<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 13D
(Amendment No. 1)
Under the Securities Exchange Act of 1934
Harry's Farmers Market, Inc.
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(Name of Issuer)
Class A Common Stock, no par value
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(Title of Class of Securities)
415863-10-9
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(CUSIP Number)
Saad J. Nadhir
Chairman, President and Chief Executive Officer
Progressive Food Concepts, Inc.
14103 Denver West Parkway
Golden, Colorado 80401
303-278-9500
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(Name, Address and Telephone Number of Person Authorized to Receive
Notices and Communications)
August 27, 1997
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(Date of Event which Requires Filing of this Statement)
If the filing person has previously filed a Statement on Schedule 13G to report
the acquisition which is the subject of this Schedule 13D, and is filing this
schedule because of Rule 13d-1(b)(3) or (4), check the following box. [_]
The information required on the remainder of this cover page (the pages numbered
2 and 3 herein) shall not be deemed to be "filed" for the purpose of Section 18
of the Securities Exchange Act of 1934 ("Act") or otherwise subject to the
liabilities of that section of the Act but shall be subject to all other
provisions of the Act.
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CUSIP NO. 415863-10-9 13D PAGE 2
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NAME OF REPORTING PERSON
1 S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
Progressive Food Concepts, Inc.
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CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP*
2 (a) [_]
(b) [_]
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SEC USE ONLY
3
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SOURCE OF FUNDS
4
AF
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CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT
TO ITEMS 2(d) or 2(e) [_]
5
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CITIZENSHIP OR PLACE OF ORGANIZATION
6
Delaware
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SOLE VOTING POWER
7
NUMBER OF 2,000,000*
SHARES -----------------------------------------------------------
SHARED VOTING POWER
BENEFICIALLY 8
0
OWNED BY
-----------------------------------------------------------
EACH SOLE DISPOSITIVE POWER
9
REPORTING 2,000,000*
PERSON -----------------------------------------------------------
SHARED DISPOSITIVE POWER
WITH 10
0
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AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
11
2,000,000*
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CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES
12
[_]
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PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
13
32.69%*
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TYPE OF REPORTING PERSON
14
CO
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*SEE ITEM 5 OF TEXT BELOW.
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CUSIP NO. 415863-10-9 13D PAGE 3
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NAME OF REPORTING PERSON
1 S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
Boston Chicken, Inc.
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CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP*
2 (a) [_]
(b) [_]
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SEC USE ONLY
3
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SOURCE OF FUNDS
4
WC
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CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT
TO ITEMS 2(d) or 2(e) [_]
5
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CITIZENSHIP OR PLACE OF ORGANIZATION
6
Delaware
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SOLE VOTING POWER
7
NUMBER OF 2,000,000*
SHARES -----------------------------------------------------------
SHARED VOTING POWER
BENEFICIALLY 8
0
OWNED BY
-----------------------------------------------------------
EACH SOLE DISPOSITIVE POWER
9
REPORTING 2,000,000*
PERSON -----------------------------------------------------------
SHARED DISPOSITIVE POWER
WITH 10
0
- ------------------------------------------------------------------------------
AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
11
2,000,000*
- ------------------------------------------------------------------------------
CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES
12
[_]
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PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
13
32.69%*
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TYPE OF REPORTING PERSON
14
CO
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*SEE ITEM 5 OF TEXT BELOW.
<PAGE>
This Amendment relates to the Statement on Schedule 13D filed by
Progressive Food Concepts, Inc., a Delaware corporation, Scott A. Beck and Saad
J. Nadhir on February 10, 1997 (the "Schedule 13D"). All terms used herein,
unless otherwise defined, shall have the same meaning as in the Schedule 13D.
1. Item 2 of the Schedule 13D is hereby amended and restated to read in
its entirety as follows:
ITEM 2. IDENTITY AND BACKGROUND
(a)-(c) This Statement is being filed by Progressive Food Concepts, Inc., a
Delaware corporation formerly known as HFMI Acquisition Corporation ("PFCI"),
and Boston Chicken, Inc., a Delaware corporation ("BCI"). (PFCI and BCI are
sometimes collectively referred to herein as the "Reporting Persons"). BCI owns
on the date of this Statement approximately 85.29% of the outstanding shares of
common stock of PFCI (the "PFCI Common Stock").
By reason of the transaction described under Item 3 of this Statement,
Scott A. Beck and Saad J. Nadhir are no longer required to file a Statement on
Schedule 13D with respect to the Issuer.
PFCI was incorporated in January 1997 for the purpose of engaging in the
transactions described in this Statement and is engaged in the business of
developing a business model based on the Issuer's business. BCI operates and
franchises retail food stores under the Boston Market(R) brand name. The
principal business address of each Reporting Person is 14103 Denver West
Parkway, Golden, Colorado 80401.
Appendix A attached to this Statement and incorporated by reference herein
sets forth with respect to each director and executive officer of PFCI and BCI,
his or her: (a) name; (b) business address; and (c) present principal occupation
or employment and the name, principal business, and address of any corporation
or other organization in which such employment is conducted.
(d) During the last five years, neither of the Reporting Persons nor (to
the knowledge of the Reporting Persons) any executive officer or director of a
Reporting Person has been convicted in a criminal proceeding (excluding traffic
violations and similar misdemeanors).
(e) During the last five years, neither of the Reporting Persons nor (to
the knowledge of the Reporting Persons) any executive officer or director of a
Reporting Person has been a party to a civil proceeding of a judicial or
administrative body of competent jurisdiction which resulted in a judgment,
decree or final order (i) enjoining future violations of, or prohibiting or
mandating activities subject to, federal or state securities laws or (ii)
finding a violation with respect to such laws.
(f) All executive officers and directors of the Reporting Persons are
citizens of the United States.
4
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2. Item 3 of the Schedule 13D is hereby amended and restated to read in
its entirety as follows:
ITEM 3. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION
As more fully described in Items 4 and 6 hereto, on January 31, 1997, PFCI
purchased from the Issuer a warrant (the "Warrant") to purchase 2,000,000 shares
of Class A Common Stock of the Issuer. The purchase price paid by PFCI for the
Warrant was $1,000,000 in cash. The principal terms of the Warrant are described
under Item 6 below. The purchase price for the Warrant was paid by PFCI from the
proceeds received by PFCI from subscriptions by Scott A. Beck and Saad J. Nadhir
for shares of PFCI Common Stock.
On August 27, 1997, Messrs. Beck and Nadhir each sold to BCI 4,000 shares
of PFCI Common Stock for (i) $1,000,000 in cash and (ii) a promissory note of
BCI in the principal amount of $3,181,480. The consideration paid by BCI to
Messrs. Beck and Nadhir equals their original cost for such interests in PFCI
plus an 8% per annum interest factor. As a consequence of the foregoing
transaction, BCI owns approximately 85.29% of the outstanding PFCI Common Stock.
Messrs. Beck and Nadhir also sold to BCI their right to subscribe for additional
shares of PFCI Common Stock in consideration of BCI's assumption of all
obligations of such persons under their subscription agreements with PFCI.
Messrs. Beck and Nadhir also granted to BCI an option to acquire their remaining
shares of PFCI Common Stock and obtained the right, at their option, to sell
such shares to BCI.
3. The penultimate paragraph of Item 4 of the Schedule 13D is hereby
amended and restated to read in its entirety as follows:
Except as set forth in Item 4 and Item 6, none of the Reporting Persons
nor (to the Reporting Persons' knowledge and subject to the qualification set
forth in the next paragraph) any of the executive officers or directors of the
Reporting Persons has any current plans or proposals which relate to or would
result in any of the actions specified in clauses (a) through (j) of Item 4 of
Schedule 13D, although each of the Reporting Persons and such executive officers
and directors reserves the right to effect or seek to effect any such actions in
the future.
4. The final paragraph of Item 4 of the Schedule 13D is hereby deleted.
5. Item 5 of the Schedule 13D is hereby amended and restated to read in its
entirety as follows:
ITEM 5. INTEREST IN SECURITIES OF THE ISSUER
(a) Based on the Issuer's Quarterly Report on Form 10-Q for the Issuer's
fiscal quarter ended April 30, 1997 (the "Quarterly Report"), there were
4,118,056 outstanding shares of Class A Common Stock as of June 11, 1997. PFCI
is the beneficial owner of 2,000,000 shares of Class A Common Stock (all of
which are shares of Class A Common Stock which PFCI has the right to acquire
within 60 days of such date). Based on the Quarterly Report, such shares
represent approximately 32.69% of the outstanding number of shares of Class A
Common Stock (including for this purpose shares of Class A Common Stock for
which the Warrant is currently exercisable), and approximately 29.48% of the
total issued and outstanding shares of Class A
5
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Common Stock and Class B Common Stock of the Issuer (also including for this
purpose shares of Class A Common Stock for which the Warrant is currently
exercisable).
BCI owns on the date of this Statement approximately 85.29% of the
outstanding shares of PFCI Common Stock. BCI does not otherwise beneficially own
any Class A Common Stock on the date of this Statement.
(b) PFCI and BCI (by virtue of its ownership of approximately 85.29% of the
outstanding shares of PFCI Common Stock) have the power to vote, and to direct
the vote of, and the power to dispose of, and direct the disposition of, any
shares of Class A Common Stock that may be acquired by PFCI upon the exercise of
the Warrant.
(c) During the past 60 days, neither the Reporting Persons nor (to the
knowledge of the Reporting Persons), any executive officer or director of a
Reporting Person effected any transactions in the Class A Common Stock.
(d) Not applicable.
(e) Not applicable.
6. The first two paragraphs of the section of Item 6 of the Schedule 13D
entitled "Loan Agreement" are hereby amended and restated in their entirety as
follows:
Loan Agreement. The Issuer and PFCI are also parties to an amended and
restated secured loan agreement dated as of June 6, 1997 (the "Loan Agreement"),
pursuant to which PFCI has agreed to provide the following three credit
facilities (the "Loans") to the Issuer: (i) the Refinancing Loan, (ii) the
Development Loan and (iii) a Special Development Loan (which loan facility was
added in connection with the amendment of the Loan Agreement in June 1997).
Under the Refinancing Loan, PFCI advanced on January 31, 1997 the aggregate
principal amount of $12 million to the Issuer, which amount was used by the
Issuer to repay indebtedness. The Development Loan obligates PFCI, subject to
certain conditions, to advance from time to time commencing on January 31, 1997
and ending on January 31, 2002, amounts requested by the Issuer in an aggregate
principal amount not to exceed $8 million. Proceeds of the Development Loan are
to be used by the Issuer for general corporate purposes and to fund expenditures
in connection with the development of a business model for the improvement and
expansion of the Issuer's business and facilities. The Special Development Loan
obligates PFCI, subject to certain conditions, to advance from time to time
commencing on June 6, 1997 and ending on June 6, 1998, amounts requested by the
Issuer in an aggregate principal amount not to exceed $1 million; provided that
PFCI's commitment to fund the Development Loan is reduced by the principal
amount outstanding from time to time on the Special Development Loan. Proceeds
of the Special Development Loan are to be used by the Issuer solely to fund
loans to certain tomato suppliers of the Issuer. If unpaid on June 6, 1998,
amounts outstanding under the Special Development Loan are thereafter treated as
part of the Development Loan. The Loans are subordinated in right of payment to
certain indebtedness of the Issuer and are secured by a second priority lien on
substantially all of the assets of the Issuer and its subsidiaries.
