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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 13D
Under the Securities Exchange Act of 1934
Harry's Farmers Market, Inc.
(Name of Issuer)
Class A Common Stock, no par value
(Title of Class of Securities)
415863-10-9
(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
(Name, Address and Telephone Number of Person Authorized to Receive Notices and
Communications)
January 31, 1997
(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 in the remainder of this cover page (the pages numbered
2 through 4 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
- ----------------------- ---------------------
- ------------------------------------------------------------------------------
NAME OF REPORTING PERSON
1 S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
Progressive Food Concepts, Inc.
- ------------------------------------------------------------------------------
CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP*
2 (a) [_]
(b) [X]
- ------------------------------------------------------------------------------
SEC USE ONLY
3
- ------------------------------------------------------------------------------
SOURCE OF FUNDS
4
AF
- ------------------------------------------------------------------------------
CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT
TO ITEMS 2(d) or 2(e) [_]
5
- ------------------------------------------------------------------------------
CITIZENSHIP OR PLACE OF ORGANIZATION
6
Delaware
- ------------------------------------------------------------------------------
SOLE VOTING POWER
7
NUMBER OF
2,000,000*
SHARES -----------------------------------------------------------
SHARED VOTING POWER
BENEFICIALLY 8
OWNED BY 0
-----------------------------------------------------------
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
[_]
- ------------------------------------------------------------------------------
PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
13
32.47%*
- ------------------------------------------------------------------------------
TYPE OF REPORTING PERSON*
14
CO
- ------------------------------------------------------------------------------
*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
Scott A. Beck
- ------------------------------------------------------------------------------
CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP*
2 (a) [_]
(b) [X]
- ------------------------------------------------------------------------------
SEC USE ONLY
3
- ------------------------------------------------------------------------------
SOURCE OF FUNDS
4
PF
- ------------------------------------------------------------------------------
CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT
TO ITEMS 2(d) or 2(e) [_]
5
- ------------------------------------------------------------------------------
CITIZENSHIP OR PLACE OF ORGANIZATION
6
United States of America
- ------------------------------------------------------------------------------
SOLE VOTING POWER
7
NUMBER OF 0
SHARES -----------------------------------------------------------
SHARED VOTING POWER
BENEFICIALLY 8
OWNED BY 2,000,000*
-----------------------------------------------------------
EACH SOLE DISPOSITIVE POWER
9
REPORTING
0
PERSON -----------------------------------------------------------
SHARED DISPOSITIVE POWER
WITH 10
2,000,000*
- ------------------------------------------------------------------------------
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
[_]
- ------------------------------------------------------------------------------
PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
13
32.47%*
- ------------------------------------------------------------------------------
TYPE OF REPORTING PERSON*
14
IN
- ------------------------------------------------------------------------------
*SEE ITEM 5 OF TEXT BELOW
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CUSIP NO. 415863-10-9 13D PAGE 4
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NAME OF REPORTING PERSON
1 S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
Saad J. Nadhir
- ------------------------------------------------------------------------------
CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP*
2 (a) [_]
(b) [X]
- ------------------------------------------------------------------------------
SEC USE ONLY
3
- ------------------------------------------------------------------------------
SOURCE OF FUNDS
4
PF
- ------------------------------------------------------------------------------
CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT
TO ITEMS 2(d) or 2(e) [_]
5
- ------------------------------------------------------------------------------
CITIZENSHIP OR PLACE OF ORGANIZATION
6
United States of America
- ------------------------------------------------------------------------------
SOLE VOTING POWER
7
NUMBER OF 0
SHARES -----------------------------------------------------------
SHARED VOTING POWER
BENEFICIALLY 8
OWNED BY 2,000,000*
-----------------------------------------------------------
EACH SOLE DISPOSITIVE POWER
9
REPORTING
0
PERSON -----------------------------------------------------------
SHARED DISPOSITIVE POWER
WITH 10
2,000,000*
- ------------------------------------------------------------------------------
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
[_]
- ------------------------------------------------------------------------------
PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
13
32.47%*
- ------------------------------------------------------------------------------
TYPE OF REPORTING PERSON*
14
IN
- ------------------------------------------------------------------------------
*SEE ITEM 5 OF TEXT BELOW
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ITEM 1. SECURITY AND ISSUER
-------------------
The class of equity securities to which this Statement relates is the Class
A Common Stock, no par value (the "Class A Common Stock"), of Harry's Farmers
Market, Inc., a Georgia corporation (the "Issuer"). The principal executive
offices of the Issuer are located at 1180 Upper Hembree Road, Roswell, Georgia
30076.
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"),
Scott A. Beck and Saad J. Nadhir (PFCI, Mr. Beck and Mr. Nadhir are sometimes
collectively referred to herein as the "Reporting Persons"). Messrs. Beck and
Nadhir each own on the date of this Statement 48.75% of the outstanding shares
of common stock of PFCI (the "PFCI Common Stock). By reason thereof and, in the
case of Mr. Nadhir, his position with PFCI, each of Mr. Beck and Mr. Nadhir may
be deemed a "controlling person" of PFCI, and to have or share the power to vote
and dispose of the Class A Common Stock beneficially owned by PFCI. Mr. Beck and
Mr. Nadhir each expressly disclaim that they have formed a "group," as
determined pursuant to Section 13(d)(3) of the Securities Exchange Act of 1934
and Rule 13d-5(b)(1) of the Securities and Exchange Commission thereunder, for
the purpose of acquiring, holding, voting or disposing of Class A Common Stock
beneficially owned by PFCI.
Messrs. Beck and Nadhir have expressed their intention to transfer a
portion of their shares of PFCI Common Stock to other persons, who may include
management and employees of PFCI, employees of Boston Chicken, Inc. ("BCI") or
its subsidiaries who become involved with PFCI's business through arrangements
between PFCI and BCI, area developers of BCI, and other private equity investors
in PFCI. The identity of such transferees of PFCI Common Stock and the amount to
be transferred will be developed as the business of PFCI and the nature of the
involvement of specific individuals and entities evolve over the next twelve to
eighteen months. Messrs. Beck and Nadhir expect that such transfers will be at
sale prices approximating their purchase price for such PFCI Common Stock.
PFCI was incorporated in January 1997 for the purpose of engaging in the
transactions described in this Statement and has not engaged in any business
since its incorporation other than that incident to its organization and such
transactions. Scott A. Beck is Chairman of the Board, President and Chief
Executive Officer of BCI, which operates and franchises retail food stores under
the Boston Market(R) brand name. Saad J. Nadhir is the Chairman, President and
Chief Executive Officer and a director of PFCI. 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 (except
Mr. Nadhir), 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.
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(d) During the last five years, none of the Reporting Persons nor (to the
knowledge of the Reporting Persons) any executive officer or director of PFCI
has been convicted in a criminal proceeding (excluding traffic violations and
similar misdemeanors).
(e) During the last five years, none of the Reporting Persons nor (to the
knowledge of the Reporting Persons) any executive officer or director of PFCI
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) Mr. Beck is a citizen of the United States. Mr. Nadhir and all other
executive officers and directors of PFCI are citizens of the United States.
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. Mr. Beck and Mr. Nadhir each subscribed for
shares of PFCI Common Stock equal to 48.75% of the outstanding shares of PFCI
Common Stock (giving effect to the issuance of PFCI Common Stock to the Issuer
as described under Item 4 hereof), although Messrs. Beck and Nadhir have
expressed their intention to transfer a portion of their shares of PFCI Common
Stock to other persons, who may include management and employees of PFCI,
employees of BCI or its subsidiaries who become involved with PFCI's business
through arrangements between PFCI and BCI, area developers of BCI, and other
private equity investors in PFCI. The identity of such transferees of PFCI
Common Stock and the amount to be transferred will be developed as the business
of PFCI and the nature of the involvement of specific individuals and entities
evolve over the next twelve to eighteen months. Messrs. Beck and Nadhir expect
that such transfers will be at sale prices approximating their purchase price
for such PFCI Common Stock.
ITEM 4. PURPOSE OF TRANSACTION
----------------------
On January 31, 1997, PFCI entered into a series of agreements with the
Issuer that, among other things, (i) permit PFCI to develop a business model
based on the businesses of the Issuer, including its Harry's Farmers Market(R)
and Harry's In A Hurry(R) retail concepts, outside of the states of Georgia and
Alabama, (ii) provide for a five-year mutual consulting arrangement between the
two companies, (iii) include an investment by PFCI in the Issuer in the form of
a $20 million dollar loan described under Item 6 hereof and the Warrants, and
(iv) include an investment by the Issuer in PFCI Common Stock.
To effectuate the foregoing, the Issuer transferred to a newly organized
business trust (the "Trust") certain federal and state registered and
unregistered trademarks, trademark applications,
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registered and unregistered service marks, service mark applications, trade
names, trade name rights, copyrights, trade secrets and know-how and other
proprietary information of the Issuer. The Trust issued to the Issuer two
ownership certificates, one of which entitles the holder thereof to beneficial
ownership of, and a license to use, the aforementioned intellectual property in
the states of Georgia and Alabama and one of which (the "Worldwide Ownership
Certificate") entitles the holder thereof to beneficial ownership of, and a
license to use, the aforementioned intellectual property throughout the rest of
the world. The Issuer then sold the Worldwide Ownership Certificate to PFCI for
$1.5 million in cash and a number of shares of PFCI Common Stock equal to 2.5%
of the PFCI Common Stock on a fully diluted basis, taking into account (i) all
shares of outstanding PFCI Common Stock, (ii) all shares of PFCI Common Stock
issuable upon the exchange or conversion of outstanding debt, stock or other
securities of PFCI and (iii) all shares of PFCI Common Stock issuable upon the
exercise of outstanding options (other than unvested employee options), warrants
or similar rights to acquire PFCI Common Stock. The Issuer also obtained certain
anti-dilution rights with respect to the issuance in the future of additional
PFCI Common Stock.
PFCI, the Issuer and Harry A. Blazer, the Issuer's Chairman, President and
Chief Executive Officer, entered into a consulting services agreement (the
"Consulting Agreement") pursuant to which the Issuer agreed to provide, for the
period beginning January 31, 1997 and ending on January 31, 2002, certain
consulting services and access to personnel, information and facilities of the
Issuer for the purpose of developing a business model based on the current
businesses (and certain businesses related to the current businesses) of the
Issuer, including the creation of new organizational, systems, human resources,
accounting and financial structures and models. A portion of the expenses of
such development by Issuer will be funded by the Issuer through the Development
Loan from PFCI described below. In addition, PFCI has agreed to make available
its general business know-how and the information and know-how it acquires under
the Consulting Agreement to the Issuer during the term of the Consulting
Agreement. PFCI has paid the Issuer a consulting services fee of $500,000 in
connection with the Consulting Agreement.
PFCI and the Issuer also entered into a secured loan agreement, described
more fully under Item 6 hereof, pursuant to which PFCI has extended a loan to
the Issuer (the "Refinancing Loan") in the principal amount of $12 million,
which loan was used by the Issuer to repay certain indebtedness of the Issuer,
and committed to extend an $8 million loan (the "Development Loan") to be used
for general corporate purposes and to fund development costs relating to the
development of the Issuer's business as contemplated by the Consulting
Agreement.
The purpose of the acquisition of the Warrant was to permit PFCI to obtain
a substantial equity interest in the Issuer in connection with the foregoing
arrangements between PFCI and the Issuer. The Warrant is being held by PFCI for
investment purposes, and PFCI has no present plan to exercise such Warrant (but
reserves the right to do so at any time).
Except as set forth in this Item 4, 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 PFCI 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,
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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.
Harry A. Blazer, the Issuer's Chairman, President and Chief Executive
Officer, is a director of PFCI. Mr. Blazer and an entity of which Mr. Blazer is
the sole director and stockholder own shares of the Class B Common Stock, no par
value (the "Class B Common Stock"), of the Issuer constituting approximately 33%
of the Issuer's issued and outstanding common stock of both classes as of
January 31, 1997 and possessing approximately 79% of the total voting power of
the Issuer as of such date. As a consequence, Mr. Blazer is required to file
reports with the Securities and Exchange Commission with respect to his
beneficial ownership of Class A Common Stock and certain other matters set forth
in this Statement, including in certain circumstances any current plans or
proposals of Mr. Blazer which relate to or would result in any of the actions
specified in clauses (a) through (j) of Item 4 of Schedule 13D. Insofar as this
Statement is required to contain information concerning Mr. Blazer, including
any such plans or proposals of Mr. Blazer, the Reporting Persons have relied,
and will in the future rely, on the information contained in such reports filed
by Mr. Blazer with the Securities and Exchange Commission, to which reference is
made for a complete statement thereof.
ITEM 5. INTEREST IN SECURITIES OF THE ISSUER
------------------------------------
(a) The Issuer has represented to PFCI that there were 4,159,253 issued and
outstanding shares of Class A Common Stock as of January 31, 1997. PFCI was the
beneficial owner on such date 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). Such shares represent approximately 32.47% of the
issued and 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). Such shares represent approximately 24.36% of the total issued and
outstanding shares of Class A 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).
Messrs. Beck and Nadhir each own on the date of this Statement 48.75% of
the outstanding shares of PFCI Common Stock. By reason thereof and, in the case
of Mr. Nadhir, his position with PFCI, each of Mr. Beck and Mr. Nadhir may be
deemed a "controlling person" of PFCI, and to have or share the power to vote
and dispose of the Class A Common Stock beneficially owned by PFCI. Neither Mr.
Beck nor Mr. Nadhir otherwise beneficially owns any Class A Common Stock as of
February 10, 1997. Mr. Beck and Mr. Nadhir each expressly disclaim that they
have formed a "group," as determined pursuant to Section 13(d)(3) of the
Securities Exchange Act of 1934 and Rule 13d-5(b)(1) of the Securities and
Exchange Commission thereunder, for the purpose of acquiring, holding, voting or
disposing of Class A Common Stock beneficially owned by PFCI. Messrs. Beck and
Nadhir have expressed their intention to transfer a portion of their shares of
PFCI Common Stock to other persons, who may include management and employees of
PFCI, employees of BCI or its subsidiaries who become involved with PFCI's
business through arrangements between PFCI and BCI, area developers of BCI, and
other private equity investors in PFCI. The identity of such transferees of PFCI
Common Stock and the amount to be transferred will be developed as the business
of PFCI and
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the nature of the involvement of specific individuals and entities evolve over
the next twelve to eighteen months. Messrs. Beck and Nadhir expect that such
transfers will be at sale prices approximating their purchase price for such
PFCI Common Stock.
As of February 10, 1997, Mr. Harry A. Blazer, a director of PFCI,
beneficially owns 2,050,071 shares of Class B Common Stock which are immediately
convertible on a one-for-one basis into Class A Common Stock, and Mr. Blazer's
wife owns 31,000 shares of Class A Common Stock, of which Mr. Blazer disclaims
beneficial ownership.
(b) PFCI will have the sole power to vote, and to direct the vote of, and
the sole power to dispose of, and direct the disposition of, any shares of Class
A Common Stock that may be acquired by it upon the exercise of the Warrant.
(c) During the past 60 days, the Reporting Persons effected only the
transactions described in Item 3 with respect to the Class A Common Stock. To
the knowledge of the Reporting Persons, no executive officer or director of PFCI
effected any transactions in the Class A Common Stock in the past 60 days.
(d) Not applicable.
(e) Not applicable.
ITEM 6. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR
RELATIONSHIPS WITH RESPECT TO SECURITIES OF THE ISSUER
------------------------------------------------------
PFCI and the Issuer have entered into the following agreements with respect
to securities of the Issuer.
Warrant. The Issuer has issued to PFCI the Warrant, which entitles PFCI to
purchase from the Issuer at any time prior to January 31, 2001 up to 2,000,000
shares of Class A Common Stock at the following exercise prices per share:
(a) If the Warrant is exercised in whole or in part prior to January 31,
1998, the exercise price shall be (i) $4.00 per share for the first 500,000
shares, (ii) $4.50 per share for the next 500,000 shares, (iii) $5.00 per share
for the next 500,000 shares, and (iv) $5.50 per share for the next 500,000
shares.
(b) If the Warrant is exercised in whole or in part on or after January 31,
1998 and prior to January 31, 1999, the exercise price shall be (i) $4.50 per
share for the first 1,000,000 shares, (ii) $5.00 per share for the next 500,000
shares, and (iii) $5.50 per share for the next 500,000 shares; provided that the
number of shares purchased prior to January 31, 1998 shall (x) reduce the number
of shares purchasable at $4.50 per share, and if greater than 1,000,000, (y)
reduce the number of shares purchasable at $5.00 per share.
(c) If the Warrant is exercised in whole or in part on or after January 31,
1999 and prior to January 31, 2000, the exercise price shall be (i) $5.00 per
share for the first 1,500,000 shares, and (ii) $5.50 per share for the next
500,000 shares; provided that the number of shares
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purchased prior to January 31, 1999 shall reduce the number of shares
purchasable at $5.00 per share.
(d) If the Warrant is exercised in whole or in part on or after January 31,
2000 and prior to January 31, 2001, the exercise price shall be $5.50 per share.
The exercise price and/or the number of shares of Class A Common Stock
issuable pursuant to the Warrant are subject to customary anti-dilution
adjustments, including adjustments to the then applicable exercise price in the
event the Issuer issues Class A Common Stock (or options to purchase, rights to
subscribe for, or securities convertible into or exchangeable for, Class A
Common Stock) for no consideration or for consideration per share (determined as
provided in the Warrant) less than the exercise price in effect immediately
prior to such issuance of Class A Common Stock.
Loan Agreement. The Issuer and PFCI are also parties to a secured loan
agreement dated as of January 31, 1997 (the "Loan Agreement"), pursuant to which
PFCI has agreed to provide the following two credit facilities (the "Loans") to
the Issuer: (i) the Refinancing Loan and (ii) the Development Loan. 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 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.
PFCI has the option (the "Option"), at any time after the earlier of (i)
the acceleration of either 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 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. 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
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to the extent the principal amount of the Loans is insufficient for this
purpose, by delivery of cash.
The Series B Preferred Stock, stated value of $40.00 per share, ranks (i)
senior to all classes of common stock of the Issuer and to any other class or
series of capital stock that does not expressly provide that it ranks senior to
or on a parity with the Series B Preferred Stock with respect to dividends and
upon liquidation, dissolution and winding-up (collectively, "Junior
Securities"), (ii) on parity with the Issuer's Series AA Preferred Stock, stated
value $9.00 per share, and with each other class or series of the Issuer's
capital stock that expressly provides that it ranks on a parity with the Series
B Preferred Stock with respect to dividends and upon liquidation, dissolution
and winding-up (collectively, "Parity Securities"), and (iii) junior to each
class or series of Capital Stock that expressly provides that it ranks senior to
the Series B Preferred Stock with respect to dividends and upon liquidation,
dissolution and winding-up (collectively, "Senior Securities"). The terms of the
Series B Preferred Stock provide that the Issuer shall not (a) create, authorize
or issue any Senior Securities or Parity Securities, (b) reclassify any class or
series of its capital stock into Senior Securities or Parity Securities, (c)
increase the number of Series B Preferred Stock authorized for issuance, or (d)
amend, modify or repeal its Articles of Incorporation, Articles of Amendment to
the Articles of Incorporation, By-Laws or any other specified designation,
right, preference or power of the Series B Preferred Stock in a manner adverse
to holders of Series B Preferred Stock without the approval of holders of at
least two-thirds of the then outstanding Series B Preferred Stock.
The holders of the Series B Preferred Stock will be entitled, at any time
the Issuer shall declare and pay a dividend or distribution with respect to any
class of the Issuer's common stock, to receive with respect to each share of
Series B Preferred Stock held, a dividend or distribution that is the same
dividend or distribution that would be received by a holder of the number of
shares of Class A Common Stock into which such share of Series B Preferred Stock
is convertible on the record date for such dividend or distribution. In the
event of certain defaults with respect to the Issuer's Series AA Preferred
Stock, the Series B Preferred Stock will become entitled to receive, when, as
and if declared by the Issuer's Board of Directors out of funds legally
available therefor, cash dividends at an annual rate of 15% of the liquidation
preference to which each share of Series B Preferred Stock is entitled.
Each share of Series B Preferred Stock will be convertible at any time into
that number of shares of Class A Common Stock obtained by dividing (i) the
aggregate Liquidation Preference (as defined) of the shares to be converted by
(ii) the then applicable Conversion Price (as defined). The initial Conversion
Price is $4.00 per share and shall be subject to adjustment with respect to
transactions occurring after January 31, 1997 (regardless of whether any shares
of Series B Preferred Stock are then outstanding) pursuant to customary anti-
dilution provisions, including provisions that require adjustment to the
Conversion Price in the event the Issuer issues Class A Common Stock (or options
to the purchase, rights to subscribe for, or securities convertible into or
exchangeable for, Class A Common Stock) for no consideration or for
consideration per share (determined as provided in the Series B Preferred Stock)
less than either the Conversion Price or the Market Price (as defined) in effect
immediately prior to such issuance of Class A Common Stock; provided, however,
no adjustment shall be made to the Conversion Price in the case of the issuance
of (i) the Warrant and certain other warrants issued
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by the Issuer, and the Class A Common Stock issuable upon the exercise of the
Warrant and such other warrants, (ii) the Option, the Series B Preferred Stock
issuable upon exercise of the Option and the Class A Common Stock issuable
pursuant to the conversion of all or any portion of such Series B Preferred
Stock, (iii) Class A Common Stock issuable upon the exercise of certain
outstanding warrants to purchase shares of Class A Common Stock originally
issued to NationsBank, N.A. (South) and Creditanstalt Bankverein, and (iv) the
Series AA Preferred Stock of the Issuer and Class A Common Stock issuable upon
conversion of such Series AA Preferred Stock.
The holders of Series B Preferred Stock will vote with the holders of the
Class A Common Stock, the holders of the Class B Common Stock, and the holders
of the Series AA Preferred Stock, voting together as a single voting group, on
any matter required or permitted to be voted upon by the holders of the Issuer's
common stock. Each share of Series B Preferred Stock shall entitle the holder
thereof the right to such number of votes per share in each such matter as shall
equal the number of shares of Class A Common Stock into which such share of
Series B Preferred Stock is convertible as of the record date for the
determination of holders entitled to vote on such matters.
Transaction Agreement. The Issuer and PFCI are parties to a transaction
agreement dated January 31, 1997 (the "Transaction Agreement"), pursuant to
which the Issuer has agreed that at any time the Issuer desires to seek
additional financing (whether debt or equity financing), the Issuer agrees to
negotiate in good faith with PFCI for a period of 20 days with regard to any
portion of the entire amount (at the option of PFCI) of such financing prior to
negotiating with any other entity with regard thereto. In the event the Issuer
has engaged in good faith negotiations with PFCI and such negotiations have been
unsuccessful, the Issuer shall notify PFCI of the existence of any other
financing arrangement it proposes to consummate and the terms and conditions
thereof and shall grant PFCI a right of first refusal with respect to such
proposed financing on the same terms and subject to the same conditions
contained therein, in which event PFCI shall have 30 days thereafter in which to
agree to provide all of the financing on the same terms and conditions of such
proposed financing. In addition, in the event PFCI does not provide the
financing as proposed by the Issuer and the Issuer enters into any financing
other than a pure debt financing in which the debt instrument proposed to be
offered has no equity-type features, the Issuer shall grant to PFCI a right to
participate therein, on such basis as will permit PFCI to maintain the same
percentage equity interest in the Issuer, on a fully-diluted basis, after such
financing is completed as PFCI had prior to such financing.
The Transaction Agreement also provides that if at any time the Issuer
desires to sell substantially all of its assets, merge, consolidate or engage in
any other business combination transaction (a "Transaction"), the Issuer agrees
to negotiate in good faith with PFCI for a period of 20 days with regard to any
such Transaction prior to negotiating with any other entity with regard thereto.
In the event the Issuer has engaged in good faith negotiations with PFCI and
such negotiations have been unsuccessful, the Issuer shall make a final offer to
PFCI (the "Final Issuer Offer") prior to engaging in negotiations with,
soliciting offers from or accepting any offer of, any third party with respect
to a Transaction. In the event PFCI does not accept the Final Issuer Offer
within 20 days after the date it is received by PFCI, the Issuer shall thereupon
have the right, during the six-month period following the expiration of such 20-
day period, to enter into an
12
<PAGE>
agreement relating to a Transaction (which Transaction shall be consummated
within the nine-month period following the expiration of such 20-day period)
with any third party at a price and on terms no less favorable to the Company
than the Final Issuer Offer. In the event the Issuer does not enter into a
Transaction within such six-month period or consummate the Transaction within
such nine-month period, as the case may be, PFCI shall again have the rights
described above with respect to a proposed Transaction.
Registration Agreement. The Issuer and PFCI are parties to a registration
rights agreement dated January 31, 1997 (the "Registration Agreement"), pursuant
to which the Issuer granted to PFCI unlimited piggyback registration rights
under the Securities Act with respect to the shares of Class A Common Stock now
owned or hereafter acquired by PFCI or which are issuable upon the conversion,
exercise or exchange of any security of the Issuer now owned or hereafter
acquired by PFCI or which PFCI has the right to acquire, including preferred
stock, notes or other evidences of indebtedness convertible into, exercisable or
exchangeable for, Class A Common Stock, and Class A Common Stock issuable upon
exercise of any warrant, and all other securities issued with respect thereto by
reason of dividends, stock splits, combinations or similar transactions
("Registrable Securities"). In addition, the Issuer is obligated to file, within
18 months after January 31, 1997, a registration statement under the Securities
Act (the "Resale Registration") in which PFCI will be entitled to include the
Registrable Securities then held by PFCI and that will permit PFCI to make
public resales of the Registrable Securities. The aforementioned 18-month period
may be extended for an additional 12-months if the Issuer has been advised in
writing by a nationally recognized independent investment banking firm that, in
such firm's opinion, the filing of such resale registration statement
immediately prior to the end of the 18-month period might materially and
adversely affect the Issuer (including the price of the Class A Common Stock).
Upon the effectiveness of the Resale Registration and for a period of two years
thereafter, PFCI has agreed not to effect the sale of more than 25% of the
Registrable Securities beneficially owned by it on the effective date of the
Resale Registration during any period of six consecutive months. The Issuer will
bear substantially all of the expenses in connection with any registrations
under the Registration Agreement (other than underwriting discounts or
commissions).
Mr. Harry A. Blazer is a party to an Amended and Restated Stockholders'
Agreement dated January 31, 1997 among the Issuer, Mr. Blazer and Robert Fleming
Nominees, Ltd. and an Amended and Restated Investors' Agreement dated January
31, 1997 among the Issuer, Mr. Blazer, AXA Equity & Law Life Assurance Society,
Orbis Pension Trustees Ltd., Ashford Capital Partners, L.P. and Theodore H.
Ashford, each providing, among other things, that in the event Mr. Blazer sells
or otherwise disposes of more than an aggregate of 10% of the Class B Common
Stock beneficially owned by Mr. Blazer, the other stockholders of the Issuer
that are parties to such agreement will have the right to include certain
securities of the Issuer owned by such stockholders in such sale or other
disposition. None of Reporting Persons is a party to such agreements.
ITEM 7. MATERIAL TO BE FILED AS EXHIBITS
--------------------------------
See Exhibit Index appearing elsewhere herein, which is incorporated herein
by reference.
13
<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.
PROGRESSIVE FOOD CONCEPTS, INC.
By: /s/ Saad J. Nadhir
------------------------------------
Chairman, President and Chief
Executive Officer
14
<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.
By: /s/ Saad J. Nadhir
------------------
Saad J. Nadhir
15
<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.
By: /s/ Scott A. Beck
-----------------
Scott A. Beck
16
<PAGE>
APPENDIX A
----------
Harry A. Blazer is a director of PFCI. Mr. Blazer is Chairman, President
and Chief Executive Officer of the Issuer. Mr. Blazer's business address is 1180
Upper Hembree Road, Roswell, Georgia 30076. The Issuer owns and operates retail
food stores in the Atlanta, Georgia area.
Thomas R. Sprague is Secretary and Treasurer of PFCI and a director of
PFCI. Mr. Sprague's business address is 14103 Denver West Parkway, Golden,
Colorado 80401.
<PAGE>
EXHIBIT INDEX
-------------
NUMBER DESCRIPTION
1. Joint Filing Agreement, dated February 10, 1997, among PFCI, Scott
A. Beck and Saad J. Nadhir.
2. Letter, dated January 30, 1997, from Scott A. Beck and Saad J.
Nadhir to the Board of Directors of Boston Chicken, Inc.
3. Secured Loan Agreement, dated January 31, 1997, between the Issuer
and PFCI.
4. Transaction Agreement, dated January 31, 1997, between the Issuer
and PFCI.
5. Warrant to Purchase Shares of Class A Common Stock, dated January
31, 1997, issued by the Issuer to PFCI.
6. Articles of Amendment to the Articles of Incorporation of the Issuer
designating the Series B Preferred Stock of the Issuer.
7. Registration Rights Agreement, dated January 31, 1997, between the
Issuer and PFCI.
8. Consulting Services Agreement, dated January 31, 1997, between the
Issuer, PFCI and Harry A. Blazer.
9. Acquisition Agreement, dated January 31, 1997, between the Issuer
and PFCI.
<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: February 10, 1997
PROGRESSIVE FOOD CONCEPTS, INC.
By: /s/ Saad J. Nadhir
-------------------------------
Name: Saad J. Nadhir
Its: Chairman, President and
Chief Executive Officer
/s/ Scott A. Beck
-----------------------------------
Scott A. Beck
/s/ Saad J. Nadhir
-----------------------------------
Saad J. Nadhir
<PAGE>
Exhibit 2
January 30, 1997
Board of Directors
Boston Chicken, Inc.
14123 Denver West Parkway
P. O. Box 4086
Golden, Colorado 80401-4086
Gentlemen:
We write this letter to set forth our intent with respect to certain
transfers of shares of common stock (the "Stock") of HFMI Acquisition
Corporation (to be known as Progressive Food Concepts, Inc.) (the "Company") to
be owned by us.
As we previously indicated to you, it is our intention to transfer a
portion of the Stock to some or all of the following constituencies: (1)
management and employees of the Company, (2) employees of Boston Chicken, Inc.
or its subsidiaries (collectively "BCI") who become involved with the Company's
business through arrangements between the Company and BCI, and (3) private
equity investors. In addition, we may transfer Stock to BCI's area developers
separate and apart from any transfers by BCI of any of its investment in the
Company to such area developers. Any such transfers will be in compliance with
applicable federal and state securities laws.
The identity of such transferees of Stock and the amount to be transferred
will be developed as the business of the Company and the nature of the
involvement of specific individuals and entities evolve over the next twelve to
eighteen months. As we know you appreciate, the start-up nature of the Company's
business makes such a methodical and carefully considered approach to long-term
incentives for appropriate individuals an absolute necessity.
Very truly yours,
/s/ Saad J. Nadhir
-------------------------------
Saad J. Nadhir
/s/ Scott A. Beck
-------------------------------
Scott A. Beck
<PAGE>
Exhibit 3
SECURED LOAN AGREEMENT
----------------------
This secured loan agreement (the "Agreement") is made and entered into as
of the 31st day of January, 1997 between HFMI ACQUISITION CORPORATION, a
Delaware corporation ("Newco"), and HARRY'S FARMERS MARKET, INC., a Georgia
corporation (the "Company").
RECITALS
--------
Newco and Company have entered into a transaction agreement pursuant to
which Newco has agreed to enter into a secured loan agreement providing for
certain secured loans to the Company. This Agreement is being entered into to
provide two separate credit facilities to Company: (i) a refinancing credit
facility and (ii) a 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 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 Company.
1.2 Purposes of the Refinancing Loan. Proceeds of the Refinancing Loan
--------------------------------
shall be used by Company to repay $12,000,000 in principal amount of
indebtedness owed to NationsBank, N.A. (South).
<PAGE>
ARTICLE II
THE 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 Company in an aggregate principal
amount not to exceed an $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 Company.
2.2 Purposes of the Development Loan. Proceeds of the Development Loan
--------------------------------
shall be used by 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.
ARTICLE III
GENERAL PROVISIONS
------------------
3.1 Promissory Notes. The Refinancing Loan and the Development Loan
----------------
(together, the "Loans") shall be evidenced by promissory notes (the "Notes") of
even date herewith in the form attached hereto as Exhibit A-1 (the "Refinancing
Note") and Exhibit A-2 (the "Development Note").
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 Newco shall have no
obligation to fund, nor shall 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 foregoing, 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
2
<PAGE>
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 Company pursuant to this Agreement, and all payments made by
Company with respect to the Loans; provided, however, that failure to maintain
such account or record any advances therein shall not relieve 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 Loans, for the period commencing on the date the Loans are made
until the Loans are paid in full, (i) during the period commencing on the date
the 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 the 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 be computed on the basis of a 360-day year and the
actual number of days elapsed.
(c) 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) Company shall pay to Newco interest only on the outstanding principal
balance of the Loans 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 Loans under this Agreement and continuing through and
including
3
<PAGE>
the Draw Loan Termination Date. Thereafter Company shall pay principal and
interest as provided in Section 3.6 hereof.
3.6 Repayment of the Loans. 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 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 the date hereof (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
4
<PAGE>
shall be inscribed with a legend indicating, that 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 either 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 3,000,0000 shares (adjusted in the same manner as provided in
Section 3.9(e)) 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).
(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 Company under this Agreement
shall be reduced by an aggregate amount equal to the amount paid upon such
Option exercise.
5
<PAGE>
(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 Company with or into any partnership, corporation, or other entity
(other than a merger in which 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 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 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
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 Company. For all other
purposes, the 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. 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. 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 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 Company further agrees that it shall be limited to its remedies in contract
and in a non-fraud tort action against Newco. Newco and Company agree that this
Section 3.11 shall not diminish or otherwise affect in any way the amount of
damages for which Newco may be liable to Company in a contract or non-fraud tort
action for a Funding Default.
6
<PAGE>
3.12 Payment Method. All payments to be made by 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. Company and Newco both covenant and agree that they
-------------
will each treat aggregate outstanding principal balances of the Refinancing Loan
and the 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 Company's
-----------------
obligations hereunder and under the Notes, and any and all other indebtedness,
obligations or liabilities of any kind of Company to Newco arising under this
Agreement, whether now existing or hereafter arising, direct or indirect,
absolute or contingent, joint and/or several, 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 Company and wheresoever
located:
(a) all of 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, lease hold
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 Company;
(b) all insurance proceeds of or relating to any of the foregoing;
(c) all of Company's books, records, and computer programs and data
relating to any of the foregoing; and
7
<PAGE>
(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").
