurants in each Designation. Buyer
may not split a Remaining ADI with respect to a decision to purchase a
Remaining Restaurant. All Remaining Restaurants in a particular
Remaining ADI must be (i) purchased by Buyer, or (ii) De-identified as
set forth in (d) below.
(c) Seller Selected Stores. Notwithstanding the forgoing, if
Buyer determines to purchase any Remaining Restaurants in accordance
with the Buyer Call, Seller may designate up to an aggregate of 10
Remaining Restaurants (the "Selected Stores") for which the purchase
price shall be the greater of the (i) applicable LTM Cash Flow price or
(ii) the liquidation appraised value of the real estate, equipment and
fixtures related to such Remaining Restaurants in the aggregate (the
"Floor Price"). The right to determine the Selected Stores shall be
exclusive to Seller and must be made on a Remaining ADI by Remaining
ADI basis. If the Floor Price is in excess of the LTM Cash Flow price,
Buyer may elect not to purchase the Selected Stores, in which case
Seller may (i) De-identify the Selected Stores, or (ii) offer to sell
them to Buyer at the LTM Cash Flow price. If Seller chooses to
De-identify the Selected Stores, neither Seller nor any affiliated
entity may use any part of that location for another restaurant
concept. Seller shall utilize Cushman & Wakefield to perform a
liquidation valuation, at Seller's expense, to determine the Floor
Price. The items described in this Section 11.12(c) shall take no
longer than 60 days to complete, and shall have no effect on the
completion of the remainder of the Buyer Call.
(d) Buyer's Right to De-Identify. If Buyer exercises the Buyer
Call, Buyer may require Seller to De-identify, at Seller's cost, up to
an aggregate of 5 Remaining Restaurants, on a Remaining ADI by
Remaining ADI basis.
(e) Notification of Exercise. At the earlier of (i) the end of
the Seller Put Period, or (ii) January 1, 2000, Seller shall continue
to provide Buyer with a calculation of the LTM Cash Flow for the
Remaining Restaurants and the Remaining ADIs, on a monthly basis, with
appropriate explanatory and supporting materials. At any time
thereafter, without expiration, Buyer may notify Seller in writing of
its intent to exercise the Buyer Call, specifying which Remaining
Restaurants, by Remaining ADI, will be purchased, De-identified, or
remain with Seller, and the A, B, or C Designation of each Remaining
Restaurant. Seller shall then have 10 days in which to notify Buyer of
any designation of Selected Stores.
(f) Asset Purchase Agreement. The purchase of any Remaining
Restaurants by Buyer pursuant to the Buyer Call is subject to the
execution by Seller and Buyer of an asset purchase agreement with
respect to such Remaining Restaurants substantially similar to this
Agreement; provided, however, that the indemnification basket will be
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equal to one percent of the purchase price. Buyer shall provide Seller
with a draft of the asset purchase agreement and Buyer and Seller shall
use reasonable efforts to complete the transfer of the Remaining
Restaurants as soon as practicable after exercise of the Buyer Call. If
a Remaining Restaurant is not purchased because of the failure to meet
a closing condition of the asset purchase agreement, such Remaining
Restaurant shall be De-identified by Seller.
[SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, the parties hereto have executed this
Agreement on the day, month, and year first above written.
BUYER:
APPLEBEE'S INTERNATIONAL, INC.
By: /s/ George D. Shadid
--------------------------------
Name: George D. Shadid
--------------------------------
Executive Vice President & Chief
Title: Financial Officer
--------------------------------
SELLER:
APPLE SOUTH, INC.
By: /s/ Tom E. Dupree, Jr.
--------------------------------
Name: Tom E. Dupree, Jr.
--------------------------------
Title: Chairman & Chief Executive Officer
--------------------------------
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