6
<PAGE>
PFCI has the option (the "Option"), at any time after the earlier of (i)
the acceleration of any of the Loans or (ii) July 30, 1998 and up to the first
day of the first fiscal quarter of the Issuer commencing after January 31, 2002,
to purchase that number of shares of Series B Preferred Stock of the Issuer at a
purchase price equal to $40.00 per share (as may be adjusted from time to time
to reflect any reclassification or change of outstanding shares of Series B
Preferred Stock of the Issuer or in the case of certain mergers involving the
Issuer or the sale or conveyance of the Issuer as an entirety or substantially
as an entirety, the "Option Price") equal to (A) $20 million divided by (B) the
Option Price; provided, however, PFCI shall be permitted to exercise the Option
to purchase shares of Series B Preferred Stock of the Issuer in excess of
300,000 shares (i) only to the extent that PFCI has initially funded the
Development Loan (at a rate of one share becoming exercisable for each $40 of
funding), unless such Development Loan was not funded due to a material breach
of the Issuer thereunder or under certain other agreements between the Issuer
and PFCI, (ii) with respect to the Special Development Loan, only to the extent
of the aggregate principal amount of the Special Development Loan outstanding on
June 6, 1998 and (iii) in any case, to purchase up to a maximum of 200,000
shares of Series B Preferred Stock of the Issuer. PFCI is required to exercise
the Option for that number of shares of Series B Preferred Stock equal to (A)
$12 million divided by (B) the Option Price, not later than January 31, 2002,
provided that at such time there exists no uncured event of default under the
Refinancing Loan. The purchase price payable upon any exercise of the Option
will be paid by a contribution to the Issuer of a principal amount of the Loans
equal to the purchase price, or to the extent the principal amount of the Loans
is insufficient for this purpose, by delivery of cash.
7. The last paragraph of Item 6 of the Schedule 13D is hereby deleted.
8. The exhibits to the Schedule 13D are amended as set forth in the
exhibit index, which appears elsewhere herein, and is incorporated herein by
reference.
7
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SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and
correct.
PROGRESSIVE FOOD CONCEPTS, INC.
By: /s/ Saad J. Nadhir
---------------------------
Title: Chairman, President and
Chief Executive Officer
8
<PAGE>
SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and
correct.
BOSTON CHICKEN, INC.
By: /s/ Paul A. Strasen
------------------------
Title: Vice President
9
<PAGE>
APPENDIX A
PROGRESSIVE FOOD CONCEPTS, INC.
The following individuals are executive officers and/or directors of PFCI.
Unless otherwise noted, the business address of each such individual is 14103
Denver West Parkway, P.O. Box 4086, Golden, Colorado 80401-4086.
Name Title at Reporting Person
Saad J. Nadhir Chairman, President and Chief Executive Officer
and Director
Patrick J. McDonnell Chief Operating Officer and Director
Jeffry J. Shearer Director. Mr. Shearer is a self-employed private
investor. Mr. Shearer's business address is 770
Pasquinelli Drive, Suite 400, Westmont, IL 60559.
Thomas R. Sprague Secretary and Treasurer and Director
************
BOSTON CHICKEN, INC.
The following individuals are executive officers and/or directors of BCI.
Unless otherwise noted, the business address of each such individual is 14103
Denver West Parkway, P.O. Box 4086, Golden, Colorado 80401-4086.
Name Title at Reporting Person
Scott A. Beck Chairman of the Board, Chief Executive Officer,
President and Director
Mark W. Stephens Vice Chairman of the Board, Chief Financial
Officer, and Director
Mark R. Goldston Vice Chairman of the Board and Director
Mark A. Link Vice President-Financial Reporting
<PAGE>
Dennis Mullen Chief Financial Officer - Boston Market Concept
Joel M. Alam Senior Vice President, General Counsel and
Secretary
Dean L. Buntrock Director
Mr. Buntrock is a director of Waste Management, Inc., a Delaware corporation
("Waste Management"). Mr. Buntrock is also a director of Waste Management
International plc and Wheelabrator Technologies, Inc., both subsidiaries of
Waste Management. He is also a director of First Chicago NBD Corporation. Mr.
Buntrock's business address is 3003 Butterfield Road, Oak Brook, Illinois
60521.
Arnold C. Greenberg Director
Mr. Greenberg is an attorney and self-employed private investor. He formerly
served as the Chairman of the Board of Directors and Chief Executive Officer of
Coleco Industries, Inc.
J. Bruce Harreld Director
Mr. Harreld is Senior Vice President-Strategy of International Business Machines
Corporation. Mr. Harreld's business address is Old Orchard Road, Armonk, New
York 10504.
M Howard Jacobson Director
Mr. Jacobson is a Senior Advisor to Bankers Trust, Private Advisory Services.
Mr. Jacobson also serves as a director of Allmerica Property and Casualty
Companies, Inc., Wyman-Gordon Company, and Stonyfield Farm, Inc.
Peer Pedersen Director
Mr. Pedersen is Chairman of the Board of Pedersen & Houpt, P.C., a Chicago,
Illinois law firm. Mr. Pedersen also serves as a director of WMX, Aon
Corporation, Extended Stay America, Inc. and Latin America Growth Fund. Mr.
Pedersen's business address is 161 N. Clark Street, Suite 3100, Chicago,
Illinois 60601-3224.
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
<C> <S>
1. Joint Filing Agreement, dated August 28, 1997, among PFCI and BCI.*
2. Amended and Restated Secured Loan Agreement, dated June 6, 1997,
between the Issuer and PFCI.*
3. Transaction Agreement, dated January 31, 1997, between the Issuer
and PFCI.**
4. Warrant to Purchase Shares of Class A Common Stock, dated January
31, 1997, issued by the Issuer to PFCI.**
5. Articles of Amendment to the Articles of Incorporation of the Issuer
designating the Series B Preferred Stock of the Issuer.**
6. Registration Rights Agreement, dated January 31, 1997, between the
Issuer and PFCI.**
7. Consulting Services Agreement, dated January 31, 1997, between the
Issuer, PFCI and Harry A. Blazer.**
8. Acquisition Agreement, dated January 31, 1997, between the Issuer
and PFCI.**
</TABLE>
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* Filed herewith
** Filed with original Schedule 13D on February 10, 1997
<PAGE>
Exhibit 1
JOINT FILING AGREEMENT
The undersigned agree that the Statement on Schedule 13D, or amendment
thereto, to which this Agreement is attached is filed on behalf of each one of
them pursuant to Rule 13d-1(f)(1)(iii). This Agreement may be executed in any
number of counterparts, each of which shall be deemed to be an original and all
of which together shall constitute one instrument.
Dated: August 28, 1997
PROGRESSIVE FOOD CONCEPTS, INC.
By: /s/ Saad J. Nadhir
---------------------------
Name: Saad J. Nadhir
Its: Chairman, President and
Chief Executive Officer
BOSTON CHICKEN, INC.
By: /s/ Paul A. Strasen
---------------------------
Name: Paul A. Strasen
Its: Vice President
<PAGE>
Exhibit 2
AMENDED AND RESTATED
SECURED LOAN AGREEMENT
----------------------
This amended and restated secured loan agreement (the "Agreement") is made
and entered into as of the 6th day of June, 1997 between PROGRESSIVE FOOD
CONCEPTS, INC. (F/K/A HFMI ACQUISITION CORPORATION), a Delaware corporation
("Newco"), and HARRY'S FARMERS MARKET, INC., a Georgia corporation (the
"Company").
Recitals
--------
Newco and the Company entered into that Secured Loan Agreement dated
January 31, 1997 (the "Original Agreement") pursuant to which Newco agreed to
provide certain secured loans to the Company. This Agreement is being entered
into to amend and restate the Original Agreement and to provide three separate
credit facilities to the Company: (i) a refinancing credit facility, (ii) a
development credit facility, and (iii) a special development credit facility.
Covenants
---------
In consideration of the mutual representations, warranties, and covenants
set forth herein, and in consideration of any advances made hereunder to or for
the benefit of the Company by Newco, the parties hereto agree as follows:
ARTICLE I
The Refinancing Loan
--------------------
1.1 The Refinancing Loan. Newco agrees, on the terms and subject to the
conditions hereinafter set forth, including, but not limited to, the conditions
to loan advances set forth in Article V hereof and the limitation on the amount
available from time to time to be borrowed set forth in Section 3.2 hereof, to
advance on the Closing (as defined in Section 3.7 hereof) the principal amount
of $12,000,000 (the "Refinancing Loan"). The Refinancing Loan shall be advanced
by wire transfer of Newco to the account of the Company.
1.2 Purposes of the Refinancing Loan. Proceeds of the Refinancing Loan
shall be used by the Company to repay $12,000,000 in principal amount of
indebtedness owed to NationsBank, N.A. (South).
<PAGE>
ARTICLE II
The Development Loan and the Special Development Loan
-----------------------------------------------------
2.1 The Development Loan. Newco agrees, on the terms and subject to the
conditions hereinafter set forth, including, but not limited to, the conditions
to loan advances set forth in Article V hereof and the limitation on the amount
available from time to time to be borrowed set forth in Section 3.2 hereof, to
advance at any time and from time to time during the period commencing on the
date hereof and ending on the fifth anniversary of the date hereof (the "Draw
Loan Termination Date"), amounts requested by the Company in an aggregate
principal amount not to exceed $8,000,000 (the "Development Loan"). Each
advance of the Development Loan shall be in a minimum amount of $100,000 and
shall be made by wire transfer of Newco to the account of the Company.
2.2 Purposes of the Development Loan. Proceeds of the Development Loan
shall be used by the Company solely (i) to fund expenditures of the Company
provided for in Section 3 of the Consulting Services Agreement of even date
herewith among Newco, the Company and Harry A. Blazer and (ii) for general
corporate purposes in accordance with the last sentence of Section 3.2 hereof.
2.3 Special Development Loan. Newco agrees, on the terms and subject to
the conditions hereinafter set forth, including, but not limited to, the
conditions to loan advances set forth in Article V hereof and the limitation on
the amount available from time to time to be borrowed set forth in Section 3.2
hereof, to advance at any time and from time to time during the period
commencing on the date hereof and ending on June 6, 1998 (the "Special
Development Draw Loan Termination Date"), amounts requested by the Company in an
aggregate principal amount not to exceed $1,000,000 (the "Special Development
Loan"). Each advance of the Special Development Loan shall be in a minimum
amount of $25,000 and integral multiples of $1,000 in excess of that amount and
shall be made by wire transfer of Newco to the account of the Company.
2.4 Purposes of the Special Development Loan. Proceeds of the Special
Development Loan shall be used by the Company solely to fund loans (the
"Supplier Loans") from the Company to Ritter Farms, a Tennessee partnership
("Ritter") and Grainger County Tomato Company, a Tennessee partnership ("GCTC,"
and together with Ritter, the "Suppliers"), tomato suppliers to the Company.
2.5 Status of the Special Development Loan. The parties agree that
advances made by Newco to fund the Special Development Loan pursuant to Section
2.3 shall reduce its commitment to fund the Development Loan by an equivalent
amount, and that such commitment shall be increased by the amount of principal
of the Special Development Loan repaid to Newco on or before the Special
Development Draw Loan Termination Date. All amounts of principal and interest
on the Special Development
2
<PAGE>
Loan which remain unpaid after the Special Development Draw Loan Termination
Date shall be treated as though they had been advanced as part of the
Development Loan.
ARTICLE III
General Provisions
------------------
3.1 Promissory Notes. The Refinancing Loan, the Development Loan, and the
Special Development Loan (together, the "Loans") shall be evidenced by
promissory notes (the "Notes") in the form attached hereto as Exhibit A-1 dated
January 31, 1997 (the "Refinancing Note"), Exhibit A-2 dated January 31, 1997
(the "Development Note") and Exhibit A-3 of even date herewith (the "Special
Development Loan").
3.2 Maximum Principal Balance. The aggregate outstanding principal
balance of the Loans shall at no time exceed $20,000,000, less the principal
amount of debt contributed in respect of option exercises under Section 3.9 (the
"Maximum Principal Balance"); provided, however, that the aggregate outstanding
principal balance of the Development Loan and the Special Development Loan shall
at no time exceed $8,000,000; provided, further, that Newco shall have no
obligation to fund, nor shall the Company have any right to borrow hereunder,
during any fiscal year, any portion of the Development Loan unless Newco and the
Company have approved a budget setting forth the use of the proceeds of such
funding. Notwithstanding the second proviso above, the Company may use proceeds
of, and Newco shall be obligated to fund without regard to any budget and/or
approval thereof by Newco, the Development Loan for general corporate purposes
in an amount not to exceed $500,000 from the Closing through the first
anniversary of the Closing, $1,000,000 from the Closing through the second
anniversary of the Closing, $1,500,000 from the Closing through the third
anniversary of the Closing and $2,000,000 from the Closing through the fourth
anniversary of the Closing ("Committed Loans").