4.2 Subsidiary Security Documents. Company shall cause each person or
-----------------------------
entity becoming a Subsidiary of 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) 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 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 on debt on real estate owned by 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 Company to Newco,
to create and perfect a second-priority security interest in the assets of any
Subsidiaries of Company provided in Section 4.2 hereof, or otherwise to protect
and preserve the Collateral and Newco's security interest therein. Should
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 Company 's
agent.
(b) 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.
8
<PAGE>
(c) Company shall notify Newco, within thirty (30) days after the
occurrence thereof, of the acquisition of any property by 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.
(d) 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, 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 and Section 2.1 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 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 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").
9
<PAGE>
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.
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.
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 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 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
------------------------------
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 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.]
---------------------
10
<PAGE>
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 Company or
its Subsidiaries, threatened against or affecting Company or its Subsidiaries or
the business or properties of 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 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) 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 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 Company, and each of this Agreement and the
Notes has been duly executed and delivered by Company and constitutes the legal,
valid, and binding obligation of Company enforceable in accordance with its
terms.
(c) The execution and delivery of this Agreement and the Note and the
performance by 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 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 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
11
<PAGE>
obtained or taken, is required for the execution and delivery of, or the
performance by Company of its obligations under, this Agreement or the Note.
6.6 Conduct of Business. Since their inception, 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 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. 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 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) Company or a Subsidiary shall be the lawful
owner of such 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 Company or its Subsidiary, as the case may be,
and all third parties (other than the Agent) and secures the payment of
Company's obligations hereunder and under the Note, and all other obligations of
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
12
<PAGE>
any purchase money security interest (including pursuant to a financing lease)
in any equipment for Company's stores.
6.10 Location of Offices, Records, and Facilities. Company's chief
--------------------------------------------
executive office and chief place of business and the office where 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 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 Company is 58-
2037452. The name of Company is "Harry's Farmers Market, Inc." and 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, 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.
(c) If the Collateral described in clause (a) is warehoused, 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. 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.
13
<PAGE>
6.13 Public Utility Holding Company Act. 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. 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
---------------------
Company covenants and agrees that so long as this Agreement remains in
effect:
7.1 Financial Statements.
--------------------
(a) 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 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 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 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 Company and its Subsidiaries for
such year, and a balance sheet of Company and its Subsidiaries as of the end of
such year, setting forth in each case, in comparative form, corre sponding
figures for the preceding fiscal year and as of the end of the preceding fiscal
year, audited by independent certified public accountants selected by 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 Section
7.1(a) shall be prepared in accordance with generally accepted accounting
principles consistently applied. Company authorizes Newco to discuss the
financial condition of Company with Company's independent public accountants and
agrees that such discussion or communication shall be without liability to
either Newco or Company's independent public accountants.
14
<PAGE>
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 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 Company's and its Subsidiaries'
books, records, journals, orders, receipts, and any correspondence and other
data relating to the business of Company or its Subsidiaries or to any
transactions between the parties hereto, and (b) to discuss the affairs,
finances, and business of Company and its Subsidiaries with the executive
officers of Company and its Subsidiaries.
7.3 Conduct of Business.
-------------------
(a) 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 Company or its Subsidiaries, (ii)
maintain in full force and effect all material licenses, bonds, franchises,
leases, patents, contracts, and other rights 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) 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 Company in good faith and by appropriate
proceedings.
(c) 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) 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
15
<PAGE>
properties in similar businesses similarly situated; and (ii) public liability
insurance relating to 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, 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 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 Company's obligations
hereunder, payable by Company to Newco on demand.
7.5 Notice of Suit or Adverse Change in Business. Company shall give
--------------------------------------------
written notice to Newco (a) as soon as possible, and in any event within five
business days after Company receives actual notice (written or oral) of any
material proceeding(s) being instituted or threatened to be instituted by or
against 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
Company learns of any Material Adverse Effect.
7.6 Use of Proceeds. Except as otherwise authorized in writing by Newco,
---------------
Company shall use the proceeds of the Loans solely for the purposes set forth in
Article I and Article II hereof. 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 [Intentionally Omitted.].
---------------------
7.8 [Intentionally Omitted.]
---------------------
16
<PAGE>
7.9 Company Subsidiaries. Each corporation or other entity becoming a
--------------------
Subsidiary of 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 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 Company will be validly issued and will be fully
paid and nonassessable and will be owned, beneficially and of record, by Company
or another Subsidiary of Company free and clear of any liens, except for the
pledge of such shares to the Agent.
7.10 Place of Business. Company will provide Newco with 60 days' prior
-----------------
written notice of any proposed change in the location of its chief executive
office. 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, 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, 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, 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, Company agrees to
17
<PAGE>
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 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 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 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.
18
<PAGE>
ARTICLE VIII
NEGATIVE COVENANTS
------------------
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. 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. 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 Company's
stock option plans, relocation loans and other loans to employees), 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 except to Company's Board of Directors (other than
Harry Blazer). 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. 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.
19
<PAGE>
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, 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. 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.
8.7 Articles of Incorporation and Bylaws. 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.
20
<PAGE>
8.8 Liens. 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 Company or any Subsidiary, other than
Permitted Liens.
8.9 Transactions with Affiliates. 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 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. 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
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. 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
Company prior to or on the Closing Date of all of its covenants theretofore to
be performed under this Agreement, (b) the accuracy of 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:
21
<PAGE>
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. 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 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:
22
<PAGE>
(a) 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;
(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 Company to authorize, among other things, the
execution, delivery, and performance by 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 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 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 ("Development Default"):
23
<PAGE>
(a) default in the payment when due of any portion of the principal on
the 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 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 Company to
Newco shall be materially inaccurate;
(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 or the Development
Note which shall continue unremedied for a period of 30 calendar days following
written notice thereof from Newco;
(g) 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;
24
<PAGE>
(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 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) Company or any Subsidiary shall (a) fail to pay any indebtedness
for borrowed money in excess of $100,000 (other than the Notes) of 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 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
25
<PAGE>
(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 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 cease to make any further advances under
Section 1.1 and Section 2.1, and shall have the right to declare the 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 with respect to the
Collateral and any other applicable law upon default by a debtor;
26
<PAGE>
(iii) exercise its rights under the other Security
Instruments in respect of the 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 Company or any Subsidiary, Newco's obligations
under this Agreement shall automatically terminate forthwith and all amounts
owed by Company hereunder and under the 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), 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. Any requirement
of reasonable notice shall be met if Newco sends such notice to Company, by
registered or certified mail, at least ten days prior to the date of sale,
disposition, or other event giving rise to a required notice. Newco may be the
purchaser at any such sale. 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 Loans.
Newco shall have no obligation to preserve rights against prior parties. Company
hereby waives as to Newco any right of subrogation or marshaling of such
Collateral and any other collateral for the Development Loans. To this end,
Company hereby expressly agrees that any such collateral or other security of
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 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. Company shall be liable for any deficiency
remaining after disposition of the Collateral. Newco agrees and acknowledges
that there are different defaults for the Refinancing Loan and the 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.
27
<PAGE>
(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
(v) 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
28
<PAGE>
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 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 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 Company contained in this Agreement or the Notes and no
Default or Event of Default by Company under this Agreement or 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. 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
29
<PAGE>
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 Company, (i) to
any Affiliate of Newco (except 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 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 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 Company:
1180 Upper Hembree
Roswell, Georgia 30076
Attention: Harry A. Blazer
Facsimile: (770) 664-4920
30
<PAGE>
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:
14130 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.
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.
31
<PAGE>
11.8 Avoidance. To the extent that Newco receives any payment on account
---------
of 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, 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, 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 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 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 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,
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 Company's obligations hereunder and termination of this Agreement.
32
<PAGE>
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. 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 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
Company or by the mailing thereof by registered or certified mail, postage
prepaid to Company at the address for 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 Company or property in the courts of any other jurisdiction.
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.
IN WITNESS WHEREOF, the parties have executed this Agreement to be
effective as of the date and year first above written.
33
<PAGE>
IN WITNESS WHEREOF, each of the parties has caused this Secured Loan
Agreement to be duly executed in its behalf as of the day and year first written
above.
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/ Harry A. Blazer
----------------------------
Name: Harry A. Blazer
Title: Chairman, President and
Chief Executive Officer
<PAGE>
Exhibit 4
================================================================================
TRANSACTION AGREEMENT
AMONG
HFMI ACQUISITION CORPORATION,
and
HARRY'S FARMERS MARKET , INC.
DATED AS OF JANUARY 31, 1997
================================================================================
<PAGE>
Exhibits
--------
Exhibit A Secured Loan Agreement
Exhibit B Series B Preferred Stock
Exhibit C Warrant Certificate
Exhibit D Registration Rights Agreement
Exhibit E IP Acquisition Agreement
Exhibit F Company Preferred Stock Agreement
Exhibit G Bank Agreement
Exhibit H Opinion of Sutherland, Asbill & Brennan
Exhibit I Opinion of Alston & Bird
<PAGE>
TRANSACTION AGREEMENT
---------------------
This Agreement dated as of January 31, 1997, is by and between Harry's
Farmers Market, Inc., a Georgia corporation (the "Company"), and HFMI
Acquisition Corporation, a Delaware corporation ("Newco").
In consideration of the mutual promises and covenants contained in this
Agreement, and intending to be legally bound by the terms and conditions of this
Agreement, the parties hereto hereby agree as follows:
1. Transactions Between Newco and the Company.
------------------------------------------
1.1 Secured Loan. Subject to the terms and conditions of this
Agreement, at the Closing (as defined in Section 2) Newco and the Company shall
enter into a secured loan agreement in the form attached as Exhibit A hereto
(the "Secured Loan Agreement") and Newco shall fund the Refinancing Loan (as
defined in the Secured Loan Agreement). The Secured Loan Agreement will also
grant to Newco an option (the "Option") to acquire, on the terms provided in the
Secured Loan Agreement, 500,000 shares (the "Preferred Shares") of Series B
Preferred Stock, stated value $40 per share, of the Company ("Series B Preferred
Stock"), which Series B Preferred Stock shall have the terms of the Articles of
Amendment in the form of Exhibit B hereto.
1.2 Purchase of Warrants. Subject to the terms and conditions of this
Agreement, at the Closing the Company shall sell and issue to Newco, warrants
(the "Warrants") to purchase 2,000,000 shares (the "Warrant Shares") of Class A
Common Stock, no par value, of the Company (the "Class A Common Stock"), which
shall have the terms set forth in the Warrant Certificate in the form of Exhibit
C hereto (the "Warrants"), for an aggregate purchase price of One Million
Dollars ($1,000,000), payable in cash.
1.3 Registration Rights. Subject to the terms and conditions of this
Agreement, at the Closing Newco and the Company shall enter into a Registration
Rights Agreement in the form of Exhibit D hereto.
1.4 Intellectual Property Acquisition. Subject to the terms and
conditions of this Agreement, at the Closing (as defined in Section 2) the
Company shall transfer certain intellectual property to HFMI Trust, a newly-
organized Delaware business trust (the "IP Trust"), the Company shall transfer a
certificate of interest in the IP Trust to Newco, the IP Trust shall enter into
an administration and servicing agreement with Newco and the IP Trust shall
enter into license agreements with each of
<PAGE>
Newco and the Company, all on the terms provided in the acquisition agreement
between Newco and the Company in the form set forth as Exhibit E hereto (the "IP
Acquisition Agreement").
1.5 Consulting Services Agreement. Subject to the terms and conditions
of this Agreement, at the Closing Newco shall make the payments to the Company
provided for in the consulting services agreement of even date herewith among
Newco, the Company and HB (the "Consulting Services Agreement").
2. The Closing. The closing of the Loans, the purchase and sale of the
Warrants and the transactions contemplated by the IP Acquisition Agreement and
the Consulting Services Agreement shall take place at the offices of Sutherland,
Asbill & Brennan, L.L.P., 999 Peachtree Street, N.E., Atlanta, Georgia 30309-
3996, or at such other time, date, and place as are mutually agreeable to the
Company and Newco (the "Closing"). The date of the Closing is hereinafter
referred to as the "Closing Date." At the Closing, (i) the Company shall deliver
to Newco the Refinancing Note (as defined in the Secured Loan Agreement) and
Newco shall pay to the Company by wire transfer the proceeds of the Refinancing
Loan, (ii) the Company shall deliver to Newco a certificate evidencing the
Warrants and Newco shall pay to the Company by wire transfer the purchase price
therefor, (iii) the Company and Newco shall execute and deliver the Registration
Rights Agreement, (iv) the Company and Newco shall make the deliveries, and take
the other actions, required to be made or taken by them under the IP Acquisition
Agreement, and (v) Newco shall pay to the Company by wire transfer the
Consulting Fee (as defined in the Consulting Services Agreement).
3. Representations of the Company. The Company hereby represents and
warrants to Newco as follows:
3.1 Organization and Qualification; Subsidiaries.
--------------------------------------------
(a) Each of the Company and each of the persons listed in Section
3.1(a) of the Disclosure Schedule (the "Company Disclosure Schedule") delivered
to Newco by the Company prior to the date of this Agreement (collectively, the
"Company Subsidiaries") has been duly organized, and is validly existing and,
where applicable, in good standing under the laws of the jurisdiction of its
incorporation or organization, as the case may be, and has the requisite power
and authority and all necessary governmental approvals to own, lease and operate
its properties and to carry on its business as it is now being conducted, except
where the failure to be so organized, existing or in good standing or to have
such power, authority and governmental approvals could not reasonably be
expected to have, individually or in the aggregate, a Company Material Adverse
Effect (as defined below). Each of the Company and the Company Subsidiaries is
duly qualified or licensed to do business, and is in good standing, in each
jurisdiction where the character of the properties
2
<PAGE>
owned, leased or operated by it or the nature of its business makes such
qualification or licensing necessary, except for such failures to be so
qualified or licensed and in good standing that could not reasonably be expected
to have, individually or in the aggregate, a Company Material Adverse Effect.
For purposes of this Agreement, "Company Material Adverse Effect" means any
change, event or effect in, on or relating to the business of the Company and
the Company Subsidiaries that is, or is reasonably likely to be, materially
adverse to the business, assets (including intangible assets), liabilities
(contingent or otherwise), condition (financial or otherwise), prospects or
results of operations of the Company and the Company Subsidiaries taken as a
whole, other than any change or effect arising out of general economic
conditions in the United States.
(b) The copies of the Company's Articles of Incorporation, together
with the Articles of Incorporation of each Company Subsidiary of the Company, as
amended to the date hereof (including the Articles of Amendment designating the
Company's Series AA Preferred Stock and the Company's Series B Preferred Stock),
and the Company's Bylaws, together with the Bylaws of each Company Subsidiary of
the Company, as amended to the date hereof (collectively, the "Company Charter
Documents"), that have been provided to Newco by the Company are complete and
correct copies thereof. Each of the Company Charter Documents are in full force
and effect. Neither the Company nor any of the Company Subsidiaries are in
violation of any of the provisions of the Company Charter Documents.
(c) The Company Subsidiaries are the only persons in which the Company
owns an equity interest.
3.2 Capitalization of the Company and its Subsidiaries.
--------------------------------------------------
(a) The authorized capital stock of the Company consists of:
22,000,000 shares of Class A Common Stock, of which as of the date hereof,
4,159,253 shares are issued and outstanding; 3,000,000 shares of Class B Common
Stock, no par value ("Class B Common Stock"), of which as of the date hereof,
2,050,071 shares are issued and outstanding; and 3,000,000 shares of Preferred
Stock, of which as of the date hereof, 1,222,221 shares have been issued in
series designated as the Series A Redeemable Convertible Preferred Stock, and
are issued and outstanding. (The Class A Common Stock and the Class B Common
Stock are herein sometimes collectively referred to as the "Company Common
Stock" and the Preferred Stock is sometimes referred to as the "Company
Preferred Stock".) All of the issued and outstanding shares of Company Common
Stock and Company Preferred Stock have been duly authorized, validly issued and
are fully paid, nonassessable and free of preemptive rights, except as set forth
in the Company Disclosure Schedule. As the date hereof, approximately 434,200
shares of Class A Common Stock are reserved for issuance and issuable upon or
otherwise deliverable in connection with the exercise of outstanding options to
purchase Class A Common Stock ("Company Options")
3
<PAGE>
issued pursuant to the Management Incentive Plan and the Outside Directors
Incentive Plan (the "Company Plans") and 833,611 shares of Class A Common Stock
are reserved for issuance and issuable upon or otherwise deliverable in
connection with the exercise of outstanding warrants to purchase Class A Common
Stock ("Company Warrants"). Section 3.2(a) of the Company Disclosure Schedule
sets forth, as of the date hereof, (i) the persons to whom Company Options and
Company Warrants have been granted, (ii) the exercise price for the Company
Options and Company Warrants held by each such person and (iii) whether such
Company Options are exercisable. Except as described in the Company Filed SEC
Reports (as defined below) and as disclosed in Section 3.2(a) of the Company
Disclosure Schedule, as of the date hereof, since January 31, 1996 (i) no shares
of the Company's capital stock have been issued other than pursuant to the
exercise of Company Options and (ii) no stock options have been granted by the
Company. Except as set forth above or in Section 3.2(a) of the Company
Disclosure Schedule, as of the date hereof, there are outstanding (i) no shares
of capital stock or other voting securities of the Company, (ii) no securities
of the Company or any Company Subsidiary convertible into or exchangeable for
shares of capital stock or voting securities of the Company, (iii) no options,
warrants or other rights to acquire from the Company or any Company Subsidiary,
and no obligations of the Company or any Company Subsidiary to issue, any
capital stock, voting securities or securities convertible into or exchangeable
for capital stock or voting securities of the Company, (iv) no equity
equivalents, interests in the ownership or earnings of the Company or any
Company Subsidiary or other similar rights (including stock appreciation rights)
(the items listed in subclauses (i), (ii), (iii) and (iv) being referred to,
collectively, as "Company Securities") and (v) no obligations of the Company or
any Company Subsidiary to repurchase, redeem or otherwise acquire any Company
Securities. Except as set forth in Section 3.2(a) of the Company Disclosure
Schedule, there are no shareholder agreements, voting trusts or other agreements
or understandings to which the Company is a party or to which it is bound
relating to the voting or registration of any shares of capital stock of the
Company. Except as disclosed in Section 3.2(a) of the Company Disclosure
Schedule, the Company has not taken any action that would result in any Company
Stock Options that are unvested becoming vested in connection with or as a
result of the execution and delivery of this Agreement or the consummation of
the transactions contemplated hereby.
(b) The direct or indirect interest of the Company in each Company
Subsidiary, as described next to the name of such Company Subsidiary in Section
3.1(a) of the Company Disclosure Schedule, is the only direct or indirect
interest of the Company in such Company Subsidiary. Each outstanding share of
capital stock of each Company Subsidiary that is a corporation is duly
authorized, validly issued, fully paid and nonassessable and each share of
capital stock and/or each other direct or indirect interest of the Company in
each Company Subsidiary described in Section 3.1(a) of the Company Disclosure
Schedule as being owned by the Company or a Company Subsidiary is owned by the
Company or a Company Subsidiary free and clear of all
4
<PAGE>
security interests, liens, claims, pledges, options, rights of first refusal,
limitations on voting rights, charges and other encumbrances of any nature
whatsoever (collectively, "Liens"), except where failure to own such shares or
other interests free and clear could not reasonably be expected to have,
individually or in the aggregate, a Company Material Adverse Effect, and except
for the pledge of stock of Company Subsidiaries to Creditanstalt-Bankverein.
Except as set forth in Schedule 3.2(b) of the Company Disclosure Schedule and
except as contemplated by this Agreement, there are no securities of the Company
or any Company Subsidiary convertible into or exchangeable for, no options or
other rights to acquire from the Company or any Company Subsidiary, and no other
contract, understanding, arrangement or obligation (whether or not contingent)
providing for the issuance or sale, directly or indirectly, of, any capital
stock of or other ownership interests in, or any other securities of, any
Company Subsidiary. There are no outstanding contractual obligations of the
Company or any Company Subsidiary to repurchase, redeem or otherwise acquire any
outstanding shares of capital stock or other ownership interests in or make any
other investment (in the form of a loan, capital contribution of otherwise) in
any Company Subsidiary or any other person.
(c) The Class A Common Stock constitutes the only class of securities
of the Company or any Company Subsidiary registered or required to be registered
under the Securities Exchange Act of 1934, as amended (the "Exchange Act").
3.3 Authority Relative to this Agreement; Board Action; Preferred
Shares, Conversion Shares, Warrant Shares. The Company has all necessary
corporate power and authority to execute and deliver this Agreement and to
consummate the transactions contemplated hereby and thereby. The execution and
delivery of this Agreement and the consummation of the transactions contemplated
hereby have been duly and validly authorized by the Board of Directors of the
Company (the "Company Board") and no other corporate proceedings on the part of
the Company are necessary to authorize this Agreement or to consummate the
transactions contemplated hereby or thereby. One million two hundred twenty-two
thousand two hundred twenty-one shares of the Company's Preferred Stock have
been designated Series AA Preferred Stock and 500,000 shares of the Company's
Preferred Stock have been designated Series B Preferred Stock. The Preferred
Shares, the shares of Class A Common Stock issuable upon exercise of the Option
(the "Conversion Shares") and the Warrant Shares have been duly authorized and
reserved for issuance by all necessary corporate action on the part of the
Company. The Preferred Shares, the Conversion Shares and the Warrant Shares,
when issued and delivered upon exercise of the Option, upon conversion of the
Preferred Shares, or upon exercise of the Warrants in accordance with their
respective terms, as applicable, will be duly and validly issued, fully paid and
nonassessable. This Agreement has been duly and validly executed and delivered
by the Company and constitutes the valid, legal and binding agreement of the
Company, enforceable against the Company in accordance with its terms.
5
<PAGE>
3.4 SEC Reports; Financial Statements.
---------------------------------
(a) Since May 26, 1993, the Company has filed all forms, reports,
registration statements and other documents (including all exhibits thereto)
(the "Company SEC Reports") required to be filed with the Securities and
Exchange Commission (the "SEC") each of which has complied in all material
respects with all applicable requirements of the Securities Act of 1933, as
amended (the "Securities Act"), and the Exchange Act, each as in effect on the
dates such forms, reports, registration statements and other documents were
filed. The Company has heretofore delivered to Newco a true, correct and
complete copy of each of the following (the "Company Filed SEC Reports"): (i)
its Annual Reports on Form 10-K for each of the fiscal years ended February 2,
1994, February 1, 1995 and January 31, 1996, (ii) all definitive proxy
statements relating to the Company's meetings of shareholders (whether annual or
special) held since May 26, 1993 and prior to the date of this Agreement and
(iii) all other Company SEC Reports filed prior to the date of this Agreement by
the Company with the SEC since May 26, 1993. None of the Company SEC Reports,
including, without limitation, any financial statements or schedules included or
incorporated by reference therein, contained, when filed, any untrue statement
of a material fact or omitted to state a material fact required to be stated or
incorporated by reference therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. The consolidated financial statements of the Company included in the
Company SEC Reports comply as to form in all material respects with applicable
accounting requirements and the published rules and regulations of the SEC with
respect thereto and all of such financial statements fairly present, in
conformity with generally accepted accounting principles applied on a consistent
basis ("GAAP") (except as may be indicated in the notes thereto), the
consolidated financial position of the Company and the consolidated Company
Subsidiaries as of the dates thereof and their consolidated results of
operations and cash flows for the periods then ended (subject, in the case of
the unaudited interim financial statements, to normal year-end adjustments).
(b) There are no material amendments or modifications, which have not
yet been filed with the SEC, to agreements, documents or other instruments which
prior to the date of this Agreement had been filed by the Company with the SEC
pursuant to the Securities Act or the Exchange Act.
3.5 [Intentionally omitted]
3.6 Consents and Approvals; No Violations. Except for filings,
permits, authorizations, consents and approvals as may be required under, and
other applicable requirements of, the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended (the "HSR Act"), no filing, registration or submission
with or notice to, and no permit, authorization, consent or approval of or with,
any court or tribunal or
6
<PAGE>
administrative, governmental or regulatory body, agency or authority (each a
"Governmental Entity") is necessary for the execution and delivery by the
Company of this Agreement or the consummation by the Company of the transactions
contemplated hereby, including the issuance and delivery of the Preferred
Shares, the Conversion Shares and the Warrant Shares. Except as set forth in the
Company Disclosure Schedule, neither the execution, delivery and performance of
this Agreement by the Company nor the consummation by the Company of the
transactions contemplated hereby will (i) conflict with or result in any breach
of any provision of the Company Charter Documents, (ii) result in a violation or
breach of, or constitute (with or without due notice or lapse of time or both) a
default (or give rise to any right of termination, amendment, cancellation or
acceleration or Lien) under, any of the terms, conditions or provisions of any
note, bond, mortgage, indenture, lease, license, contract, agreement or other
instrument or obligation to which the Company or any Company Subsidiary is a
party or by which any of them or any of their respective properties or assets
may be bound, or (iii) assuming that all consents, permits, approvals,
authorizations and other actions described in the preceding sentence have been
obtained and all filings described in the preceding sentence have been made,
violate any order, writ, injunction, decree, law, statute, rule or regulation
applicable to the Company or any Company Subsidiary or any of their respective
properties or assets, except in the case of clause (ii) or (iii) for violations,
breaches or defaults which could not reasonably be expected to have,
individually or in the aggregate, a Company Material Adverse Effect.
3.7 No Default. None of the Company or any Company Subsidiary is in
default or violation (and no event has occurred which with notice or the lapse
of time or both would constitute a default or violation) of any term, condition
or provision of (i) the Company Charter Documents, (ii) any note, bond,
mortgage, indenture, lease, license, contract, agreement or other instrument or
obligation to which the Company or any Company Subsidiary is now a party or by
which any of them or any of their respective properties or assets may be bound
or (iii) any order, writ, injunction, decree, law, statute, rule or regulation
applicable to the Company, any Company Subsidiary or any of their respective
properties or assets, except in the case of clause (ii) or (iii) for violations,
breaches or defaults that could not reasonably be expected to have, individually
or in the aggregate, a Company Material Adverse Effect.
3.8 No Undisclosed Liabilities; Absence of Changes. Except as and to
the extent disclosed in the Company Filed SEC Reports or in Section 3.8 of the
Company Disclosure Schedule, as of January 31, 1996, neither the Company nor any
Company Subsidiary had any liabilities or obligations of any nature, whether or
not accrued, contingent or otherwise, and whether due or to become due or
asserted or unasserted, which would be required by GAAP to be reflected in,
reserved against or otherwise described in the consolidated balance sheet of the
Company and the consolidated Company Subsidiaries (including the notes thereto)
of such date included
7
<PAGE>
in the consolidated financial statements included in the Company Filed SEC
Reports (the "Company Balance Sheet") and which could reasonably be expected to
have a Company Material Adverse Effect. Except as disclosed by in the Company
Filed SEC Reports or in Section 3.8 of the Company Disclosure Schedule, since
January 31, 1996, the business of the Company and the Company Subsidiaries has
been carried on only in the ordinary and usual course and in a manner consistent
with past practice, neither the Company nor any Company Subsidiary has incurred
any liabilities of any nature, whether or not accrued, contingent or otherwise
and whether due or to become due or asserted or unasserted, which could
reasonably be expected to have, and there have been no events, changes or
effects with respect to the Company or any Company Subsidiary having or which
could reasonably be expected to have, a Company Material Adverse Effect. Except
as disclosed in the Company Filed SEC Reports or in Section 3.8 of the Company
Disclosure Schedule, since January 31, 1996, there has not been (i) any material
change by the Company in its accounting methods, principles or practices, (ii)
any declaration, setting aside or payment of any dividend or distribution in
respect of Shares or any redemption, purchase or other acquisition of any of the
Company Securities or (iii) any increase in the compensation or benefits or
establishment of any bonus, insurance, severance, deferred compensation,
pension, retirement, profit sharing, stock option (including, without
limitation, the granting of stock options, stock appreciation rights,
performance awards or restricted stock awards), stock purchase or other employee
benefit plan, or any other increase in the compensation payable or to become
payable to any executive officers of the Company or any Company Subsidiary
except in the ordinary course of business consistent with past practice or
except as required by applicable law.
3.9 Litigation. Except as disclosed in Section 3.9 of the Company
Disclosure Schedule or in the Company Filed SEC Reports, there is no suit,
claim, action, proceeding or investigation pending or, to the knowledge of the
Company, threatened against the Company or any Company Subsidiary or any of
their respective properties or assets which (i) if adversely determined, could
reasonably be expected to have, individually or in the aggregate, a Company
Material Adverse Effect or (ii) questions the validity of this Agreement or any
action to be taken by the Company in connection with the consummation of the
transactions contemplated hereby. Except as disclosed by the Company, neither
the Company nor any Company Subsidiary is subject to any outstanding order,
writ, injunction or decree which, insofar as can be reasonably foreseen in the
future, could reasonably be expected to have a Company Material Adverse Effect.
3.10 Compliance with Applicable Law. Except as disclosed in the
Company Filed SEC Reports, the Company and all Company Subsidiaries have made or
have obtained and hold all material registrations, filings, submissions,
certificates, determinations, permits, licenses, variances, exemptions, orders
and approvals of all Governmental Entities necessary for the lawful conduct of
their respective businesses
8
<PAGE>
(collectively, the "Company Permits"). Except as disclosed in the Company Filed
SEC Reports, the Company and all Company Subsidiaries are in compliance, in all
material respects, with the terms of the Company Permits. Except as disclosed by
the Company in the Company Filed SEC Reports, the businesses of the Company and
the Company Subsidiaries are not being conducted in violation, in any material
respect, of any law, ordinance or regulation of any Governmental Entity. Except
as disclosed in the Company Filed SEC Reports, no material investigation or
review by any Governmental Entity with respect to the Company or any Company
Subsidiary is pending or, to the knowledge of the Company, threatened, nor has
the Company received notice that any Governmental Entity indicated an intention
to conduct the same other than in the ordinary course of business.
3.11 Employees; Employee Plans.
-------------------------
(a) With respect to each employee benefit plan, program, arrangement and
contract (including, without limitation, any "employee benefit plan"), as
defined in section 3(3) of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA"), maintained or contributed to by the Company or any Company
Subsidiary, or with respect to which the Company or any Company Subsidiary could
incur any liability under section 4069, 4212(c) or 4204 of ERISA (collectively,
the "Company Benefit Plans"), the Company will make available to Newco, promptly
after the date hereof, a true and complete copy of (i) the most recent annual
report (Form 5500) filed with the Internal Revenue Service (the "IRS"), (ii)
such Company Benefit Plan, (iii) each trust agreement relating to such Company
Benefit Plan, (iv) the most recent summary plan description for each Company
Benefit Plan for which a summary plan description is required, (v) the most
recent actuarial report or valuation relating to a Company Benefit Plan subject
to Title IV of ERISA and (vi) the most recent determination letter, if any,
issued by the IRS with respect to any Company Benefit Plan qualified under
section 401(a) of the Internal Revenue Code of 1986, as amended (the "Code").
(b) Except as set forth in Section 3.11(b) of the Company Disclosure
Schedule, with respect to the Company Benefit Plans, no event has occurred and
there exists no condition or set of circumstances in connection with or relating
to the Company or any Company Benefit Plan, ERISA, the Code or any other
applicable Law which could reasonably be expected to have a Company Material
Adverse Effect.
(c) Neither the Company nor any Company Subsidiary is a party to any
collective bargaining or other labor union contract applicable to persons
employed by the Company or any Company Subsidiary and no collective bargaining
agreement or other labor union contract is being negotiated by the Company or
any Company Subsidiary. There is no labor dispute, strike or work stoppage
against the Company or any Company Subsidiary pending or threatened in writing
which may interfere with the
9
<PAGE>
respective business activities of the Company or any Company Subsidiary. None of
the Company, any Company Subsidiary, or their respective representatives or
employees, has committed any unfair labor practices in connection with the
operation of the respective businesses of the Company or any Company Subsidiary,
and, to the knowledge of the Company, there is no charge or complaint against
the Company or any Company Subsidiary by the National Labor Relations Board or
any comparable state or foreign agency pending or threatened.
(d) The Company has made available to Newco true and complete: (i) copies
of all written severance and employment agreements with officers of the Company
and each Company Subsidiary; (ii) copies of all written severance programs and
policies of the Company and each Company Subsidiary with or relating to its
employees; and (iii) copies of all plans, programs, agreements and other
arrangements of the Company and each Company Subsidiary with or relating to its
employees which contain change of control provisions.
(e) Except as provided in Section 3.11(e) of the Company Disclosure
Schedule or as otherwise required by law, no Company Benefit Plan provides
retiree medical or retiree life insurance benefits to any person.
(f) Neither the Company nor any Company Subsidiary is a party to or
obligated under any agreement, plan, contract or other arrangement pursuant to
which the Company or any Company Subsidiary is or might be required to make
payments that would not be deductible or capitalizable for federal income tax
purposes by reason of the application of Section 280G of the Code.
(g) As of the date hereof, none of the Company, the Company Subsidiaries or
any ERISA Affiliate has incurred any liability or obligation under the Worker
Adjustment and Retraining Notification Act, as it may be amended from time to
time ("WARN").
3.12 Environmental Laws and Regulations.
----------------------------------
(a) Except as disclosed in Section 3.12(a) of the Company Disclosure
Schedule or the Company Filed SEC Reports, (i) each of the Company and each
Company Subsidiary is in compliance, in all material respects, with all
applicable federal, state and local laws and regulations relating to pollution
or protection of human health or the environment (including, without limitation,
ambient air, surface water, ground water, land surface or subsurface strata)
(collectively, "Environmental Laws"), which compliance includes, but is not
limited to, the possession by the Company and the Company Subsidiaries of all
material permits and other governmental authorizations required under applicable
Environmental Laws, and compliance with the terms and conditions thereof; (ii)
neither the Company nor any Company Subsidiary has received
10
<PAGE>
written notice of, or, to the knowledge of the Company, is the subject of, any
material action, cause of action, claim, investigation, demand or notice by any
person or entity alleging liability under or non-compliance with any
Environmental Law (an "Environmental Claim"); and (iii) to the knowledge of the
Company, there are no circumstances that are reasonably likely to prevent or
interfere with such material compliance in the future.
(b) Except as disclosed in the Company Filed SEC Reports, there are no
material Environmental Claims that are pending or, to the knowledge of the
Company, threatened against the Company or any Company Subsidiary or, to the
knowledge of the Company, against any person whose liability for any
Environmental Claim the Company or any Company Subsidiary has or may have
retained or assumed either contractually or by operation of law.
