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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 13D
Under the Securities Exchange Act of 1934
(AMENDMENT NO. 5)
QUALITY DINING, INC.
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(Name of Issuer)
COMMON STOCK, WITHOUT PAR VALUE 74756P 10 5
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(Title of class of securities (CUSIP number)
DAVID E. ZELTNER, ESQ.
WEIL, GOTSHAL & MANGES LLP
767 FIFTH AVENUE
NEW YORK, NY 10153
(212) 310-8000
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(Name, address and telephone number of person authorized to receive notices and
communications)
SEPTEMBER 3, 1997
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(Date of event which requires filing of this statement)
If the filing person has previously filed a statement on Schedule 13G to report
the acquisition which is the subject of this Schedule 13D, and is filing this
schedule because of Rule 13d-1(b)(3) or (4), check the following box [_].
Note: When filing this statement in paper format, six copies of this statement,
including exhibits, should be filed with the Commission. See Rule 13d-1(a) for
other parties to whom copies are to be sent.
Continued on Following Pages
Page 1 of 9 Pages
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<PAGE>
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CUSIP No. 74756P 10 5 13D Page 2 of 9
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1 NAME OF REPORTING PERSON: NORDAHL L. BRUE
S.S. OR I.R.S. IDENTIFICATION NO.
OF ABOVE PERSON:
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2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP: (A) [X]
(B) [_]
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3 SEC USE ONLY
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4 SOURCE OF FUNDS: 00
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5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED [_]
PURSUANT TO ITEM 2(d) OR 2(e):
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6 CITIZENSHIP OR PLACE OF UNITED STATES OF AMERICA
ORGANIZATION:
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NUMBER OF 7 SOLE VOTING POWER: 2,149,625*
SHARES
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BENEFICIALLY 8 SHARED VOTING POWER: 0
OWNED BY
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EACH 9 SOLE DISPOSITIVE POWER: 2,149,625*
REPORTING
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PERSON WITH 10 SHARED DISPOSITIVE POWER: 0
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11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY 2,149,625*
REPORTING PERSON:
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12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES [_]
CERTAIN SHARES:
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13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11): 12.7%
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14 TYPE OF REPORTING PERSON: IN
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*Includes 2,586 shares which Mr. Brue holds as custodian for his minor
child.
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CUSIP No. 74756P 10 5 13D Page 3 of 9
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1 NAME OF REPORTING PERSON: MICHAEL J. DRESSELL
S.S. OR I.R.S. IDENTIFICATION NO.
OF ABOVE PERSON:
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2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP: (A) [X]
(B) [_]
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3 SEC USE ONLY
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4 SOURCE OF FUNDS: 00
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5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED [_]
PURSUANT TO ITEM 2(d) OR 2(e):
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6 CITIZENSHIP OR PLACE OF UNITED STATES OF AMERICA
ORGANIZATION:
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NUMBER OF 7 SOLE VOTING POWER: 2,163,701
SHARES
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BENEFICIALLY 8 SHARED VOTING POWER: 0
OWNED BY
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EACH 9 SOLE DISPOSITIVE POWER: 2,163,701
REPORTING
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PERSON WITH 10 SHARED DISPOSITIVE POWER: 0
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11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY 2,163,701
REPORTING PERSON:
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12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES [_]
CERTAIN SHARES:
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13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11): 12.8%
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14 TYPE OF REPORTING PERSON: IN
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<PAGE>
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CUSIP No. 74756P 10 5 13D Page 4 of 9
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1 NAME OF REPORTING PERSON: STEVEN P. SCHONBERG
S.S. OR I.R.S. IDENTIFICATION NO.
OF ABOVE PERSON:
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2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP: (A) [X]
(B) [_]
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3 SEC USE ONLY
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4 SOURCE OF FUNDS: 00
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5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED [_]
PURSUANT TO ITEM 2(d) OR 2(e):
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6 CITIZENSHIP OR PLACE OF UNITED STATES OF AMERICA
ORGANIZATION:
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NUMBER OF 7 SOLE VOTING POWER: 11,724
SHARES
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BENEFICIALLY 8 SHARED VOTING POWER: 0
OWNED BY
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EACH 9 SOLE DISPOSITIVE POWER: 11,724
REPORTING
------------------------------------------------------
PERSON WITH 10 SHARED DISPOSITIVE POWER: 0
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11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY 11,724
REPORTING PERSON:
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12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES [_]
CERTAIN SHARES:
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13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11): LESS THAN
0.1%
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14 TYPE OF REPORTING PERSON: IN
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<PAGE>
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CUSIP No. 74756P 10 5 13D Page 5 of 9
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1 NAME OF REPORTING PERSON: DAVID T. AUSTIN
S.S. OR I.R.S. IDENTIFICATION NO.