3.3 The Loan Account. Newco shall maintain a loan account on its books in
which shall be recorded all advances under the Loans (collectively, "Advances")
made by Newco to the Company pursuant to this Agreement, and all payments made
by the Company with respect to the Loans; provided, however, that failure to
maintain such account or record any advances therein shall not relieve the
Company of its obligations to repay the outstanding principal amount of the
Loans, all accrued interest thereon, and any amount payable with respect thereto
in accordance with the terms of this Agreement and the Notes.
3.4 Interest Rate.
(a) Interest shall accrue daily on the aggregate outstanding principal
balance of the Refinancing Loan and the Development Loan, for the period
commencing on the date such Loans are made until such Loans are paid in full,
(i) during the period
3
<PAGE>
commencing on the date such Loans are made until the Draw Loan Termination Date,
at a per annum rate of 5%, and (ii) thereafter at a per annum rate equal to the
rate designated and announced by Bank of America Illinois or its successor in
interest ("B of A") from time to time as its "reference rate" in effect at its
principal office in Chicago, Illinois, plus 1%. The interest rate shall be
adjusted, from time to time, on the same day on which B of A adjusts its
"reference rate." Interest on the outstanding principal amount of such Loans
shall be payable in arrears on the dates set forth herein and at maturity
(whether at stated maturity, by acceleration or otherwise).
(b) Interest shall accrue daily on the aggregate outstanding principal
balance of the Special Development Loan, for the period commencing on the date
such Loan is made until such Loan is paid in full, (i) during the period
commencing on the date such Loan is made until the Special Development Draw Loan
Termination Date, at a per annum rate of 10%, (ii) from the Special Development
Draw Loan Termination Date until the Draw Loan Termination Date, at a per annum
rate of 5%, and (iii) thereafter at a per annum rate equal to the rate
designated and announced by Bank of America Illinois or its successor in
interest ("B of A") from time to time as its "reference rate" in effect at its
principal office in Chicago, Illinois, plus 1%. The interest rate shall be
adjusted, from time to time, on the same day on which B of A adjusts its
"reference rate." Interest on the outstanding principal amount of the Special
Development Loan shall be payable in arrears on the dates set forth herein and
at maturity (whether at stated maturity, by acceleration or otherwise).
(c) Interest shall be computed on the basis of a 360-day year and the
actual number of days elapsed.
(d) Any principal payment due under a Note not paid when due, whether
at stated maturity, by notice of repayment, by acceleration or otherwise, shall,
to the extent permitted by applicable law, thereafter bear interest (compounded
monthly and payable upon demand) at a rate which is 2% per annum in excess of
the rate of interest otherwise payable under this Agreement in respect of such
principal amount until such unpaid amount has been paid in full (whether before
or after judgment).
3.5 Payment of Interest. During the Interest Payment Period (as defined
below) the Company shall pay to Newco interest only on the outstanding principal
balance of the Refinancing Loan and the Development Loan on the first day of
each fiscal quarter of the Company. The "Interest Payment Period" shall mean
the period commencing on the first day of the fiscal quarter immediately
following the date on which the Company initially draws on the Refinancing Loan
and the Development Loan under this Agreement and continuing through and
including the Draw Loan Termination Date. The Company shall pay to Newco
interest on the outstanding principal balance of the Special Development Loan
(i) on the fifth Business Day of each calendar month, commencing on the first
such date immediately following the date on which the Company initially draws on
such Loan until the Special Development Draw Loan Termination Date, and (ii)
after the Special Development Draw Loan Termination Date until the Draw Loan
Termination Date, as provided above with respect to the Refinancing Loan and the
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Development Loan. Thereafter the Company shall pay principal and interest as
provided in Section 3.6 hereof.
3.6 Repayment of the Loans. Except as set forth in Section 7.7 with
respect to the Special Development Loan, if not earlier paid, exchanged in
accordance with Section 3.9, or if not accelerated for payment, the outstanding
principal amount of the Loans shall, at the close of business on the Draw Loan
Termination Date, thereafter become an amortized term loan payable as follows:
the principal balance of the Loans shall be payable to Newco in 20 substantially
equal quarterly installments of principal (the amount of which periodic
installments of principal shall be determined at the close of business on the
Draw Loan Termination Date based on a schedule amortizing such outstanding
principal balance of the Loans as of such date in 40 substantially equal
quarterly installments of principal), plus accrued but unpaid interest, on the
first day of each of Newco's 20 consecutive fiscal quarters, commencing on the
first day of the first quarter commencing after the Draw Loan Termination Date
and continuing until the first day of the first quarter commencing after the
fifth anniversary of the Draw Loan Termination Date, when the entire remaining
principal balance of the Loans and all interest accrued thereon shall be due and
payable.
3.7 Term of this Agreement. This Agreement and all covenants and
agreements of Newco hereunder shall be effective as of January 31, 1997 and
shall continue in effect until the last to occur of (i) the exercise,
expiration, or other termination of all remaining option rights granted in
Section 3.9 hereof, (ii) the date on which there is no amount (principal or
interest) remaining outstanding under the Notes and (iii) the date on which
Newco no longer has an obligation to make any Advances hereunder if the Company
were to make a valid request for an Advance pursuant to and in accordance with
Article V hereof. Notwithstanding the effective date of this Agreement, the
closing of the loan transaction contemplated hereby (the "Closing") shall take
place at the offices of Sutherland, Asbill & Brennan, L.L.P., 999 Peachtree
Street, N.E., Atlanta, Georgia, at 8:00 a.m., local time, on January 31, 1997
(the "Closing Date").
3.8 Subordination of the Loans. The Loans and other obligations of the
Company under the Notes and this Agreement have been subordinated in right of
payment, and the liens and security interest granted by the Company or its
Subsidiaries to secure the Loans have been subordinated in right of priority, to
certain indebtedness and any refinancing of such indebtedness, in each case
pursuant to a certain Intercreditor Agreement, dated as of January 31, 1997 (the
"Intercreditor Agreement"), between Newco and Creditanstalt-Bankverein, as the
agent (in such capacity and together with any successor Agents, the "Agent") for
the lenders party to the Amended and Restated Credit Agreement, dated as of
December 30, 1994, or any agreement governing such refinancing indebtedness
(such agreement as amended, supplemented or refinanced, the "Bank Credit
Agreement"), among the Company, such lenders and the Agent. Any instrument,
document or agreement evidencing or securing the Loans, including, but not
limited to, the Notes, will on the date hereof or on the date of execution
thereof, whichever is later, shall either provide by its terms, or shall be
inscribed with a legend indicating, that
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such instrument, document or agreement has been subordinated pursuant to the
Intercreditor Agreement and is subject to the terms and conditions thereof.
3.9 Option and Mandatory Share Purchase.
(a) Subject to the provisions of Section 3.9(b), Newco shall have the
option, at any time and from time to time after the earlier of (i) the
acceleration of any of the Loans or (ii) July 30, 1998 and up to the later of
the first day of the first fiscal quarter of the Company commencing after the
Draw Loan Termination Date, to purchase (the "Option") at a purchase price of
$40 per share (the "Option Price") up to that number of shares of Series B
Preferred Stock of the Company equal to (A) the Maximum Principal Balance,
divided by (B) the Option Price, provided, however, that Newco shall be
permitted to exercise the Option to purchase the shares of Series B Preferred
Stock in excess of 300,000 shares (adjusted in the same manner as provided in
Section 3.9(e)) (i) only to the extent it has initially funded the Development
Loan (at a rate of one share becoming exercisable for each $40 of funding)
unless such Development Loan was not funded due to a material breach of any of
the Company's obligations to Newco under the agreements entered into between the
Company and Newco on January 31, 1997 (which breach was not cured pursuant to
any applicable right to notice and cure), (ii) with respect to the Special
Development Loan, only to the extent of the aggregate principal amount of the
Special Development Loan outstanding on the Special Development Draw Loan
Termination Date, and (iii) in any case, only to purchase up to a maximum of
200,000 shares of Series B Preferred Stock (as adjusted in the same manner as
provided in Section 3.9(e)).
(b) Newco shall be required to exercise the Option and thereby
purchase from the Company, and the Company shall be required to sell to Newco,
that number of shares of Series B Preferred Stock equal to (A) $12,000,000,
divided by (B) the Option Price, not later than the fifth anniversary of the
date hereof, provided that Newco shall not be required to consummate such
purchase if on such date there exists any Refinancing Default unless such
Refinancing Default is cured in accordance with the provisions of Section 10.2
hereof, in which event Newco shall be required to consummate such purchase upon
such cure.
(c) Newco shall pay the purchase price upon any exercise of the Option
by the contribution to the Company of a principal amount of the Loans equal to
the purchase price, and, to the extent the principal amount of outstanding Loans
is insufficient for this purpose, by delivery of cash.
(d) Upon exercise of any portion of the Option under this Section 3.9,
Newco's obligations to make additional Advances to the Company under this
Agreement shall be reduced by an aggregate amount equal to the amount paid upon
such Option exercise.
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(e) In case of any reclassification or change of outstanding shares of
Series B Preferred Stock of the Company or in case of any consolidation or
merger of the Company with or into any partnership, corporation, or other entity
(other than a merger in which the Company is the surviving entity and which does
not result in any reclassification or change of outstanding shares of Series B
Preferred Stock of the Company, other than a change in number of shares of
Series B Preferred Stock of the Company issuable upon exercise of the Option) or
in case of any sale or conveyance to any partnership, corporation, or other
entity of the property of the Company as an entirety or substantially as an
entirety, then the holder of the Notes shall have the right thereafter to
exercise the Option for the kind and amount of units and other securities and
property receivable upon such reclassification, change, consolidation, merger,
sale, or conveyance by a holder of the number of shares of Series B Preferred
Stock of the Company issuable upon exercise of the Option immediately prior to
such reclassification, change, consolidation, merger, sale, or conveyance,
subject to adjustments which shall be as nearly equivalent as may be practicable
to the adjustments provided for herein.
3.10 Obligations. Subject to Section 10.2 hereof, all Advances made
hereunder, and all interest accrued thereon, shall constitute one obligation of
the Company with regard to enforcing the security interests granted by this
Agreement and by all other security interests, liens, claims, and encumbrances
from time to time hereafter granted to Newco by the Company. For all other
purposes, except as otherwise set forth herein with respect to the Development
Loan and the Special Development Loan, the Development Loan, the Special
Development Loan, and the Refinancing Loan shall be separate obligations. In
the event Newco makes one or more payments to a senior lender to the Company to
cure any payment default by the Company, such amounts shall be considered
Advances hereunder, shall bear interest (compounded monthly) at a rate which is
2% per annum in excess of the rate referred to in Section 3.4(a)(ii), shall be
payable on demand and shall be subordinated in accordance with the terms of the
Intercreditor Agreement.
3.11 Credit Resources. The Company acknowledges that Newco has informed it
that Newco may not from time to time in the future have cash, cash equivalents,
and credit resources sufficient to permit Newco to necessarily make all
requested Advances under this Agreement while maintaining sufficient working
capital for Newco's operating needs. The Company agrees that in the event Newco
shall fail to fund the Loans as and to the extent required hereby solely as a
result of the unavailability to Newco of cash and/or credit resources to fund
the Loans and not as a result of any failure of the Company to satisfy the
conditions precedent to Advances or of the occurrence of a Development Default
or Event of Default hereunder (a "Funding Default"), such Funding Default shall
not (a) constitute fraud (by any person or entity, including Newco and its
successors and assignees) or (b) give rise to any liability of any person or
entity (other than Newco and its successors and assignees) in any other tort,
and the Company further agrees that it shall be limited to its remedies in
contract and in a non-fraud tort action against Newco. Newco and the Company
agree that this Section 3.11 shall not diminish or otherwise affect in any way
the amount of damages for which
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Newco may be liable to the Company in a contract or non-fraud tort action for a
Funding Default.