3.13 Tax Matters. The Company and all Company Subsidiaries have accurately
prepared and duly filed with the appropriate federal, state, local and foreign
taxing authorities all tax returns, information returns and reports required to
be filed with respect to the Company and the Company Subsidiaries and have paid
in full or made adequate provision, in accordance with GAAP, for the payment of
all Taxes (as defined below). Neither the Company nor any Company Subsidiary is
delinquent in the payment of Taxes. As used herein, the term "Taxes" means all
federal, state, local and foreign taxes, charges, fees, levies and other similar
assessments, including, without limitation, income, profits, franchise,
employment, transfer, withholding, property, excise, sales and use taxes
(including interest and penalties thereon and additions thereto).
3.14 Intangible Property. Exhibit D to the Trust Agreement creating the IP
Trust sets forth a list of all federal, state and foreign patents, patent
applications, trademarks (registered and unregistered), trademark applications,
service marks (registered and unregistered) service mark applications, trade
names, trade name rights and publicity rights, copyrights and copyright
registrations, trade secrets, know-how and other intellectual property of the
Company and all Company Subsidiaries (the "Intellectual Property"). The Company
and the Company Subsidiaries own or possess adequate licenses or other valid
rights to use all of the Intellectual Property in connection with the business
of the Company and the Company Subsidiaries as currently conducted or as
contemplated by the Company's management to be conducted, and the Company is
unaware of any assertion or claim challenging the validity of any of the
Intellectual Property which, individually or in the aggregate, could reasonably
be expected to have a Company Material Adverse Effect. The conduct of the
business of the Company and the Company Subsidiaries as heretofore and currently
conducted has not and does not conflict in any way with any intellectual
property rights of any third party that, individually or in the aggregate, could
reasonably be expected to have a Company Material Adverse Effect. To the
knowledge
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of the Company, there are no infringements of any intellectual property rights
owned by or licensed by or to the Company or any Company Subsidiary which,
individually or in the aggregate, could reasonably be expected to have a Company
Material Adverse Effect.
3.15 Material Contracts.
------------------
(a) The Company has delivered or otherwise made available to Newco true,
correct and complete copies of all contracts and agreements in effect on the
date hereof (and all amendments, modifications and supplements thereto and all
related letter agreements to which the Company is a party affecting the
obligations of any party thereunder) to which the Company or any Company
Subsidiaries is a party or by which any of its properties or assets are bound
that are material to the financial condition, results of operations, business,
properties, prospects or assets of the Company and the Company Subsidiaries
taken as whole (collectively, the "Company Material Contracts"). The Company
Material Contracts shall be deemed to include all: (i) employment, consulting,
non-competition, severance, golden parachute or indemnification contracts
(including, without limitation, any contract to which the Company is a party
involving employees of the Company); (ii) licensing, merchandising or
distribution agreements; (iii) contracts granting a right of first refusal or
first negotiation; (iv) partnership or joint venture agreements; (v) agreements
for the acquisition, sale or lease of material properties or assets of the
Company (by merger, purchase or sale of assets or stock or otherwise) entered
into since May 26, 1993 (other than the acquisition of the Brentwood, Tennessee
property, which has been disposed of by the Company); (vi) contracts or
agreements with any Governmental Entity; (vii) all material agreements relating
to indebtedness of the Company or any Company Subsidiary or guarantees of
indebtedness by the Company or any Company Subsidiary; (viii) all
noncompetition, exclusivity or other agreements restricting the ability of the
Company or any Company Subsidiary to operate its business as now, or
contemplated to be, conducted; (ix) agreements between the Company and any of
its officers, its directors, holders of 5% of the outstanding Shares or other
affiliates of the Company or any Company Subsidiary (all of which agreements are
also listed in Section 3.15(a)(ix) of the Company Disclosure Schedule); and (x)
all commitments and agreements to enter into any of the foregoing.
(b) Except as set forth in Section 3.15(b) of the Company Disclosure
Schedule:
(i) There is no default under any Company Material Contract either by
the Company or, to the knowledge of the Company, by any other party
thereto, and no event has occurred that with the lapse of time or the
giving of notice or both would constitute a default thereunder by the
Company or, to the knowledge of the Company, any other party, in any such
case in which such
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default or event could reasonably be expected to have a Company Material
Adverse Effect.
(ii) No party to any such Company Material Contract has given notice
to the Company of or made a claim against the Company with respect to any
breach or default thereunder, in any such case in which such breach or
default could reasonably be expected to have a Company Material Adverse
Effect.
3.16 Title to Properties; Retail Stores; Real Estate.
-----------------------------------------------
(a) The Company and each Company Subsidiary has the ownership in fee and
good marketable title to all real property owned by it, each parcel of which is
legally described in Section 3.16(a) of the Company Disclosure Schedule, and
good title to its other owned properties and assets, tangible and intangible,
including, without limitation, the properties and assets reflected in the
Company Balance Sheet (except personal properties since sold or otherwise
disposed of in the ordinary course of business and except for personal
properties and assets not material to the operation of its business), free and
clear of all Liens whatsoever, except as disclosed in Section 3.16(a) of the
Company Disclosure Schedule or (i) as reflected in the Company Balance Sheet,
(ii) Liens in respect of pledges or deposits under workers' compensation,
unemployment insurance, social security and public liability laws and other
similar legislation, (iii) Liens imposed by law, such as carriers',
warehousemen's, supplier's, contractor's, or mechanics' liens incurred in good
faith in the ordinary course of business, (iv) such imperfections of title and
other Liens, if any, which do not in the aggregate materially interfere with the
use of such properties or assets or otherwise could not reasonably be expected
to have a Company Material Adverse Effect, (v) Liens in favor of Creditanstalt-
Bankverein as agent ("Agent") under the Amended and Restated Credit Agreement
dated as of December 30, 1994, as amended, among the Company, the Lenders party
thereto and the Agent, and (vi) Liens in favor of Nationwide Life Insurance
Company.
(b) The Company has previously made available to Newco correct and complete
copies of all leases or agreements under which the Company or any Company
Subsidiary is lessee of, or holds or operates, any real property owned by any
third party which is material to the operation of its business. Neither the
Company nor any Company Subsidiary is in material default under the terms of any
such lease or agreement. Each such lease under which the lessor is an officer,
director, 5% or greater shareholder or other related party of the Company has
been identified on Section 3.16(b) of the Company Disclosure Schedule and was,
at the time entered into, on terms not materially less favorable to the Company
than if made with an independent third party in an arm's length transaction. The
Company or the applicable Company Subsidiary, and to the knowledge of the
Company, each lessor, have in all material
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respects performed all the obligations required to be performed by them to date
and are not in default in any material respect under any such lease or
agreement. None of the rights of the Company or any Company Subsidiary in such
property under any such lease or agreement is subject to termination as the
result of the transactions contemplated by this Agreement.
(c) Neither the Company nor any Company Subsidiary is in violation of any
applicable zoning regulation, ordinance or other similar laws, order, regulation
or requirement relating to its operations or properties which, if enforced,
could reasonably be expected to have a Company Material Adverse Effect.
3.17 Brokers. No broker, finder or investment banker is entitled to any
brokerage, finder's or other fee or commission in connection with the
transactions contemplated by this Agreement based upon arrangements made by or
on behalf of the Company except for William J. Horvath.
3.18 Prevention or Delay of the Contemplated Transactions. To the best of
the Company's knowledge, no change, event, effect or circumstance has occurred
or exists relating to the Company or any Company Subsidiary that could
reasonably be expected to prevent or materially hinder or delay the transactions
contemplated by this Agreement or the performance by the Company of its
obligations under this Agreement.
4. Representations of Newco. Newco represents and warrants to the
Company as follows:
4.1 Organization. Newco has been duly organized and is validly existing and
in good standing under the laws of the State of Delaware.
4.2 Authority Relative to this Agreement. Newco has all necessary corporate
power and authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby have been duly and
validly authorized by the Board of Directors of Newco (the "Newco Board"), and
no other corporate proceedings on the part of Newco are necessary to authorize
this Agreement or to consummate the transactions contemplated hereby. This
Agreement has been duly and validly executed and delivered by Newco and
constitutes the valid, legal and binding agreement of Newco, enforceable against
Newco in accordance with its terms.
4.3 Consents and Approvals; No Violations. Except for filings, permits,
authorizations, consents and approvals as may be required under, and other
applicable requirements of, the HSR Act, no filing with or notice to, and no
permit,
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authorization, consent or approval of, any Governmental Entity is necessary for
the execution and delivery by Newco of this Agreement or the consummation by
Newco of the transactions contemplated hereby. Neither the execution, delivery
and performance of this Agreement by Newco nor the consummation by Newco of the
transactions contemplated hereby or thereby will (a) conflict with or result in
any breach of any provision of the Certificate of Incorporation or Bylaws of
Newco (b) result in a violation or breach of, or constitute (with or without due
notice or lapse of time or both) a default (or give rise to any right of
termination, amendment, cancellation or acceleration or Lien) under, any of the
terms, conditions or provisions of any note, bond, mortgage, indenture, lease,
license, contract, agreement or other instrument or obligation to which Newco is
a party or by which Newco or its properties or assets may be bound or (c)
assuming that all consents, permits, approvals, authorizations and other actions
described in the preceding sentence have been made, violate any order, writ,
injunction, decree, law, statute, rule or regulation applicable to Newco or any
of its properties or assets, except in the case of clause (ii) or (iii) for
violations, breaches or defaults which could not reasonably be expected to have,
individually or in the aggregate, a Newco Material Adverse Effect. For purposes
of this Agreement, "Newco Material Adverse Effect" means any change, event or
effect in, on or relating to the business of Newco that is, or is reasonably
likely to be, materially adverse to the business, assets (including intangible
assets), liabilities (contingent or otherwise), conditions (financial or
otherwise), prospects or results of operations of Newco other than any change or
affect arising out of general economic conditions in the United States.
4.4 Brokers. No broker, finder or investment banker is entitled to any
brokerage, finder's or other fee or commission in connection with the
transactions contemplated hereby based upon arrangements made by or on behalf of
Newco.
4.5 Prevention or Delay of the Contemplated Transactions. No change, event,
effect or circumstance has occurred or exists relating to Newco that could
reasonably be expected to prevent or materially delay the transactions
contemplated by this Agreement or the performance by Newco of its obligations
under this Agreement.
4.6 Investment Representation.
-------------------------
(a) Newco is an "accredited investor," as defined in Regulation D under the
Securities Act.
(b) Newco understands and agrees that the Note, the Preferred Shares, the
Conversion Shares and the Warrant Shares have not been registered under the
Securities Act or under the securities laws of any state or other jurisdiction
in reliance upon exemptions for private offerings, and that, while the Company
may in the
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future register the Conversion Shares or the Warrant Shares, except as set forth
in the Registration Rights Agreement (as hereinafter defined) the Company is
under no obligation to do so. Newco acknowledges and agrees that the Preferred
Shares, the Conversion Shares and the Warrant Shares cannot be resold unless
they are registered under the Securities Act and any applicable state securities
law, or an exemption from registration is available.
(c) Newco represents that the Note is being acquired solely for its own
account, for investment and not with a view to or for the resale, distribution,
subdivision, or fractionalization thereof.
5. Covenants.
---------
5.1 Conduct of Business of the Company. Except as contemplated by this
Agreement, during the period from the date hereof to the Closing Date, the
Company will, and will cause each of the Company Subsidiaries to, conduct its
operations in the ordinary course of business consistent with past practice and,
to the extent consistent herewith, with no less diligence and effort than would
be applied in the absence of this Agreement, seek to preserve intact its
reputation and current business organizations, keep available the service of its
current officers and key employees and preserve in all material respects its
relationships with customers, suppliers, and others having business dealings
with it to the end that goodwill and ongoing businesses shall not be materially
impaired at the Closing Date. Without limiting the generality of the foregoing,
and except as otherwise expressly provided in or contemplated by this Agreement,
prior to the Closing Date, the Company will not, and will cause the Company
Subsidiaries not to, without the prior consent of Newco:
(a) amend the Company Charter Documents or the comparable organizational
documents of any Company Subsidiary;
(b) authorize for issuance, issue, sell, deliver or agree or commit to
issue, sell or deliver (whether through the issuance or granting of options,
warrants, commitments, subscriptions, rights to purchase (whether or not
contingent) or otherwise) any stock of any class or any other securities or
equity equivalents (including, without limitation, any stock options or stock
appreciation rights), and the issuance or sale of shares of Class A Common Stock
pursuant to options granted to employees under the Option Plans (in each case,
in the ordinary course of business and consistent with past practice);
(c) split, combine or reclassify any shares of its capital stock, declare,
set aside or pay any dividend or other distribution (whether in cash, stock or
property or any combination thereof) in respect of its capital stock (other than
dividends or distributions required to be made to the holders of the Company
Preferred Stock or
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made by wholly-owned Company Subsidiaries), make any other actual, constructive
or deemed distribution in respect of any shares of its capital stock or
otherwise make any payments to shareholders in their capacity as such (other
than such dividends or distributions), or redeem or otherwise acquire any of its
securities;
(d) adopt a plan of complete or partial liquidation, dissolution, merger,
consolidation, restructuring, recapitalization or other reorganization of the
Company or any Company Subsidiary;
(e) alter through merger, liquidation, recapitalization, restructuring or
in any other fashion the corporate structure or ownership of any Company
Subsidiary;
(f) (i) incur or assume any long-term or short-term debt or issue any debt
securities except for borrowings from the Banks under existing lines of credit
in the ordinary course of business; (ii) assume, guarantee, endorse or otherwise
become liable or responsible (whether directly, contingently or otherwise) for
the obligations of any other person except in the ordinary course of business
consistent with past practice and in amounts not material to the Company and the
Company Subsidiaries, taken as a whole, except for obligations of the wholly-
owned Company Subsidiaries; (iii) make any loans, advances or capital
contributions to, or investments in, any other person (other than to the wholly-
owned Company Subsidiaries or customary loans or advances to employees in the
ordinary course of business consistent with past practice and in amounts not
material to the maker of such loan or advance); (iv) pledge or otherwise
encumber shares of capital stock of the Company or any Company Subsidiary; or
(v) mortgage or pledge any of the Company's or any Company Subsidiary's material
assets, tangible or intangible, or create or suffer to exist any material Lien
thereupon;
(g) except as may be required by law, enter into, adopt or amend or
terminate any bonus, profit sharing, compensation, severance, termination, stock
option, stock appreciation right, restricted stock, performance unit, stock
equivalent, stock purchase agreement, pension, retirement, deferred
compensation, employment, severance or other employee benefit agreement, trust,
plan, fund, award or other arrangement for the benefit or welfare of any
director, officer or employee in any manner, or (except for normal increases in
the ordinary course of business consistent with past practice that, in the
aggregate, do not result in a material increase in benefits or compensation
expense to the Company or any Company Subsidiary, as required under existing
agreements or in the ordinary course of business generally consistent with past
practice, or to the extent permitted pursuant to paragraph (b) above) increase
in any manner the compensation or fringe benefits of any director, officer or
employee or pay any benefit not required by any plan and arrangement as in
effect as of the date hereof (including, without limitation, the granting of
stock options, warrants or stock appreciation rights);
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(h) acquire, sell, lease or dispose of any assets outside the ordinary
course of business or any assets which in the aggregate are material to the
Company and the Company Subsidiaries, taken as a whole, or enter into any
commitment or transaction outside the ordinary course of business consistent
with past practice;
(i) except as may be required as a result of a change in law or in GAAP,
change any of the accounting principles or practices used by it;
(j) revalue in any material respect any of its assets, including, without
limitation, writing down the value of inventory or writing-off notes or accounts
receivable other than in the ordinary course of business;
(k) (i) acquire (by merger, consolidation, or acquisition of stock, debt
securities or assets) any person or any division thereof, any equity interest
therein or indebtedness thereof; (ii) enter into any contract or agreement,
other than in the ordinary course of business consistent with past practice or
amend any of the Company Material Contracts, including, without limitation, the
agreements referred to in Section 3.15 and those identified in any subsection of
Section 3.15 of the Company Disclosure Schedule; (iii) authorize any new capital
expenditure or expenditures which, individually, is in excess of $50,000 or, in
the aggregate, are in excess of $250,000; or (iv) enter into or amend any
contract, agreement, commitment or arrangement providing for the taking of any
action that would be prohibited hereunder;
(l) make or revoke any tax election or settle or compromise any tax
liability material to the Company and the Company Subsidiaries taken as a whole
or change (or make a request to any taxing authority to change) any material
aspect of its method of accounting for tax purposes;
(m) pay, discharge or satisfy any claims, liabilities or obligations
(absolute, accrued, asserted or unasserted, contingent or otherwise), other than
the payment, discharge or satisfaction in the ordinary course of business of
liabilities reflected or reserved against in, or contemplated by, the
consolidated financial statements (or the notes thereto) of the Company and the
Company Subsidiaries or incurred in the ordinary course of business consistent
with past practice;
(n) enter into or amend or otherwise modify any agreement or arrangement
with persons that are affiliates or, as of the date hereof, are officers,
directors or employees of the Company or any Company Subsidiary;
(o) settle or compromise any pending or threatened suit, action or claim
relating to the transactions contemplated hereby;
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(p) without Newco's written consent, which shall not be unreasonably
withheld, close any Company or Company Subsidiary operated store; or
(q) take, propose to any third party to take or agree in writing or
otherwise to take, any of the actions described in Sections 5.1(a) through
5.1(p) or any action which would make any of the representations or warranties
of the Company contained in this Agreement that are qualified as to materiality
untrue or incorrect or any such representations or warranties that are not so
qualified untrue or incorrect in any material respect.
5.2 Other Actions. Each of the Company and Newco shall not, and the
Company shall cause the Company Subsidiaries not to, take any action or agree in
writing or otherwise to take any action that would result in (i) any of the
representations and warranties of such party (without giving effect to any
"knowledge" qualification) set forth in this Agreement that are qualified as to
materiality becoming untrue or incorrect, (ii) any of such representations and
warranties (without giving effect to any "knowledge" qualification) that are not
so qualified becoming untrue or incorrect in any material respect or (iii) any
of the conditions to the Closing set forth in Article 6 not being satisfied.
5.3 Access to Information.
(a) Between the date hereof and the Closing Date, the Company will give
Newco and Newco's authorized representatives reasonable access to all of its
employees, plants, offices, warehouses and other facilities and to all of its
books and records, will permit Newco to make such inspections as Newco may
reasonably require and will cause its officers and those of the Company
Subsidiaries to furnish Newco with such financial and operating data and other
information with respect to its and the Company Subsidiaries' business,
properties and personnel as Newco from time to time reasonably request, but in
any such case only to the extent as not to unreasonably interfere with its
business and operations or those of the Company Subsidiaries; provided that no
investigation pursuant to this Section 5.3(a) shall affect or be deemed to
modify any of the representations or warranties made by either party in this
Agreement or in any certificate required to be delivered pursuant to Section 6.2
or 6.3.
(b) Between the date hereof and the Closing Date, the Company shall furnish
to Newco (i) within 15 days after the end of each retail period, an unaudited
balance sheet, income statement and statement of cash flows of the Company and
the Company Subsidiaries on a consolidated basis and (ii) within 30 days after
the end of each fiscal quarter, an unaudited balance sheet, income statement and
statement of cash flows of the Company and the Company Subsidiaries on a
consolidated basis, each prepared in accordance with GAAP in conformity with the
practices consistently applied by the Company with respect to its retail period
or quarterly financial
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statements (as the case may be). All the foregoing shall be in accordance with
the books and records of the Company and fairly present the consolidated
financial position of the Company as of the last day of the period then ended
and the consolidated results of operations of the Company as of the last day of
the period then ended (in each case, taking into account the differences between
retail period and quarterly statements prepared by the Company in conformity
with its past practices).
(c) Newco will hold and will cause its consultants and advisors to hold in
confidence all documents and information concerning the Company furnished to
Newco in connection with the transactions contemplated by this Agreement in
accordance with the terms of that certain Confidentiality Agreement entered into
between the Company and Newco dated as of January 14, 1997 (collectively the
"Confidentiality Agreement").
5.4 Reasonable Best Efforts. Upon the terms and subject to the
conditions set forth in this Agreement, each of the parties agrees to use its
reasonable best efforts to take, or cause to be taken, all actions, and to do,
or cause to be done, and to assist and cooperate with the other parties in
doing, all things necessary, proper or advisable to fulfill all conditions to
the obligations of the parties under this Agreement and to consummate and make
effective, in the most expeditious manner practicable, the transactions
contemplated hereby, including, but not limited to, (i) the obtaining of all
necessary actions or nonactions, waivers, consents and approvals from
Governmental Entities and the making of all necessary registrations and filings
(including filings under the HSR Act and all other filings with Governmental
Entities, if any) and the taking of all reasonable steps as may be necessary to
obtain an approval, waiver or exemption from, or to avoid an action or
proceeding by, any Governmental Entity; (ii) the obtaining of all necessary
consents, approvals, waivers or exemption from non-governmental third parties;
(iii) the defending of any lawsuits or other legal proceedings, whether judicial
or administrative, challenging this Agreement or the consummation of the
transactions contemplated hereby, including seeking to have any stay or
temporary restraining order entered by any court or other Governmental Entity
vacated or reversed; and (iv) the execution and delivery of any additional
instruments necessary to consummate the transactions contemplated by and to
fully carry out the purposes of, this Agreement.
5.5 Public Announcements. Newco and the Company, as the case may be,
will consult and cooperate with one another before issuing any press release or
otherwise making any public statements with respect to the transactions
contemplated hereby and shall not issue any such press release or make any such
public statement prior to such consultation, except as may be required by
applicable law or by obligations pursuant to any listing agreement with the
Nasdaq Stock Market, as determined by Newco or the Company, as the case may be,
but only upon the advice of independent counsel.
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5.6 Notification of Certain Matters. The Company shall give prompt
notice to Newco, and Newco shall give prompt notice to the Company, of (i) the
occurrence or nonoccurrence of any event the occurrence or nonoccurrence of
which would be likely to cause any representation or warranty contained in this
Agreement that is qualified as to materiality to be untrue or inaccurate or any
such representation or warranty not so qualified to be untrue or inaccurate in
any material respect, in either case, at or prior to the Closing Date, (ii) any
material failure of the Company or Newco, as the case may be, to comply with or
satisfy any covenant, condition or agreement to be complied with or satisfied by
it hereunder, (iii) any notice of, or other communication relating to, a default
or event which, with notice or lapse of time or both, would become a default,
received by it (or in the case of the Company, any Company Subsidiaries)
subsequent to the date of this Agreement and prior to the Closing Date, under
any contract or agreement material to the financial condition, businesses, or
results of operations of it (and Subsidiaries) taken as a whole to which it (and
in the case of the Company, any Company Subsidiary) is a party or is subject,
(iv) any notice or other communication from any third party alleging that the
consent of such third party is or may be required in connection with the
transactions contemplated by this Agreement or (v) any Newco Material Adverse
Effect (in the case of Newco) or Company Material Adverse Effect (in the case of
the Company); provided, however, that the delivery of any notice pursuant to
this Section 5.6 shall not cure such breach or non-compliance or limit or
otherwise affect the remedies available hereunder to the party receiving such
notice.
5.7 SEC Filings. The Company shall promptly provide Newco (or its
counsel) with copies of all filings made by it or any Company Subsidiaries with
the SEC or any other local, state or federal Governmental Entity in connection
with this Agreement and the transactions contemplated hereby.
5.8 Right of First Negotiation; Right of First Refusal Regarding Future
Financings. If at any time the Company determines that it requires additional
financing (whether debt or equity) (including, but not limited to, all capital-
type transactions and sale/leaseback transactions), the Company agrees (a) to
negotiate in good faith with Newco for a period of 20 days with regard to any
portion of the entire amount (at the option of Newco) of such financing prior to
negotiating with any other entity with regard thereto, (b) if the Company has
engaged in good faith negotiations under clause (a) of this Section 5.8 and such
negotiations have been unsuccessful, to notify Newco of the existence of any
other financing arrangement it proposes to consummate and the terms and
conditions thereof and grant to Newco a right of first refusal with respect to
such financing on the same terms and subject to the same conditions contained
therein and upon receipt of such notice (setting forth in detail all relevant
terms and conditions of such financing), in which event Newco shall have 30 days
thereafter in which to agree to provide all of the financing on the same terms
and conditions, and (c) with respect to any financing other than a pure debt
financing in
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which the debt instrument to be offered has no equity-type features, to grant to
Newco a right to participate therein on a fully diluted basis. As used herein "a
right to participate therein on a fully diluted basis" shall mean Newco's right
to maintain the same percentage equity interest in Company (calculated by
including as outstanding the shares subject to all outstanding conversion
rights, options and warrants, including shares which Newco has a right to
purchase or acquire, whether or not currently exercisable) after such financing
is completed as it had prior to such financing.
5.9 Right of First Negotiation; Right of Final Offer Regarding Sale of
Business. If at any time the Company desires to sell substantially all of its
assets, merge, consolidate or engage in any other business combination
transaction (a "Transaction"), the Company agrees (a) to negotiate in good faith
with Newco for a period of 20 days with regard to the Transaction prior to
negotiating with any other entity with regard thereto, (b) if the Company has
engaged in good faith negotiations under clause (a) of this Section 5.9 and such
negotiations have been unsuccessful, to make a final offer to Newco (the "Final
Company Offer") prior to engaging in negotiations with, soliciting offers from
or accepting any offer of, any third party with respect to a Transaction. In
the event Newco does not accept the Final Company Offer within 20 days after the
date it is received by Newco, the Company shall thereupon have the right, during
the six-month period following the expiration of such twenty-day period, to
enter into an agreement to enter into a definitive agreement relating to a
Transaction (which transaction shall be consummated within the nine-month period
following the execution of such twenty-day period) with any third party at a
price and on terms no less favorable to the Company than the terms set forth in
the Final Company Offer, and provided, however, that if the Company does not
enter into a Transaction during such six-month period or consummate a
Transaction during the nine-month period following the expiration of such
twenty-day period, as the case may be, this Section 5.9 shall once again become
applicable to any Transaction.
6. Conditions to Closing
6.1 Conditions to the Obligations of Newco and the Company. The
respective obligations of each party hereto to effect the Closing and the other
transactions contemplated hereby are subject to the satisfaction at or prior to
the Closing Date of the following conditions:
(a) no statute, rule, regulation, executive order, decree, ruling,
injunction or other legal prohibition shall have been enacted, entered,
promulgated or enforced by any Governmental Entity which prohibits, restrains,
enjoins or imposes material restrictions on the consummation of the transactions
contemplated hereby;
(b) any waiting period applicable to the transactions contemplated hereby
under the HSR Act shall have terminated or expired; and
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(c) all governmental or regulatory notices (other than those in connection
with the HSR Act) or approvals required with respect to the transactions
contemplated hereby shall have been either filed or received, except where the
failure to file such notices or receive such approvals, individually or in the
aggregate, could not reasonably be expected to have a Newco Material Adverse
Effect or a Company Material Adverse Effect and could not reasonably be expected
to adversely affect the ability of Newco or the Company (as applicable) to
consummate such transactions.
6.2 Conditions to the Obligations of the Company. The obligation of the
Company to effect the Closing is subject to the satisfaction at or prior to the
Closing Date of the following conditions:
(a) the representations and warranties of Newco set forth in this Agreement
that are qualified as to materiality shall be true and correct, and the
representations and warranties of Newco set forth in this Agreement that are not
so qualified shall be true and correct in all material respects, in each case as
of the Closing Date, as though made on and as of the Closing Date, except to the
extent the representation or warranty is expressly limited by its terms to
another date, and the Company shall have received a certificate (which
certificate may be qualified by knowledge to the same extent as the
representations and warranties of Newco contained herein are so qualified)
signed on behalf of Newco by an executive officer of Newco to such effect;
(b) each of the obligations of Newco to be performed at or before the
Closing Date pursuant to the terms of this Agreement shall have been duly
performed in all material respects at or before the Closing Date and at the
Closing Newco shall have delivered to the Company a certificate signed on behalf
of Newco by an executive officer of Newco to such effect;
(c) each holder of shares of Company Preferred Stock issued and outstanding
on the date hereof shall have entered into an agreement with the Company in the
form set forth as Exhibit F hereto (the "Company Preferred Stock Agreement");
(d) the Banks shall have entered into an agreement with the Company in the
form set forth in Exhibit G hereto (the "Bank Agreement");
(e) the Company shall have received the opinion of Sutherland, Asbill &
Brennan, L.L.P., in the form set forth in Exhibit H hereto.
6.3 Conditions to the Obligations of Newco. The obligations of Newco to
effect the Closing are subject to the satisfaction at or prior to the Closing
Date of the following conditions:
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<PAGE>
(a) the representations and warranties of the Company set forth in this
Agreement that are qualified as to materiality shall be true and correct, and
the representations and warranties of the Company set forth in this Agreement
that are not so qualified shall be true and correct in all material respects, in
each case as of the Closing Date, as though made on and as of the Closing Date,
except to the extent the representation or warranty is expressly limited by its
terms to another date, and Newco shall have received a certificate (which
certificate may be qualified by knowledge to the same extent as the
representations and warranties of the Company contained herein are so qualified)
signed on behalf of the Company by an executive officer of the Company to such
effect;
(b) each of the obligations of the Company to be performed at or before the
Closing Date pursuant to the terms of this Agreement shall have been duly
performed in all material respects at or before the Closing Date and at the
Closing the Company shall have delivered to Newco a certificate signed on behalf
of the Company by an executive officer of the Company to such effect;
(c) the Company shall have obtained the consent, approval or waiver of each
non-governmental person whose consent, approval or waiver shall be required in
order for each of them to consummate the transactions contemplated hereby,
except those for which the failure to obtain such consent, approval or waiver,
individually or in the aggregate, could not reasonably be expected to have a
Company Material Adverse Effect;
(d) Newco shall have obtained the consent, approval or waiver of each non-
governmental person whose consent, approval or waiver shall be required in order
for Newco to consummate the transactions contemplated hereby, except those for
which the failure to obtain such consent, approval or waiver, individually or in
the aggregate, could not reasonably be expected to have a Newco Material Adverse
Effect;
(e) each holder of shares of Company Preferred Stock issued and outstanding
on the date hereof shall have entered into the Preferred Stock Agreement;
(f) the Banks shall have entered into the Bank Agreement;
(g) Newco shall have obtained the opinion of Alston & Bird, counsel to the
Company, in the form set forth as Exhibit I hereto.
7. Termination; Fees and Expenses; Amendment; Waiver
7.1 Termination. This Agreement may be terminated at any time prior to
the Closing Date:
24
<PAGE>
(a) by written consent of Newco and the Company, duly authorized by Newco
Board and the Company Board;
(b) by either Newco or the Company, if the Closing shall not have occurred
on or before February 3, 1997; provided, however, that the right to terminate
this Agreement under this Section 7.1(b) shall not be available to the party
whose failure to fulfill any obligation under this Agreement shall have been the
cause of, or resulted in, the failure of the Closing to occur on or before such
date;
(c) by either Newco or the Company, if any final order, decree or ruling
preventing the consummation of the Closing shall have been entered by any court
of competent jurisdiction or Governmental Entity and shall have become final and
nonappealable;
(d) by Newco, (i) in the case of the Company's representations and
warranties set forth in this Agreement that are not qualified as to materiality,
upon a material breach by the Company of any such representation or warranty, or
if any such representation or warranty shall have become untrue in any material
respect and (ii) in the case of the Company's representations and warranties set
forth in this Agreement that are qualified as to materiality, upon a breach by
the Company of any such representation or warranty, or if any such
representation or warranty shall have become untrue (any, a "Terminating Company
Breach"), in any case such that the conditions set forth in Section 6.3(a) could
not reasonably be expected to be satisfied within 30 days following such
Terminating Company Breach upon the Company's exercise of its reasonable best
efforts or such breach has not in any event been cured within 30 days following
notification by Newco to the Company of such Terminating Company Breach;
(e) by the Company, (i) in the case of Newco's representations and
warranties set forth in this Agreement that are not qualified as to materiality,
upon a material breach by Newco or Sub of any such representation or warranty,
or if any such representation or warranty shall have become untrue in any
material respect and (ii) in the case of Newco's representations and warranties
set forth in this Agreement that are qualified as to materiality, upon a breach
by Newco of any such representation or warranty, or if any such representation
or warranty shall become untrue (any, a "Terminating Newco Breach"), in any case
such that the conditions set forth in Section 6.2(a) could not reasonably be
expected to be satisfied within 30 days following such Terminating Newco Breach
upon Newco's exercise of its reasonable best efforts or such Terminating Newco
Breach has not in any event been cured within 30 days following notification by
the Company to Newco of such Terminating Newco Breach;
(f) by Newco, upon the material breach by the Company of any covenant or
agreement of the Company set forth in this Agreement which is not
25
<PAGE>
reasonably capable of being cured within 30 days following such breach upon the
Company's exercise of its reasonable best efforts or, in any event, upon the
30th day following notification by Newco to the Company of such breach if such
breach has not been cured by such 30th day; or
(g) by the Company, upon the material breach by Newco of any covenant or
agreement of Newco set forth in this Agreement which is not reasonably capable
of being cured within 30 days following such breach upon Newco's exercise of its
reasonable best efforts or, in any event, upon the 30th day following
notification by the Company to Newco of such breach if such breach has not been
cured by such 30th day.
7.2 Fees and Expenses. Each party shall bear its own expenses in
connection with this Agreement and the transactions contemplated hereby.
7.3 Amendment. This Agreement may not be amended except by an instrument
in writing signed on behalf of the parties hereto.
7.4 Extension; Waiver. At any time prior to the Closing, each party
hereto may (i) extend the time for the performance of any of the obligations or
other acts of the other party, (ii) waive any inaccuracies in the
representations and warranties of the other party contained herein or in any
document, certificate or writing delivered pursuant hereto or (iii) waive
compliance by the other party with any of the agreements or conditions contained
herein. Any agreement on the part of either party hereto to any such extension
or waiver shall be valid only if set forth in an instrument in writing signed on
behalf of such party. The failure of either party hereto to assert any of its
rights hereunder shall not constitute a waiver of such rights.