3.12 Payment Method. All payments to be made by the Company hereunder
shall be made in lawful money of the United States, in immediately available
funds, without set off, counterclaims, deduction or withholding of any type.
3.13 Tax Treatment. The Company and Newco both covenant and agree that
they will each treat aggregate outstanding principal balances of the Refinancing
Loan, the Development Loan, and the Special Development Loan created hereunder
as debt for income, state and local tax purposes, unless the parties expressly
otherwise agree.
ARTICLE IV
Security and Collateral
-----------------------
4.1 Security Interest. To secure payment and performance of the Company's
obligations hereunder and under the Notes, and any and all other indebtedness,
obligations or liabilities of any kind of the Company to Newco arising under
this Agreement, whether now existing or hereafter arising, direct or indirect,
absolute or contingent, joint and/or several, the Company hereby grants to Newco
a continuing security interest in and to the following property and interests in
property, whether now owned or hereafter acquired by the Company and wheresoever
located:
(a) all of the Company's property and rights and interest therein
(except in connection with the Nationwide Debt Agreement (as defined in Section
4.2), accounts, equipment (including, but not limited to machinery, furniture,
fixtures, tools, and other tangible property), inventory, leasehold
improvements, contract rights (including its rights as lessee under all leases
of real property), general intangibles (other than intellectual property that is
required to be contributed to the HFMI Trust but including the Company's
interest in the HFMI Trust evidenced by HFMI Trust Certificate and the license
granted thereby), deposit accounts, tax refunds, chattel paper, instruments,
notes, letters of credit, documents, and documents of title, capital stock or
other ownership interests of all Subsidiaries (as defined in Section 8.10
hereof) and all shares of common stock of Newco owned by the Company;
(b) all insurance proceeds of or relating to any of the foregoing;
(c) all of the Company's books, records, and computer programs and
data relating to any of the foregoing; and
(d) all accessories and additions to, substitutions for, and
replacements, products, and proceeds of, any of the foregoing (all of the
foregoing, and all of the security described in Sections 4.2 and 4.3, being
referred to collectively as the "Collateral").
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4.2 Subsidiary Security Documents. The Company shall cause each person or
entity becoming a Subsidiary of the Company from time to time to execute and
deliver to Newco, within thirty (30) days after such person or entity becomes a
Subsidiary, a guarantee substantially in the form attached hereto as Exhibit B-1
and a security agreement substantially in the form attached hereto as Exhibit B-
2, together with all financing statements and other related documents (including
real estate deeds to secure debt) as Newco may reasonably request and such
closing documents with respect to such Subsidiary of the type described in
Article IX as Newco may reasonably request, sufficient to grant to Newco a
second-priority lien and security interest in all assets of each Subsidiary of
the type described in Section 4.1, except to the extent prohibited by the Bank
Credit Agreement or the Company's and/or any Subsidiary's agreements with
Nationwide Life Insurance Company, or any refinancing of such indebtedness (such
agreements, together with any refinancing thereof, the "Nationwide Debt
Agreement").
4.3 Preservation of Collateral and Perfection of Security Interests
Therein.
(a) the Company shall execute and deliver to Newco, and shall, except
to the extent prohibited by the Nationwide Debt Agreement, execute and deliver
or cause any Subsidiary of the Company to execute and deliver to Newco at any
time or times hereafter at the request of Newco or the Agent (as defined in
Section 4.4 below), all financing statements or other documents, including real
estate deeds to secure debt on real estate owned by the Company or its
Subsidiaries and Subsidiary security agreements (the "Security Instruments")
(and pay the cost of filing or recording the same in all public offices deemed
reasonably necessary by Newco), as Newco or the Agent may reasonably request, in
forms satisfactory to Newco, and take all further action that Newco or the Agent
may request, or which may be reasonably necessary or desirable, to perfect and
keep perfected a second-priority security interest in the Collateral granted by
the Company to Newco, to create and perfect a second-priority security interest
in the assets of any Subsidiaries of the Company provided in Section 4.2 hereof,
or otherwise to protect and preserve the Collateral and Newco's security
interest therein. Should the Company fail to do so after receipt of five (5)
business days' notice in writing, Newco is authorized to sign any such Security
Instruments as the Company 's agent.
(b) the Company will furnish to Newco from time to time statements and
schedules further identifying and describing the Collateral and such other
reports in connection with the Collateral as Newco may reasonably request, all
in reasonable detail.
(c) the Company shall notify Newco, within thirty (30) days after the
occurrence thereof, of the acquisition of any property by the Company that is
not subject to the existing liens and security interests, in favor of Newco, of
any person or entity's becoming a Subsidiary, and of any other event or
condition that may require additional action of any nature in order to create,
preserve, or perfect the liens and security interests of Newco.
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(d) the Company shall, except to the extent prohibited by the
Nationwide Debt Agreement, cause each Subsidiary to cause all tangible
Collateral to be maintained and preserved in the same condition, repair and
working order as when new, ordinary wear and tear excepted, and in accordance
with any manufacturer's manual.
4.4 Alternate Security Agreements. If requested by Newco in order for the
transactions contemplated by this Agreement to comply with the limitations and
restrictions of any applicable agreement between Newco and its lender or between
its lender and its lender's banks and any bank designated as agent for its
lender's banks ("Newco Bank Agent"), as amended from time to time, or to obtain
a waiver therefrom, the Company hereby agrees that a security interest as
referred to in Section 4.1 hereof, and the additional security interests
described in Sections 4.2 and 4.3 hereof may be assigned by Newco to Newco's
lender or to the Newco Bank Agent.
ARTICLE V
Conditions to Advances
----------------------
Notwithstanding any other provisions contained in this Agreement, Newco's
obligations to make any Advance (including an initial Advance) provided for in
Section 1.1, Section 2.1, and Section 2.3 shall be conditioned upon the
following:
5.1 No Material Adverse Change. No material adverse change, in the
financial condition, results of operations, assets, or business of the Company,
shall have occurred at any time or times subsequent to the date thereof, or, in
the event such a material adverse change shall have occurred, such change shall
have been fully remedied without any material adverse effect on the financial
condition, results of operations, assets or other business of the Company and
its Subsidiaries taken as a whole, provided, however, that changes resulting
from the activities of Newco and the Company under the consulting agreement of
even date herewith between Newco and the Company shall not be taken into account
for this purpose ("Material Adverse Effect").
5.2 No Default. Neither a Development Default (as that term is defined in
Article X hereof) nor any event which, through the passage of time or the
service of notice or both, would mature into a Development Default (an "Event of
Default") shall have occurred and be continuing. The condition set forth in
this Section 5.2 shall be a condition only to Advances under the Development
Loan and the Special Development Loan.
5.3 Representations and Warranties. The representations and warranties
contained in Article VI hereof and in the other Security Instruments shall be
true and correct on and as of the date such Advance is made.
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5.4 Other Requirements. Newco shall have received, in form and substance
satisfactory to it, all certificates, consents, affidavits, schedules,
instruments, and other documents which the Company is obligated to provide to
Newco hereunder or which Newco may at any time reasonably request.
5.5 Advance Request. Other than the initial Advance, Newco shall have
received, at least five business days prior to the day an Advance is to be made
hereunder, (i) a certificate of the Company in the form attached hereto as
Exhibit C, which shall be signed by the chief operating officer, chief financial
officer or other officer of the Company that Newco deems appropriate, and (ii)
copies of all other documents required to be delivered to Newco under Section
7.1 below or otherwise reasonably requested.
ARTICLE VI
Representations and Warranties
------------------------------
The Company represents and warrants that:
6.1 Financial Statements. The financial statements to be furnished to
Newco or the Agent in accordance with Section 7.1 below will be prepared in
conformity with generally accepted accounting principles consistently applied
throughout the periods involved, and will fairly present in all material
respects the financial condition of the Company and its Subsidiaries at the
dates thereof and its results of operations for the periods indicated (subject,
in the case of financial statements covering less than one full fiscal year, to
normal recurring year-end adjustments).
6.2 [Intentionally Omitted.]
6.3 [Intentionally Omitted.]
6.4 No Pending Material Litigation or Proceedings. There are no actions,
suits, investigations or proceedings pending or, to the knowledge of the Company
or its Subsidiaries, threatened against or affecting the Company or its
Subsidiaries or the business or properties of the Company or its Subsidiaries,
in any court or before or by any governmental department, commission, board,
agency or instrumentality, or any arbitrator which could reasonably be expected
to have a Material Adverse Effect. Neither the Company nor any of its
Subsidiaries is in default with respect to any order, writ, injunction, or
decree of any court or arbitrator or governmental agency.
6.5 Valid Organization; Due Authorization; Valid and Binding Agreement.
(a) the Company is a corporation duly organized, validly existing,
and in good standing under the laws of the State of Georgia, with power and
authority to enter into and perform this Agreement and to issue the Notes and
incur the indebtedness to be
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evidenced thereby. The Company is qualified to do business in each additional
jurisdiction in which failure to so qualify could have a material adverse affect
on its property, business, operations, or prospects.
(b) This Agreement and the Notes have each been duly authorized by all
required action on the part of the Company, and each of this Agreement and the
Notes has been duly executed and delivered by the Company and constitutes the
legal, valid, and binding obligation of the Company enforceable in accordance
with its terms.
(c) The execution and delivery of this Agreement and the Note and the
performance by the Company of its obligations hereunder and thereunder are not
in contravention of any law, rule or regulation, including without limitation
Regulation G, T, U, or X of the Board of Governors of the Federal Reserve
System, and will not conflict with or result in any breach of any of the
provisions, or constitute a default under or result in the creation or
imposition of any lien or encumbrance (except as expressly provided herein) upon
any of the property of the Company pursuant to any of the provisions of the
articles of incorporation or bylaws of the Company, as amended to date, or any
agreement or instrument to which the Company is a party or by which it or its
assets is bound.
(d) No consent, authorization, approval, or other action by, and no
notice to or filing with, any governmental authority or regulatory body or any
other person, which has not been obtained or taken, is required for the
execution and delivery of, or the performance by the Company of its obligations
under, this Agreement or the Notes.
6.6 Conduct of Business. Since their inception, the Company and each
Subsidiary has conducted its business and operations in a manner consistent with
that of an owner and operator of retail food stores, food processing facilities,
baking and food distribution facilities and other activities incidental thereto
(the "Company Business").
6.7 Absence of Material Liabilities. Neither the Company nor any
Subsidiary has any material liabilities or obligations, either accrued,
absolute, contingent, or otherwise, except (a) as set forth in its most recent
unaudited balance sheet, (b) normal liabilities and obligations incurred in the
ordinary course of business since the date of its most recent unaudited balance
sheet, and (c) obligations under contracts and agreements entered into in the
ordinary course of business.
6.8 Tax Matters. The Company and its Subsidiaries have filed all federal,
state, and local tax returns which are required to be filed, except for
extensions duly obtained, and has paid, or made provisions for the payment of,
all taxes which have become due pursuant to such returns or pursuant to any
assessment received by the Company or any Subsidiary, except such taxes, if any,
as are being contested in good faith and as to which adequate reserves have been
provided.
6.9 Ownership of Collateral; Security Interest Priority. At the time any
Collateral becomes subject to a security interest of Newco hereunder, unless
Newco shall otherwise consent, (a) the Company or a Subsidiary shall be the
lawful owner of such
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Collateral and have the right and authority to subject the same to the security
interest of Newco, (b) none of the Collateral or collateral granted by any
Subsidiary under a Subsidiary Security Agreement shall be subject to any lien or
encumbrance other than (i) those in favor of Newco and that in favor of the
Agent, (ii) those set forth in the Company Disclosure Schedule (as defined in
the Transaction Agreement of even date herewith between Newco and the Company)
and refinancings or renewals thereof, (iii) those permitted by the Bank Credit
Agreement, and (iv) those liens that secure indebtedness permitted by Section
8.5 hereof (collectively, the "Permitted Liens"), nor shall there be an
effective financing statement covering any such Collateral on file in any public
office, other than those which evidence Permitted Liens. This Agreement creates
in favor of Newco a valid and perfected second-priority security interest in the
Collateral enforceable against the Company or its Subsidiary, as the case may
be, and all third parties (other than the Agent) and secures the payment of the
Company's obligations hereunder and under the Note, and all other obligations of
the Company to Newco, whether now existing or hereafter arising, and all filings
and other actions necessary or desirable to create, preserve, or perfect such
security interest have been duly taken. Notwithstanding the foregoing provisions
of this Section 6.9, clause (b) and (c) and the immediately preceding sentence
of this Section 6.9 shall not be inaccurate by reason of any purchase money
security interest (including pursuant to a financing lease) in any equipment for
the Company's stores.
6.10 Location of Offices, Records, and Facilities. The Company's chief
executive office and chief place of business and the office where the Company
keeps its records concerning its accounts, contract rights, chattel papers,
instruments, general intangibles, and other obligations arising out of or in
connection with the operation of its business or otherwise ("Receivables"), and
all originals of all leases and other chattel paper which evidence Receivables,
are located in the State of Georgia, at the address of the Company set forth in
Section 11.4 hereof (as such address may be changed from time to time in
accordance therewith). The federal tax identification number of the Company is
58-2037452. The name of the Company is "Harry's Farmers Market, Inc." and the
Company operates under no other names other than the names "Harry's Farmers
Market(R) " and "Harry's In A Hurry(R)" on its stores.
6.11 Location of Inventory, Fixtures, Machinery, and Equipment.
(a) All Collateral consisting of inventory, fixtures, machinery, or
equipment is located in the following locations: 1180 Upper Hembree Road,
Roswell, Georgia; 1075 Northfield Way, Roswell, Georgia; 2025 Satellite Pointe,
Duluth, Georgia; 1875 Peachtree Street, Atlanta, Georgia; 3804 Roswell Road,
N.E., Atlanta, Georgia; 70 Powers Ferry Road, Marietta, Georgia and 1780 Nolan
Court, Morrow, Georgia (the "Clayton Property"), and at no other locations
without at least 30 days prior notice.
(b) If the Collateral described in clause (a) is kept at leased
locations, the Company will, at the request of Newco, use reasonable best
efforts to obtain appropriate landlord lien waivers or subordination
satisfactory to Newco, unless such has been waived in writing by Newco for the
particular instance.
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(c) If the Collateral described in clause (a) is warehoused, the
Company will, at the request of Newco, use reasonable best efforts to
appropriate warehousemen's notices, each reasonably satisfactory to Newco,
unless such has been waived by Newco for the particular instance.
6.12 Investment Company Act. The Company is not an "investment company",
or a company "controlled" by an "investment company", within the meaning of the
Investment Company Act of 1940, as amended.
6.13 Public Utility Holding Company Act. The Company is not a "holding
company", or an "affiliate" of a "holding company" or a "subsidiary company" of
a "holding company", within the meaning of the Public Utility Holding Newco Act
of 1935, as amended.
6.14 Subsidiaries. The Company has no Subsidiaries as of the date of this
Agreement, other than Roman Properties, Inc., Karelea, Inc., and Marthasville
Trading Company.
ARTICLE VII
Affirmative Covenants
---------------------
The Company covenants and agrees that so long as this Agreement remains in
effect:
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7.1 Financial Statements. The Company shall cause to be furnished to
Newco and, at Newco's request, to Newco's lender or to the Agent: (i) as soon
as practicable and in any event within 45 days after the end of each interim
fiscal quarter, statements of income and cash flows of the Company and its
Subsidiaries for such period and for the period from the beginning of the then
current fiscal year to the end of such quarter and a balance sheet of the
Company and its Subsidiaries as of the end of such quarter, setting forth in
each case, in comparative form, figures for the corresponding periods in the
preceding fiscal year, certified as accurate by the chief financial officer or
treasurer of the of the Company, subject to changes resulting from normal,
recurring year-end adjustments; (ii) as soon as practicable and in any event
within 90 days after the end of each fiscal year, statements of income and cash
flows of the Company and its Subsidiaries for such year, and a balance sheet of
the Company and its Subsidiaries as of the end of such year, setting forth in
each case, in comparative form, corresponding figures for the preceding fiscal
year and as of the end of the preceding fiscal year, audited by independent
certified public accountants selected by the Company and reasonably satisfactory
to Newco; and (iii) as soon as practicable (but in any event not more than five
business days after the president or chief financial officer of the Company
obtains knowledge of the occurrence of an event or the existence of a
circumstance giving rise to an Event of Default or a Development Default),
notice of any and all Events of Default or Development Defaults hereunder. All
financial statements delivered to Newco, and if applicable, Newco's lender or
the Agent pursuant to the requirements of this Section 7.1 shall be prepared in
accordance with generally accepted accounting principles consistently applied.
The Company authorizes Newco to discuss the financial condition of the Company
with the Company's independent public accountants and agrees that such
discussion or communication shall be without liability to either Newco or the
Company's independent public accountants.
7.2 Inspection. Newco, or any person designated from time to time by
Newco, shall have the right, from time to time hereafter, to call at the
Company's or its Subsidiaries' place or places of business on reasonable notice
during ordinary business hours, and, without hindrance or delay, (a) to inspect,
audit, check, and make copies of and extracts from the Company's and its
Subsidiaries' books, records, journals, orders, receipts, and any correspondence
and other data relating to the business of the Company or its Subsidiaries or to
any transactions between the parties hereto, and (b) to discuss the affairs,
finances, and business of the Company and its Subsidiaries with the executive
officers of the Company and its Subsidiaries.
7.3 Conduct of Business.
(a) The Company shall, and shall cause each Subsidiary to (i)
maintain its existence (other than in connection with a liquidation of a
Subsidiary permitted under Section 8.6(d) hereof) and qualification to do
business in good standing in each jurisdiction where the failure to be so
qualified would have a material adverse effect on the financial condition of the
Company or its Subsidiaries, (ii) maintain in full force and effect all material
licenses, bonds, franchises, leases, patents, contracts, and other rights
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necessary to the conduct of its business, and (iii) comply with all applicable
laws and regulations of any federal, state, or local governmental authority,
including those relating to environmental matters, labor and employment laws and
employee benefit matters.
(b) The Company shall, and shall cause its Subsidiaries to, duly pay
and discharge (i) all lawful claims, whether for labor, materials, supplies,
services, or anything else, which might or could, if unpaid, become a lien or
charge upon its property or assets, unless and to the extent only that the
validity thereof is being contested in good faith and by such appropriate
proceedings, (ii) all of its trade bills when due in accordance with customary
practice, and (iii) all taxes, unless and to the extent that the validity
thereof is being contested by the Company in good faith and by appropriate
proceedings.
(c) The Company shall, and shall cause each Subsidiary to, conduct its
business and operations in a manner consistent with that of the Company
Business.
7.4 Insurance.
(a) The Company shall keep and maintain, and shall cause its
Subsidiaries to keep and maintain, at their sole cost and expense, (i) insurance
on their assets for at least 80% of the full replacement value (or the full
insurable value) thereof against loss or damage by fire, theft, explosion, and
all other hazards and risks ordinarily insured against by other owners or users
of such properties in similar businesses similarly situated; and (ii) public
liability insurance relating to the Company's and its Subsidiaries' ownership
and use of their assets.
(b) All such policies of insurance shall be in such form and in such
amounts as is customary in the case of other owners or users of like properties
in similar businesses, with insurers as shall be reasonably satisfactory to
Newco, provided that Newco agrees that the current insurance maintained by the
Company on the date hereof is satisfactory. Upon demand, the Company shall
deliver to Newco the original (or certified) copy of each policy of insurance,
and evidence of payment of all premiums for each such policy. Such policies of
insurance (except those of public liability) shall contain an endorsement in
form and substance acceptable to Newco, showing Newco as an additional insured.
Such endorsement, or an independent instrument furnished to Newco, shall provide
that all insurance companies will give Newco at least 30 days prior written
notice before any such policy or policies of insurance shall be altered or
canceled. In the event the Company or any Subsidiary at any time or times
hereafter shall fail to obtain or maintain any of the policies of insurance
required above or to pay any premium in whole or in part relating thereto, then
Newco, without waiving or releasing any Development Default or Event of Default
hereunder, may at any time or times thereafter (but shall be under no obligation
to do so) obtain and maintain such policies of insurance and pay such premium
and take any other action with respect thereto which Newco deems advisable. All
sums so disbursed by Newco, including reasonable attorneys' fees, court costs,
expenses, and other charges relating thereto, shall be part of the Company's
obligations hereunder, payable by the Company to Newco on demand.
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7.5 Notice of Suit or Adverse Change in Business. The Company shall give
written notice to Newco (a) as soon as possible, and in any event within five
business days after the Company receives actual notice (written or oral) of any
material proceeding(s) being instituted or threatened to be instituted by or
against the Company or any Subsidiary in any federal, state, or local court or
before any commission or other regulatory body (federal, state, or local), and
(b) as soon as possible, and in any event within five business days after the
Company learns of any Material Adverse Effect.
7.6 Use of Proceeds. Except as otherwise authorized in writing by Newco,
the Company shall use the proceeds of the Loans solely for the purposes set
forth in Article I and Article II hereof. The Company will not, directly or
indirectly, use any part of such proceeds for the purpose of purchasing or
carrying any margin stock within the meaning of Regulation U of the Board of
Governors of the Federal Reserve System or to extend credit to any person for
the purpose of purchasing or carrying any such margin stock.
7.7 Repayment of Special Development Loan. The Company agrees that to the
extent advances have been made to fund the Special Development Loan, all
proceeds received by the Company from the Suppliers as repayment of principal
and interest on the Supplier Loans, shall be paid by the Company when received
to Newco as payment amounts due on the Special Development Loan and the Special
Development Note.
7.8 [Intentionally Omitted.]
7.9 Company Subsidiaries. Each corporation or other entity becoming a
Subsidiary of the Company after the date hereof will be duly organized, validly
existing, and in good standing under the laws of its jurisdiction of
organization and will be duly qualified to do business in each additional
jurisdiction where the failure to be so qualified would have a material adverse
effect on such Subsidiary. Each Subsidiary of the Company will have all
requisite power to own or lease the properties used in its business and to carry
on its business as now being conducted and as proposed to be conducted. All
outstanding shares of capital stock or other units of ownership interest of each
class of each Subsidiary of the Company will be validly issued and will be fully
paid and nonassessable and will be owned, beneficially and of record, by the
Company or another Subsidiary of the Company free and clear of any liens, except
for the pledge of such shares to the Agent.
7.10 Place of Business. The Company will provide Newco with 60 days'
prior written notice of any proposed change in the location of its chief
executive office. The Company shall not change its name without 30 days prior
written notice to Newco.
7.11 Location of Inventory, Fixtures, Machinery, and Equipment.
(a) All Collateral consisting of inventory, fixtures, machinery, and
equipment, shall at all times be located at the following locations: 1180 Upper
Hembree Road, Roswell, Georgia; 1075 Northfield Way, Roswell, Georgia; 2025
Satellite Pointe,
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Duluth, Georgia; 1875 Peachtree Street, Atlanta, Georgia; 3804 Roswell Road,
N.E., Atlanta, Georgia; 70 Powers Ferry Road, Marietta, Georgia and 1780 Nolan
Court, Morrow, Georgia, and at no other locations without at least thirty 30
days notice.