8. Miscellaneous
8.1 Survival of Representations, Warranties and Agreements. The
representations, warranties and agreements in this Agreement and in any
certificate delivered pursuant hereto shall survive the Closing without
limitation, except that the representations and warranties in Sections 3.1, 3.2,
3.3, 3.5, 4-1, 4-2, 4-3, and 4.6 this Agreement shall expire on the fifth
anniversary of the Closing and all other representations and warranties in this
Agreement shall expire on the fifth anniversary of the Closing. Each party
agrees that, except for the representations and warranties contained in this
Agreement and the Company Disclosure Schedule, no party hereto has made any
other representations and warranties, and each party hereby disclaims any other
representations and warranties, made by itself or any of its officers,
directors, employees, agents, financial and legal advisors or other
representatives with respect to the execution and delivery of this Agreement or
the transactions contemplated hereby, notwithstanding the delivery of disclosure
to any other party or any party's
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<PAGE>
representatives of any documentation or other information with respect to any
one or more of the foregoing.
8.2 Entire Agreement. This Agreement constitutes the entire agreement
between the parties hereto with respect to the subject matter hereof and
supersedes all other prior agreements and understandings, both written and oral,
between the parties with respect to the subject matter hereof.
8.3 Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
assigns.
8.4 Validity. 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 to such end, the
provisions of this Agreement are agreed to be severable.
8.5 Notices. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be given (and shall be
deemed to have been duly given upon receipt) by delivery in person, by cable,
telegram, facsimile or telex, or by registered or certified mail (postage
prepaid, return receipt requested), to the other party as follows:
if to Newco: 14103 Denver West Parkway
Golden, Colorado 80401
Attention: Saad J. Nadhir
Facsimile: (303) 216-5550
if to the Company to: Harry's Farmers Market, Inc.
1180 Upper Hembree Road
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, GA 30309
Attention: John Latham
Facsimile: (404) 881-7777
or to such other address as the person to whom notice is given may have
previously furnished to the other in writing in the manner set forth above.
27
<PAGE>
8.7 Further Assurances. The Company hereby agrees to execute and deliver
such other documents and instruments and to take such other actions as are
necessary or desirable in the reasonable opinion of Newco to carry out the
transactions contemplated by this Agreement, including, without limitation, any
actions (required under Section 7.13 of the Secured Loan Agreement or otherwise)
required to permit the exercise of the Options or the Warrants.
8.8 Severability. If any term or other provision of this Agreement is
invalid, illegal or unenforceable, all other provisions of this Agreement shall
remain in full force and effect so long as the economic or legal substance of
the transactions contemplated hereby is not affected in any manner materially
adverse to any party.
8.9 Specific Performance. 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; provided, that after the Closing, each
party agrees that rescission of this Agreement or any of the transactions
contemplated hereby shall not be an available remedy for my breach of this
Agreement or any of the other agreements contemplated hereby.
8.10 Brokers. The Company agrees to indemnify and hold harmless Newco,
and Newco agrees to indemnify and hold harmless the Company, from and against
any and all liability to which Newco, on the one hand, or the Company, on the
other hand, may be subjected by reason of any brokers, finders or similar fees
or expenses with respect to the transactions contemplated by this Agreement to
the extent such similar fees and expenses are attributable to any action
undertaken by or on behalf of the Company or Newco, as the case may be.
8.11 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original, but all of which
shall constitute one and the same agreement.
8.12 Interpretation. The table of contents and headings herein are for
convenience of reference only, do not constitute part of this Agreement and
shall not be deemed to limit or otherwise affect any of the provisions hereof.
Where a reference in this Agreement is made to a schedule, section, exhibit or
annex, such reference shall be to a schedule, section of or exhibit or annex to
this Agreement unless otherwise indicated. All capitalized terms used without
definition in any such schedule, section, exhibit or annex shall have the
meaning assigned to them in this Agreement and any capitalized terms used
without definition in this Agreement shall have the meanings
28
<PAGE>
assigned to them in such schedules, exhibits and annexes. Where the reference
"hereby" or "herein" appears in this Agreement, such reference shall be deemed
to be a reference to this Agreement. Whenever the words "include," "includes" or
"including" are used in this Agreement, they shall be deemed to be followed by
the words "without limitation."
8.13 Certain Definitions. For purposes of this Agreement:
An "affiliate" of any person means another person that directly or
indirectly, through one or more intermediaries, controls, is controlled by, or
is under common control with, such first person.
"person" means an individual, corporation, partnership, limited liability
company, joint venture, association, trust, unincorporated organization or other
entity.
8.14 Governing Law; Waiver of Jury Trial.
(a) THIS AGREEMENT SHALL BE DEEMED TO BE MADE IN AND IN ALL RESPECTS SHALL
BE INTERPRETED, CONSTRUED AND GOVERNED BY AND IN ACCORDANCE WITH THE LAW OF THE
STATE OF GEORGIA WITHOUT REGARD TO THE CONFLICT OF LAW PRINCIPLES THEREOF.
(b) EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY WHICH MAY ARISE
UNDER THIS AGREEMENT IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT ISSUES, AND
THEREFORE EACH SUCH PARTY HEREBY IRREVOCABLY AND UNCONDI TIONALLY WAIVES ANY
RIGHT SUCH PARTY MAY HAVE TO (i) A TRIAL BY JURY OR (ii) ANY PUNITIVE OR
EXEMPLARY DAMAGES THAT MAY OTHERWISE BE AWARDED, IN CONNECTION WITH ANY
LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS
AGREEMENT OR ANY RELATED AGREEMENT, OR THE TRANSACTIONS CONTEMPLATED BY THIS
AGREEMENT OR ANY RELATED AGREEMENT. EACH PARTY CERTIFIES AND ACKNOWLEDGES THAT
(iii) NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED,
EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF
LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER, (iv) EACH SUCH PARTY
UNDERSTANDS AND HAS CONSIDERED THE IMPLICATIONS OF THIS WAIVER, (v) EACH SUCH
PARTY MAKES THIS WAIVER VOLUNTARILY, AND (vi) EACH SUCH PARTY HAS BEEN INDUCED
TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND
CERTIFICATIONS IN THIS SEC TION 8.14.
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IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
duly executed on its behalf as of the day and year first above written.
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/ Harry A. Blazer
-----------------------------
Name: Harry A. Blazer
Title: Chairman, President and
Chief Executive Officer
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Exhibit 5
THE SECURITIES REPRESENTED HEREBY HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED OR ANY APPLICABLE
STATE SECURITIES ACTS. THESE SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN THE
ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM.
WARRANT TO PURCHASE
SHARES OF CLASS A COMMON STOCK
OF
HARRY'S FARMERS MARKET, INC.
============================
DATE OF INITIAL ISSUANCE: JANUARY 31, 1997
THIS CERTIFIES THAT, for value received, the Holder is entitled to purchase
from Harry's Farmers Market, Inc. (the "Company") at any time prior to January
31, 2001, up to 2,000,000 shares of Class A Common Stock of the Company, at any
time and from time to time, in whole or in part, on or after January 31, 1997,
at the following Exercise Prices per share:
Shares Purchased Prior to January 31, 1998. If this Warrant is exercised in
whole or in part on or after January 31, 1997 and prior to January 31, 1998, the
Exercise Price shall be (i) $4.00 per Share for the first 500,000 Shares
purchased, (ii) $4.50 per Share for the next 500,000 Shares purchased, (iii)
$5.00 per Share for the next 500,000 Shares purchased, and (iv) $5.50 per share
for the next 500,000 Shares purchased.
Shares Purchased Prior to January 31, 1999. If this Warrant is exercised in
whole or in part on or after January 31, 1998 and prior to January 31, 1999, the
Exercise Price shall be (i) $4.50 per Share for the first 1,000,000 Shares
purchased, (ii) $5.00 per Share for the next 500,000 Shares purchased, and (iii)
$5.50 per share for the next 500,000 Shares purchased. Provided, that the number
of Shares purchased prior to January 31, 1998, shall (i) reduce the number of
Shares purchasable at $4.50 per Share, and if greater than 1,000,000, (ii)
reduce the number of Shares purchasable at $5.00 per Share.
Shares Purchased Prior to January 31, 2000. If this Warrant is exercised in
whole or in part on or after January 31, 1999 and prior to January 31, 2000, the
Exercise Price shall be (i) $5.00 per Share for the first 1,500,000 Shares
purchased, and (ii) $5.50 per share for the next 500,000 Shares purchased.
Provided, that the number of Shares purchased prior to January 31, 1999, shall
reduce the number of Shares purchasable at $5.00 per Share.
Shares Purchased Prior to January 31, 2001. If this Warrant is exercised in
whole or in part on or after January 31, 2000 and prior to January 31, 2001, the
Exercise Price shall be $5.50 per Share.
This Warrant shall expire January 31, 2001.
<PAGE>
SECTION 1. DEFINITIONS.
- ---------- -----------
"Class A Common Stock" means the Company's Class A Common Stock, without
par value.
"Company" means Harry's Farmers Market, Inc., a Georgia corporation.
"Current Market Price" means the average of the daily closing prices of one
share of Class A Common Stock for the fifteen (15) consecutive business day
period ending the day before the day in question and such average will be
adjusted for any stock dividend, split, combination or reclassification that
took effect during such fifteen (15) business day period. The closing price for
each day shall be the last reported sales price regular way or, in case no such
reported sales took place on such day, the average of the last reported bid and
asked prices regular way, in either case on the principal national securities
exchange on which the Class A Common Stock is listed or admitted to trading, or
if the Class A Common Stock is not at the time listed or admitted for trading on
any such exchange, then such price as shall be equal to the average of the last
reported bid and asked prices, as reported by Nasdaq on such day, or if, on any
day in question, the Class A Common Stock shall not be quoted on Nasdaq, then
such price shall be equal to the average of the last reported bid and asked
prices on such day as reported by Nasdaq. Notwithstanding the foregoing, if the
Class A Common Stock is not traded in such manner that the prices referred to
above are available for the period required hereunder, the Current Market Price
shall be determined in good faith by the Board of Directors of the Company
(which determination shall be conclusive absent manifest error).
"Excluded Stock" means shares of Class A Common Stock (including options to
purchase or rights to subscribe for Class A Common Stock, securities by their
terms convertible into or exchangeable for Class A Common Stock, or options to
purchase or rights to subscribe for such convertible or exchangeable securities)
issued by the Company in the following cases: (i) issuance of a stock dividend
payable in shares of Class A Common Stock, or (ii) any issuance described in
Section 9.7.8 of the Articles of Amendment to Articles of Incorporation of the
Company for the Series AA Preferred Stock, stated value $9.00 per share, of the
Company as in effect as of the date hereof.
"Holder" means HFMI Acquisition Corporation, a Delaware corporation, or its
registered assigns of all or any portion of this Warrant.
"Nasdaq" means the Nasdaq Stock Market.
"Notice of Exercise" means the Notice of Exercise in the form of Exhibit A.
"Securities Act" means the Securities Act of 1933, as amended.
"Warrant Shares" means the shares of Class A Common Stock obtainable by
the Holder upon the exercise of this Warrant.
-2-
<PAGE>
SECTION 2. EXERCISE OF WARRANT.
- ---------- -------------------
2.1. Procedure for Exercise of Warrant. To exercise this Warrant in whole
or in part, the Holder shall deliver to the Company at any time prior to January
31, 2001 (i) a Notice of Exercise; (ii) cash or certified or official bank
check, payable to the order of the Company in the amount of the Exercise Price;
and (iii) this Warrant. Upon payment of the Exercise Price, the Holder shall be
deemed to be the holder of record of the Warrant Shares, notwithstanding that
the stock transfer books of the Company may then be closed or that certificates
representing such Warrant Shares may not then be actually delivered to the
Holder. The Company shall, as promptly as practicable thereafter, cause to be
executed, and deliver to the Holder, or the Holder's nominee, a certificate or
certificates representing the aggregate number of Warrant Shares specified in
the Notice of Exercise. Each stock certificate so delivered shall be in such
denomination as may be requested by the Holder and shall be registered in the
name of the Holder or such other name as shall be designated by the Holder. If
this Warrant shall have been exercised only in part, the Company shall, at the
time of delivery of said stock certificate or certificates, deliver to the
Holder a new Warrant evidencing the right of the Holder to purchase the
remaining shares of Class A Common Stock covered by this Warrant. The Company
shall pay all expenses, taxes and other charges payable in connection with the
preparation, execution and delivery of such stock certificates regardless of the
name or names in which such stock certificates shall be registered.
2.2. Restrictive Legend. Each certificate for Warrant Shares shall be
legended as follows (unless such Warrant Shares shall be registered under the
Securities Act at the time of exercise):
"The shares represented by this certificate have not been registered
under the Securities Act of 1933 or under any state securities laws and
shall not be transferred at any time in the absence of (i) an effective
registration statement under the Securities Act of 1933 and applicable
state securities laws, or (ii) an opinion of counsel reasonably
satisfactory to the Company that such registration is not required."
2.3. Character of Warrant Shares. The Company warrants that all Warrant
Shares shall be duly authorized, validly issued, and, upon payment of the
Exercise Price, fully paid and nonassessable.
2.4. Adjustment of Number of Shares. Upon each adjustment of the Exercise
Price as provided in Section 2.5 hereof (except 2.5.1), the Holder shall
thereafter be entitled to purchase, at the Exercise Price resulting from such
adjustment, the number of Warrant Shares (calculated to the nearest one-tenth
(1/10) of a share) obtained by (i) multiplying the Exercise Price in effect
immediately prior to such adjustment by the number of Warrant Shares immediately
prior to such adjustment, and (ii) dividing the product thereof by the Exercise
Price resulting from such adjustment.
2.5. Adjustment of Exercise Price. The Exercise Price shall be subject to
adjustment from time to time as follows:
-3-
<PAGE>
2.5.1 Anti-Dilution. If the Company issues shares of Class A Common Stock
other than Excluded Stock without consideration or for a consideration per share
less than the Exercise Price in effect immediately prior to the issuance of such
Class A Common Stock, the Exercise Price in effect immediately prior to each
such issuance shall forthwith be adjusted to a price equal to the quotient
obtained by dividing:
(i) an amount equal to the sum of:
(A) the total number of shares of Class A Common Stock
outstanding (including any shares of Class A Common Stock deemed to have
been issued pursuant to Section 2.5.1(iii)(C) hereof and to Section 2.5.2)
immediately prior to such issuance multiplied by the Exercise Price in
effect immediately prior to such issuance, plus
(B) the consideration received by the Company upon such issuance,
by
(ii) the total number of shares of Class A Common Stock outstanding
(including any shares of Class A Common Stock deemed to have been issued
pursuant to Section 2.5.1(iii)(C) and to Section 2.5.2) immediately after such
issuance of such Class A Common Stock.
(iii) For the purposes of any adjustment of the Exercise Price
pursuant to this Section 2.5.1, the following provisions shall be applicable:
(A) When Class A Common Stock is issued for cash, the
consideration shall be deemed to be the amount of cash paid therefor after
deducting therefrom any discounts, commissions or other expenses allowed,
paid or incurred by the Company for any underwriting or otherwise in
connection with the issuance and sale thereof;
(B) When Class A Common Stock is issued for a consideration in
whole or in part other than cash, the consideration other than cash shall
be deemed to be the fair market value thereof as determined by the Board of
Directors of the Company (which determination shall be conclusive absent
manifest error), irrespective of any accounting treatment; provided,
however, that such fair market value determined by the Board of Directors
shall not exceed the aggregate Current Market Price of the shares of Class
A Common Stock being issued;
(C) In the case of the issuance of options to purchase or rights
to subscribe for Class A Common Stock, securities by their terms
convertible into or exchangeable for Class A Common Stock, or options to
purchase or rights to subscribe for such convertible or exchangeable
securities (other than in all cases, Excluded Securities):
-4-
<PAGE>
(1) the aggregate maximum number of shares of Class A Common
Stock deliverable upon exercise of such options to purchase or rights
to subscribe for Class A Common Stock shall be deemed to have been
issued at the time such options or rights were issued and for a
consideration equal to the consideration (determined in the manner
provided in Section 2.5.1(iii)(A) and (B) above with the proviso in
Section 2.5.1(iii)(B) above being applied to the number of shares of
Class A Common Stock deliverable upon such exercise) received by the
Company upon the issuance of such options or rights, plus the minimum
purchase price provided in such options or rights for the Class A
Common Stock covered thereby;
(2) the aggregate maximum number of shares of Class A Common
Stock deliverable upon conversion of or in exchange for any such
convertible or exchangeable securities or upon the exercise of options
to purchase or rights to subscribe for such convertible or
exchangeable securities and subsequent conversions or exchanges
thereof shall be deemed to have been issued at the time such
securities were issued or such options or rights were issued and for a
consideration equal to the consideration received by the Company for
any such securities and related options or rights (excluding any cash
received on account of accrued interest or accrued dividends), plus
the additional consideration, if any, to be received by the Company
upon the conversion or exchange of such securities or the exercise of
any related options or rights (the consideration in each case to be
determined in the manner provided in Section 2.5.1(iii)(A) and (B)
above with the proviso in Section 2.5.1(iii)(B) above being applied to
the number of shares of Class A Common Stock deliverable upon such
conversion, exchange or exercise);
(3) on any change in the number of shares of Class A Common Stock
deliverable upon exercise of any such options or rights or conversion
of or exchange for such convertible or exchangeable securities, other
than a change resulting from any anti-dilution provisions thereof, the
Exercise Price shall forthwith be readjusted to such Exercise Price as
would have obtained had the adjustment made upon the issuance of such
options, rights or securities not converted prior to such change or
options or rights related to such securities not converted prior to
such change been made upon the basis of such change; and
(4) on the expiration of any such options or rights, the
termination of any such rights to convert or exchange or the
expiration of any options or rights related to such convertible or
exchangeable securities, the Exercise Price shall forthwith be
readjusted to such Exercise Price as would have obtained had the
adjustment made upon the issuance of such options, rights, securities
or options or rights related to such securities been made upon the
basis of the issuance of only the number of shares of Class A
-5-
<PAGE>
Common Stock actually issued upon the conversion or exchange
of such securities or upon the exercise of the options or
rights related to such securities.
2.5.2 Adjustment for Stock Splits, Reverse Stock Splits, and Stock
Dividends. In the event that the outstanding shares of Class A Common Stock
shall be subdivided (split), combined (reverse split), by reclassification or
otherwise, or in the event of any dividend payable on the Class A Common Stock
in shares of Class A Common Stock, the applicable Exercise Price and the number
of shares of Class A Common Stock available for purchase in effect immediately
prior to such subdivision, combination, or divided shall be proportionately
adjusted.
2.5.3 Other Distributions. If the Company shall distribute to
holders of the Class A Common Stock shares of its capital stock other than Class
A Common Stock, stock or other securities of other persons, evidences of
indebtedness issued by the Company or other persons, assets (excluding cash
dividends and distributions) or options or rights (excluding options to purchase
and rights to subscribe for Class A Common Stock or other securities of the
Company convertible into or exchangeable for Class A Common Stock), then, in
each such case, the Exercise Price in effect immediately prior to such dividend
or distribution shall be adjusted as follows. Immediately following the record
date fixed for the determination of holders of Class A Common Stock entitled to
receive such dividend or distribution, the Exercise Price in effect thereafter
shall be determined by multiplying the Exercise Price in effect immediately
prior to such record date by a fraction of which the numerator shall be an
amount equal to (i) the Current Market Price of one share of Class A Common
Stock less (ii) the fair market value (as determined by the Board of Directors
of the Company, which determination shall be conclusive absent manifest error)
of the stock, securities, evidences of indebtedness, assets, options or rights
so distributed in respect of one share of Class A Common Stock, and of which the
denominator shall be the Current Market Price.
2.5.4 Adjustment for Capital Reorganizations. In the case of any
proposed consolidation or merger of the Company with another corporation, or the
proposed sale of all or substantially all of the Company's assets or any
proposed reorganization or reclassification of the securities of the Company,
then, as a condition of such consolidation, merger, sale, reorganization or
reclassification, lawful and adequate provision shall be made whereby the Holder
shall thereafter have the right to receive upon the terms and conditions
specified herein, in lieu of the Warrant Shares immediately theretofore
purchasable hereunder, such shares of stock or securities or assets (including
cash) as may by virtue of such consolidation, merger, sale, reorganization or
reclassification be issued or payable with respect to or in exchange for the
Warrant Shares purchasable hereunder immediately before such consolidation,
merger, sale, reorganization or reclassification as if this Warrant had
theretofore been exercised. The Company shall not effect any such consolidation,
merger or sale unless prior to or simultaneously with the consummation thereof
the successor corporation or purchaser shall assume by written instrument the
obligation to deliver to the Holder such shares of stock, securities or assets
as the Holder is entitled to receive hereunder.
2.5.5 Certificate as to Adjustments. Whenever the Exercise Price
shall be adjusted as provided in this Section 2.5, the Company shall prepare a
statement showing the facts requiring such adjustment and the Exercise Price and
the number of Warrant Shares that shall be in effect after
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<PAGE>
such adjustment. The Company shall cause a copy of such statement to be sent to
the Holder. Where appropriate, such copy may be given in advance.
2.5.6 Effective Date of Adjustment. Adjustments made pursuant to
Sections 2.5.2 and 2.5.3 shall be made on the date such dividend, subdivision,
split, combination or distribution is made, and shall become effective at the
opening of business on the business day next following the record date for the
determination of shareholders entitled to such dividend, subdivision, split,
combination or distribution.
2.5.7 Notice of Certain Proposed Actions. In the event the Company
shall propose to take any action of the types described in Sections 2.5.2 or
2.5.3 the Company shall forward, at the same time and in the same manner, to the
Holder such notice, if any, that the Company shall give to the holders of
capital stock of the Company. Failure to give such notice, or any defect
therein, shall not affect the legality or validity of any such action.
2.5.8 Exercise After Record Date. Whenever the provisions of this
Section 2.5 shall require that an adjustment shall become effective immediately
after the record date for an event and the Holder exercises its Warrant after
such record date and before the occurrence of such event, the Company may defer
until the occurrence of such event issuing to the Holder the additional shares
of Class A Common Stock issuable upon such exercise by reason of the adjustment
required by such event over and above the shares of Class A Common Stock
issuable upon such exercise before giving effect to such adjustment; provided,
however, that the Company shall deliver to such Holder a due bill or other
appropriate instrument evidencing such Holder's right to receive such additional
shares upon the occurrence of the event requiring such adjustment.
2.5.9 Treasury Shares. The sale or other disposition of any Class A
Common Stock theretofore held in the treasury of the Company shall be deemed to
be an issuance thereof.
SECTION 3. OWNERSHIP AND TRANSFER.
- ---------- -----------------------
3.1. Ownership. The Company may deem and treat the person in whose name
this Warrant is registered as the Holder and owner hereof (notwithstanding any
notations of ownership or writing hereon made by anyone other than the Company)
for all purposes and shall not be affected by any notice to the contrary until
presentation of this Warrant for registration of transfer as provided in this
Section 3.
3.2. Transfer and Replacement. Subject to restrictions on transfer of this
Warrant under the Securities Act or applicable state securities laws, this
Warrant and all rights hereunder are transferable in whole or in part upon the
books of the Company by the Holder hereof in person or by duly authorized
attorney, and a new Warrant or Warrants, of the same tenor as this Warrant but
registered in the name of the transferee or transferees shall be made and
delivered by the Company upon surrender of this Warrant duly endorsed, at the
office of the Company. Upon receipt by the Company of evidence reasonably
satisfactory to it of the loss, theft or destruction of this Warrant, and of
indemnity or security reasonably satisfactory to it, or upon surrender of
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this Warrant if mutilated, the Company will make and deliver a new Warrant of
like tenor, in lieu of this Warrant. This Warrant shall be promptly canceled by
the Company upon the surrender hereof in connection with any transfer or
replacement. Except as otherwise provided above in the case of the loss, theft
or destruction of a Warrant, the Company shall pay all expenses, taxes and other
charges payable in connection with any transfer or replacement of this Warrant.
SECTION 4. NO FRACTIONAL SHARES.
- ---------- --------------------
No fractional shares or scrip representing fractional shares shall be
issued upon the exercise of this Warrant. In lieu thereof, a cash payment shall
be made equal to such fraction multiplied by the Exercise Price per share as
then in effect.
SECTION 5. CHARGES AND TAXES.
- ---------- -----------------
Issuance of certificates for shares of Class A Common Stock upon the
exercise of this Warrant shall be made without charge to the Holder for any
issue or transfer tax or other incidental expense in respect of the issuance of
such certificate, all of which taxes and expenses shall be paid by the Company.
SECTION 6. AUTHORIZED SHARES.
- ---------- -----------------
The Company covenants that during the period the Warrant is outstanding, it
will reserve from its authorized and unissued Class A Common Stock a sufficient
number of shares to provide for the issuance of Class A Common Stock upon the
exercise of any purchase rights under this Warrant.
SECTION 7. NO RIGHTS AS STOCKHOLDER; LIMITATION OF LIABILITY.
- ---------- -------------------------------------------------
This Warrant shall not entitle the Holder to any of the rights of a
shareholder of the Company prior to exercise of warrants and payment of the
Exercise Price.
SECTION 8. LAW GOVERNING.
- ---------- -------------
This Warrant shall be governed by, and construed and enforced in accordance
with, the laws of the State of Georgia.
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<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by its
duly authorized officer as of the 31st day of January, 1997.
HARRY'S FARMERS MARKET, INC.
By: /s/ Harry A. Blazer
-------------------------------
Title: Chairman, President and Chief
Executive Officer
-------------------------------
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<PAGE>
NOTICE OF EXERCISE
OF WARRANT TO PURCHASE
CLASS A COMMON STOCK OF HARRY'S FARMERS MARKET, INC.
====================================================
To: Harry's Farmers Market, Inc.
-------------------------------
-------------------------------
The undersigned, the registered owner of this Warrant, hereby irrevocably
elects to exercise the purchase rights represented thereby for, and to purchase
thereunder, _________ shares of Class A Common Stock of Harry's Farmers Market,
Inc. and herewith makes payment of $__________ therefor, and requests that the
certificates evidencing such shares be issued in the name of and be delivered
to:
Name:
--------------------------------
Address:
-----------------------------
-----------------------------
Tax I.D. Number
----------------
and if such shares shall not be all of the shares purchasable hereunder, that a
new Warrant of like tenor for the balance of the shares purchasable hereunder be
delivered to the undersigned.
Dated: 19
-------------, -- -------------------------------------------
Name of Holder
By:
----------------------------------
Title:
----------------------------
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<PAGE>
Exhibit 6
ARTICLES OF AMENDMENT
TO
ARTICLES OF INCORPORATION
OF
HARRY'S FARMERS MARKET, INC.
============================
Series B Preferred Stock
1. The name of the corporation is Harry's Farmers Market, Inc.
2. Article II of the Articles of Incorporation authorizes the issuance of
up to 3,000,000 shares of Preferred Stock by the Company, with such preferences,
limitations, and relative rights as may be determined by the Board of Directors
in accordance with (S) 14-2-602 of the Georgia Business Corporation Code.
3. On January 30, 1997, the Board of Directors of the Company duly adopted
an amendment to the Company's Articles of Incorporation designating a series of
Preferred Stock as the Series B Preferred Stock, and determining the terms of
such series.
4. The text of the amendment so adopted, which amends Article II by adding
a new Section G, is as follows.
G. Series B Preferred Stock
1. GENERAL. There is designated herein a single series of preferred stock
having the preferences, limitations, and relative rights set forth below. The
Series B Preferred Stock shall be issuable upon the exercise of certain option
rights issued by the Company on January 31, 1997 (the "Option Issuance Date").
Capitalized terms not otherwise defined shall have the meanings assigned by
Section 10.
2. DESIGNATION.
The series of Preferred Stock shall be designated as the "Series B
Preferred Stock." The number of shares constituting such series shall be
500,000, having a stated value of $40.00 per share. All shares of Series B
Preferred Stock shall be identical with each other in all respects.
3. RANK.
The Series B Preferred Stock shall rank, with respect to dividend rights
and rights on liquidation, dissolution and winding-up of the affairs of the
Company:
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(i) senior to all classes or series of Common Stock of the Company and to
any other class or series of Capital Stock that does not expressly
provide that it ranks senior to or on a parity with the Series B
Preferred Stock as to dividends and upon liquidation, dissolution and
winding-up (collectively referred to as "Junior Securities");
(ii) on parity with the Series AA Preferred Stock, stated value $9.00 (the
"Series AA Preferred Stock"), of the Company, and with each other
class or series of Capital Stock that expressly provides that it
ranks on a parity with the Series B Preferred Stock as to dividends
and upon liquidation, dissolution and winding-up (collectively
referred to as "Parity Securities"); and
(iii) junior to each class or series of Capital Stock which expressly
provides that it ranks senior to the Series B Preferred Stock as to
dividends and upon liquidation, dissolution and winding-up
(collectively referred to as "Senior Securities").
The Company shall not create, authorize or issue any Senior Securities or
Parity Securities or reclassify any class or series of Capital Stock into Senior
Securities or Parity Securities, without the approvals required by Section 8
hereof.
4. DIVIDENDS.
4.1 Amount and Payment. If the Company shall at any time or from time to
time declare, order, pay, or make a dividend or other distribution (whether in
cash, securities, rights to purchase securities, or other property) with respect
to its Common Stock, the Holders of outstanding shares of Series B Preferred
Stock shall be entitled to receive, with respect to each share of Series B
Preferred Stock held, a dividend or distribution that is the same dividend or
distribution that would be received by a holder of the number of shares of Class
A Common Stock into which such share of Series B Preferred Stock is convertible
under Section 9 on the record date for such dividend or distribution. Any such
dividend or distribution shall be declared, ordered, paid, or made on the Series
B Preferred Stock at the same time such dividend or distribution is declared,
ordered, paid, or made on the Common Stock.
4.2 Cumulative Default Dividends. Beginning on the date of any Redemption
Default applicable to the Series AA Preferred Stock, and until such Redemption
Default has been cured in full by the Company and all dividends provided by this
Section 4.2 have been paid in full, the Holders of outstanding shares of Series
B Preferred Stock shall be entitled to receive, when, as, and if declared by the
Board of Directors, out of funds legally available for the payment of dividends,
cash dividends at the annual rate equal to fifteen percent of the Liquidation
Preference. All dividends shall be cumulative and shall be payable in equal
quarterly installments in arrears on each Dividend Payment Date commencing on
the first Dividend Payment Date for which the Dividend Record Date occurs after
the Redemption Default Date, in preference to and with priority over dividends
on Junior Securities. The dividend payable on any
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<PAGE>
share of Series B Preferred Stock on any Dividend Payment Date in respect of the
Quarterly Dividend Period then ended shall be calculated by multiplying the
Liquidation Preference of such share on the immediately preceding Dividend
Payment Date (after giving effect to any dividend payment actually made on such
preceding Dividend Payment Date, if any) by 3.75 percent. Dividends per share of
Series B Preferred Stock payable in respect of the Initial Dividend Period shall
be equal to the product of the Liquidation Preference and 3.75 percent times a
fraction, the numerator of which is the number of days in the Initial Dividend
Period and denominator of which is 90. The amount of dividends accrued on the
Series B Preferred Stock for any period less than a full Quarterly Dividend
Period shall be equal to a pro rata portion of the total dividend payable for
the Quarterly Dividend Period during which such period occurs, based on the
actual number of days elapsed in such period for which payable and the total
number of days in the applicable Quarterly Dividend Period. Dividends shall
accrue on a daily basis during each Dividend Period as provided above, and the
Liquidation Preference of each outstanding share of Series B Preferred Stock
shall be correspondingly increased on a daily basis. Each such dividend shall be
payable to Holders of record as their names shall appear on the stock books of
the Company on the Dividend Record Date for such dividends, except that
dividends in arrears for any past Payment Date may be declared and paid at any
time without reference to such regular Dividend Payment Date to Holders of
record on such date not more than 60 days or less than 10 days prior to the date
of payment as shall be determined by the Board of Directors.
4.3 Limitation on Dividends, Repurchases and Redemptions. So long as any
shares of Series B Preferred Stock shall be outstanding, the Company shall not
declare or pay or set apart for payment any dividends or make any other
distributions on any Junior Securities, whether in cash, property or otherwise
(other than dividends or distributions payable in shares of the class or series
upon which such dividends or distributions are declared or paid), nor shall the
Company or any of its Subsidiaries purchase, redeem or otherwise acquire for any
consideration or make payment on account of the purchase, redemption, or other
retirement of any Parity Securities or Junior Securities, nor shall any monies
be paid or made available for a sinking fund for the purchase or redemption of
any Parity Securities or Junior Securities, unless with respect to all of the
foregoing all dividends or other distributions to which the holders of Series B
Preferred Stock shall have been entitled, pursuant to Section 4.1 or 4.2 hereof,
shall have been paid or declared and a sum of money has been set apart for the
full payment thereof.
4.4 Pro Rata Payments. All dividends paid with respect to shares of the
Series B Preferred Stock shall be paid pro rata to the Holders entitled thereto.
5. LIQUIDATION PREFERENCE.
5.1 Amount. Upon any voluntary or involuntary liquidation, dissolution or
winding-up of the affairs of the Company, the Holders of Series B Preferred
Stock will be entitled to receive out of the assets of the Company available for
distribution to the holders of its Capital Stock, whether such assets are
capital or surplus, an amount in cash equal to the Liquidation Preference
determined as of the date of such voluntary or involuntary liquidation,
dissolution or
3
<PAGE>
winding-up, before any payment or other distribution is made on any Junior
Securities, including Common Stock of the Company. Holders of Series B Preferred
Stock shall not be entitled to any other distribution in the event of voluntary
or involuntary liquidation, dissolution or winding-up of the affairs of the
Company.
5.2 Proration. If upon any voluntary or involuntary liquidation,
dissolution or winding-up of the affairs of the Company, the assets of the
Company are not sufficient to pay in full the liquidation preference payable to
the holders of outstanding shares of the Series B Preferred Stock and all Parity
Securities, then the holders of all such shares shall share equally and ratably
in any distribution of assets in proportion to the full liquidation preference
determined as of the date of such voluntary or involuntary liquidation,
dissolution or winding-up, to which they are entitled.
5.3 Sale Not Liquidation. For the purposes of this Section 5 only,
neither the sale, lease, conveyance, exchange or transfer (for cash, shares of
stock, securities or other consideration) of all or substantially all of the
property or assets of the Company nor the consolidation or merger of the Company
with or into one or more corporations shall be deemed to be a liquidation,
dissolution or winding-up of the affairs of the Company.
6. [Reserved.]