(b) If the Collateral described in clause (a) is at any time kept at
leased locations, at Newco's request, the Company shall use its best reasonable
efforts to obtain appropriate landlord lien waivers or subordination
satisfactory to Newco, unless such has been waived in writing by Newco for a
particular instance.
(c) If the Collateral described in clause (a) is at any time
warehoused, the Company shall, at Newco's request, send appropriate
warehousemen's notices, each satisfactory to Newco, unless such has been waived
by Newco for the particular instance.
7.12 HSR Act Compliance. In the event Newco determines that any filing is
required under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended (the "HSR Act") in connection with any exercise of the Option pursuant
to Section 3.9 hereof, the Company agrees to prepare and file with the Federal
Trade Commission and the United States Department of Justice within 15 business
days from the date of notice from Newco any notification required to be filed
under the HSR Act or any rules or regulations promulgated thereunder. Newco
shall pay any filing fees required under the HSR Act in connection with such
filing. Any information about the Company or its Subsidiaries contained in such
filing shall be true and accurate in all material respects and responsive to the
requirements of the HSR Act and any such rules and regulations. Each of the
Company and Newco shall make available to the other party such information as
may be required for the preparation of any such notification or related reports.
7.13 Newco Board Observer. (a) During the period commencing on the date
hereof and ending on the fifth anniversary of the Draw Loan Termination Date,
Newco shall have the right to have a representative (the "Newco Observer")
attend meetings of the Company's Board of Directors, or any committee thereof,
and the Company shall permit the Newco Observer to attend all such meetings as
an observer, subject to reasonable limitations on such Observer to permit
maintenance of attorney-client privilege. The Newco Observer shall not have the
right to vote on any matter presented to the Board or any committee thereof.
The Company shall give the Newco Observer such notice of each meeting of the
Board of Directors or any committee thereof and all written materials and other
information given to the Company's directors and committee members in the same
manner and at the same time such notices, materials and other information are
given to the directors and committee members. If the Board of Directors or any
committee thereof proposes to take any action by written consent in lieu of a
meeting, the Company shall give written notice thereof to the Newco Observer
prior to the effective date of such consent describing the nature and substance
of such action.
(b) Newco shall cause the Newco Observer to keep confidential all
confidential information provided to it in its capacity as an observer pursuant
to this Section 7.13; provided, however, that the Newco Observer may disclose
such confidential information to Newco. Newco shall also be bound by this
Section 7.13 confidentiality
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obligation, except that Newco may disclose such confidential information to its
directors, officers, employees, consultants, advisors and professional
representatives who need to know such information so long as prior to disclosing
such confidential information to any such person, Newco shall inform such person
of the confidential nature of such information and of Newco's obligations under
this Section 7.13 and direct such person to treat such information
confidentially, provided that in the case of advisors or consultants, such
persons shall execute a confidentiality agreement reasonably acceptable to the
Company. The confidentiality obligations contained in this Section 7.13 shall
not apply to any information which (i) is or becomes generally available to and
known by the public (other than as a result of a disclosure by Newco or the
Newco Observer) or (ii) is or becomes available to Newco or the Newco Observer
on a non-confidential basis from a source other than the Company.
ARTICLE VIII
Negative Covenants
------------------
The Company covenants and agrees that, subject to the provision of Section
8.12, so long as this Agreement remains in effect (unless Newco shall give its
prior written consent thereto):
8.1 Guarantees; etc. The Company shall not, and shall not permit any
Subsidiary to, guarantee, endorse or otherwise in any way become or be
responsible for obligations of any other person, whether by agreement to
purchase the indebtedness of any other person or through the purchase of goods,
supplies, or services, or by agreement to maintain net worth, working capital,
or other balance sheet covenants or conditions, or by way of stock purchase,
capital contribution, advance, or loan for the purpose of paying or discharging
any indebtedness or obligation of such other person or otherwise, except
endorsements of negotiable instruments for collection in the ordinary course of
business and except for guarantees of indebtedness permitted by Section 8.5 and
of non-material loans made by third parties to any employee.
8.2 Disposal of Property. The Company shall not, and shall not permit any
Subsidiary to, sell, lease, transfer, or otherwise dispose of any of its
properties, assets, and rights (or agree to sell, lease, transfer, or otherwise
dispose of any of its properties, assets, and rights) (including the Collateral)
to any party except in the ordinary course of business (including the
disposition of obsolete equipment), except for sales of equipment stored at the
Clayton Property and sales not in excess of $100,000, and provided, further,
that Newco shall not be entitled unreasonably to withhold consent hereunder.
8.3 Compensation to Shareholders and Others. Other than reasonable
salaries and other normal benefits (including options pursuant to the Company's
stock option plans, relocation loans and other loans to employees), the Company
shall not make any loans to, or pay any compensation, bonuses, fees, options, or
other amounts to any shareholder or to any of the affiliates or immediate family
members of any shareholder
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except to the Company's Board of Directors (other than Harry Blazer). The
Company shall not, without the prior written consent of Newco, amend or modify
any employment arrangement or agreement with any equity holder or any affiliate
or immediate family member of any equity holder previously approved by Newco.
8.4 Distributions and Stock Redemptions. The Company shall not, directly
or indirectly, (i) redeem, purchase, or otherwise retire any of its shares of
capital stock, or (ii) pay any dividends or make any distributions (in cash or
securities) with respect to shares of its capital stock in any fiscal year,
other than pro rata stock dividends.
8.5 Additional Indebtedness; Financial Covenants. (a) Except for trade
payables and real estate and equipment leases that are classified as operating
leases for financial reporting purposes, in each case entered into in the
ordinary course of business, the Company shall not, and shall not permit any
Subsidiary to, incur after the date hereof indebtedness other than (i)
indebtedness (which may be increased to $13,500,000) under the Bank Credit
Agreement, (ii) indebtedness under the Nationwide Debt Agreement, and (iii)
refinancings and renewals of indebtedness existing on the date hereof.
(b) The Company shall not agree to modify the financial covenants
under the Bank Credit Agreement, or governing indebtedness refinancing the Bank
Credit Agreement in any manner that would make such covenants more restrictive
from the Company's point of view than such covenants as in effect on the date
hereof, after giving effect to the ninth amendment thereto, provided, however
that in the event the Company is unable to consummate a refinancing of the Bank
Credit Agreement on such terms, Newco will not unreasonably withhold its consent
hereunder. For purposes of the foregoing sentence, Newco agrees that in
connection with any such refinancing on or after the third anniversary hereof,
(i) such consent will be provided upon the Company demonstrating that it has
used its reasonable best efforts to refinance such indebtedness so as to comply
with requirement under this Section 8.5(b) but was unable to do so, and (ii) any
subsequent intercreditor agreement entered into between Newco and the new senior
lender of the Company resulting from such refinancing as contemplated by Section
20 of that certain Intercreditor Agreement dated as of the date hereof between
Newco and the Agent (the "Intercreditor Agreement") will include a modified
version of clauses (ii), (iii) and (iv) of Section 13(b) of the Intercreditor
Agreement to take into account the changes in such financial covenants required
by the senior lender in such refinancing.
8.6 Mergers, Consolidations, Acquisitions, etc. The Company shall not,
and shall not permit any Subsidiary to (a) be a party to any consolidation,
reorganization, or merger; (b) effect any change in its capital structure or in
any of its business objectives, purposes, and operation in a manner that would
materially adversely affect Newco; (c) acquire any material amount of capital in
or equity ownership of another corporation, partnership, limited liability
company or other business organization; (d) liquidate or dissolve or take any
action with a view toward liquidation or dissolution other than a liquidation of
a Subsidiary into the Company or another Subsidiary.
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8.7 Articles of Incorporation and Bylaws. The Company shall not make any
changes in or amendments to its articles of incorporation and bylaws as they are
in effect as of the date hereof if such changes would materially adversely
affect Newco or its rights hereunder.
8.8 Liens. The Company shall not, and shall not permit any Subsidiary to,
create, incur, or suffer to exist any lien on any of the assets, rights,
revenues or property, real, personal, or mixed, tangible or intangible, whether
now owned or hereafter acquired, of the Company or any Subsidiary, other than
Permitted Liens.
8.9 Transactions with Affiliates. The Company shall not, and shall not
permit any Subsidiary to, become a party to, or become liable in respect of, any
material contract or undertaking with any Affiliate (as defined in Section 11.2
hereof) except in the ordinary course of business and on terms not less
favorable to the Company or such Subsidiary than those which could be obtained
if such contract or undertaking was an arms length transaction with a person
other than an affiliate.
8.10 Subsidiaries. The Company shall not, and shall not permit any
Subsidiary to, create or otherwise make any material investment in any
corporation, partnership, or other entity outside of the ordinary course of
business, unless the Company or such Subsidiary owns directly 100% of the issued
and outstanding equity interests therein (such 100% owned entity to be referred
to herein as a "Subsidiary").
8.11 Issuance of Senior Securities. The Company shall not issue any
preferred stock senior or pari passu to its Series B Preferred Stock.
8.12 Limitation on Negative Covenants. To the extent any of the covenants
in Sections 8.1 through 8.6, 8.8, 8.9 and 8.10 above are more restrictive than
corresponding covenants in the Bank Credit Agreement, then the Company shall not
be deemed to be in breach of the foregoing covenants if it is not in breach of
such corresponding covenants in the Bank Credit Agreement.
ARTICLE IX
Conditions of Closing
---------------------
Newco's obligations hereunder shall be subject to (a) the performance by
the Company prior to or on the Closing Date of all of its covenants theretofore
to be performed under this Agreement, (b) the accuracy of the Company's
representations and warranties contained in this Agreement on the Closing Date,
and (c) the satisfaction (unless expressly waived by Newco), prior to or on the
Closing Date, of the following further conditions:
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9.1 Opinion of Counsel. Newco shall have received on the Closing Date
from Alston & Bird an opinion, dated the Closing Date, in the form attached
hereto as Exhibit D with all blanks appropriately completed.
9.2 Proceedings and Documents. All proceedings to be taken in connection
with the transaction contemplated by this Agreement and all documents incident
to such transaction shall be satisfactory in form and substance to Newco and its
counsel, and Newco shall have received all documents or other evidence which it
and its counsel may reasonably have requested in connection with such
transaction, including copies of records of all proceedings in connection with
such transaction and compliance with the conditions set forth in this Article
IX, in form and substance satisfactory to Newco and its counsel.
9.3 Executed Documents. The Company and its Subsidiaries shall have each
duly executed the following documents to which they are parties, and shall have
delivered to Newco the following:
(a) this Agreement;
(b) the Notes;
(c) the Subsidiary Security Agreement and Subsidiary Guaranty, where
applicable;
(d) Collateral Assignments of Tenant's Interest in Lease for each
lease of real property to which the Company is a party; and
(e) such financing statements or other documents for filing with
public officials with respect to the Security Instruments as Newco may
reasonably request.
9.4 No Defaults. There shall exist no Event of Default or Default.
9.5 Additional Deliveries. Newco shall have received, in form and
substance satisfactory to it, copies of the following documents:
(a) the Company's articles of incorporation, certified as true and
correct by the Secretary of State of Georgia, dated within ten days prior to the
Closing Date, and certified as true and correct as of the Closing Date by a duly
authorized officer of the Company;
(b) the Company's bylaws, as amended, certified as true and correct as
of the Closing Date by the Secretary or Assistant Secretary of the manager of
the Company;
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(c) certificate of good standing of the Company from the Secretary of
State of Georgia dated within ten days prior to the Closing Date; and
(d) evidence satisfactory in form and substance to Newco of all
required action taken by the Company to authorize, among other things, the
execution, delivery, and performance by the Company of this Agreement, the
Notes, and the Security Instruments and the consummation of the transactions
contemplated hereby, certified as true and correct as of the Closing Date by a
duly authorized officer of the manager of the Company.