7. CERTAIN REPURCHASES
7.1 Repurchase of Series B Preferred Stock by the Company. Neither the
Company nor any of its Subsidiaries shall repurchase any outstanding shares of
Series B Preferred Stock unless the Company on the same terms either (i) offers
to purchase all of the then outstanding shares of Series B Preferred Stock or
(ii) offers to purchase shares of Series B Preferred Stock from the holders in
proportion to the respective number of shares of Series B Preferred Stock held
by each holder. In any such repurchase by the Company, if all shares of Series B
Preferred Stock are not being repurchased, then the number of shares of Series B
Preferred Stock to be repurchased shall be allocated among all shares of Series
B Preferred Stock held by holders which accept the Company's repurchase offer so
that the shares of Series B Preferred stock are repurchased from such holders in
proportion to the respective number of shares of Series B Preferred held by each
such holder which accepts the Company's offer (or in such other proportion as
agreed by all such holders who accept the Company's offer). Nothing in this
Section 7 shall obligate a holder of shares of Series B Preferred Stock to
accept the Company's repurchase offer.
4
<PAGE>
8. VOTING RIGHTS
8.1 General.
8.1.1 Holders of Series B Preferred Stock shall be permitted to vote
with the holders of Common Stock and the holders of the Series AA Preferred
Stock, voting together as a single voting group, on any matter required or
permitted to be voted upon by the holders of Common Stock. Each share of Series
B Preferred Stock shall entitle the holder thereof to such number of votes per
share in each such matter as shall equal the number of shares of Class A Common
Stock (including fractions of a share) into which each share of Series B
Preferred Stock is convertible as of the record date for the determination of
holders entitled to vote on such matters.
8.1.2 Notwithstanding the foregoing, without the approval of Holders
of at least two-thirds of the shares of Series B Preferred Stock then
outstanding, voting or consenting, as the case may be, as a single voting group,
given in person or by proxy, either in writing or by resolution adopted at an
annual or special meeting called for the purpose, the Company will not, and will
not permit any of its Subsidiaries to:
a. issue any Senior Securities or Parity Securities;
b. reclassify any Junior Securities into any Senior Securities
or Parity Securities;
c. amend, modify or repeal the Articles of Incorporation, the
By-Laws of the Company, or these Articles of Amendment to
the Articles of Incorporation or any other specified
designations, rights, preferences or powers of the Series B
Preferred Stock in a manner adverse to Holders of Series B
Preferred Stock; or
d. increase the number of shares of Series B Preferred Stock
authorized for issuance.
8.2 Shares Deemed Outstanding. For the purpose of this Section 8 and for
purposes of exercising any vote, election or consent hereunder or under
applicable law, shares of Series B Preferred Stock held by the Company or any of
its Subsidiaries shall not be deemed to be outstanding and shall not be counted
in determining the outcome of any such vote, election or consent solicitation.
9. Conversion.
9.1 Conversion Ratio. The shares of Series B Preferred Stock shall be
convertible into the number of fully paid and nonassessable shares of Class A
Common Stock obtained by
5
<PAGE>
dividing (i) the aggregate Liquidation Preference of the shares to be converted,
by (ii) the Conversion Price, subject to adjustment of such number of shares as
provided herein. The initial Conversion Price shall be $4.00 per share, adjusted
as provided in this Section 9 for events occurring from and after the Option
Issuance Date.
9.2 Reserved Shares. The Company shall at all times reserve and keep
available out of its authorized but unissued shares of Class A Common Stock for
the purpose of issuance upon conversion of shares of Series B Preferred Stock, a
sufficient number of such shares and shall take all action necessary so that
shares of Class A Common Stock so issued will be validly issued, fully paid and
nonassessable.
9.3 Changes in Common Stock. Upon any change in the Class A Common Stock
after the Option Issuance Date by reason of stock dividends, split-ups, stock
splits, reverse stock splits, recapitalization, exchanges of shares or the like,
the number of shares of Class A Common Stock that a holder of Series B Preferred
Stock is entitled to receive upon conversion shall be adjusted proportionately.
9.4 Recapitalizations, Reorganizations, Etc. If the Company shall effect
any capital reorganization or reclassification of its Class A Common Stock
(other than changes in par value or as a result of a change described in Section
9.3 above) or shall consolidate or merge with or into any other corporation
(other than where the Company is the surviving corporation and each share of
Class A Common Stock outstanding immediately prior to such consolidation or
merger is to remain outstanding immediately after such consolidation or merger)
or shall sell or transfer all or substantially all its assets to any other
corporation for a consideration consisting in whole or in part of equity
securities of such other corporation, lawful provision shall be made as a part
of the terms of such transaction whereby the holders of shares of the Series B
Preferred Stock shall receive upon conversion thereof, in lieu of each share of
Class A Common Stock issuable upon conversion of such shares immediately prior
to such consummation, the same kind and amount of stock (or other securities,
cash or property, if any) as may be issuable or distributable in connection with
such transaction with respect to each outstanding share of Class A Common Stock
subject to adjustments for subsequent stock dividends and distributions,
subdivisions or combinations of shares, capital reorganizations,
reclassifications, consolidations or mergers as nearly equivalent as possible to
the adjustments provided for in this Section 9, as would have been distributed
to a holder of Series B Preferred Stock upon such reorganization,
reclassification, consolidation or merger had such holder converted such Series
B Preferred Stock immediately prior to such reorganization, reclassification,
consolidation or merger.
9.5 Mechanics of Conversion. Each holder of Series B Preferred Stock that
desires to convert the same into shares of Class A Common Stock shall surrender
the certificate or certificates therefor, duly endorsed, at the principal office
of the Company or of any transfer agent for the Series B Preferred Stock or
Class A Common Stock, accompanied by written notice to the Company that such
holder elects to convert the same and stating therein the number of shares of
Series B Preferred Stock being converted and setting forth the name or names in
which
6
<PAGE>
such holder wishes the certificate or certificates for shares of Class A Common
Stock to be issued if such name or names shall be different than that of such
holder. In case such notice shall specify a name or names other than that of
such holder, such notice shall be accompanied by payment of all transfer taxes
payable upon the issuance and delivery of shares of Class A Common Stock in such
name or names. Thereupon, the Company shall issue and deliver at such office on
the fifth (5th) succeeding Business Day (unless such conversion is in connection
with an underwritten public offering of Class A Common Stock, in which event
concurrently with such conversion) to such holder or on such holder's written
order, (i) a certificate or certificates for the number of validly issued, fully
paid and nonassessable full shares of Class A Common Stock to which such holder
is entitled and (ii) if less than the full number of shares of Series B
Preferred Stock evidenced by the surrendered certificate of certificates are
being converted, a new certificate or certificates, of like tenor, for the
number of shares evidenced by such surrendered certificate or certificates less
the number of shares converted.
Each conversion shall be deemed to have been effected immediately
prior to the close of business on the date of such surrender of the shares to be
converted (except that if such conversion is in connection with an underwritten
public offering of Class A Common Stock, then such conversion shall be deemed to
have been effected upon such surrender) so that the rights of the holder thereof
as to the shares being converted shall cease at such time except for the right
to receive shares of Class A Common Stock and accrued but unpaid dividends in
accordance herewith, and the person entitled to receive the shares of Class A
Common Stock issuable upon such conversion shall be treated for all purposes as
the record holder of such shares of Class A Common Stock at such time.
9.6 Conditional Conversion. Notwithstanding any other provision hereof,
if conversion of any shares of Series B Preferred Stock is to be made in
connection with a public offering of Class A Common Stock or any transaction
described in Section 9.4 hereof, the conversion of any shares of Series B
Preferred Stock may, at the election of the holder thereof, be conditioned upon
the consummation of the public offering or such transaction, in which case such
conversion shall not be deemed to be effective until the consummation of such
public offering or transaction.
9.7 Adjustment of the Conversion Price. The Conversion Price shall be
adjusted from time to time as follows:
9.7.1 Pre-Issuance Adjustment. Adjustments to the Conversion Price
will be made for the events described in this Section 9.7 occurring after the
Option Issuance Date, even if such events occur prior to the issuance of any
Series B Preferred Stock pursuant to the Option (as defined in Section 9.7.8
herein).
9.7.2 Issuance of Additional Shares of Stock. If at any time the
Company shall (except as hereinafter provided) issue or sell any Additional
Shares of Stock either (A) in exchange for consideration in an amount per
Additional Share of Stock less than the Conversion
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<PAGE>
Price in effect immediately prior to such issuance or sale of Additional Shares
of Stock or (B) in exchange for consideration in an amount per Additional Share
of Stock less than the Market Price in effect immediately prior to such issuance
or sale of Additional Shares of Stock, then the Conversion Price as to the Class
A Common Stock into which the Series B Preferred Stock is convertible
immediately prior to such adjustment shall be adjusted to equal the price
determined by multiplying the Conversion Price by a fraction, of which
(x) the numerator shall be (1) the number of shares of Common
Stock outstanding immediately prior to such issuance or sale of
Additional Shares of Stock plus (2) the number of shares of Common
Stock which the aggregate amount of consideration, if any, received by
the Company for the total number of such Additional Shares of Stock so
issued or sold would purchase at the greater of (I) the Market Price
in effect immediately prior to such issuance or sale of Additional
Shares of Stock or (II) the Conversion Price in effect immediately
prior to such issuance or sale of Additional Shares of Stock, and
(y) the denominator shall be the number of shares of Common Stock
outstanding immediately after such issuance or sale of Additional
Shares of Stock;
provided, however, that such adjustment shall be made only if the Conversion
Price determined from such Adjustment shall be less than the Conversion Price in
effect immediately prior to the issuance of such Additional Shares of Stock. The
provisions of this Section 9.7.2 shall not apply to any issuance of Additional
Shares of Stock for which an adjustment is provided under Section 9.7.2 or which
are dividends or distributions received by the holders of the Series B Preferred
Stock pursuant to Section 4.1 hereof.
9.7.3 Issuance of Warrants or Other Rights. If at any time the Company
shall in any manner (whether directly or by assumption in a merger in which the
Company is the surviving corporation) issue or sell any warrants or other rights
to subscribe for or purchase any Additional Shares of Stock or any Convertible
Securities, whether or not the rights to exchange or convert thereunder are
immediately exercisable, and the consideration received for such warrants or
other rights or such Convertible Securities shall be less than the Conversion
Price or the Market Price in effect immediately prior to the time of such issue
or sale, then the Conversion Price shall be adjusted as provided in Section
9.7.2. No further adjustments of the Conversion Price shall be made upon the
actual issue of such Common Stock or of such Convertible Securities upon
exercise of such warrants or other rights or upon the actual issue of such
Common Stock upon such conversion or exchange of such Convertible Securities.
9.7.4 Issuance of Convertible Securities. If at any time the Company shall
in any manner (whether directly or by assumption in a merger in which the
Company is the surviving corporation) issue or sell any Convertible Securities,
whether or not the rights to convert thereunder are immediately exercisable, and
the consideration received for such stock shall be less than the Conversion
Price or the Market Price in effect immediately prior to the time
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<PAGE>
of such issue or sale, then the Conversion Price shall be adjusted as provided
in Section 9.7.2. No adjustment of the Conversion Price shall be made under this
Section 9.7.4 upon the issuance of any Convertible Securities which are issued
pursuant to the exercise of any warrants or other subscription or purchase
rights therefor, if any such adjustment shall previously have been made upon the
issuance of such warrants or other rights pursuant to Section 9.7.3. No further
adjustments of the Conversion Price shall be made upon the actual issue of such
Common Stock upon conversion of such Convertible Securities and, if any issue or
sale of such Convertible Securities is made upon exercise of any warrant or
other right to subscribe for or to purchase any such Convertible Securities for
which adjustments of the Conversion Price have been or are to be made pursuant
to other provisions of this Section 9, no further adjustments of the Conversion
Price shall be made by reason of such issue or sale.
9.7.5 Superseding Adjustments. If, at any time after any adjustment of the
Conversion Price which the Series B Preferred Stock is convertible shall have
been made pursuant to Section 9.7.3 or Section 9.7.4 as the result of any
issuance of warrants, rights or Convertible Securities,
(i) such warrants or rights, or the right of conversion or
exchange in such other Convertible Securities, shall expire, and all
or a portion of such warrants or rights, or the right of conversion or
exchange with respect to all or a portion of such other Convertible
Securities, as the case may be, shall not have been exercised, or
(ii) the consideration per share for which shares of Common
Stock are issuable pursuant to such warrants or rights, or the terms
of such other Convertible Securities, shall be increased solely by
virtue of provisions therein contained for an automatic increase in
such consideration per share upon the occurrence of a specified date
or event,
then such previous adjustment shall be rescinded and annulled and the Additional
Shares of Stock which were deemed to have been issued by virtue of the
computation made in connection with the adjustment so rescinded and annulled
shall no longer be deemed to have been issued by virtue of such computation.
Thereupon, a recomputation shall be made of the effect of such rights or options
or other Convertible Securities on the basis of
(iii) treating the number of Additional Shares of Stock or other
property, if any, theretofore actually issued or issuable pursuant to
the previous exercise of any such warrants or rights or any such right
of conversion or exchange, as having been issued on the date or dates
of any such exercise and for the consideration actually received and
receivable therefor, and
(iv) treating any such warrants or rights of any such other
Convertible Securities which then remain outstanding as having been
granted or issued
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immediately after the time of such increase of the consideration per
share for which shares of Common Stock or other property are issuable
under such warrants or rights or other Convertible Securities;
whereupon a new adjustment of the Conversion Price at which the Series B
Preferred Stock is convertible shall be made, which new adjustment shall
supersede the previous adjustment so rescinded and annulled.
9.7.6 Antidilution Adjustments Under Other Securities. Without
limiting any other rights available hereunder to the holders of the Series B
Preferred Stock, if there is an antidilution adjustment (i) under any
Convertible Securities, whether issued prior to or after the Issue Date or (ii)
under any rights, options or warrants to purchase Additional Shares of Stock,
whether issued prior to or after the Issue Date which, in either case, results
in a reduction in the exercise or purchase price with respect to such security
or rights or results in an increase in the number of Additional Shares of Stock
obtainable under such Convertible Security, right, option or warrant, then an
adjustment shall be made to the Conversion Price hereunder. Any such adjustment
pursuant to this Section 9.7.6 shall be whichever of the following results in a
lower Conversion Price: (A) a reduction in the Conversion Price equal to the
percentage reduction in such exercise or purchase price with respect to such
Convertible Security, right, option or warrant or (B) a reduction in the
Conversion Price which will result in the same percentage increase in the number
of shares of Class A Common Stock available hereunder as the percentage increase
in the number of Additional Shares of Stock available under such Convertible
Security, right, option or warrant. Any such adjustment under this Section 9.7.6
shall only be made if it would result in a lower Conversion Price than that
which would be determined pursuant to any other antidilution adjustment
otherwise required hereunder as a result of the event or circumstance which
triggered the adjustment to such Convertible Security, right, option or warrant,
and if an adjustment is made pursuant to this Section 9.7.6, such other
antidilution adjustment otherwise required hereunder shall not be made as a
result of such event or circumstance.
9.7.7 Other Provisions Applicable to Adjustments under this Section.
The following provisions shall be applicable to the making of adjustments of the
shares of Class A Common Stock into which the Series B Preferred Stock is
convertible and the Conversion Price at which the Series B Preferred Stock is
convertible provided for in this Section 9:
a. Computation of Consideration. To the extent that any
Additional Shares of Stock or any Convertible Securities or any warrants or
other rights to subscribe for or purchase any Additional Shares of Stock or any
Convertible Securities shall be issued for cash consideration, the consideration
received by the Corporation therefor shall be the amount of the cash received by
the Company therefor, or, if such Additional Shares of Stock or Convertible
Securities are offered by the Company for subscription, the subscription price,
or, if such Additional Shares of Stock or Convertible Securities are sold to
underwriters or dealers for public offering without a subscription offering, the
initial public offering price (in any such case subtracting any amounts paid or
receivable for accrued interest or accrued dividends and any
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compensation, discounts or expenses paid or incurred by the Company for and in
the underwriting of, or otherwise in connection with, the issuance thereof). To
the extent that such issuance shall be for a consideration other than cash, then
except as herein otherwise expressly provided, the amount of such consideration
shall be deemed to be the fair value of such consideration at the time of such
issuance as determined in good faith by the Board of Directors of the Company.
In case any Additional Shares of Stock or any Convertible Securities or any
warrants or other rights to subscribe for or purchase such Additional Shares of
Stock or Convertible Securities shall be issued in connection with any merger in
which the Company issues any securities, the amount of consideration therefor
shall be deemed to be the fair value, as determined in good faith by the Board
of Directors of the Company, of such portion of the assets and business of the
nonsurviving Company as such Board in good faith shall determine to be
attributable to such Additional Shares of Stock, Convertible Securities,
warrants or other rights, as the case may be. The consideration for any
Additional Shares of Stock issuable pursuant to any warrants or other rights to
subscribe for or purchase the same shall be the consideration received by the
Company for issuing such warrants or other rights plus the additional
consideration payable to the Company upon exercise of such warrants or other
rights. The consideration for any Additional Shares of Stock issuable pursuant
to the terms of any Convertible Securities shall be the consideration received
by the Company for issuing warrants or other rights to subscribe for or purchase
such Convertible Securities, plus the consideration paid or payable to the
Company in respect of the subscription for or purchase of such Convertible
Securities, plus the additional consideration, if any, payable to the Company
upon the exercise of the right of conversion or exchange in such Convertible
Securities. In case of the issuance at any time of any Additional Shares of
Stock or Convertible Securities in payment or satisfaction of any dividends upon
any class of stock other than Common Stock, the Company shall be deemed to have
received for such Additional Shares of Stock or Convertible Securities a
consideration equal to the amount of such dividend so paid or satisfied.
b. When Adjustments to be Made. The adjustments required by this
Section 9 shall be made whenever and as often as any event requiring an
adjustment shall occur, except that any adjustment of the Conversion Price that
would otherwise be required may be postponed (except in the case of a
subdivision or combination of shares of the Common Stock, as provided for in
Section 9.3) up to, but not beyond the date of exercise if such adjustment
either by itself or with other adjustments not previously made amount to a
change in the Conversion Price of less than $.05. Any adjustment representing a
change of less than such minimum amount (except as aforesaid) which is postponed
shall be carried forward and made as soon as such adjustment, together with
other adjustments required by this Section 9 and not previously made, would
result in a minimum adjustment or on the date of conversion. For the purpose of
any adjustment, any event shall be deemed to have occurred at the close of
business on the date of its occurrence.
c. Fractional Interests. In computing adjustments under this
Section 9, fractional interests in the Common Stock shall be taken into account
to the nearest 1/10th of a share.
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d. Challenge to Good Faith Determination. Whenever the Board of
Directors of the Company shall be required to make a determination in good faith
of the fair value of any item under this Section 9, such determination may be
challenged in good faith by a holder of Series B Preferred Stock and any dispute
shall be resolved by an investment banking firm of recognized national standing
selected by the Company and acceptable to such holder. The fees of such
investment banker shall be borne by such holder if the Company's calculation is
determined to be correct and otherwise by the Company.
9.7.8 Exceptions to Adjustment of Conversion Price. Anything herein
to the contrary notwithstanding, the Company shall not make any adjustment of
the Conversion Price in the case of (i) the issuance of the Warrants or the
issuance of shares of Class A Common Stock upon exercise of the Warrants, (ii)
the issuance of shares of Class A Common Stock to holders of the Series B
Preferred Stock upon conversion of all or any portion of their shares of Series
B Preferred Stock, (iii) the issuance of the Bank Warrants or the issuance of
shares of Class A Common Stock upon exercise of the Bank Warrants, (iv) the
issuance of the Series AA Preferred Stock, (v) the issuance of Class A Common
Stock upon conversion of the Series AA Preferred Stock, (vi) the issuance of the
option (the "Option") to purchase Series B Preferred Stock, contemplated by the
Transaction Agreement dated January 31, 1997, between the Company and HFMI
Acquisition Corporation, a Delaware corporation (the "Transaction Agreement"),
(vii) the issuance of the Series B Preferred Stock pursuant to the Option,
(viii) the issuance of the Warrants (as such term is defined in the Transaction
Agreement) (the "New Warrants"), and (ix) the issuance of Class A Common Stock
upon exercise of the New Warrants.
9.7.9 Chief Financial Officer's Opinion. Upon each adjustment of
the Conversion Price, and in the event of any change in the rights of a holder
of Series B Preferred Stock by reason of other events herein set forth, then and
in each such case, the Company will promptly obtain an opinion of the chief
financial officer of the Company, stating the adjusted Conversion Price, or
specifying the other shares of the Common Stock, securities or assets and the
amount thereof receivable as a result of such change in rights, and setting
forth in reasonable detail the method of calculation and the facts upon which
such calculation is based. The Company will promptly mail a copy of such opinion
to the holders of Series B Preferred Stock. If a holder disagrees with such
calculation, the Company agrees to obtain within thirty (30) business days an
opinion of a firm of independent certified public accountants selected by the
Company's Board of Directors and acceptable to such holder to review such
calculation and the opinion of such firm of independent certified public
accountants shall be final and binding on the parties and shall be conclusive
evidence of the correctness of the computation with respect to any such
adjustment of the Conversion Price. The fees of such accountants shall be borne
by such holder if the Company's calculation is determined by such accountants to
be correct and otherwise by the Company.
9.7.10 Company to Prevent Dilution. In case at any time or from time
to time conditions arise by reason of action taken by the Company, which in the
good faith opinion of its Board of Directors or a majority of the holders of the
Series B Preferred Stock are not adequately
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covered by the provisions of this Section 9, and which might materially and
adversely affect the exercise rights of the holders of the Series B Preferred
Stock, the Board of Directors of the Company shall appoint such firm of
independent certified public accountants acceptable to a majority of the holders
of the Series B Preferred Stock, which shall give their opinion upon the
adjustment, if any, on a basis consistent with the standards established in the
other provisions of this Section 9, necessary with respect to the Conversion
Price, so as to preserve, without dilution (other than as specifically
contemplated by the Articles of Incorporation), the exercise rights of the
holders of the Series B Preferred Stock. Upon receipt of such opinion, the Board
of Directors of the Company shall forthwith make the adjustments described
therein.
9.8 No Impairment. The Company will not, by amendment of its Articles of
Incorporation or through any reorganization, recapitalization, transfer of
assets, consolidation, merger, dissolution, issue or sale of securities or any
other voluntary action, avoid or seek to avoid the observance or performance of
any of the terms to be observed or performed hereunder by the Company, but will
at all times in good faith assist in the carrying out of all the provisions of
Section 9 hereof and in the taking of all such action as may be necessary or
appropriate in order to protect the conversion rights of the holders of the
Series B Preferred Stock against impairment.
9.9 No Fractional Shares Adjustments. No fractional shares shall be issued
upon conversion of the Series B Preferred Stock. If more than one share of the
Series B Preferred Stock is to be converted at one time by the same stockholder,
the number of full shares issuable upon such conversion shall be computed on the
basis of the aggregate amount of the shares to be converted. Instead of any
fractional shares of Class A Common Stock which would otherwise be issuable upon
conversion of any shares of Series B Preferred Stock, the Company will pay a
cash adjustment in respect of such fractional interest in an amount equal to the
same fraction of the Market Price per share of Class A Common Stock at the close
of business on the day of conversion which such fractional share of Series B
Preferred Stock would be convertible into on such date.
9.10 Shares to be Reserved. The Company shall at all times reserve and
keep available, out of its authorized and unissued stock, solely for the purpose
of effecting the conversion of the Series B Preferred Stock, such number of
shares of Class A Common Stock as shall from time to time be sufficient to
effect the conversion of all of the Series B Preferred Stock from time to time
outstanding. The Company shall from time to time, in accordance with the laws
of the State of Georgia, increase the authorized number of shares of Class A
Common Stock if at any time the number of shares of authorized but unissued
Class A Common Stock shall be insufficient to permit the conversion in full of
the Series B Preferred Stock.
9.11 Taxes and Charges. The Company will pay any and all issue or other
taxes that may be payable in respect of any issuance or delivery of shares of
Class A Common Stock on conversion of the Series B Preferred Stock. The Company
shall not, however, be required to pay any tax which may be payable in respect
of any transfer involved in the issuance or delivery of
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Class A Common Stock in a name other than that of the Series B Preferred Stock,
and no such issuance or delivery shall be made unless and until the Person
requesting such issuance has paid to the Company the amount of such tax or has
established, to the satisfaction of the Company, that such tax has been paid.
9.12 Accrued Dividends. Upon conversion of any shares of Series B
Preferred Stock, the holder thereof shall be entitled to receive any accrued but
unpaid dividends in respect of the shares of Series B Preferred Stock so
converted to the date of such conversion.
9.13 Closing of Books. The Company will at no time close its transfer
books against the transfer of any shares of Series B Preferred Stock or of any
shares of Class A Common Stock issued or issuable upon the conversion of any
shares of Series B Preferred Stock in any manner which interferes with the
timely conversion of such shares of Series B Preferred Stock.
10. CERTAIN DEFINITIONS.
"Additional Shares of Stock" means all shares of Common Stock issued by the
Company after the Option Issuance Date, other than (i) the Class A Common Stock
to be issued upon exercise of the Warrants, (ii) the Class A Common Stock to be
issued upon conversion of the Series AA Preferred Stock, (iii) the Class A
Common Stock to be issued upon exercise of the Bank Warrants, (iv) 125,000
shares of Class A Common Stock to be issued pursuant to the Company's Outside
Directors Incentive Plan or otherwise to directors, (v) 475,000 shares of Class
A Common Stock to be issued pursuant to the Company's Management Incentive Plan,
(vi) 300,000 shares of Class A Common Stock issued or to be issued pursuant to
the Company's Employee Stock Plan, (vii) the issuance of the Series AA Preferred
Stock, (ix) the issuance of Class A Common Stock upon conversion of the Series
AA Preferred Stock, (x) the issuance of the Series B Preferred Stock pursuant to
the Option, (xi) the issuance of Class A Common Stock upon conversion of the
Series B Preferred Stock, (xii) the issuance of the New Warrants, and (xiii) the
issuance of Class A Common Stock upon exercise of the New Warrants.
"Bank Warrants" mean the Company's warrants exercisable for 360,000 shares
of Common Stock issued to NationsBank, N.A. (South) and Creditanstalt
Bankverein.
"Business Day" means a day other than a Saturday, Sunday, or other day on
which banks and trust companies in Atlanta are not required to be opened.
"Capital Stock" means any and all shares, interests, participations, or
other equivalents (however designated) of corporate stock or other equity
securities.
"Class A Common Stock" means the Class A Common Stock, no par value, of the
Company, and any other stock into which such Class A Common Stock may hereafter
be changed, or for which such Class A Common Stock may be exchanged after giving
effect to the
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terms of such change or exchange (by way of reorganization, recapitalization,
merger, consolidation, or otherwise).
"Class B Common Stock" means the Class B Common Stock, no par value, of the
Company, and any other stock into which such Class B Common Stock may hereafter
be changed, or for which such Class B Common Stock may be exchanged, after
giving effect to the terms of such change or exchange (by way of reorganization,
recapitalization, merger, consolidation, or otherwise).
"Company" means Harry's Farmers Market, Inc.
"Common Stock" means the Class A Common Stock, Class B Common Stock, and
every other class of common stock now or hereafter authorized by the Company
from time to time, and any capital stock of the Company hereafter authorized
which is not preferred as to dividends or distributions upon liquidation,
dissolution or winding up of the Company over any other class of capital stock
of the Company or, for purposes of Section 8, has ordinary voting power for the
election of directors of the Company.
"Conversion Price" means the Conversion Price per share of Class A Common
Stock into which the Series B Preferred Stock is convertible, as such Conversion
Price may be adjusted pursuant to Section 5 hereof. The initial Conversion Price
will be $4.00.
"Convertible Securities" means evidences of indebtedness, shares of
preferred stock or other securities which are convertible into or exchangeable,
with or without payment of additional consideration in cash or property, for
Additional Shares of Stock, either immediately or upon the occurrence of a
specified date or a specified event, other than the Series B Preferred Stock or
the Series AA Preferred Stock.
"Dividend Payment Date" means each of March 31, June 30, September 30 and
December 31 of each year.
"Dividend Period" means the Initial Dividend Period and, thereafter each
Quarterly Dividend Period.
"Dividend Record Date" means, with respect to the dividend payable on each
Dividend Payment Date of each year, the immediately preceding March 15, June 15,
September 15 and December 15, or such other record date as may be designated by
the Board of Directors with respect to the dividend payable on such Dividend
Payment Date; provided, however, that such record date may not be more than
sixty (60) days or less than ten (10) days prior to such Dividend Payment Date.
"Holder" means a registered holder of shares of Series B Preferred Stock.
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"Initial Dividend Period" means the dividend period commencing on the
Redemption Default Date and ending on the first Dividend Payment Date to occur
thereafter.
"Issue Date" means as to any share of Series B Preferred Stock, the date of
the original issuance thereof by the Company.
"Liquidation Preference" means the Original Liquidation Preference, plus an
amount in cash equal to all accrued and unpaid dividends (including an amount
equal to a prorated dividend from the last Dividend Payment Date to the date
such Liquidation Preference is being determined). The Liquidation Preference of
a share of Series B Preferred Stock will increase on a daily basis as dividends
accrue on such share and will decrease only to the extent such dividends are
actually paid, all as provided in Section 4 hereof.
"Market Price" means, as to any security on the date of determination
thereof, the average of the closing prices of such security's sales on all
principal United States securities exchanges on which such security may at the
time be listed, or, if there shall have been no sale in any such exchange on any
day, the last trading price of such security on such day, or if such there is no
such price, the average of the bid and asked prices at the end of such day, on
the Nasdaq Stock Market, in each such case averaged for a period of twenty (20)
consecutive Business Days prior to the day as of which Market Price is being
determined; provided that if such security is listed on any United States
securities exchange the term "Business Days" as used in this sentence means
business days on which such exchange is open for trading. Notwithstanding the
foregoing, with respect to the issuance of any security by the Company in an
underwritten public offering, the Market Price shall be the per share purchase
price paid by the underwriters. If at any time such security is not listed on
any exchange or the Nasdaq Stock Market, the Market Price shall be deemed to be
the fair value thereof determined by an investment banking firm of nationally
recognized standing selected by the Board of Directors of the Company and
acceptable to holders of a majority of the Series A Preferred Stock, as of the
most recent practicable date as of which the determination is to be made, taking
into account the value of the Company as a going concern, and without taking
into account any lack of liquidity of such security or any discount for a
minority interest.
"Option Issuance Date" shall mean the date of the Option issued by the
Company and contemplated by the Transaction Agreement.
"Original Liquidation Preference" means $40.00 per share of Series B
Preferred Stock.
"Person" means an individual, partnership, corporation, trust or
unincorporated organization or a government or agency or political subdivision
thereof.
"Quarterly Dividend Period" means the quarterly period commencing on and
including the immediately preceding Dividend Payment Date and ending on but not
including the immediately subsequent Dividend Payment Date.
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"Redemption Default Date" means the date upon which a Redemption Default
occurs with respect to the Series A Preferred Stock.
"Series B Preferred Stock" means the Series B Preferred Stock, stated value
$40.00 per share, of the Company authorized by these resolutions and the
Articles of Amendment to the Articles of Incorporation filed pursuant hereto (as
such Articles of Amendment to the Articles of Incorporation may be amended from
time to time).
"Subsidiary" means with respect to any Person (the "parent"), any
corporation, association or other business entity of which securities or other
ownership interests representing more than fifty percent (50%) of the ordinary
voting power are, at the time as of which any determination is being made, owned
or controlled by the parent or one or more Subsidiaries of the parent or by the
parent and one or more Subsidiaries of the parent.
"Warrants" mean the warrants exercisable for 412,500 shares of Class A
Common Stock and its performance warrants exercisable for 61,111 shares of Class
A Common Stock issued December 30, 1994 to the holders of the Company's Series A
Redeemable Convertible Preferred Stock, $9.00 stated value.
Executed this 31st day of January 1997.
HARRY'S FARMERS MARKET, INC.
By: /s/ Harry A. Blazer
----------------------------------
Name: Harry A. Blazer
-----------------------------
Title: Chairman, President
and Chief Executive Officer
----------------------------
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Exhibit 7
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT ("Agreement") is made as of the 31st day
of January, 1997, by and between Harry's Farmers Market, Inc., a Georgia
corporation (the "Company"), and HFMI Acquisition Corporation, a Delaware
corporation (the "Purchaser").
WITNESSETH:
WHEREAS, the Company has agreed to provide the Purchaser with certain
registration rights as set forth herein.
NOW, THEREFORE, in consideration of the mutual covenants and undertakings
contained herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, and subject to and on the terms
and conditions herein set forth, the parties hereto agree as follows:
ARTICLE I
CERTAIN DEFINITIONS
1.1 "Business Day" means any day on which the principal trading market for
the Common Stock is open for trading.
1.2 "Closing Date" means January 31, 1997.
1.3 "Common Stock" means the Class A Common Stock, no par value, of the
Company.
1.4 "Eligible Piggyback Registration" means any occasion occurring after
the Closing Date that the Company proposes to register any shares of Common
Stock in any manner which would permit registration of Eligible Securities for
public sale under the Securities Act, other than any offering described in
Sections 2.1(a) through (e).
1.5. "Eligible Securities" means all or any portion of the shares of
Common Stock now owned or hereafter acquired by a Stockholder or which are
issuable upon the conversion, exercise or exchange of any security of the
Company now owned or hereafter acquired by a Stockholder or which a Stockholder
has a right to acquire, including preferred stock, notes or other evidences of
indebtedness convertible into, exercisable or exchangeable for Common Stock, and
Common Stock issuable upon exercise of any warrant, and all other securities
issued with respect thereto by reason of dividends, stock splits, combinations
or similar transactions. Securities shall cease to be Eligible Securities for
all purposes of this Agreement when (i) a registration statement with respect to
the sale of such securities shall have become effective
<PAGE>
under the Securities Act and such securities shall have been disposed of in
accordance with such registration statement, (ii) such securities are permitted
to be sold pursuant to Rule 144(k) (or any successor provision to such Rule)
under the Securities Act, (iii) such securities shall have been otherwise
transferred pursuant to an applicable exemption under the Securities Act, new
certificates for such securities not bearing a legend restricting further
transfer shall have been delivered by the Company and such securities shall be
freely transferable to the public without registration under the Securities Act,
or (iv) a written opinion of counsel of the Company addressed to the Stockholder
owning such securities to the effect that such securities may be sold without
registration under the Securities Act has been delivered to such Stockholder.
1.6 "Person" means an individual, a partnership (general or limited),
corporation, joint venture, business trust, cooperative, association or other
form of business organization, whether or not regarded as a legal entity under
applicable law, a trust (inter vivos or testamentary), an estate of a deceased,
insane or incompetent person, a quasi-governmental entity, a government or any
agency, authority, political subdivision or other instrumentality thereof, or
any other entity.
1.7 The terms "register," "registered" and "registration" refer to a
registration effected by preparing and filing with the SEC a registration
statement in compliance with the Securities Act and the declaration or ordering
of the effectiveness of such registration statement.
1.8 "Registration Expenses" means all expenses incident to the Company's
performance of or compliance with the registration requirements set forth in
this Agreement including, without limitation, the following: (i) the fees,
disbursements and expenses of the Company's counsel(s), accountants and experts
in connection with the registration of Eligible Securities to be disposed of
under the Securities Act; (ii) all expenses in connection with the preparation,
printing and filing of the registration statement, any preliminary prospectus or
final prospectus, any other offering document and amendments and supplements
thereto and the mailing and delivering of copies thereof to the underwriters and
dealers; (iii) the cost of printing or producing any agreement(s) among
underwriters, underwriting agreement(s) and blue sky or legal investment
memoranda, any selling agreements and any other documents in connection with the
offering, sale or delivery of Eligible Securities to be disposed of; (iv) SEC or
blue sky registration fees attributable to Eligible Securities; (v) all expenses
in connection with the qualification of Eligible Securities to be disposed of
for offering and sale under state securities laws, including the fees and
disbursements of counsel for the underwriters in connection with such
qualification and in connection with any blue sky and legal investment surveys;
(vi) the filing fees incident to securing any required review by the National
Association of Securities Dealers, Inc. of the terms of the sale of Eligible
Securities to be disposed of; and (vii) fees and expenses incurred in connection
with the listing of Eligible Securities on each securities exchange on which
securities of the same class are then listed; provided, however, that
Registration Expenses with respect to any Eligible Registration pursuant to this
Agreement shall not include underwriting discounts or commissions attributable
to Eligible Securities, transfer
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taxes applicable to Eligible Securities, or any fees and disbursements of any
legal counsel, accountant or other expert or professional advisor retained by a
Stockholder.
1.9 "Resale Registration" shall have the meaning set forth in Article 3
hereof.
1.10 "SEC" means the Securities and Exchange Commission.
1.11 "Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations of the SEC thereunder, all as the same shall be in effect
at the relevant time.
1.12 "Selling Stockholder" means any Stockholder requesting the
registration of Eligible Securities registered pursuant to Article 2 or Article
3 hereof.
1.13 "Stockholder" means the Purchaser and any person holding Eligible
Securities to whom the rights under this Agreement have been transferred in
accordance with Section 7.9 hereof.
ARTICLE 2
PIGGYBACK REGISTRATIONS
2.1 Notice and Registration. If the Company proposes to register any shares
of Common Stock for public sale under the Securities Act in an Eligible
Piggyback Registration, it will give prompt written notice to the Stockholders
of its intention to do so, and upon the written request of a Stockholder
delivered to the Company within ten (10) Business Days after the giving of any
such notice by the Company (which request shall specify the number of Eligible
Securities intended to be disposed of by the Selling Stockholder and the
intended method of disposition thereof) the Company will use all reasonable
efforts to effect, in connection with the registration of its Common Stock in
such Eligible Piggyback Registration, the registration under the Securities Act
of all Eligible Securities in which the Company has been so requested to
register by the Selling Stockholders, to the extent required to permit the
public sale (in accordance with the intended method or methods thereof as
aforesaid) of Eligible Securities so to be registered, provided that:
(a) if, at any time after giving such written notice of its intention
to register any Common Stock, the Company shall determine for any reason not to
register the Common Stock or to terminate or withdraw such registration, the
Company may, at its election, give written notice of such determination to the
Selling Stockholders and thereupon the Company shall be relieved of its
obligation to register (or continue the registration of) such Eligible
Securities in connection with the registration of such Common Stock (but not
from its obligation to pay Registration Expenses to the extent incurred in
connection therewith as provided in Section 2.3);
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(b) the Company will not be required to effect any registration
pursuant to this Article 2 if the Company shall have been advised in writing by
a nationally recognized independent investment banking firm selected by the
Company to act as lead underwriter in connection with the public offering of the
Common Stock by the Company that, in such firm's opinion, a registration of
shares of Common Stock of the Stockholders pursuant to this Article 2 at that
time may materially and adversely affect the Company's own scheduled offering;
(c) the Company shall not be required to effect any registration of
Eligible Securities under this Article 2 incidental to the registration of any
of its securities in connection with mergers, acquisitions, exchange offers,
subscription offers, dividend reinvestment plans or stock options or other
employee benefit plans;
(d) the Company shall not be required to effect any registration of
Eligible Securities under this Article 2 incidental to the filing of a
registration statement for an offering to be made on a delayed or continuous
basis pursuant to Rule 415 under the Securities Act or any similar rule that may
be adopted by the SEC; and
(e) in no event shall the Company be required to register Eligible
Securities if, in the reasonable judgment of the Company, the amount of Eligible
Securities for which registration has been requested does not justify the effort
and/or expense to the Company of effecting such registration.
2.2 Reduction of Offering. If the offering is an underwritten offering, the
right of holders of Eligible Securities to registration pursuant to this Article
2 shall be conditioned on such holders' participation in such underwritten
offering and the inclusion of such holders' Eligible Securities in such
underwritten offering to the extent provided below. In the case of any offering
made pursuant to an Eligible Piggyback Registration, if the Board of Directors
of the Company (if the offering is not underwritten) or the managing underwriter
(if the offering is underwritten) determines in good faith that inclusion of all
of the Eligible Securities requested to be registered in such offering would
jeopardize the success of such offering, the Board of Directors or the managing
underwriter, as the case may be, may limit the Eligible Securities to be
included in such registration. The Company shall so advise all Selling
Stockholders and the number of Eligible Securities that may be included in the
offering will be allocated among the Selling Stockholders and other stockholders
of the Company to whom the Company has heretofore granted piggy-back
registration rights, pro rata, and among the Selling Stockholders as
contemplated by Section 6.1 hereof or, absent such agreement, among all such
Selling Stockholders in proportion, as nearly as practicable, to the number of
Eligible Securities held by such Selling Stockholders. Any Eligible Securities
excluded or withdrawn from such offering shall be withdrawn from such
registration.
2.3 Registration Expenses. The Company (as between the Company and the
Selling Stockholders) shall be responsible for the payment of all Registration
Expenses in connection with any registration pursuant to this Article 2.
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ARTICLE 3
RESALE REGISTRATION
3.1 Notice and Registration. The Company hereby agrees to file under the
Securities Act, within the 18-month period immediately following the Closing
Date (such period, subject to extension as provided below, the "Resale
Registration Period"), a registration statement on Form S-1 or any similar long-
form registration statement or Form S-3 or any similar short-form registration
statement, at its election, to register, in a non-underwritten offering, all
Eligible Securities for which the Company has received notice of intent to
register by Selling Stockholders pursuant to this Article 3, whether in
connection with a primary registration of its Common Stock or otherwise ("Resale
Registration"). The Company shall have the right to select the timing of the
Resale Registration within the Resale Registration Period. The Resale
Registration Period shall be extended for a period of 12 additional months if
the Company shall have been advised in writing by a nationally recognized
independent investment banking firm that, in such firm's opinion, the filing of
a registration statement for the Resale Registration immediately prior to the
end of the original Resale Registration Period might materially and adversely
affect the Company (including the price of the Company's Common Stock). When the
Company proposes to file a registration statement for the Resale Registration,
it will give written notice to the Stockholders of its intention to do so. Each
Stockholder shall have ten (10) Business Days from the giving of such notice to
notify the Company in writing of such Stockholder's intention to have the
Company include in the Resale Registration such Stockholder's Eligible
Securities (which notice shall specify the number of Eligible Securities
(including shares of Common Stock issuable in the future upon the conversion,
exercise or exchange of preferred stock, notes or other evidences of
indebtedness, the timing of which conversion, exercise or exchange thereof shall
be determined in the sole discretion of the Stockholder requesting registration
hereunder) intended to be disposed of by the Selling Stockholder and the
intended method of disposition thereof). The Company shall thereafter promptly
prepare and file with the SEC the registration statement to effect the Resale
Registration and shall use its reasonable best efforts to cause such
registration statement to become effective.
3.2 Restrictions on Resale Registration. The Company shall not be obligated
to effect the Resale Registration (i) in the event that the aggregate offering
value of the Eligible Securities to be registered in the Resale Registration
does not equal or exceed $3,000,000 or (ii) within three months after the
effective date of a previous Eligible Piggyback Registration in which Eligible
Securities were registered and the Selling Stockholders selling thereon were
able to sell at least 80% of the Eligible Securities they had requested to sell
on such Eligible Piggyback Registration. In the event that the Company does not
effect a Resale Registration because (x) the value of the Eligible Securities to
be registered in the Resale Registration does not equal or exceed $3,000,000,
the Company's obligation to file a registration statement for a Resale
Registration shall be terminated, and (y) the circumstances set forth in
subsection (ii) above apply, the Company's obligation to effect such Resale
Registration shall continue and the Company shall effect such Resale
Registration pursuant to the terms of this Article 3 upon the
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expiration of the three-month period referred to in subsection (ii) hereof,
notwithstanding the expiration of the Resale Registration Period. In addition,
the Company may postpone for up to three months the filing or effectiveness of a
registration statement for a Resale Registration if the Company believes that
such Resale Registration would reasonably be expected to have an adverse effect
on any proposal or plan by the Company or any of its subsidiaries to engage in
any acquisition of assets (other than in the ordinary course of business) or any
merger, consolidation, tender offer or similar transaction; provided, however,
that immediately following such postponement, the Company shall file or request
effectiveness of the Resale Registration notwithstanding the expiration of the
Resale Registration Period.
3.3 Registration Expenses. The Company (as between the Company and the
Selling Stockholders) shall be responsible for the payment of all Registration
Expenses in connection with any registration pursuant to this Article 3.
3.4 Holdback Agreements. If the Company shall have filed a registration
statement for the Resale Registration and such registration statement shall have
become effective, each of the Selling Stockholders agrees not to effect the sale
of more than 25% of the Eligible Securities beneficially owned by such Selling
Stockholder as of the effective date of such registration statement during any
period of six consecutive months following such effective date. This holdback
agreement will terminate on the second anniversary of the effective date of the
registration statement for the Resale Registration.
3.5 Black-Out Period. The Company may, by notice given to all Selling
Stockholders under the Resale Registration, require such Selling Stockholders
not to make any sale of Eligible Securities pursuant to the registration
statement for the Resale Registration if (i) in the opinion of counsel for the
Company, (x) securities laws applicable to such sale would require the Company
to disclose material non-public information ("Non-Public Information") and (y)
the disclosure of such Non-Public Information would adversely affect the Company
or (ii) such sale would occur during the measurement period (a "Measurement
Period") for determining the amount of Common Stock, or the amount of any other
consideration the amount of which will be based on the price of the Common
Stock, in connection with the acquisition of a business or assets by the
Company. In the event the sales under the Resale Registration are deferred
because of the existence of Non-Public Information, the Company will notify the
Selling Stockholders promptly upon such Non-Public Information being included by
the Company in a filing with the SEC, being otherwise disclosed to the public
(other than through the actions of a Selling Stockholder) or ceasing to be
material to the Company, and upon such notice being given by the Company, the
Selling Stockholders shall again be entitled to sell Eligible Securities
pursuant to the Resale Registration. In the event such sales are deferred
because it is proposed to be made during a Measurement Period, the Company shall
specify, in notifying the Selling Stockholders of the deferral of its sale, when
the Measurement Period will end, at which time the Selling Stockholders shall
again be entitled to sell Eligible Securities pursuant to the Resale
Registration. If the Measurement Period is thereafter changed, the Company will
promptly notify the Selling Stockholders of such change and upon the end of the
Measurement Period as so changed, the
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Selling Stockholders will again be entitled to sell Eligible Securities pursuant
to the Resale Registration. If the acquisition agreement to which such
Measurement Period relates is terminated prior to the end of the Measurement
Period, the deferral period hereunder shall end immediately and the Company will
notify the Selling Stockholders of the end of the deferral period. The Company
may defer proposed sales of Eligible Securities pursuant to this Section 3.5 for
not more than a total of 60 days in any 365-day period.
ARTICLE 4
REGISTRATION PROCEDURES
4.1 Registration and Qualification.
(a) If and whenever the Company is required to use reasonable efforts
to effect the registration of any Eligible Securities under the Securities Act
as provided in Article 2 or Article 3 hereof, the Company will as promptly as is
practicable register the Eligible Securities under the Securities Act and use
reasonable commercial efforts to cause the registration statement to become
effective;
(b) The Company shall prepare and file with the SEC such amendments
and supplements to any registration statement registering Eligible Securities
and the prospectus used in connection therewith as may be necessary to keep such
registration statement effective, and comply with the provisions of the
Securities Act with respect to the disposition of all Eligible Securities, until
the earlier of such time as all of such Eligible Securities have been disposed
of in accordance with the intended methods of disposition by the Selling
Stockholders as set forth in the registration statement or (i) with respect to
an Eligible Piggyback Registration, the expiration of thirty (30) days after
such registration statement has become effective (or, if such registration
statement relates to an underwritten offering, such longer period as in the
opinion of counsel for the underwriters a prospectus is required by law to be
delivered in connection with sales of Eligible Securities by an underwriter or
dealer), or (ii) with respect to the Resale Registration, the expiration of
three years after the date such registration statement has become effective;
provided, however, that in the event that the Company shall notify the Selling
Stockholders of the happening of any event which would cause the prospectus
included as part of such registration statement, as then in effect, to include
an untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading, such
Selling Stockholders shall thereafter sell no shares under such registration
statement until the Company has filed an amendment or supplement to the
prospectus to cause the prospectus not to include an untrue statement of a
material fact or omit to state any material facts required to be stated therein
or necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading, and, subject to Section 3.5 hereof, the
Company shall be obligated to promptly amend or supplement the prospectus so
that the prospectus does not include an untrue statement of a material fact or
omit to state any material fact required to be stated therein or
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necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading;
(c) The Company will use its reasonable best efforts to register or
qualify such Eligible Securities under the blue sky laws of such jurisdictions
as any Selling Stockholder reasonably requests and to do any and all other acts
which may be reasonably necessary to enable such Selling Stockholder to
consummate the disposition in such jurisdictions of the Eligible Securities
owned by such Selling Stockholder (provided that the Company will not be
required to (i) qualify generally to do business in any jurisdiction where it
would not otherwise be required to qualify but for this subparagraph, (ii)
subject itself to taxation in any such jurisdiction, or (iii) consent to general
service of process in any such jurisdiction);
(d) The Company may require the Selling Stockholders to furnish to the
Company such information regarding the Selling Stockholders and the distribution
of the Eligible Securities as the Company may from time to time reasonably
request in writing and as shall be required by law or by the SEC in connection
with any registration;
(e) The Company shall provide to each Selling Stockholder a reasonable
opportunity to review the registration statement prior to the filing of the
registration statement with the SEC;
(f) The Company shall provide to each Selling Stockholder such number
of copies of such registration statement, each amendment and supplement thereto,
the prospectus included in such registration statement (including each
preliminary prospectus) and such other documents as such Selling Stockholder may
reasonably request in order to facilitate the disposition of the Eligible
Securities registered pursuant to such registration statement; and
(g) The Company will provide a transfer agent and registrar for all
Eligible Securities not later than the effective date of the registration
statement, and use its reasonable best efforts to cause the Eligible Securities
to be listed on each securities exchange or national market system on which the
Common Stock is then listed.
4.2 Underwriting. In the event that any registration pursuant to Article 2
or Article 3 hereof shall involve, in whole or in part, an underwritten
offering, the Company may require Eligible Securities requested to be registered
pursuant to Article 2 or Article 3 to be included in such underwriting on the
same terms and conditions as shall be applicable to the Common Stock being sold
through underwriters under such registration. In such case, the holders of
Eligible Securities on whose behalf Eligible Securities are to be distributed by
such underwriters shall be parties to any such underwriting agreement. Such
agreement shall contain such representations and warranties by the Selling
Stockholders and such other terms and provisions as are customarily contained in
underwriting agreements with respect to secondary distributions, including,
without limitation, indemnities and contribution to the effect and to the extent
provided in Article 5. The representations and warranties in such underwriting
agreement by,
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and the other agreements on the part of, the Company to and for the benefit of
such underwriters shall also be made to and for the benefit of such Selling
Stockholders.
ARTICLE 5
INDEMNIFICATION
5.1 Indemnification.
(a) In the event of any registration of any Eligible Securities
hereunder, the Company will enter into the customary indemnification
arrangements to indemnify and hold harmless each Stockholder who exercises his
or its registration rights hereunder and, to the extent applicable, its
directors and officers, its partners, its trustees and each Person who controls
any of such Persons, each Person who participates as an underwriter in the
offering or sale of any Eligible Securities, and each Person, if any, who
controls such underwriter within the meaning of the Securities Act against any
losses, claims, damages, liabilities and expenses, joint or several, to which
such Person may be subject under the Securities Act or otherwise insofar as such
losses, claims, damages, liabilities or expenses (or actions or proceedings in
respect thereof) arise out of or are based upon (i) any untrue statement or
alleged untrue statement of any material fact contained in any registration
statement under which such securities were registered under the Securities Act,
any final prospectus included therein, or any amendment or supplement thereto,
or any document incorporated by reference therein, or (ii) any omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, and the Company will
promptly reimburse each such Person for any legal or any other expenses
reasonably incurred by such Person in connection with investigating or defending
any such loss, claim, damage, liability, action or proceeding; provided that the
Company shall not be liable in any such case to the extent that any such loss,
claim, damage, liability (or action or proceeding in respect thereof) or expense
arises out of or is based upon an untrue statement or alleged untrue statement
or omission or alleged omission made in such registration statement, any final
prospectus, amendment or supplement in reliance upon and in conformity with
written information furnished to the Company or such underwriter by such Selling
Stockholders expressly for use in the registration statement. Such indemnity
shall remain in full force and effect regardless of any investigation made by or
on behalf of a Selling Stockholder or any such Person and shall survive the
transfer of such securities by the Selling Stockholders.
(b) The Selling Stockholders, by virtue of exercising their
registration rights hereunder, agree and undertake to enter into customary
indemnification arrangements to severally and not jointly indemnify and hold
harmless (in the same manner and to the same extent as set forth in clause (a)
of this Article 5) the Company, each director of the Company, each officer of
the Company who shall sign such registration statement, and each Person who
participates as an underwriter in the offering or sale of such securities, each
Person, if any, who controls the Company or any such underwriter within the
meaning of the Securities Act, with respect to any statement in or omission from
such registration statement, any final prospectus
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included therein, or any amendment or supplement thereto, but only to the extent
that such statement or omission was made in reliance upon and in conformity with
written information furnished by such Selling Stockholders to the Company
expressly for use in the registration statement. Such indemnity shall remain in
full force and effect regardless of any investigation made by or on behalf of
the Company or any such director, officer or controlling Person and shall
survive the transfer of the registered securities by the Selling Stockholders
and the expiration of this Agreement.
(c) Indemnification similar to that specified in the preceding
subdivisions of this Article 5 (with appropriate modifications) shall be given
by the Company and the Selling Stockholders with respect to any required
registration or other qualification of such Eligible Securities under any
federal or state law or regulation of governmental authority other than the
Securities Act.
ARTICLE 6
BENEFITS
6.1 Benefits of Registration Rights. Subject to the limitations of Section
2.1 hereof, Stockholders may severally or jointly exercise the registration
rights hereunder in such manner and in such proportion as they shall agree among
themselves.
6.2 Qualification for Rule 144 Sales. Upon the written request of any
Stockholder, the Company will deliver to such Stockholder a written statement as
to whether it has complied with the filing requirements described in Rule
144(c)(1).
ARTICLE 7
MISCELLANEOUS
7.1 Captions. The captions or headings in this Agreement are for
convenience and reference only, and in no way define, describe, extend or limit
the scope or intent of this Agreement.
7.2 Severability. If any clause, provision or section of this Agreement
shall be invalid or unenforceable, the invalidity or unenforceability of such
clause, provision or section shall not affect the enforceability or validity of
any of the remaining clauses, provisions or sections hereof to the extent
permitted by applicable law.
7.3 Governing Law. This Agreement shall be construed and enforced in
accordance with the internal laws of the State of Georgia, without reference to
its rules as to conflicts or choice of laws.
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7.4 Modification and Amendment. This Agreement may not be changed,
modified, discharged or amended, except by an instrument signed by the
Stockholders owning at least 75% of the Eligible Securities.
7.5 No Superior Registration Rights Agreement. The Company will not
hereafter enter into any registration rights agreement granting registration
rights that are superior to the registration rights granted hereby. The Company
may grant registration rights that are pari passu with the registration rights
granted hereby.
7.6 Counterparts. This Agreement may be executed in counterparts, each of
which shall be an original, but all of which together shall constitute one and
the same instrument.
7.7 Entire Agreement. This Agreement constitutes the entire agreement and
understanding among the parties and supersedes any prior understandings and/or
written or oral agreements among them respecting the subject matter herein.
7.8 Notices. All notices, requests, demands, consents and other
communications required or permitted to be given pursuant to this Agreement
shall be in writing and delivered by hand, by overnight courier delivery service
or by certified mail, return receipt requested, postage prepaid. Notices shall
be deemed given when actually received, which shall be deemed to be not later
than the next Business Day if sent by overnight courier or after five (5)
Business Days if sent by mail. Notice to Stockholders shall be made to the
address listed on the stock transfer records of the Company.
7.9 Transfer of Registration Rights. The rights to cause the Company to
register Eligible Securities granted to Purchaser hereunder may be assigned to
one or more transferees or assignees in connection with any transfer or
assignment in a private transaction of Eligible Securities, or securities
convertible into or exercisable or exchangeable for Eligible Securities, in
accordance with the terms of such securities. Any transfer of registration
rights pursuant to this Section shall be effective upon receipt by the Company
of written notice from Purchaser or such other Stockholder transferring Eligible
Securities (i) stating the name and address of the transferee, (ii) the number
of Eligible Securities transferred and (iii) the date of transfer, which notice
shall be accompanied by an agreement of the transferee stating that all of the
terms and provisions of this Agreement will be binding upon and enforceable
against such transferee.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement or
caused this Agreement to be executed as of the day and year first above written.
HARRY'S FARMERS MARKET, INC.
By: /s/ Harry A. Blazer
------------------------------------
Title: Chairman, President and
Chief Executive Officer
---------------------------------
HFMI ACQUISITION CORPORATION
By: /s/ Saad J. Nadhir
------------------------------------
Title: Chairman, President and
Chief Executive Officer
---------------------------------
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Exhibit 8
CONSULTING SERVICES AGREEMENT
-----------------------------
This Consulting Services Agreement (this "Agreement") is made as of January
31, 1997, between HFMI Acquisition Corporation, a Delaware corporation
("Newco"), Harry's Farmers Market, Inc., a Georgia corporation ("Consultant"),
and Harry A. Blazer, an individual ("HB").
Recitals
--------
WHEREAS, Newco and Consultant have entered into that Acquisition Agreement
of even date herewith (the "Acquisition Agreement"), pursuant to which Newco
will acquire at the closing thereof from Consultant the Worldwide Class
Interests in HFMI Trust, a Delaware business trust (the "Trust"), which will own
certain intellectual property rights previously owned by Consultant.
WHEREAS, the Consultant and HB have agreed to enter into this Agreement
and to provide to Newco certain consulting services and access to personnel,
information, and facilities of the Consultant, and Newco has agreed to consult
with Consultant regarding Consultant's business and to provide access to
information, pursuant to and in accordance with the terms of this Agreement in
order to improve the business of Consultant through the development of an
acceptable business model.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained in this Agreement and in the Acquisition Agreement, Newco, Consultant,
and HB agree as follows:
1. Status of the Parties. Consultant and HB acknowledge that each of them
is an independent contractor and is not an agent or employee of Newco, and Newco
acknowledges that it is an independent contractor and not an agent of Consultant
or HB. Neither Consultant nor HB is authorized to act on behalf of Newco, and
Newco is not authorized to act on behalf of Consultant. Neither Consultant nor
HB may enter into any contracts or make any promises or commitments of any kind
whatsoever on behalf of Newco without the express written authorization from an
officer of Newco to do so, and Newco may not enter into any contracts or make
any promises or commitments of any kind whatsoever on behalf of Consultant or HB
without the express written authorization from an officer of Consultant or HB,
as the case may be, to do so.
2. Term. Subject to earlier termination as provided herein, the term of
this Agreement shall commence on the date hereof, and continue until the fifth
anniversary of the date of the Closing of those transactions (the "Closing
Date") set forth in that Transaction Agreement of even date herewith between
Consultant and Newco (the "Transaction Agreement").
3. Consulting Services. Consultant and HB understand and acknowledge that
a primary purpose of this Agreement is to provide to Newco complete access to
all of Consultant's current and after acquired (i) information, (ii) know-how,
(iii) facilities (including, but not limited to, its
<PAGE>
administrative and corporate facilities, retail stores, baking facilities,
production facilities, processing plants, and storage and warehouse facilities
(collectively, the "Facilities")), (iv) personnel, (v) consultants, (vi) vendors
and suppliers and (vii) customers, so that Newco can, through experimentation,
as quickly as possible, improve the business of Consultant through the
development of a business model based on the current businesses of Consultant
and any businesses that Newco may determine are related to the current
businesses of Consultant (collectively, the "Business"), such that the Business
is capable of rapid expansion and replication by Consultant in a manner
acceptable to Consultant in Georgia and Alabama, and by Newco in a manner
acceptable to Newco in all areas outside Georgia and Alabama. Consultant and HB
agree, for the duration of the term of this Agreement, to take all reasonable
actions requested by Newco to fulfill the foregoing primary purpose of this
Agreement, including, but not limited to the following:
(a) Making reasonable changes in the Facilities;
(b) Making reasonable changes in the products, personnel, marketing and
general operations of the Facilities and the Business;
(c) Conducting consumer research with regard to the Business;
(d) Creating new human resource and training structures and models at each
of the Facilities and in each Business;
(e) Creating new organizational structures and models at each of the
Facilities and in each Business;
(f) Creating new accounting and financial structures and models at each of
the Facilities and Business;
(g) Creating new systems at each of the Facilities and within each Business
to create infrastructure to support the Facilities and Business;
(h) Open new Harry's In A Hurry(R) stores (which stores will be owned by
Consultant) in the Atlanta metropolitan area;
(i) Incorporating any reasonable suggestions of Newco in the new stores
opened and operated pursuant to clause (h) above;
(j) Conducting media (print, electronic and otherwise) tests throughout
Georgia and Alabama;
(k) Training all the personnel of Newco;
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(l) Provide consulting advice to Newco on the conceptual design of the
Facilities and opening and operating the Business outside of Georgia and
Alabama;
(m) Documenting and maintaining all of its existing and after-acquired
information and know-how; and
(n) Conducting tests relating to the distribution of the products of the
Business in different channels of distribution, which would include other retail
stores.
4. HB Services. Consultant will make HB available to Newco not less than
40 hours per calendar month through the third anniversary hereof and not less
than 10 hours per calendar month throughout the remainder of the term of this
Agreement to assist Consultant in meeting its obligations to Newco under this
Agreement; provided, however, that in the event Newco assigns this Agreement to
a competitor, HB shall have no obligation to consult with the competitor, unless
Saad Nadhir is personally involved in the management of the competitor or is a
significant shareholder therein.
5. Expenses.
(a) Other than as provided in subparagraph (b) below, the expenditures
to be made by Consultant pursuant to paragraph 3 of this Agreement shall be
funded by a draw down by Consultant on the Development Loan (as defined in the
Transaction Agreement); provided, however, that no such draw down shall occur
unless a budget for such expenditure is proposed by Newco and approved by
Consultant; provided further, that Consultant's approval of such expenditures
shall not be unreasonably withheld, conditioned or delayed. Consultant
acknowledges that such expenditures may result in significant losses occurring
to the Consultant because of the experimental nature of such expenditures.
(b) Newco shall be responsible for all reasonable out-of-pocket
expenses directly associated with the services Consultant renders pursuant to
clause (c) of Section 3 (to the extent it relates to services rendered outside
of Alabama and Georgia) and clauses (k) and (1) of Section 3.
6. Newco Consulting Services. Newco will make available, during the term
of the Agreement, its general business know-how and the information and know-how
it acquires pursuant to Section 3 of this Agreement. Such information and know-
how will include any successfully created business model regarding the
Facilities and the Business. Newco will consult with Consultant and HB not less
than 40 hours (in the aggregate) per calendar month through the third
anniversary hereof and not less than 10 hours per calendar month throughout the
remainder of the term of this Agreement in order to discharge its obligations
under this Section 6. Newco will bear its own costs in rendering such
consulting services to Consultant and HB.
7. Price and Payment. Newco shall pay Consultant a consulting services
fee of $500,000 which shall be payable on the Closing Date.
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8. Confidentiality.
(a) As used in this Agreement, the term "Confidential Information"
shall mean trade secrets and know-how and all other confidential or proprietary
information of a party hereto, including, without limitation, any trade secret
which has been (or hereinafter is required by applicable documents to be)
transferred by Consultant to the Trust ("Trust Property").
(b) Each party (the "Receiving Party") shall receive Confidential
Information exclusively owned by any other party hereto (the "Other Party")
shall hold all such Confidential Information in confidence, shall use such
Confidential Information in accordance with the purposes of this Agreement shall
disclose such Confidential Information only to employees and agents who have a
need to know such Confidential Information, whose maintenance of the
confidentiality of such Confidential Information shall be the responsibility of
the Receiving Party. The obligations hereunder to maintain the confidentiality
of Confidential Information shall not expire.
(c) The obligations specified in Section 9.b. shall not apply to any
Confidential Information that (i) is disclosed in a printed publication
available to the public, or is otherwise in the public domain through no act of
the Receiving Party or its employees, agents or other person or entity which has
received such Confidential Information from or through the Receiving Party, (ii)
is approved for release by written authorization of an officer of the Other
Party, or (iii) is required to be disclosed by proper order of a court of
applicable jurisdiction after adequate notice to the Other Party, sufficient to
permit it to seek a protective order therefor, the imposition of which
protective order the Receiving Party agrees to approve and support.
(d) Each Receiving Party (and each employee, agent, or other person or
entity which has received such Confidential Information from or through the
Receiving Party) shall, upon the request of the Other Party, return all
documents and other tangible manifestations of Confidential Information
exclusively owned by the Other Party including all copies and reproductions
thereof.
9. Restrictive Covenant. Commencing on the date hereof and continuing
until the sixth anniversary of the date hereof, Consultant and HB agree not to
own, manage, operate, control, be employed by, provide consulting services to,
participate in, or be connected in any manner with the ownership, management,
operation, or control of any entity that (a) owns or operates within the United
States megastores, supermarkets, or other retail or convenience stores
specializing in (x) perishable food products, including, by way of example and
not by limitation, fresh fruits and vegetables or fresh meats, poultry and
seafood; fresh bakery goods; freshly made ready-to-eat, ready-to-heat and ready-
to-cook prepared foods; and deli, cheese and dairy products; and/or (y)
specialty, hard-to-find, and gourmet nonperishable food products, kitchen-
oriented housewares, floral items, grocery items, natural health and beauty
aids, wines, and imported and domestic beers; or (b) owns or operates outside
the States of Georgia or Alabama a business which is in a line of business the
same or similar to any line of business that is then owned, managed, operated,
controlled or otherwise engaged in by Newco and with respect to which Consultant
is or has services hereunder; provided, however the foregoing shall not (A)
prevent Consultant from operating its
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current businesses within the States of Georgia or Alabama, (B) prevent HB from
owning, controlling and being employed by Consultant, (C) prevent Consultant or
HB from providing the services to Newco as contemplated by this Agreement, (D)
prevent Consultant or HB from participating as an investor, officer, or director
in any business venture not covered by the foregoing applicable restrictions, or
(E) prevent Consultant or HB from investing so as to hold less than 2% of the
outstanding shares of any company which is a "reporting company" under the
Securities Exchange Act of 1934, as amended. It is the intention of the parties
that this Section 6 be interpreted so as to be valued under applicable law and,
if required for validity, any court or applicable tribunal may reduce or alter
the geographic scope and duration of this Section 6, by substitution of words or
otherwise, so as to create the broadest permissible protection to Newco.
10. Limitation of Liability. The Consultant and HB acknowledge that in
connection with the provision of services hereunder, Newco will have the access
and the rights, that Newco's activities in exercising such access and other
rights pursuant to this Agreement ("Newco Activities") may result in the
modification, closing, retrofitting and other uses of the Facilities, and
changes in the Consultant's Business, and that Newco's activities may have an
adverse effect on the financial condition and results of operations of the
Consultant. Consultant and HB also acknowledge that Newco has not made any
representation or warranty regarding the outcome of the parties' efforts to
improve Consultant's business through the development of an acceptable business
model. None of Newco, its affiliates or any officer, director, employee, agent
or shareholder of Newco or any of its affiliates shall be liable for any
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
claims, costs or expenses ("Losses") of the Consultant, its shareholders,
officers, directors, employees, suppliers, or vendors, or any other person or
entity, in any matter relating to or arising or resulting, directly or
indirectly, out of this Agreement, Newco Activities or the services rendered by
Newco to the Consultant under this Agreement, except to the extent arising from
Newco's willful misconduct. The Consultant, its officers, directors, employees,
agents and HB shall not be liable for any Losses of Newco, its shareholders,
officers, directors, employees, suppliers or vendors, or any other person or
entity, in any matter relating to or arising or resulting, directly or
indirectly, out of the services rendered by the Consultant and HB under this
Agreement, except to the extent arising from the Consultant's or HB's willful
misconduct.
11. General Indemnity. Each party (an "Indemnitor") agrees to indemnify,
pay, and hold the other parties hereto, and the officers, directors, employees,
agents, and affiliates of such other parties (collectively, the "Indemnities"),
harmless from and against any and all Losses (including, without limitation, the
reasonable fees and disbursements of counsel for any of such Indemnitees) that
may be imposed on, incurred by, or asserted against any Indemnitee, in any
manner relating to or arising or resulting, directly or indirectly, out of the
services provided by the Indemnitee to the Indemnitor pursuant to this
Agreement; provided that the Indemnitor shall have no obligation to an
Indemnitee hereunder with respect to Losses arising from the willful misconduct
of such Indemnitee. In addition, the Consultant agrees to indemnify, pay and
hold Newco, and its officers, directors, employees, agents and affiliates,
harmless from and against any and all Losses (including, without limitation, the
reasonable fees and disbursements of counsel for any of such Indemnitees) in any
manner relative to or arising or resulting, directly or indirectly out of Newco
Activities connected
5
<PAGE>
with the business of the Consultant (including the use or operation of the
Facilities by the Consultant or Newco pursuant hereto, any modification,
closing, retrofitting or use of the Facilities resulting from Newco Activities,
or any change in the Consultant's business resulting from Newco Activities
hereunder), provided that the Consultant shall have no obligation to Newco
hereunder with respect to Losses arising from the willful misconduct of Newco.