9.6 Opinion of Auditors. Newco shall have received on the Closing Date
from Newco's independent public accountants an opinion, dated the Closing Date,
in form and substance satisfactory to Newco, to the effect that the Notes and
the obligations incurred hereunder are deemed to be debt, and not equity, in
accordance with generally accepted accounting principles.
9.7 Compliance with Newco Credit Agreements. Newco shall (a) determine in
good faith that this Agreement complies with applicable restrictions or
limitations under any lending arrangements or credit agreements to which Newco
is a party, (b) obtain a written waiver of noncompliance of the transactions
contemplated hereby with such agreements, or (c) deliver to its lender or the
Agent from the Company such pledges, collateral, and other documentation as may
be required to evidence compliance with such lending arrangements or credit
agreements of the transactions contemplated hereby.
ARTICLE X
Default, Rights and Remedies of Newco
-------------------------------------
10.1 Default. The occurrence of any of the following events or acts shall
constitute a default under the Development Loan and the Special Development Loan
("Development Default"):
(a) default in the payment when due of any portion of the principal on
the Development Note or the Special Development Note and the continuance of such
default for a period of five days;
(b) default in the payment when due of any portion of the interest on
the outstanding principal of the Development Note or the Special Development
Note and the continuance of such default for a period of 10 days;
(c) any representation or warranty now or hereafter made in this
Agreement, the Subsidiary Security Agreement, any other Security Instrument, or
any certificate hereunder or thereunder shall not be true, or any certificate,
statement, report, financial data, or notice furnished at any time by the
Company to Newco shall be materially inaccurate;
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(d) any breach of, or failure to perform or observe, any covenant,
condition, or agreement contained in the Subsidiary Security Agreement or in any
other Security Instrument, which in each case shall continue unremedied for a
period of 10 calendar days following written notice thereof from Newco;
(e) the breach of, or failure to perform or observe, any covenant,
condition, or agreement contained in Sections 7.6, 8.1, 8.2, 8.4, 8.5, 8.6, 8.7,
8.8, 8.10 or 8.11 of this Agreement that is not cured within thirty (30) days
after written notice of such breach is given by Newco to the Company.
(f) any breach of, or failure to perform or observe, any other
covenant, condition, or agreement contained in this Agreement, the Development
Note or the Special Development Note which shall continue unremedied for a
period of 30 calendar days following written notice thereof from Newco;
(g) the Company or any Subsidiary shall (i) generally not, or shall
be unable to, or shall admit in writing its inability to pay its debts as such
debts become due, (ii) make an assignment for the benefit of creditors, petition
or apply to any tribunal for the appointment of a custodian, receiver, or
trustee for it or a substantial part of its assets, (iii) commence any
proceeding under any bankruptcy, reorganization, arrangements, readjustment of
debt, dissolution, or liquidation law or statute of any jurisdiction, whether
now or hereafter in effect, (iv) have any such petition or application filed or
any such proceeding commenced against it in which an order for relief is entered
or adjudication or appointment is made and which remains undismissed for a
period of 60 days or more, (v) by any act or omission, indicate its consent to,
approval of, or knowing acquiescence in any such petition, application, or
proceeding, or order for relief, or the appointment of a custodian, receiver, or
trustee for all or any substantial part of its properties, or (vi) suffer any
such custodianship, receivership, or trusteeship to continue undischarged for a
period of 60 days or more;
(h) any material breach of, or failure to perform or observe, any
material covenant, condition or agreement contained in the license agreement
between HFMI Trust and the Company of even date herewith, the administration and
servicing agreement among HFMI Trust, Newco and the Company of even date
herewith, the transfer agreement among HFMI Trust, Newco and the Company of even
date herewith or the consulting services agreement of even date herewith between
the Company and Newco, which in each case shall continue unremedied for a period
of 30 calendar days following written notice thereof from Newco;
(i) dissolution or liquidation of the Company;
(j) there occurs an event which results in a Material Adverse Effect
and such Material Adverse Effect shall not have been eliminated within sixty
(60) days of such event, provided, however, that changes resulting from the
activities of Newco and
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the Company under the consulting agreement of even date herewith between Newco
and the Company shall not be taken into account for this purpose.
(k) the Company or any Subsidiary shall (a) fail to pay any
indebtedness for borrowed money in excess of $100,000 (other than the Notes) of
the Company or such Subsidiary, or any interest or premium thereon, when due
(whether by scheduled maturity, required prepayment, acceleration, demand, or
otherwise) and the effect of such failure is to accelerate, after the giving of
notice, the maturity of such indebtedness, or (b) fail to perform or observe any
term, covenant, or condition on its part to be performed or observed under any
agreement or instrument relating to any such indebtedness, when required to be
performed or observed, if the effect of such failure to perform or observe is to
accelerate, after the giving of notice, the maturity of such indebtedness, or
(c) default in the performance or observance of any obligations under leases of
real property if the effect of such default is to cause the termination of such
lease and any applicable cure period therein has expired;
(l) one or more final judgments, decrees or orders for the payment of
money in excess of $100,000 in the aggregate and not otherwise fully covered by
insurance shall be rendered against the Company or any of its Subsidiaries;
(m) the Subsidiary Security Agreement, any other Security Instrument,
or the security interests created under this Agreement shall be terminated,
invalidated, or set aside or be declared ineffective or inoperative or in any
way cease to give or provide to Newco the benefits purported to be created
thereby; or
(n) there occurs a Change in Control of the Company. For this purpose
a Change in Control of the Company shall occur, except in each case for any such
occurrence resulting from the death or disability of Harry A. Blazer, if: (i)
any individual, corporation, partnership, joint venture, association, trust,
unincorporated organization or other entity (each a "Person") or "group" (within
the meaning of Section 13(a)(3) of the Securities Exchange Act of 1934, as
amended), other than Harry A. Blazer and Affiliates of Harry A. Blazer, at any
time (a) acquires or becomes entitled to acquire or has or becomes entitled to
have beneficial ownership of securities (including options, warrants, rights and
convertible and exchangeable securities) having a majority of the voting power
of the capital stock of the Company (assuming exercise or conversion solely of
securities held by such Persons or group), or (b) is or becomes entitled to
appoint a majority of the directors of the Company, or (c) enters into any
binding arrangement, agreement or proposal to do any of the foregoing; or (ii)
Harry A. Blazer or affiliates of Harry A. Blazer, at any time, cease to be
entitled (a) to beneficial ownership of securities having a majority of the
voting power of the capital stock of the Company, or (b) to appoint a majority
of the directors of the Company; or (iii) a majority of the directors of the
Company at the date hereof are removed or replaced without the approval of a
majority of the directors of the Company.
Notwithstanding anything contained in this Agreement to the contrary, to
the extent any of the Non Monetary Development Defaults or Events of Default
herein
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are more restrictive than corresponding events of default in the
Company's Bank Credit Agreement, then the Company shall not be deemed to be in
default hereunder if it is not in default of such corresponding defaults under
the Bank Credit Agreement. As used herein, the term "Non Monetary Development
Defaults or Events of Default" means any of the Development Defaults or Events
of Default hereunder other than the defaults described in Section 10.1(a) and
(b).
10.2 Default; Remedies.
(a) In the event a Development Default shall exist or occur Newco
may:
(i) terminate its obligations under this Agreement in respect of
the Development Loan and the Special Development Note and cease to make any
further advances under Section 1.1, Section 2.1, and Section 2.3, and shall have
the right to declare the Development Note and the Special Development Note due
and payable in full, without demand, presentment, or notice of any kind;
(ii) in its sole and absolute discretion, exercise any one or
more of the rights and remedies accruing to a secured party under the Uniform
Commercial Code in respect of the Development Note and the Special Development
Note with respect to the Collateral and any other applicable law upon default by
a debtor;
(iii) exercise its rights under the other Security Instruments in
respect of the Development Loan and the Special Development Loan;
(iv) exercise all or a portion of the Option;
provided, however, that in the case of any event or condition described in
Section 10.1(g) with respect to the Company or any Subsidiary, Newco's
obligations under this Agreement shall automatically terminate forthwith and all
amounts owed by the Company hereunder and under the Development Note and the
Special Development Note shall automatically become immediately due and payable
without notice, demand, presentment, protest, diligence, notice of dishonor, or
other formality, all of which are hereby expressly waived.
(b) In connection with the exercise of Newco's rights and remedies
provided in Section 10.2(a)(ii), the Company hereby agrees to assemble the
Collateral and make it available to Newco at a place to be designated by Newco
which is reasonably convenient to both parties, authorizes Newco to take
possession of the Collateral with or without demand and with or without process
of law and to sell and dispose of the same at public or private sale and to
apply the proceeds of such sale to the costs and expenses thereof (including
reasonable attorneys' fees and disbursements actually incurred by Newco) and
then to the payment and satisfaction of the Development Loans and the Special
Development Loan. Any requirement of reasonable notice shall be met if Newco
sends such notice to the Company, by registered or certified mail, at least ten
days prior to
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the date of sale, disposition, or other event giving rise to a required notice.
Newco may be the purchaser at any such sale. The Company expressly authorizes
such sale or sales of the Collateral in advance of and to the exclusion of any
sale or sales of or other realization upon any other collateral securing the
Development Loan and the Special Development Loan. Newco shall have no
obligation to preserve rights against prior parties. The Company hereby waives
as to Newco any right of subrogation or marshaling of such Collateral and any
other collateral for the Development Loan and the Special Development Loan. To
this end, the Company hereby expressly agrees that any such collateral or other
security of the Company or any other party which Newco may hold, or which may
come to any of them or any of their possession, may be dealt with in all
respects and particulars as though this Agreement were not in existence. The
parties hereto further agree that public sale of the Collateral by auction
conducted in any county in which any Collateral is located or in which Newco or
the Company does business after advertisement of the time and place thereof
shall, among other manners of public and private sale, be deemed to be a
commercially reasonable disposition of the Collateral. The Company shall be
liable for any deficiency remaining after disposition of the Collateral. Newco
agrees and acknowledges that there are different defaults for (i) the
Refinancing Loan and (ii) the Development Loan and the Special Development Loan
and that it is possible for one of the loans to be in default while the other is
not. Consequently, the rights and remedies of Newco hereunder with respect to
the Collateral are limited to the amount of the obligations that are the subject
of the default.
(c) In the event of a Refinancing Default (as hereinafter defined),
and only in such event, Newco may declare the Refinancing Loan due and payable
or exercise rights equivalent to those in Section 10.2(a)(i), (ii) or (iii).
For purposes of this Agreement, a "Refinancing Default" shall mean:
(i) default in the payment when due of any portion of the
principal or interest due under the Refinancing Note and the continuance of such
default for a period of 30 days after written notice of such nonpayment is given
by Newco to the Company;
(ii) the breach of, or failure to perform or observe, any
covenant, condition or agreement contained in Sections 8.4, 8.6(a), 8.7, 8.9 or
8.11 that is not cured within 30 days after written notice of such breach is
given by Newco to the Company;
(iii) the breach of, or failure to perform or observe, any
covenant, condition or agreement contained in Section 8.5(a) that is not cured
within 60 days after written notice of such breach is given by Newco to the
Company;
(iv) the occurrence of a Change in Control of the Company, as
defined in 10.1(n), that is not cured within 90 days after written notice
thereof is given by Newco to the Company; or
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(v) The Company or any Subsidiary shall (i) generally not, or
shall be unable to, or shall admit in writing its inability to pay its debts as
such debts become due, (ii) make an assignment for the benefit of creditors,
petition or apply to any tribunal for the appointment of a custodian, receiver,
or trustee for it or a substantial part of its assets, (iii) commence any
proceeding under any bankruptcy, reorganization, arrangements, readjustment of
debt, dissolution, or liquidation law or statute of any jurisdiction, whether
now or hereafter in effect, (iv) have any petition or application filed or any
such proceeding commenced against it in which an order for relief is entered or
adjudication or appointment is made and which remains undismissed for a period
of 60 days or more, (v) by any act or omission, indicate its consent to,
approval of, or knowing acquiescence in any such petition, application, or
proceeding, or order for relief, or the appointment of a custodian, receiver, or
trustee for all or any substantial part of its properties, or (vi) suffer any
such custodianship, receivership, or trusteeship to continue undischarged for a
period of 60 days or more.