To the extent that the undertaking to indemnify, pay, and hold harmless set
forth in this section may be unenforceable because it violates any law or public
policy, Indemnitor 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
Section 9 and 10 and this Section 11 shall survive termination of this
Agreement.
12. No Waiver. No delays or omissions by any party in exercising any
right under this Agreement will operate as a waiver of that or any other right.
A waiver or consent given by any party on any one occasion is effective only in
that instance and will not be construed as a bar to or waiver of any right on
any other occasion.
13. Governing Law; Arbitration. This Agreement shall be governed by and
construed in accordance with the laws of the State of Georgia applicable to
contracts made and to be performed therein. Any dispute, controversy or claim
arising out of or relating to this Agreement shall be settled by arbitration in
accordance with the then-prevailing Commercial Arbitration Rules of the American
Arbitration Association. Such arbitration shall be held before a panel of three
(3) arbitrators, one selected by Newco, one selected by Consultant and the third
selected by mutual agreement of the first two arbitrators. Each award rendered
by the arbitrators may be entered into by any court of competent jurisdiction.
The determination of the location of the arbitration and which party (or
combination of them) bears the cost and expenses, including reasonable
attorneys' fees, incurred in connection with any such arbitration proceeding
shall be made by the arbitrators. Notwithstanding the foregoing, the parties
hereto recognize that money damages alone would not adequately compensate the
parties hereto in the event of any breach of this Agreement, and they therefore
agree that, in addition to the right of any party to arbitrate claims for money
damages provided in Section 13 hereof , a party shall be entitled to seek
injunctive relief for the enforcement hereof in any court of competent
jurisdiction. However, in no event will any party hereto seek or be liable for
indirect, incidental, consequential, special, speculative, exemplary, or
punitive damages (including, but not limited to, loss of revenue or profit). The
parties also agree that each party hereto shall be entitled to receive written
notice and a reasonable opportunity to cure in the event any other party hereto
alleges that such party has breached this Agreement.
14. Severability. If the scope of any provision contained herein is too
broad to permit enforcement of such provision to its full extent, then such
provision shall be enforced to the maximum extent permitted by law and
Consultant and HB hereby consent and agree that such scope may be modified in
any arbitration or judicial proceeding brought with respect to the enforcement
of such provision. Except as otherwise provided in the previous sentence, if
any provision of this Agreement shall be construed to be illegal or invalid, the
legality or validity of any other provision
6
<PAGE>
hereof shall not be affected thereby, and any illegal or invalid provision of
this Agreement shall be severable, and all other provisions shall remain in full
force and effect.
15. Amendment. This Agreement, and each section hereof, may be amended
only in writing, signed by the party against whom enforcement of any such
amended provision is sought.
16. Headings. Any headings of sections of this Agreement are solely for
the convenience of the parties and are not a part of this Agreement nor are they
to be used in its interpretation.
17. Counterparts. This Agreement may be executed in several counterparts;
each such counterpart shall be considered as an original agreement and all such
executed counterparts shall constitute one Agreement.
18. Notices. Any notice, request, instruction, or other document required
to be given under this Agreement shall be in writing and delivered in person or
by courier, or by facsimile transmission or mailed by certified mail, postage
prepaid, return receipt requested (such mailed notice to be effective on the
date such receipt is acknowledged) as follows:
To Consultant or HB:
1180 Upper Hembree
Roswell, Georgia
Facsimile: 770-664-4920
Attention: Harry A. Blazer
with a copy to:
Alston & Bird
One Atlantic Center
1201 West Peachtree Street
Atlanta, Georgia 30309-3424
Facsimile: 404-881-7777
Attention: John L. Latham
To Newco:
14103 Denver West Parkway
Golden, Colorado 80401
Attention: Saad J. Nadhir
7
<PAGE>
19. Benefit. This Agreement shall inure to the benefit of and be binding
upon Newco, HB and the Consultant and their respective successors and assigns.
20. Entire Agreement. This Agreement contain the entire agreement between
the parties concerning Consultant's and HB's engagement with Newco, and may not
be modified or rescinded except by written agreement to such effect signed by
both parties.
21. Further Assurances. Newco, Consultant and HB hereby agree to execute
and deliver such other documents and instruments and to take such other actions
as are necessary or desirable in the reasonable opinion of Newco or Consultant
to carry out the transactions contemplated by this Agreement, the Acquisition
Agreement and the Transaction Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement the day and
year first above written.
HARRY'S FARMERS MARKET, INC.
By: /s/ Harry A. Blazer
---------------------------------------
_______________________________________
Harry A. Blazer
HFMI ACQUISITION CORPORATION
By: /s/ Saad J. Nadhir
---------------------------------------
8
<PAGE>
Exhibit 9
============================
ACQUISITION AGREEMENT
between
HARRY'S FARMERS MARKET, INC.
AND
HFMI ACQUISITION CORPORATION
Dated January 31, 1997
============================
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I
CERTAIN DEFINITIONS................................................. 2
Section 1.1. Definitions....................................... 2
ARTICLE II
SALE OF WORLDWIDE ASSETS............................................. 7
Section 2.1. Sale of Worldwide Assets to Newco.................. 7
Section 2.2. Consideration...................................... 7
Section 2.3. Trust A............................................ 10
Section 2.4. Transfer Treatment................................. 10
ARTICLE III
CLOSINGS AND DELIVERIES.............................................. 10
Section 3.1. Closing............................................ 10
Section 3.2. Actions by HFMI at the Closing..................... 10
Section 3.3. Actions by Newco at the Closing.................... 12
ARTICLE IV
RELATED MATTERS...................................................... 13
Section 4.1. Related Agreements................................. 13
Section 4.2. Actions by HFMI prior to Closing................... 13
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF HMFI............................... 14
Section 5A.1. Corporate Organization............ 14
Section 5A.2. Authority; Authorization and
Validity of Agreement............ 14
Section 5A.3. No Conflict or Violation.......... 15
Section 5A.4. Consents and Approvals............ 16
Section 5A.5. No Material Adverse Change........ 16
Section 5A.6. Intellectual Property............. 16
Section 5A.7. Compliance with Law............... 18
Section 5A.8. Litigation........................ 18
Section 5A.9. Investment Purpose; Legend........ 19
Section 5A.10. Disclosure........................ 19
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
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<S> <C>
Section 5A.11. Brokers........................... 19
Section 5A.12. Prevention or Delay of the
Contemplated Transactions........ 20
Section 5B.1. Authorization..................... 20
Section 5B.2. No Violation...................... 20
Section 5B.3. Litigation........................ 21
Section 5B.4. Consents.......................... 21
Section 5B.5. Title............................. 21
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF NEWCO.............................. 22
Section 6.1. Corporate Organization............................. 22
Section 6.2. Authority; Authorization and Validity of
Agreements........................................ 22
Section 6.3. No Conflict or Violation........................... 23
Section 6.4. Consent and Approvals.............................. 23
Section 6.5. Capital Stock and Related Matters.................. 24
Section 6.6. Authorization and Validity of the Shares of
Newco Common Stock................................ 24
Section 6.7. Operations of Newco................................ 25
Section 6.8. Disclosure......................................... 25
Section 6.9. Brokers............................................ 25
Section 6.10. Prevention or Delay of the Contemplated
Transactions...................................... 25
ARTICLE VII
OTHER AGREEMENTS AND COVENANTS OF THE PARTIES........................ 25
Section 7.1. Certain Actions.................................... 25
Section 7.2. Reasonable Best Efforts............................ 26
Section 7.3. Further Assurances................................. 27
Section 7.4. Public Announcements............................... 27
Section 7.5. Notification of Certain Matters.................... 27
Section 7.6. Obligations of Newco............................... 28
Section 7.7. HFMI Board Observer................................ 28
Section 7.8. Acquisition Agreement.............................. 30
Section 7.9. Utilization of Intellectual Property............... 30
Section 7.10. HFMI Refinancing................................... 30
ARTICLE VIII
CONDITIONS TO THE OBLIGATIONS OF NEWCO AND HFMI...................... 31
Section 8.1. Mutual Conditions.................................. 31
Section 8.2. Conditions to the Obligations of Newco............. 32
Section 8.3. Conditions to the Obligations of HFMI.............. 33
Section 8.4. Certificate of Newco............................... 34
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
PAGE
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<S> <C>
ARTICLE IX
TERMINATION; FEES AND EXPENSES....................................... 34
Section 9.1. Termination........................................ 34
ARTICLE X
SURVIVAL AND INDEMNIFICATION......................................... 37
Section 10.1. Survival of Representations and Agreements......... 37
Section 10.2. Statements as Representations...................... 37
Section 10.3. Indemnification by HFMI............................ 37
Section 10.4. Indemnification by Newco........................... 39
Section 10.5. Conditions of Indemnification...................... 39
Section 10.6. Limitation on Indemnification...................... 41
ARTICLE XI
MISCELLANEOUS 42
Section 11.1. Fees and Expenses.................................. 42
Section 11.2. Headings........................................... 42
Section 11.3. Notices............................................ 42
Section 11.4. Assignment......................................... 43
Section 11.5. Complete Agreement................................. 43
Section 11.6. Severability....................................... 44
Section 11.7. Amendments; Waivers................................ 44
Section 11.8. Parties in Interest................................ 44
Section 11.9. Counterparts....................................... 44
Section 11.10. Specific Performance............................... 45
Section 11.11. Interpretation..................................... 45
Section 11.12. Brokers, Finders................................... 45
Section 11.13. Governing Law...................................... 46
SECTION 11.14. Jurisdiction and Waiver............................ 46
</TABLE>
iii
<PAGE>
ACQUISITION AGREEMENT
ACQUISITION AGREEMENT, dated January 31, 1997 (the "Agreement"), by and
among HARRY'S FARMERS MARKET, INC., a Georgia corporation ("HFMI"),and HFMI
ACQUISITION CORPORATION, a Delaware corporation ("Newco").
R E C I T A L S
(a) Pursuant to a Trust Agreement dated as of the date hereof (the "Trust
Agreement") between HFMI and Wilmington Trust Company, a Delaware banking
corporation, as Trustee, (the "Trustee") HFMI has established the HFMI Trust
pursuant to the Delaware Business Trust Act, as amended.
(b) Pursuant to the Transfer Agreement dated as of the date hereof (the
"Transfer Agreement") between and among HFMI, the Trust and Newco, and the
Assignment of Intellectual Property, dated as of the date hereof and attached as
Exhibit A to the Transfer Agreement (the "Assignment of Intellectual Property"),
HFMI will transfer, assign and contribute to the Trust on the date hereof, and
from time to time hereafter, all of its right, title and interest worldwide in
and to the Intellectual Property (as defined in the Trust Agreement).
(c) Pursuant to the Trust Agreement, the HFMI Trust shall issue to HFMI
on the date hereof the Worldwide Class Owner Certificate (as defined in the
Trust Agreement) representing the Worldwide Class Intellectual Property (as
defined in the Trust Agreement) and the Georgia Class Owner Certificate (as
defined in the Trust
<PAGE>
2
Agreement) representing the Georgia Class Intellectual Property (as defined in
the Trust Agreement), together with Newco License and the HFMI License.
(d) HFMI has agreed to transfer to Newco the Worldwide Class Owner
Certificate, together with the Newco License.
(e) Pursuant to an Administration and Servicing Agreement dated as of the
date hereof (the "Administration and Servicing Agreement") between and among the
Trust, Newco and HFMI, Newco has agreed to perform certain services for and on
behalf of the Trust with respect to certain matters involving the Intellectual
Property.
(f) Newco and HFMI wish to provide for certain other agreements which are
related to the foregoing transactions.
NOW, THEREFORE, in consideration of the foregoing and the respective
agreements of the parties contained herein, intending to be legally bound
hereby, the parties hereto agree as follows:
ARTICLE I
CERTAIN DEFINITIONS
-------------------
Section 1.1. Definitions. As used in this Agreement, each of the
following terms shall have the following meaning:
"Administration and Servicing Agreement" shall have the meaning set forth
in recital (e).
<PAGE>
3
"Affiliate" shall mean, with respect to a specified person, a person that
directly or indirectly, through one or more intermediaries, controls, or is
controlled by or is under common control with, the person specified.
"Assignment of Intellectual Property " shall have the meaning set forth
in recital (b) of this Agreement.
"Business" shall mean all of the business activities of HFMI and its
Affiliates.
"Cash Consideration" shall have the meaning set forth in Section 2.2 of
this Agreement.
"Closing" shall mean the closing of the transactions contemplated by
Article III hereof.
"Closing Date" shall mean the date referred to in Section 3.1 hereof.
"Code" has the meaning given in Section 2.4.
"Consideration" shall have the meaning assigned to such term in Section
2.2.
"Disclosure Schedule" shall mean the document delivered by HFMI to Newco
simultaneously with the execution of this Agreement containing the information
required to be included therein pursuant to this Agreement.
"Georgia Class Owner Certificate" shall have the meaning assigned to such
term in the Trust Agreement.
"Georgia Class Interests" shall have the meaning assigned to such term in
the Trust Agreement.
<PAGE>
4
"Georgia Class Intellectual Property" shall have the meaning assigned
such term in the Trust Agreement.
"Governmental Body" shall mean any agency, division or subdivision of the
government of the United States or of any state, city, territory, municipality,
county or town thereof, or of any foreign jurisdiction.
"HFMI License" shall have the meaning assigned to such term in the Trust
Agreement.
"HSR Act" shall mean the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended.
"Intellectual Property" shall have the meaning assigned to such term in
the Trust Agreement.
"Lien" shall mean any mortgage, pledge, security interest, lien
(statutory or other) or conditional sale agreement or other encumbrance.
"Material Adverse Effect" has the meaning set forth in Section 5A.6 of
this Agreement.
"Newco Common Stock" shall mean shares of Common Stock, par value $0.01
share, of Newco.
"Newco License" shall have the meaning assigned to such term in the Trust
Agreement.
"Operating Materials" shall mean true and complete copies of all of the
documents, computerized records and other materials of or relating to the
Intellectual Property which are necessary for Newco (or its Affiliates) to make
worldwide use of
<PAGE>
5
the Worldwide Class Intellectual Property in the operation of a business
substantially similar to the Business, including, without limitation, sales,
advertising, marketing and promotional literature and other sales-related
material, sourcing, production and manufacturing documents and records, supplier
lists, recipes, specifications, bills of material and prototypes.
"Owner Certificates" shall have the meaning assigned to such term in the
Trust Agreement.
"Person" means an individual, corporation, partnership, limited liability
company, joint venture, association, trust, unincorporated organization or other
entity.
"Related Agreements" shall mean the Trust Agreement, the Transfer
Agreement, the Administration and Servicing Agreement, the Newco License and the
HFMI License.
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Share Consideration" shall have the meaning set forth in Section 2.2.
"Taxes" shall mean all taxes, charges, fees, levies, imposts, duties or
other assessments of any nature whatsoever imposed by or payable to any federal,
state, local, or foreign taxing authority, including, without limitation, any
gross income, net income, franchise, profits, gross receipts, estimated, ad
valorem, value added, sales, use, service, customs, real or personal property,
capital stock, license, payroll, withholding, employment, social security,
workers' compensation, unemployment compensation, utility, severance,
production, excise, stamp, occupation, premium,
<PAGE>
6
windfall profits, occupancy, transfer and gains taxes, together with all
interest, penalties and additions imposed with respect to such amounts.
"Transaction Agreement" shall have the meaning set forth in Section 6.7
of this Agreement.
"Transfer Agreement" shall have the meaning set forth in recital (b) of
this Agreement.
"Trust" shall mean the trust established under the Trust Agreement
pursuant to the Delaware Business Trust Act.
"Trust Agreement" shall have the meaning set forth in recital (a) of this
Agreement.
"Trustee" shall mean Wilmington Trust Company, as trustee under the
Trust.
"Worldwide Assets" has the meaning set forth in Section 2.1 of this
Agreement.
"Worldwide Class Owner Certificate" shall have the meaning assigned to
such term in the Trust Agreement.
"Worldwide Class Intellectual Property" shall have the meaning assigned
to such term in the Trust Agreement.
"Worldwide Class Interests" shall have the meaning assigned to such term
in the Trust Agreement.
"Worldwide Series Estate" shall have the meaning assigned to such term in
the Trust Agreement.
<PAGE>
7
ARTICLE II
SALE OF WORLDWIDE ASSETS
------------------------
Section 2.1. Sale of Worldwide Assets to Newco. Subject to the terms and
upon the conditions of this Agreement and in reliance upon the representations,
warranties and agreements of Newco contained herein, at the Closing, following
the execution and delivery of the Related Agreements, as provided in Section
4.1, and the completion by HFMI of the actions to be taken by HFMI under Section
4.2, HFMI will cause to be issued, sold and delivered to Newco, and Newco will
acquire all right, title and interest in and to the Worldwide Class Owner
Certificate, representing the Worldwide Series Estate, the Worldwide Class
Interests and the Worldwide Class Intellectual Property (the "Worldwide
Assets"), free and clear of any Lien.
Section 2.2. Consideration. Subject to the terms and upon the conditions
of this Agreement, in reliance on the representations, warranties and agreements
of HFMI contained herein, and as the full purchase price and consideration for
the Worldwide Assets, Newco (i) will pay to HFMI cash consideration of One
Million Five Hundred Thousand dollars (the "Cash Considerations") as provided in
clause (a) below, and (ii) will issue to HFMI that number of shares of Newco
Common Stock (the "Share Consideration" and, together with the Cash
Consideration, the "Consideration") as provided in clauses (b) and (c) below.
<PAGE>
8
(a) At the Closing, Newco will pay the Cash Consideration to HFMI by,
either wire transfer or bank check at the direction of HFMI, made payable to
HFMI or at HFMI's order.
(b) At the Closing, Newco will issue to HFMI 712.3746 shares of Newco
Common Stock, which will as of the Closing constitute two and one-half percent
(2-1/2%) of the Newco Common Stock on a fully diluted basis, taking into account
(i) all shares of outstanding Newco Common Stock and (ii) all shares of Newco
Common Stock issuable upon the exchange or conversion of outstanding debt, stock
or other securities of Newco ("Convertible Instruments") and (iii) all shares of
Newco Common Stock issuable upon the exercise of outstanding options (other than
unvested employee options), warrants or similar rights to acquire Newco Common
Stock ("Options") (a "Fully Diluted Basis").
(c) Upon the issuance by Newco, after the Closing, of any shares of Newco
Common Stock (other than pursuant to Convertible Instruments or Options
outstanding as of the Closing) or any Convertible Instrument or Option, Newco
will issue to HFMI an additional number of shares of Newco Common Stock such
that the aggregate number of shares of Newco Common Stock issued to HFMI under
clause (a) and (b) of this Section 2.2 (including such additional shares) will
constitute two and one-half percent (2-1/2%) of the Newco Common Stock on a
Fully Diluted Basis; provided, however, that the obligation of Newco to issue
such additional shares of Newco Common Stock shall not apply to (i) the first
issuance (the "Threshold Issuance") of Newco Common Stock for cash in an amount
in excess of $1,000,000 at
<PAGE>
9
Transaction Price (as defined below) per share of Newco Common Stock which,
when multiplied by the number of shares of Newco Common Stock immediately prior
to the Threshold Issuance on a Fully Diluted Basis, shall equal or exceed
$100,000,000, and (ii) any issuance of Newco Common Stock, Convertible
Instrument or Option made on or after the date of the Threshold Issuance. The
"Transaction Price" of an issuance of Newco Common Stock shall mean the cash
price per share of Newco Common Stock received by Newco for such issuance;
provided that, if persons other than affiliates of Newco are not purchasing at
least $1,000,000 of Newco Common Stock for cash, the Transaction Price shall be
(i) the cash price per share of Newco Common Stock received by Newco for such
issuance only if such price shall equal or exceed the fair market value of the
Newco Common Stock as reflected in a contemporaneous valuation analysis provided
to HFMI by Newco and HFMI shall not have objected to such valuation analysis
within ten business days after its receipt of such analysis or (ii) the fair
market value of the Newco Common Stock as determined by a nationally recognized,
independent valuation firm (which shall include professionals employed by a "Big
6" accounting firm) retained by Newco for the purpose of performing such
valuation which valuation shall be conclusive absent manifest error.
(d) Upon the granting by Newco to either Saad J. Nadhir or Scott A. Beck
of any antidilution rights with respect to the issuance of additional Newco
Common Stock, Newco will grant to HFMI comparable antidilution rights.
(e) At the Closing, Newco will enter into a registration rights agreement
with HFMI in the form set forth as Exhibit A.
<PAGE>
10
Section 2.3. Trust Agreement Counterpart. Subject to the terms and upon
the conditions of this Agreement and in reliance upon the representations,
warranties and agreements of HFMI contained herein, at the Closing, Newco shall
execute and deliver to the Trustee (and HFMI shall acknowledge) a counterpart of
the Trust Agreement relating to Newco's ownership upon and following the
Closing, of the Worldwide Class Owner Certificate and the rights thereunder.
Section 2.4. Transfer Treatment. It is intended that the transfer of the
Worldwide Assets to Newco in exchange for the Consideration be treated as a tax-
free exchange under Section 351 of the U.S. Internal Revenue Code of 1986, as
amended (the "Code") or any similar provision as may apply for state and local
purposes. HFMI and Newco hereby agree not to take a position inconsistent with
such treatment under Section 351, including any position on any tax return or in
any tax examination.
ARTICLE III
CLOSINGS AND DELIVERIES
-----------------------
Section 3.1. Closing. The closing of the transaction contemplated by this
Agreement (the "Closing") shall take place on January 31, 1997, at 10:00 a.m.
(Atlanta time), at the offices of Sutherland, Asbill & Brennan, L.L.P., 999
Peachtree Street, N.E., Atlanta, Georgia 30309-3996, unless another time or
place is agreed to by the parties.
Section 3.2. Actions by HFMI at the Closing. At the Closing, HFMI is (i)
entering into the Related Agreements to which it is a party and has not
previously
<PAGE>
11
entered into, executed and delivered and (ii) delivering or causing to be
delivered to Newco, unless previously delivered, the following:
(a) the Worldwide Class Owner Certificate;
(b) the Newco License, and any and all instruments or documents
required under applicable law to be executed by HFMI transferring all of HFMI's
right, title and interest in and to the Newco License to Newco;
(c) certified copies of resolutions duly adopted by HFMI's Board of
Directors, authorizing and approving the execution, delivery and performance of
this Agreement, the Related Agreements to which HFMI is a party and each other
agreement or instrument required to be executed and delivered by HFMI pursuant
to this Agreement;
(d) the opinion of outside counsel to HFMI, dated the Closing Date,
in the form set forth on Schedule I hereto;
(e) certificates, in form and substance satisfactory to counsel to
Newco, from the Secretary of State of the State of Georgia, evidencing the
existence of HFMI and its good standing as a corporation organized under the
laws of the State of Georgia;
(f) all certificates of the Chief Executive Officer of HFMI,
executed on behalf of HFMI, identified in Section 8.2; and
(g) all other documents, instruments and other items reasonably
requested by Newco to be delivered by HFMI at the Closing in connection with the
transactions contemplated hereby.
<PAGE>
12
Furthermore, HFMI shall deliver to Newco, at the Closing or at such
other reasonable times and places as Newco shall request, any or all of the
Operating Materials.
Section 3.3. Actions by Newco at the Closing. At the Closing, Newco is
(i) entering into the Related Agreements to which it is a party and has not
previously entered into, executed and delivered and (ii) delivering or causing
to be delivered to HFMI, unless previously delivered, the following:
(a) the Cash Consideration by wire transfer or bank check and the
Share Consideration, by delivery to HFMI of a stock certificate or stock
certificates for the number of shares of Newco Common Stock representing the
Consideration, registered in the name of HFMI;
(b) certified copies of resolutions duly adopted by the Board of
Directors of Newco authorizing and approving the execution, delivery and
performance of this Agreement, the Related Agreements to which Newco is a party
and each other agreement required to be executed and delivered by Newco pursuant
to this Agreement;
(c) certificates, in form and substance satisfactory to counsel to
HFMI, from the Secretary of State of the State of Delaware, evidencing the
existence of Newco and its good standing as a corporation organized under the
laws of the State of Delaware;
(d) all certificates of the Chief Executive Officer of Newco,
executed on behalf of Newco, identified in Section 8.3; and
<PAGE>
13
(e) all other documents, instruments and other items reasonably
requested by HFMI to be delivered by Newco at the Closing in connection with the
transactions contemplated hereby.
ARTICLE IV
RELATED MATTERS
---------------
Section 4.1. Related Agreements. At the Closing, the parties hereto
shall, and the other persons indicated below are expected to, enter into the
following agreements to the extent they have not previously done so, as provided
below:
(a) HFMI and the Trustee are entering into the Trust Agreement and
Newco is executing a counterpart thereof;
(b) HFMI, Newco and the Trust are entering into the Transfer
Agreement;
(c) HFMI, the Trust and Newco are entering into the Administration
and Servicing Agreement;
(d) the Trust and Newco are entering into the Newco License; and
(e) the Trust and HFMI are entering into the HFMI License.
Section 4.2. Actions by HFMI prior to Closing. In order to effectuate the
transactions contemplated by this Agreement and the Related Agreements, HFMI
agrees that at or prior to the Closing, it shall (i) enter into the Trust
Agreement and establish the Trust and enter into the Transfer Agreement, whereby
it will assign the
<PAGE>
14
Intellectual Property to the Trust; (ii) cause the Trust to issue to it, the
Worldwide Class Owner Certificate, representing the Worldwide Class Interests
and the Georgia Class Owner Certificate representing the Georgia Class
Interests; (iii) cause the Trust to grant to it the Newco License and the HFMI
License; and (iv) file, or cooperate with Newco, as Servicer, to file (at or
immediately following the Closing) assignments and new applications, if any, in
the name of the Trust in the United States Patent and Trademark Office for any
and all trademarks included as part of the Intellectual Property and any state,
local, foreign or other Federal Filings required to be made in relation thereto.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF HMFI
--------------------------------------
A. HFMI hereby represents and warrants to Newco, with respect to HFMI, as
follows:
Section 5A.1. Corporate Organization. HFMI is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Georgia, and has all requisite corporate power and authority to own its
properties and assets and to conduct its businesses as now conducted. True,
accurate and complete copies of the Articles of Incorporation and Bylaws of HFMI
as in effect on the date hereof, including all amendments thereto, have
heretofore been delivered or made available to Newco.
Section 5A.2. Authority; Authorization and Validity of Agreement. HFMI
has all requisite corporate power and authority to enter into this Agreement and
<PAGE>
15
the Related Agreements to which it is a party and carry out its obligations
hereunder and thereunder. The execution and delivery of this Agreement and the
Related Agreements to which it is a party and the performance of HFMI's
obligations here under and thereunder have been duly authorized by all necessary
corporate action by the Board of Directors and shareholders of HFMI, and no
other corporate proceedings on the part of HFMI are necessary to authorize such
execution, delivery and performance. This Agreement has been duly executed by
HFMI and each of the Related Agreements to which it is a party have been duly
executed by HFMI and this Agreement constitutes, and each of the Related
Agreements to which it is a party constitute, its valid and binding obligation,
enforceable against it in accordance with their respective terms.
Section 5A.3. No Conflict or Violation. The execution, delivery and
performance by HFMI of this Agreement and the Related Agreements to which it is
a party do not and will not (i) violate or conflict with any provision of the
Articles of Incorporation or By-laws of HFMI, (ii) violate any law, statute,
rule or regulation, or any order, writ, judgment or decree of any court or other
Governmental Body, or (iii) violate or result in a breach of or constitute (with
due notice or lapse of time or both) a default (or give rise to any right of
termination, amendment, cancellation, or acceleration), or result in the
creation of any Lien upon any of the Worldwide Assets, under any material
contract, lease, loan agreement, mortgage, security agreement, trust indenture
or other agreement or instrument or obligation to which HFMI or any of its
Affiliates is a party or by which any of them or their respective assets may be
bound.
<PAGE>
16
Section 5A.4. Consents and Approvals. Except for such filings, permits,
authorizations, consents and approvals as may be required under the HSR Act and
federal and state securities laws and by the U.S. Patent and Trademark Office
and foreign Governmental Bodies having jurisdiction over intangible property,
the execution, delivery and performance of this Agreement and the Related
Agreements to which it is or will be a party do not require, on the part of
HFMI, the consent or approval of, or filing with, any Governmental Body or any
third party.
Section 5A.5. No Material Adverse Change. During the period from January
31, 1996 to the date hereof, there has not been any change, event or effect in,
on or relating to the business, assets (including, without limitation, the
Intellectual Property), condition (financial or otherwise), prospects or results
of operations of HFMI which could not reasonably be expected to be materially
adverse (a "Material Adverse Effect") to the Intellectual Property or HFMI's (or
the Trust's) ownership thereof.
Section 5A.6. Intellectual Property.
(a) Exhibit D to the Trust Agreement sets forth a complete and
accurate list of all the intangible property owned by HFMI (or the Trust) and
required in order for HFMI and its Affiliates to operate the Business as
currently contemplated to be conducted. The Worldwide Intellectual Property
will, at Closing, constitute all of the intangible property necessary for Newco
to operate a business substantially similar to the Business, in the manner the
business has been, or is contemplated by HFMI to be, conducted. Exhibit D to the
Trust Agreement also sets
<PAGE>
17
forth, for each registered trademark, trademark registration and application,
copyright and copyright registration and application of HFMI with respect
thereto; the country of such registration or application; the registration or
application number; the registration or filing date; and the class of goods
covered by such registration or application as it relates to trademark filings.
Except as set forth in Section 5A.6 of the Disclosure Schedule, HFMI owns the
Intellectual Property free and clear of any Liens and free and clear of any
licenses and sublicenses to any third parties. All trademark and service mark
registrations and applications, and all patents, patent applications, copyright
registrations and applications included in the Intellectual Property are
recorded in the name of HFMI to the extent they have been recorded (except to
the extent they have been recorded in the name of the Trust, as contemplated
hereby).
(b) All of the Intellectual Property is valid, subsisting in full
force and effect, and enforceable and no registration or application therefor
has lapsed, expired, or been abandoned or canceled or is the subject of any
pending or threatened opposition or cancellation proceeding before any
trademark, copyright or patent office or other registration authority over
intangible property in any jurisdiction. HFMI is not aware of any claims pending
before any Governmental Body or threatened by any third party anywhere in the
world challenging (i) the registrability, validity or enforceability of the
Intellectual Property, (ii) HFMI's ownership rights therein or (iii) HFMI's use
of the material Intellectual Property on the grounds that such use violates the
legitimate rights of a third party. All United States trademarks for which there
is a registration or application for registration have been in continuous use by
HFMI from the date of first
<PAGE>
18
use alleged in any registration or application for registration, and such use
continues to the date hereof and inures to the benefit of HFMI. To the best of
HFMI's knowledge neither HFMI's use of the Intellectual Property nor HFMI's
conduct of the Business, infringes upon the legitimate proprietary rights of any
third party and there are no material infringement actions being taken or
contemplated to be taken against third parties for infringement of the
Intellectual Property.
Neither HFMI nor any of its Affiliates has entered into any consents,
consent decrees, indemnifications, forbearances to sue, or settlement agreements
with any third party relating to the Intellectual Property adversely affecting
to any degree or restricting to any degree any rights of HFMI (and the Trust and
Newco hereunder) with respect to the Intellectual Property.
Section 5A.7. Compliance with Law. HFMI and each of its Affiliates has
complied with all laws, regulations, orders or other legal requirements, and is
not in default with respect to any material order, writ, judgment, award,
injunction or decree of any national, state or local court or other Governmental
Body or regulatory authority or arbitrator, domestic or foreign, applicable to
the Business or any of the assets, properties or operations with respect
thereto, with which failure to comply or default could reasonable be expected to
adversely affect the Intellectual Property or HFMI's (or the Trust's) ownership
thereof.
Section 5A.8. Litigation. Section 5A.8 of the Disclosure Schedule sets
forth all claims, actions, suits, proceedings, or investigations pending or, to
HFMI's knowledge, threatened, before any arbitration or other tribunal, or any
federal or state
<PAGE>
19
court or Governmental Body brought against HFMI or any of its Affiliates
relating to the Intellectual Property. None of the matters listed in Section
5A.8 of the Disclosure Schedule could reasonably be expected to have a Material
Adverse Effect on the Intellectual Property or HFMI's (or the Trust's) ownership
thereof.
Section 5A.9. Investment Purpose; Legend. HFMI will acquire the shares of
Newco Common Stock to be issued by Newco pursuant to the terms hereof for its
own account for the purpose of investment and not with a view to or for sale in
connection with any distribution thereof. HFMI agrees that all certificates
representing the shares of Newco Common Stock shall bear a legend to the effect
that such securities have not been registered under the Securities Act or the
securities laws of any state and neither such securities nor any interest
therein may be sold or otherwise transferred in the absence of such registration
or an exemption thereunder.
Section 5A.10. Disclosure. Except as set forth in Section 5A.10 of the
Disclosure Schedule, to the best of HFMI's knowledge, the information listed on
the Disclosure Schedule or by HFMI on any schedule, exhibit or annex to this
Agreement or any Related Agreement is or was not inaccurate in any material
respect at the time it was made in light of the circumstances under which it was
made. HFMI has not knowingly failed to disclose to Newco any facts or
circumstances which would reasonably be expected to have a Material Adverse
Effect on the Intellectual Property or HFMI's, the Trust's or Newco's ownership
thereof.
Section 5A.11. Brokers. No broker, finder or investment banker is
entitled to any brokerage, finder's or other fee or commission in connection
with the
<PAGE>
20
transactions contemplated hereby or by the Related Agreements based upon
arrangements made by or on behalf of HFMI.
Section 5A.12. Prevention or Delay of the Contemplated Transactions. No
change, event, effect or circumstance has occurred or exists relating to HFMI
that could reasonably be expected to prevent or materially delay the
transactions contemplated by this Agreement or the performance by HFMI of its
obligations under this Agreement.
B. HFMI represents and warrants to Newco, with respect to the Trust, as
follows:
Section 5B.1. Authorization. As of the Closing Date, the Trust Agreement
shall have been duly authorized by HFMI and shall constitute a valid and binding
agreement of HFMI. The Owners Certificates representing the Worldwide Class
Interests and the Georgia Class Interests, and the Newco License and HFMI
License, and shall have been duly authorized, duly and validly executed in
accordance with the Trust Agreement and delivered and granted to HFMI and shall
have been validly issued and outstanding and entitled to the benefits of the
Trust Agreement.
Section 5B.2. No Violation. (a) As of the Closing Date, the Trust shall
not be in violation of its organizational documents or in default in the
performance or observance of any obligation, agreement, covenant or condition
contained in any agreement or instrument to which it is a party or by which it
is bound, which violation or default could affect interests held by (i) the
Trust in the Intellectual Property, or
<PAGE>
21
(ii) HFMI in the Worldwide Class Interests, the Georgia Class Interests, the
Newco License or the HFMI License.
(b) The authorization, execution, delivery and performance of the
Trust Agreement and the consummation of the transactions contemplated thereby
will not result in a breach or violation of any of the terms and provisions of
the Trust Agreement, or constitute a default under, any statute, order, rule or
regulation of any Governmental Body having jurisdiction over the Trust or any
agreement, indenture or instrument to which the Trust is a party or by which the
Trust is bound.
Section 5B.3. Litigation. As of the Closing Date, there shall be no
action, suit or proceeding before or by any court or Governmental Body pending
or, to the knowledge of HFMI, threatened, against the Trust.
Section 5B.4. Consents. Except for filings in the U.S. Patent and
Trademark Office and filings in the appropriate trademark offices in state
and/or foreign jurisdictions, no consent, approval, authorization or order of,
or filing with, any court or Governmental Body or any third party is required to
be obtained or made by the Trust in connection with the consummation of the
transactions contemplated by this Agreement, including the issuance of the Owner
Certificates or the granting of the Newco License or the HFMI License.
Section 5B.5. Title. As of the Closing Date, HFMI shall have good, valid
and marketable title to the Owner Certificates representing the Worldwide Class
Interests and the Georgia Class Interests, free and clear of any Lien, and all
rights as licensee in and to the Newco License and the HFMI License.
<PAGE>
22
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF NEWCO
Newco hereby represents and warrants to HFMI as follows:
Section 6.1. Corporate Organization. Newco is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware, and has all requisite corporate power and authority to own its
properties and assets and to conduct its businesses as now conducted. True,
accurate and complete copies of the Restated Certificate of Incorporation and
Bylaws of Newco as in effect on the date hereof, including all amendments
thereto, have heretofore been delivered to HFMI.
Section 6.2. Authority; Authorization and Validity of Agreements. Newco
has all requisite corporate power and authority to enter into this Agreement and
the Related Agreements to which it is a party, to issue and deliver the shares
of Newco Common Stock constituting the Share Consideration and to carry out its
obligations hereunder and thereunder. The execution and delivery of this
Agreement and the Related Agreements to which it is a party and the issuance and
delivery of the shares of Newco Common Stock constituting the Share
Consideration and the performance of Newco's obligations hereunder and
thereunder have been duly authorized by all necessary corporate action by the
Board of Directors of Newco, and no other corporate proceedings on the part of
Newco are necessary to authorize such execution, issuance, delivery and
performance. This Agreement has been, and the Related Agreements to
<PAGE>
23
which Newco is a party have been, duly executed by Newco and this Agreement
constitutes, and the Related Agreements to which it is a party, constitute its
valid and binding obligation, enforceable against it in accordance with their
respective terms.
Section 6.3. No Conflict or Violation. The execution, delivery and
performance by Newco of this Agreement, and the Related Agreements to which it
is a party, and the issuance and delivery of the shares of Newco Common Stock do
not and will not (i) violate or conflict with any provision of the Restated
Certificate of Incorporation or Bylaws of Newco, (ii) violate any law, statute,
rule or regulation, or any order, writ, judgment or decree of any court or other
Governmental Body, or (iii) violate or result in a breach of or constitute (with
due notice or lapse of time or both), except to the extent a waiver or consent
has been obtained, a default (or give rise to any right of termination,
amendment, cancellation, or acceleration), or result in the creation of any
Lien, upon any property of Newco, or under any contract, lease, loan agreement,
mortgage, security agreement, trust indenture or other agreement or instrument
to which Newco is a party or by which it or its properties may be bound.
Section 6.4. Consent and Approvals. Except for such filings, permits,
authorizations, consents and approvals as may be required under the HSR Act and
federal and state securities laws and with the U.S. Patent and Trademark Office
or state or foreign Governmental Bodies having jurisdiction over intangible
property, the execution, delivery and performance of this Agreement by Newco and
the Related Agreements to which it is a party, and the issuance and delivery of
the shares of Newco
<PAGE>
24
Common Stock do not require the consent or approval of, or filing with, any
Governmental Body or any third party.
Section 6.5. Capital Stock and Related Matters. The authorized capital
stock of Newco consists of 100,000 shares of Newco Common Stock, of which
(giving effect to the issuance of the Newco Common Stock contemplated hereby)
9,379.0416 shares are issued and outstanding on the date hereof, and 50,000
shares of Newco Preferred Stock, of which no shares were issued and outstanding
as of the date hereof. All of the outstanding shares of capital stock of Newco
have been duly authorized and validly issued and are fully paid and
nonaccessible. Newco has entered into a secured loan agreement with Parent (the
"Loan Agreement"), pursuant to which Parent has the right to acquire, upon
conversion of its loan or exercise of the related option, up to 14,782.6087
shares of Newco Common Stock, and Newco has entered into subscription agreements
with Scott A. Beck and Saad J. Nadhir pursuant to which each of them has agreed
to purchase 2,166.6665 shares of Newco Common Stock, in addition to shares of
Newco Common Stock owned by them as of the date hereof (the "Subscription
Agreements"). Newco has previously delivered to HFMI true and correct copies of
the Loan Agreement and the Subscription Agreements.
Section 6.6. Authorization and Validity of the Shares of Newco Common
Stock to be Issued. As of the Closing Date, the shares of Newco Common Stock to
be issued at the Closing shall have been duly authorized by all necessary
corporate action on the part of Newco. When issued pursuant to the terms of the
<PAGE>
25
Agreement, the shares of Newco Common Stock will be validly issued and
outstanding, fully paid and nonassessable.
Section 6.7. Operations of Newco. Except for the transactions provided
for by this Agreement or otherwise contemplated hereby or by the Transaction
Agreement of even date herewith between HFMI and Newco (the "Transaction
Agreement"), as of the date hereof and as of the Closing Date, Newco has not and
shall not have (as the case may be) conducted any material operations or engaged
in any material transactions or entered into any material agreements.
Section 6.8. Disclosure. Newco has not knowingly failed to disclose to
HFMI any facts or circumstances which would have a material adverse effect on
Newco.
Section 6.9. Brokers. No broker, finder or investment banker is
entitled to any brokerage, finder's or other fee or commission in connection
with the transactions contemplated hereby or by the Related Agreements based
upon arrange ments made by or on behalf of Newco.
Section 6.10. Prevention or Delay of the Contemplated Transactions. No
change, event, effect or circumstance has occurred or exists relating to Newco
that could reasonably be expected to prevent or materially hinder or delay the
transactions contemplated by this Agreement or the performance by Newco of its
obligations under this Agreement.
ARTICLE VII
OTHER AGREEMENTS AND COVENANTS OF THE PARTIES
---------------------------------------------
<PAGE>
26
Section 7.1. Certain Actions. Each of HFMI and Newco shall refrain from
taking any action or agreeing in writing or otherwise to take any action that
would result in (i) any of the representations and warranties of such party
(without giving effect to any "knowledge" qualification) set forth in this
Agreement that are qualified as to materiality becoming untrue or incorrect,
(ii) any of such representations and warranties (without giving effect to any
"knowledge" qualification) that are not so qualified becoming untrue or
incorrect in any material respect or (iii) any of the conditions set forth in
Article VIII not being satisfied.
Section 7.2. Reasonable Best Efforts. Upon the terms and subject to the
conditions set forth in this Agreement, each of the parties agrees to use its
reasonable best efforts to take, or cause to be taken, all actions, and to do,
or cause to be done, and to assist and cooperate with the other parties in
doing, all things necessary, proper or advisable to fulfill all conditions to
the obligations of the parties under this Agreement and to consummate and make
effective, in the most expeditious manner practicable, the transactions
contemplated hereby, including, but not limited to, (i) the obtaining of all
necessary actions or nonactions, waivers, consents and approvals from
Governmental Bodies and the making of all necessary registrations and filings
(including filings under the HSR Act, with the U.S. Patent and Trademark Office,
comparable foreign Governmental Bodies and all other filings with Governmental
Bodies, if any) and the taking of all reasonable steps as may be necessary to
obtain an approval, waiver or exemption from, or to avoid an action or
proceeding by, any Governmental Body; (ii) the obtaining of all necessary
consents, approvals, waivers or
<PAGE>
27
exemption from non-governmental third parties; (iii) the defending of any
lawsuits or other legal proceedings, whether judicial or administrative,
challenging this Agreement or the consummation of the transactions contemplated
hereby, including seeking to have any stay or temporary restraining order
entered by any court or other Governmental Body vacated or reversed; and (iv)
the execution and delivery of any additional instruments necessary to consummate
the transactions contemplated by and to carry out the purposes of, this
Agreement.
Section 7.3. Further Assurances. After the Closing, HFMI shall, from time
to time at the request of Newco and without further cost or expense to Newco,
execute and deliver such other instruments of conveyance and transfer and take
such other actions as Newco may reasonably request, in order to more effectively
consummate the transactions contemplated hereby.
Section 7.4. Public Announcements. Newco and HFMI will consult and
cooperate with one another before issuing any press release or otherwise making
any public statements with respect to the transactions contemplated hereby, and
shall not issue any such press release or make any such public statement prior
to such consultation, except as may be required by applicable law or by
obligations pursuant to any listing agreement with the Nasdaq Stock Market, Inc.
as determined by Newco or HFMI, as the case may be, but only upon the advice of
independent counsel.
Section 7.5. Notification of Certain Matters. Each party shall give
prompt notice to the other party of (i) the occurrence or nonoccurrence of any
event the occurrence or nonoccurrence of which would be likely to cause any
representation or
<PAGE>
28
warranty contained in this Agreement that is qualified as to materiality to be
untrue or inaccurate or any such representation or warranty not so qualified to
be untrue or inaccurate in any material respect, in either case, at or prior to
the Effective Time, (ii) any material failure of Newco or HFMI, as the case may
be, to comply with or satisfy any covenant, condition or agreement to be
complied with or satisfied by it hereunder or (iii) any notice or other
communication from any third party alleging that the consent of such third party
is or may be required in connection with the transactions contemplated by this
Agreement; provided, however, that the delivery of any notice pursuant to this
Section 7.5 shall not cure such breach or non-compliance or limit or otherwise
affect the remedies available hereunder to the party receiving such notice.
Section 7.6. Obligations of Newco. HFMI agrees that, notwithstanding
the consummation of the transactions contemplated hereby and by the Related
Agreements, Newco shall not have any obligation to establish, operate or
continue any operations of any business or to otherwise exploit or make use of
the Worldwide Class Interests or the Newco License.
Section 7.7. HFMI Board Observer.
(a) During the period commencing on the date hereof and ending on the
earlier of (i) the date of the initial public offering of shares of Newco Common
Stock or (ii) the date HFMI owns less than 1% of Newco Common Stock on a Fully
Diluted Basis, HFMI shall have the right to have a representative (the "HFMI
Observer") attend meetings of the Newco Board of Directors, or any committee
thereof, and Newco will permit the HFMI Observer to attend all such meetings as
an observer, subject to reasonable limitations on such HFMI observer to permit
maintenance of attorney-client privilege. The
<PAGE>
29
HFMI Observer shall not have the right to vote on any matter presented to the
Board or any committee thereof. Newco shall give the HFMI Observer notice of
such meeting of the Board of Directors or any committee thereof and all written
materials and other information given to Newco'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, Newco shall give written notice thereof to the
HFMI Observer prior to the effective date of such consent describing the nature
and substance of such action.
(b) HFMI shall cause the HFMI Observer to keep confidential all
confidential information provided to it in its capacity as an observer pursuant
to this Section 7.7; provided, however, that the HFMI Observer may disclose such
confidential information to HFMI. HFMI shall also be bound by this Section 7.7
confidentiality obligation, except that HFMI 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, HFMI shall
inform such person of the confidential nature of such information and of HFMI's
obligations under this Section 7.7 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 Newco. The confidentiality obligations contained in this Section
7.7 shall not apply to any information which (i) is
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30
or becomes generally available to and known by the public (other than as a
result of a disclosure by HFMI or the HFMI Observer) or (ii) is or becomes
available to HFMI or the HFMI Observer on a non-confidential basis from a source
other than Newco.
Section 7.8. Acquisition Agreement. HFMI hereby acknowledges and agrees
that Newco shall not be restricted in any manner whatsoever from processing,
preparing, selling, distributing and marketing in Georgia and Alabama any ready-
to-heat or ready-to-eat prepared foods under any trademarks other than the
trademarks included in the Intellectual Property.
Section 7.9. Utilization of Intellectual Property. Newco agrees that the
development of any business concept involving primarily the retail sale of fresh
fruits and vegetables, fresh meats, seafood or bakery (but excluding packaged
prepared foods) primarily for take out which utilizes the Intellectual Property,
shall be undertaken either by Newco directly or, if by any other party, through
transactions with Newco which are on terms not less favorable to Newco than
those which could be obtained in an arms length transaction; provided, however,
that Newco shall not be obligated to develop any such business concepts.
Section 7.10. HFMI Refinancing In the event that HFMI refinances the
Senior Indebtedness (as defined in the Intercreditor Agreement dated the date
hereof between Creditanstalt-Bankverein, an Austrian banking corporation, as
agent, and Newco (the "Intercreditor Agreement")), Newco agrees to offer to
enter into a form of agreement with the lender providing such refinancing which
contains provisions with respect to the transfer of Intellectual Property
substantially equivalent to those
<PAGE>
31
contained in Section 2(d) of the Intercreditor Agreement; provided Newco shall
also be granted the notice, cure and purchase rights contained in Sections 7 and
8 of the Intercreditor Agreement.
ARTICLE VIII
CONDITIONS TO THE OBLIGATIONS OF NEWCO AND HFMI
-----------------------------------------------
Section 8.1. Mutual Conditions. The obligations of each of Newco and HFMI
to consummate the transactions contemplated hereby are subject to the
fulfillment, prior to or at Closing, of each of the following conditions:
(a) no statute, rule, regulation, executive order, decree, ruling,
injunction or other legal prohibition shall have been enacted, entered,
promulgated or enforced by any Governmental Body which prohibits, restrains,
enjoins or imposes material restrictions on the consummation of the transactions
contemplated hereby or by any of the Related Agreements;
(b) any waiting period applicable to the transaction contemplated hereby
or by the Related Agreements under the HSR Act shall have terminated or expired;
and
(c) all governmental or regulatory notices (other than those in
connection with the HSR Act) or approvals required with respect to the
transactions contemplated hereby and by the Related Agreements shall have been
either filed or received, except where the failure to file such notices or
receive such approvals, individually or in the aggregate, could not reasonably
be expected to have a Material
<PAGE>
32
Adverse Effect on HFMI, Newco or the Intellectual Property or the ownership of
the Intellectual Property by HFMI, Newco or the Trust and could not reasonably
be expected to adversely affect the ability of Newco or HFMI (as applicable) to
consummate such transactions.
Section 8.2. Conditions to the Obligations of Newco. The obligations of
Newco to consummate the transactions contemplated hereby are subject to the
fulfillment or waiver by Newco prior to or at the closing of each of the
following conditions:
(a) the representations and warranties of the HFMI set forth in this
Agreement that are qualified as to materiality shall be true and correct, and
the representations and warranties of HFMI set forth in this Agreement that are
not so qualified shall be true and correct in all material respects, in each
case as of the Closing Date, as though made on and as of the Closing Date,
except to the extent the representation or warranty is expressly limited by its
terms to another date, and Newco shall have received a certificate signed on
behalf of HFMI by the chief executive officer of HFMI to such effect;
(b) each of the obligations of HFMI to be performed at or before the
Closing pursuant to the terms of this Agreement shall have been duly performed
and HFMI shall have delivered to Newco a certificate signed on behalf of HFMI by
the chief executive officer of HFMI to such effect;
(c) the transactions contemplated by the Transfer Agreement shall have
been consummated;
<PAGE>
33
(d) the Related Agreements to which HFMI is a party shall have been
executed and delivered by HFMI;
(e) the transactions contemplated by the Transaction Agreement required
to be performed at or prior to the Closing shall have been consummated;
(f) the Company shall have obtained the consent, approval or waiver of
each non-governmental person whose consent, approval or waiver shall be required
in order for each of them to consummate the transactions contemplated hereby,
except those for which the failure to obtain such consent, approval or waiver,
individually or in the aggregate, could not reasonably be expected to have a
Material Adverse Effect;
(g) Newco shall have obtained the consent, approval or waiver of each
non-governmental person whose consent, approval or waiver shall be required in
order for Newco to consummate the transactions contemplated hereby and by the
Related Agreements, except those for which the failure to obtain such consent,
approval or waiver, individually or in the aggregate, could not reasonably be
expected to have a material adverse effect on Newco;
(h) HFMI shall have delivered to Newco a certificate, dated the Closing
Date, executed on behalf of HFMI, by its Chief Executive officer, certifying as
to the fulfillment of the conditions specified in Sections 8.1 and 8.2 hereof;
and
(i) Newco shall have received the opinion of outside counsel to HFMI
referred to in Article III.
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34
Section 8.3. Conditions to the Obligations of HFMI. The obligations of
HFMI under this Agreement to consummate the transactions contemplated hereby are
subject to the fulfillment, prior to or at the Closing, of each of the following
conditions:
(a) the representations and warranties of Newco set forth in this
Agreement that are qualified as to materiality shall be true and correct, and
the representations and warranties of Newco set forth in this Agreement that are
not so qualified shall be true and correct in all material respects, in each
case as of the Closing Date, as though made on and as of the Closing Date,
except to the extent the representation or warranty is expressly limited by its
terms to another date, and HFMI shall have received a certificate signed on
behalf of Newco by the chief executive officer of Newco to such effect; and
(b) each of the obligations of Newco to be performed at or before closing
pursuant to the terms of this Agreement shall have been duly performed and Newco
shall have delivered to HFMI a certificate signed on behalf of Newco by the
chief executive officer of Newco to such effect.
Section 8.4. Certificate of Newco. Newco shall have delivered to HFMI a
certificate, dated the Closing Date, executed on behalf of Newco by its chief
executive officer certifying as to the fulfillment of the conditions specified
in Sections 8.1 and 8.3.
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35
ARTICLE IX
TERMINATION; FEES AND EXPENSES
Section 9.1. Termination. This Agreement may be terminated at any time
prior to the Closing:
(a) by written consent of Newco and HFMI;
(b) by either party, if the Closing shall not have occurred on or before
February 6, 1997; provided, however, that the right to terminate this Agreement
under this Section 9.1(b) shall not be available to the party whose failure to
fulfill any obligation under this Agreement shall have been the cause of, or
resulted in, the failure of the Closing to occur on or before such date;
(c) by either party, if any final order, decree or ruling preventing the
consummation of the transactions contemplated hereby shall have been entered by
any court of competent jurisdiction or Governmental Body and shall have become
final and nonappealable;
(d) by Newco, (i) in the case of HFMI's representations and warranties
set forth in this Agreement that are not qualified as to materiality, upon a
material breach by HFMI of any such representation or warranty, or if any such
representation or warranty shall have become untrue in any material respect and
(ii) in the case of HFMI's representations and warranties set forth in this
Agreement that are qualified as to materiality, upon a breach by HFMI of any
such representation or warranty, or if any such representation or warranty shall
have become untrue (any, a "Terminating HFMI Breach"), in any case such that the
conditions set forth in
<PAGE>
36
Section 8.2(a) could not reasonably be expected to be satisfied within 15 days
following such Terminating HFMI Breach upon HFMI's exercise of its reasonable
best efforts or such breach has not in any event been cured within 15 days
following notification by Newco to HFMI of such Terminating HFMI Breach;
(e) by HFMI, (i) in the case of Newco's representations and warranties
set forth in this Agreement that are not qualified as to materiality, upon a
material breach by Newco of any such representation or warranty, or if any such
representation or warranty shall have become untrue in any material respect and
(ii) in the case of Newco's representations and warranties set forth in this
Agreement that are qualified as to materiality, upon a breach by Newco of any
such representation or warranty, or if any such representation or warranty shall
become untrue (any, a "Terminating Newco Breach"), in any case such that the
conditions set forth in Section 8.3(a) could not reasonably be expected to be
satisfied within 15 days following such Terminating Newco Breach upon Newco's
exercise of its reasonable best efforts or such Terminating Newco Breach has not
in any event been cured within 15 days following notification by HFMI to Newco
of such Terminating Newco Breach;
(f) by Newco, upon the material breach by HFMI of any covenant or
agreement of HFMI set forth in this Agreement which is not reasonably capable of
being cured within 15 days following such breach upon HFMI's exercise of its
reasonable best efforts or, in any event, upon the 15th day following
notification by Newco to HFMI of such breach if such breach has not been cured
by such 15th day;
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37
(g) by HFMI, upon the material breach by Newco of any covenant or
agreement of Newco set forth in this Agreement which is not reasonably capable
of being cured within 15 days following such breach upon Newco's exercise of its
reasonable best efforts or, in any event, upon the 15th day following
notification by HFMI to Newco of such breach if such breach has not been cured
by such 15th day; and
(h) by Newco, upon the termination of the Transaction Agreement (other
than by reason of the default of Newco thereunder).
ARTICLE X
SURVIVAL AND INDEMNIFICATION
----------------------------
Section 10.1. Survival of Representations and Agreements. All
representations, warranties, covenants and agreements made by any party in this
Agreement or pursuant hereto shall survive the Closing hereunder and any
investigation at any time made by or on behalf of any party hereto.
Section 10.2. Statements as Representations. All statements contained
in any certificate and in any schedule delivered pursuant hereto (including the
Disclosure Schedule) shall be deemed representations and warranties for all
purposes of this Agreement.
Section 10.3. Indemnification by HFMI. (a) Subject to the terms and
conditions of this Article X, HFMI hereby agrees to indemnify, fully defend,
save and hold harmless Newco and any Affiliate thereof or any of their directors
or officers (the
<PAGE>
38
"Newco Indemnified Group") from and against all demands, claims, actions or
causes of action, assessments, losses, damages, liabilities, costs and expenses,
including, without limitation, interest, penalties, amounts paid in settlement
and reasonable attorneys' fees and expenses (collectively, "Damages"), asserted
against, resulting to, imposed upon or incurred by the Newco Indemnified Group
or any member thereof, directly or indirectly, by reason of or resulting from:
(i) any and all liabilities or obligations of, or claims against,
HFMI (whether absolute, accrued, contingent or otherwise) relating to the
Business existing as of the Closing Date or arising out of facts or
circumstances existing at or prior thereto, whether or not such claims were
known at the time of the Closing;
(ii) any inaccuracy in, or a breach of, any representation,
warranty, covenant or agreement of HFMI contained in or made pursuant to this
Agreement or any facts or circumstances constituting such a breach;
(iii) any and all liabilities, direct or indirect, absolute or
contingent, for Taxes or related claims asserted against the Newco Indemnified
Group or any member thereof (A) with respect to any sales or other transfer
taxes which may be payable in connection with any sale, conveyance, assignment,
transfer and delivery made pursuant to this Agreement or (B) with respect to any
Taxes relating to the operations or properties of the Business; or
(iv) the failure by HFMI to comply with any "bulk sales" law under
the Uniform Commercial Code applicable to the transactions contemplated by this
Agreement.
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39
(b) Each matter for which HFMI has agreed to provide indemnification
pursuant to Section 10.3(a) hereof is hereinafter referred to individually as a
"Claim" and collectively as the "Claims".
Section 10.4. Indemnification by Newco. (a) Subject to the terms and
conditions of this Article X, Newco hereby agrees to indemnify, fully defend,
save and hold harmless HFMI and any of its directors or officers (the "HFMI
Indemnified Group") from and against all Damages, asserted against, resulting
to, imposed upon or incurred by the HFMI Indemnified Group or any member
thereof, directly or indirectly, by reason of or resulting from any inaccuracy
in, or a breach of, any representation, warranty, covenant or agreement of Newco
contained in or made pursuant to this Agreement or any facts or circumstances
constituting such a breach;
(b) Each matter for which Newco has agreed to provide indemnification
pursuant to Section 10.4(a) hereof is hereinafter referred to individually as a
"Claim" and collectively as the "Claims".
Section 10.5. Conditions of Indemnification. The obligations and
liabilities of any party to indemnify any other party under Sections 10.3 and
10.4 hereof with respect to Claims shall be subject to the following terms and
conditions:
(a) The party to be indemnified (the "Indemnified Party") will give the
other party or parties (the "Indemnifying Party") prompt notice of any such
Claim. Such notice shall be a condition precedent to any liability of the
Indemnifying Party under the provisions for indemnification contained in this
Agreement (provided that the delay to notify the Indemnifying Party promptly
shall not relieve such Indemnifying
<PAGE>
40
Party of its obligations under this Article X except to the extent that the
failure to so notify adversely and materially prejudices the Indemnifying
Party's ability to defend such Claim).
(b) The Indemnifying Party may elect to undertake the defense of any
Claim with respect to which indemnification is sought by the Indemnified Party
by representatives chosen by it reasonably satisfactory to the Indemnified
Party. If the Indemnifying Party elects to compromise or defend such asserted
liability, it shall within 30 days from delivery of the notice pursuant to
Section 10.5(a) (or sooner, if the nature of the asserted liability so requires)
notify the Indemnified Party of its intent to do so and the Indemnified Party
shall cooperate in the compromise of, or defense against, any such asserted
liability. In such case, the Indemnified Party may participate in such defense
at its own expense. If the Indemnifying Party, within such 30-day period after
notice of any such Claim, fails to so defend, the Indemnified Party will have
the right to assume the defense, compromise or settlement of such Claim on
behalf of and for the account and risk of the Indemnifying Party, subject to the
right of the Indemnifying Party to assume the defense of such Claim at any time
prior to settlement, compromise or final determination thereof. If, in the
opinion of counsel to an Indemnified Party, the interests of the Indemnified
Party and the Indemnifying Party with respect to any Claim are conflicting, the
Indemnified Party shall be entitled to undertake the defense of such Claim at
the expense of the Indemnifying Party.
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41
(c) The notice referred to in Section 10.5(a) hereof shall set forth the
details of the Claim (including the amount, estimated, if necessary, of the
asserted Damages) and the specific provisions of this Agreement relating
thereto.
(d) Anything in this Section 10.5 to the contrary notwithstanding, (i) if
there is a reasonable probability that a Claim may materially and adversely
affect the Indemnified Party other than solely as a result of money damages or
other money payments, the Indemnified Party shall have the right, at its own
cost and expense, to defend, compromise or settle such Claim, and (ii) the
Indemnifying Party shall not, without the written consent of the Indemnified
Party (which consent shall not be unreasonably withheld), settle or compromise
any Claim or consent to the entry of any judgment which does not include as an
unconditional term thereof the giving by the claimant or the plaintiff to the
Indemnified Party of a release from all liability in respect of such Claim.
Section 10.6. Limitation on Indemnification. Notwithstanding anything to
the contrary set forth in this Agreement, no indemnification payment for any
Damages shall be made by HFMI or Newco, as the case may be, pursuant to Section
10.3(a)(ii) or 10.4 hereof, respectively, except to the extent that the amounts
which would otherwise be payable pursuant to either such Section relating to
such Damages aggregate at least $50,000 (the "Minimum Amount"), and such Minimum
Amount shall be deducted from the aggregate amount payable under Section
10.3(a)(ii) or 10.4, as the case may be, with respect to Damages payable
pursuant to such sections of this Agreement.
<PAGE>
ARTICLE XI
MISCELLANEOUS
-------------
Section 11.1. Fees and Expenses. Each party shall bear its own expenses
in connection with this Agreement and the transactions contemplated hereby.
Section 11.2. Headings. The descriptive headings of the several Articles
and Sections of this Agreement are inserted for convenience only and are not
meant in any way to affect the meaning or interpretation of this Agreement.
Section 11.3. Notices. Any notices or other communications required or
permitted hereunder shall be given in writing and shall be delivered by
facsimile, hand or air courier or sent by certified or registered mail, postage
prepaid, addressed as follows:
If to HFMI, to:
1180 Upper Hembree Road
Roswell, Georgia 30076
Attention: Harry Blazer
Telecopier: (770) 664-4920
Copy to:
Alston & Bird
One Atlantic Center
1201 West Peachtree Street
Atlanta, GA 30309
Facsimile: (404) 881-7777
Attention: John Latham, Esq.
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43
or:
If to Newco, to:
HFMI Acquisition Corporation
14103 Denver West Parkway
Golden, Colorado 80401
Attention: Saad J. Nadhir
Telecopier: (303) 771-4860
or to such other address as shall be furnished in writing by such party, and any
such notice or communication shall be effective and be deemed to have been given
as of the date delivered, if by hand or air courier, and five days following the
date of mailing if mailed.
Section 11.4. Assignment. This Agreement, and all of the provisions
hereof shall be binding upon and inure to the benefit of the parties hereto and
their respective successors and permitted assigns.
Section 11.5. Complete Agreement. This Agreement, including the
Disclosure Schedule, the schedules and any other documents specifically referred
to herein, and the Related Agreements contain the entire understanding of the
parties with respect to the transactions contemplated hereby and supersede all
prior arrangements or understandings with respect thereto. There are no
agreements, promises, warranties, covenants or undertakings other than those
expressly set forth herein and therein.
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44
Section 11.6. Severability. In the event that any part of this Agreement
is declared by any court or other judicial or administrative body to be null,
void or unenforceable, said provision shall survive to the extent it is not so
declared, and all of the other provisions of this Agreement shall remain in full
force and effect.
Section 11.7. Amendments; Waivers. This Agreement may be amended or
modified, and any of the terms, covenants, representations, warranties or
conditions hereof may be waived, only by a written instrument executed by the
parties hereto or their respective successors or assigns, or in the case of a
waiver, by the party waiving compliance. Any waiver by any party of any
condition, or of the breach of any provision, term, covenant, representation or
warranty contained in this Agreement, in any one or more instances, shall not be
deemed to be nor construed as a further or continuing waiver of any such
condition, or of the breach of any other provision, term, covenant,
representation or warranty of this Agreement.
Section 11.8. Parties in Interest. Nothing in this Agreement is intended
to confer any rights or remedies under or by reason of this Agreement on any
persons other than HFMI and Newco and their respective successors and permitted
assigns. Nothing in this Agreement is intended to relieve or discharge the
obligations or liability of any third persons to HFMI or Newco.
Section 11.9. Counterparts. This Agreement may be executed in two or more
counterparts all of which shall be considered one and the same agreement and
each of which shall be deemed an original.
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45
Section 11.10. Specific Performance. 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.
Section 11.11. Interpretation. The table of contents and headings herein
are for convenience of reference only, do not constitute part of this Agreement
and shall not be deemed to limit or otherwise affect any of the provisions
hereof. Where a reference in this Agreement is made to a schedule, section,
exhibit or annex, such reference shall be to a schedule, section of or exhibit
or annex to this Agreement unless otherwise indicated. All capitalized terms
used without definition in any such schedule, section, exhibit or annex shall
have the meaning assigned to them in this Agreement and any capitalized terms
used without definition in this Agreement shall have the meanings assigned to
them in such schedules, exhibits and annexes. Where the reference "hereby" or
"herein" appears in this Agreement, such reference shall be deemed to be a
reference to this Agreement. Whenever the words "include," "includes" or
"including" are used in this Agreement, they shall be deemed to be followed by
the words "without limitation."
Section 11.12. Brokers, Finders. HFMI and Newco will each hold the other
harmless from, and pay and discharge, any claims for liabilities for brokerage
<PAGE>
46
commissions or finder's or investment banker's fees incurred by reason of any
action on their or its behalf.
Section 11.13. Governing Law. This Agreement shall be governed by the
laws of the State of Georgia (regardless of the laws that might be applicable
under principles of conflicts of law) as to all matters, including but not
limited to matters of validity, construction, effect and performance.
SECTION 11.14. JURISDICTION AND WAIVER. THE PARTIES HERETO IRREVOCABLY
ELECT AS THE SOLE JUDICIAL FORUM FOR THE ADJUDICATION OF ANY MATTERS ARISING
UNDER OR IN CONNECTION WITH THIS AGREEMENT, AND CONSENT TO THE JURISDICTION OF,
THE COURTS OF GEORGIA. EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY
WHICH MAY ARISE UNDER THIS AGREEMENT IS LIKELY TO INVOLVE COMPLICATED AND
DIFFICULT ISSUES, AND THEREFORE EACH SUCH PARTY HEREBY IRREVOCABLY AND
UNCONDITIONALLY WAIVES ANY RIGHT SUCH PARTY MAY HAVE TO (I) A TRIAL BY JURY OR
(II) ANY PUNITIVE OR EXEMPLARY DAMAGES THAT MAY OTHERWISE BE AWARDED, IN
CONNECTION WITH ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING
TO THIS AGREEMENT OR ANY RELATED AGREEMENT, OR THE TRANSACTIONS CONTEMPLATED BY
THIS AGREEMENT OR ANY RELATED AGREEMENT. EACH PARTY CERTIFIES AND ACKNOWLEDGES
THAT (i) NO REPRESENTATIVE,
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47
AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE,
THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE
FOREGOING WAIVER, (ii) EACH SUCH PARTY UNDERSTANDS AND HAS CONSIDERED THE
IMPLICATIONS OF THIS WAIVER, (iii) EACH SUCH PARTY MAKES THIS WAIVER
VOLUNTARILY, AND (iv) EACH SUCH PARTY HAS BEEN INDUCED TO ENTER INTO THIS
AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS
SECTION 10.13.
IN WITNESS WHEREOF, each of the parties hereto has duly executed this
Agreement, as of the day and year first above written.
HARRY'S FARMERS MARKET, INC.
By /s/ Harry A. Blazer
--------------------------
Name: Harry A. Blazer
Title: Chairman, President and
Chief Executive Officer
HFMI ACQUISITION CORPORATION
By /s/ Saad J. Nadhir
--------------------------
Name: Saad J. Nadhir
Title: Chairman, President and
Chief Executive Officer