For purposes of the foregoing, the Company shall be deemed to have
cured the Refinancing Default referred to in clause (iii) above if the
prohibited indebtedness is repaid or otherwise satisfied within the 60-day
period and the Company shall be deemed to have cured the Refinancing Default
referred to in clause (iv) above if Harry A. Blazer or any Affiliate of Harry A.
Blazer acquires, within the 90-day period referred to therein, a sufficient
number of shares of capital stock of the Company such that Harry A. Blazer and
his Affiliates have beneficial ownership of securities having a majority of the
voting power of the capital stock of the Company.
(d) All of Newco's rights and remedies under this Agreement are
cumulative and nonexclusive. Any conversion of, or exercise of the Option with
respect to, less than all of the principal balance outstanding under the Notes
shall not affect Newco's rights and remedies with respect to any portion of a
Note not so converted or exercised. In addition, the parties hereto acknowledge
that irreparable damage would result if this Agreement were not specifically
enforced, and they therefore consent that the rights and obligations of the
parties under this Agreement may be enforced by a decree of specific performance
issued by a court of competent jurisdiction. Such remedy shall, however, not be
exclusive and shall be in addition to any other remedies which any party may
have under this Agreement or otherwise.
10.3 No Waiver. Newco's failure, at any time or times hereafter, to
require the Company's strict compliance with or performance of any provision of
this Agreement shall not waive, affect, or diminish any right of Newco
thereafter to demand such strict compliance or performance therewith. Any
suspension or waiver by Newco of a Default or an Event of Default by Newco under
this Agreement or the Note shall not suspend, waive, or affect any other Default
or Event of Default by the Company under this Agreement or the Notes, whether
the same is prior or subsequent thereto and whether of the same or of a
different kind or character. None of the undertakings, agreements, warranties,
covenants, and representations of the Company contained in this Agreement or the
Notes and no Default or Event of Default by the Company under this Agreement or
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the Notes shall be deemed to have been suspended or waived by Newco unless such
suspension or waiver is in writing signed by an officer of Newco.
ARTICLE XI
Miscellaneous
-------------
11.1 No Oral Change. This Agreement may not be changed orally, but only
by an agreement in writing and signed by the party against whom enforcement of
any waiver, change, modification, or discharge is sought.
11.2 Assignment. The Company may not assign any of its rights or delegate
any of its obligations under this Agreement without Newco's written consent,
which consent may be withheld in Newco's sole discretion. Newco may assign any
of its rights or delegate any of its obligations under this Agreement (including
assignment of this Agreement, the Notes and the Security Instruments), (a)
without notice to the Company, (i) to any Affiliate of Newco (except the
Company) or (ii) in connection with any pledge of its assets under Newco's
credit agreements and (b) with notice, but without any requirement of consent or
approval, to any other person entity (except the Company), provided, however,
that in no event shall Newco assign its rights to the Loans unless (A) such
assignee is (i) a company whose securities are publicly traded, or (ii) a person
or private entity, if such person or the controlling holders of such entity are
of good character in Newco's reasonable judgment, and (B) such transferee has
the financial resources to discharge Newco's obligations under the Agreement.
Any such assignment shall vest in the assignee all of the benefits under the
documents so assigned. For purposes of this Agreement, the term "Affiliate" of
a specified person shall mean any person or entity which directly, or indirectly
through one or more intermediaries, controls or is controlled by, or is under
common control with, the person specified.
11.3 Costs and Attorneys' Fees.
(a) Except as provided in Section 4.3 hereof and subsection (b) of
this Section 11.3, each of the parties hereto shall pay its own expenses
(including accounting and attorney's fees) incident to the negotiation and
execution of this Agreement and to the consummation of the transactions
contemplated hereby.
(b) The party to any action hereunder who does not prevail shall pay
to the prevailing party the court costs and reasonable attorneys' fees and other
expenses (including, but not limited to, fees and expenses of expert witnesses
or consulting experts) incurred directly or indirectly by the prevailing party
in connection with its prosecution or defense of the action, as the case may be.
11.4 Communications and Notices. All communications and notices provided
for in this Agreement or under the Note shall be in writing and shall be deemed
to have been duly given if delivered personally to the party to whose attention
the notice is
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directed or sent by overnight express, facsimile transmission, express mail
delivery service, or registered or certified mail, return receipt requested,
postage prepaid, and properly addressed as follows:
If to the Company:
1180 Upper Hembree
Roswell, Georgia 30076
Attention: Harry A. Blazer
Facsimile: (770) 664-4920
with a copy to:
Alston & Bird
One Atlantic Center
1201 West Peachtree Street
Atlanta, Georgia 30309-3424
Attention: John L. Latham
Facsimile: (404) 881-7777
If to Newco:
14103 Denver West Parkway
Golden, Colorado 80401
Attention: Saad J. Nadhir
Facsimile: (303) 216-5550
Any party may change the address to which notices hereunder are to be sent to it
by giving written notice of such change of address in the manner herein provided
for giving notice. Any notice delivered personally shall be deemed to have been
given when so delivered. Any notice delivered by facsimile transmission shall
be deemed to have been given on the earlier of the date it is actually received
or one day after such transmission. Any notice delivered by overnight express
courier will be deemed to have been given on the next succeeding business day
after the day it is sent to the intended recipient at the address set forth
above, and any notice delivered by registered or certified mail or express mail
delivery service shall be deemed to have been duly given on the earlier of the
date it is actually received or three business days after it is sent to the
intended recipient at the address set forth above.
11.5 GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH
AND GOVERNED BY THE LAWS OF THE STATE OF GEORGIA APPLICABLE TO CONTRACTS MADE
AND TO BE PERFORMED THEREIN WITHOUT REGARD TO THE CONFLICTS OF LAW PROVISIONS
THEREOF.
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11.6 Headings. The headings of the sections of this Agreement are
inserted for convenience only and shall not be deemed to constitute a part of
this Agreement.
11.7 Severability. If any provision of this Agreement or the application
thereof to any person or circumstance is held invalid or unenforceable, the
remainder of this Agreement and the application of such provision to other
persons or circumstances shall not be affected thereby, and the provisions of
this Agreement shall be severable in any such instance.
11.8 Avoidance. To the extent that Newco receives any payment on account
of the Company's obligations hereunder, and any such payment(s) and/or proceeds
or any part thereof are subsequently invalidated, declared to be fraudulent or
preferential, set aside, subordinated, and/or required to be repaid to a
trustee, receiver, or any other party under any bankruptcy law, state or federal
law, common law, or equitable cause, then, to the extent of such payment(s) or
proceeds received, the Company's obligations hereunder, or part thereof intended
to be satisfied, shall be revived and continue in full force and effect, as if
such payment(s) and/or proceeds had not been received by Newco.
11.9 Counterparts. This Agreement may be executed in counterparts, each
of which shall be deemed an original, but all of which together shall constitute
but one and the same instrument.
11.10 Entire Agreement. This Agreement, the Notes, the Security
Instruments and the exhibits to each of the foregoing contain the entire
agreement of the parties hereto with respect to the transactions contemplated
herein, and collectively supersede all prior understandings and agreements of
the parties with respect to the subject matter hereof.
11.11 General Indemnity. In addition to the payments pursuant to Section
11.3, the Company agrees to indemnify, pay, and hold Newco and any holder of the
Notes, and the officers, directors, employees, agents, and Affiliates of Newco
and any such holder (collectively, the "Indemnitees"), harmless from and against
any and all other liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, claims, costs, expenses, and disbursements of any kind or
nature whatsoever (including, without limitation, the reasonable fees and
disbursements of counsel for any of such Indemnitees in connection with any
investigative, administrative, or judicial proceeding commenced or threatened,
whether or not any of such Indemnitees shall be designated a party thereto) that
may be imposed on, incurred by, or asserted against any Indemnitee, in any
manner relating to or arising out of the indebtedness created by this Agreement,
the Notes, the Subsidiary Security Agreement, the Security Instruments and the
exhibits or any other agreements or documents executed and delivered by the
Company in connection therewith, including without limitation any damage to
public or worker health and safety or the environment, Newco's agreement to make
the Loans hereunder, or the use or intended use of the proceeds of the Loans
(the "indemnified liabilities"); provided that the Company shall have no
obligation to an Indemnitee hereunder with respect to indemnified liabilities
arising from the gross negligence or willful misconduct of such Indemnitee. To
the
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extent that the undertaking to indemnify, pay, and hold harmless set forth in
the preceding sentence may be unenforceable because it violates any law or
public policy, the Company shall contribute the maximum portion that it is
permitted to pay under applicable law to the payment and satisfaction of all
indemnified liabilities incurred by the Indemnitees or any of them. The
provisions of the undertakings and indemnification set out in this Section 11.11
shall survive satisfaction and payment of the Company's obligations hereunder
and termination of this Agreement.
11.12 Limitation on Damages. Notwithstanding anything to the contrary
herein no party hereto shall be liable for consequential, indirect, incidental,
special, speculative, or punitive damages (including, but not limited to, loss
of revenue or profit) whether such claim alleges breach of contract, tortious
conduct including, but not limited to, negligence, or any other theory.
11.13 Submission to Jurisdiction. The Company agrees that any legal
action or proceeding with respect to this Agreement, the Notes, the Subsidiary
Security Agreement or any Security Instrument or the transactions contemplated
hereby may be brought in any court of the State of Georgia, or in any court of
the United States of America sitting in Georgia, and the Company hereby submits
to and accepts generally and unconditionally the jurisdiction of those courts
with respect to their respective person and property, and irrevocably consents
to the service of process in connection with any such action or proceeding by
personal delivery to the Company or by the mailing thereof by registered or
certified mail, postage prepaid to the Company at the address for the Company
set forth in Section 11.4. Nothing in this paragraph shall affect the right of
Newco to serve process in any other manner permitted by law or limit the rights
of Newco to bring any such action or proceeding against the Company or property
in the courts of any other jurisdiction. The Company hereby irrevocably waives
any objection to the laying of venue of any such suit or proceeding in the above
described courts.
11.14 Waiver of Jury Trial. No party to this instrument, which includes
any assignee, successor, heir or personal representative of a party, shall seek
a jury trial in any lawsuit, proceeding, counterclaim, or any other litigation
procedure based upon, or arising out of this Agreement, the Notes, the
Subsidiary Security Agreement, any Security Instrument, any related instrument,
or the dealings or the relationship between the parties. No party will seek to
consolidate any such action, in which a jury has been waived, with any other
action in which a jury trial cannot or has not been waived.
THE PROVISIONS OF THIS SECTION 11.14 HAVE BEEN FULLY DISCUSSED BY THE
PARTIES HERETO, AND THESE PROVISIONS SHALL BE SUBJECT TO NO EXCEPTIONS. NO
PARTY HAS IN ANY WAY AGREED WITH OR REPRESENTED TO ANY OTHER PARTY THAT THE
PROVISIONS OF THIS PARAGRAPH WILL NOT BE FULLY ENFORCED IN ALL INSTANCES. THIS
PROVISION IS A MATERIAL INDUCEMENT FOR NEWCO IN ENTERING INTO THIS AGREEMENT.
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IN WITNESS WHEREOF, the parties have executed this Agreement to be
effective as of the date and year first above written.
PROGRESSIVE FOOD CONCEPTS, INC.
(F/K/A HFMI ACQUISITION CORPORATION)
By: /s/ Saad J. Nadhir
------------------------------------------
Name: Saad J. Nadhir
Title: Chairman, President and Chief Executive
Officer
HARRY'S FARMERS MARKET, INC.
By: /s/ Harold Weisman
------------------------------------------
Name: Harold Weisman
Title: Chief Financial Officer
33