OF ABOVE PERSON:
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2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP: (A) [X]
(B) [_]
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3 SEC USE ONLY
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4 SOURCE OF FUNDS: 00
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5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED [_]
PURSUANT TO ITEM 2(d) OR 2(e):
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6 CITIZENSHIP OR PLACE OF UNITED STATES OF AMERICA
ORGANIZATION:
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NUMBER OF 7 SOLE VOTING POWER: 3,809
SHARES
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BENEFICIALLY 8 SHARED VOTING POWER: 0
OWNED BY
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EACH 9 SOLE DISPOSITIVE POWER: 3,809
REPORTING
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PERSON WITH 10 SHARED DISPOSITIVE POWER: 0
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11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY 3,809
REPORTING PERSON:
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12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES [_]
CERTAIN SHARES:
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13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11): LESS THAN
0.1%
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14 TYPE OF REPORTING PERSON: IN
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<PAGE>
This Statement amends and supplements the respective
Statements on Schedule 13D, as amended (collectively, the "Schedule 13D"), filed
with the Securities and Exchange Commission (the "Commission") by each of
Nordahl L. Brue ("Brue"), Michael J. Dressell ("Dressell"), David T. Austin
("Austin"), and Steven P. Schonberg (collectively with Brue, Dressell and
Austin, the "Reporting Persons") with respect to their beneficial ownership of
shares of common stock, without par value (the "Common Stock"), of Quality
Dining, Inc., an Indiana corporation (the "Company"). Except as otherwise
provided herein, capitalized terms used in this Statement shall have the
meanings ascribed to them in the Schedule 13D prior to this amendment.
Item 4. Purpose of Transaction.
----------------------
On September 3, 1997, Brue and Dressell (collectively, the
"Holders") entered into a Share Exchange Agreement (the "Exchange Agreement")
with the Company and Bruegger's Corporation, a Delaware corporation and
wholly-owned subsidiary of the Company ("Bruegger's"), pursuant to which, upon
the terms and subject to the conditions set forth in the Exchange Agreement, the
Holders will exchange (the "Exchange") 4,310,740 shares of Common Stock owned by
them for all of the issued and outstanding shares of capital stock of Bruegger's
and, in connection therewith, the Holders have agreed that at the closing of the
Exchange, Bruegger's will repay an aggregate of $16 million of intercompany
indebtedness owed by Bruegger's to the Company and Bruegger's will issue to the
Company a subordinated promissory note in the original principal amount of $10
million (the "Subordinated Promissory Note"), which will bear interest at the
rate of 12% per annum and will mature and be payable on the seventh anniversary
of the closing of the Exchange. In addition, LETHE LLC, a Delaware limited
liability company established by the Holders and certain of their affiliates
("Lethe"), has entered into an Agreement and Plan of Merger, dated as of August
22, 1997 (the "Subsidiaries Merger Agreement" and, together with the Exchange
Agreement, the "Agreements"), with the Company and Bagel Disposition
Corporation, a Delaware corporation and wholly-owned subsidiary of the Company
("BDC"), pursuant to which, concurrently with the closing of the Exchange, BDC
will be merged with and into Lethe (the "Merger" and, together with the
Exchange, the "Transactions"). Pursuant to the Subsidiaries Merger Agreement,
prior to the Merger, Best Bagels, Inc., Bagel Acquisition Corporation, Mohold
Franchise Corporation and Mohold, Inc., each a subsidiary of the Company engaged
in the Bagel Business, will be merged with and into BDC so that, pursuant to the
Merger, Lethe will acquire and succeed to the respective business of each of
such companies. In consideration of the Merger, Lethe will pay to the Company an
aggregate of $4 million in cash.
Pursuant to the Agreements, the parties have made various
representations and warranties and have agreed to provide certain
indemnification to the other party or parties thereto. In addition, at the
closing of the Transactions Brue, Dressell and Austin will resign from the Board
of Directors of the Company.
Consummation of the Transactions is subject to the prior
satisfaction of certain conditions including, among other things, (i) expiration
of any applicable waiting period under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended, (ii) approval of the Transactions by the
Company's senior lenders and (iii) receipt by the Holders and Lethe of financing
pursuant to a certain commitment letter issued by BankBoston, N.A.
6
<PAGE>
Except as amended hereby, the Schedule 13D as in effect prior
to this amendment remains unchanged.
Item 6. Contracts, Arrangements, Understandings or
Relationships With Respect to Securities of the Issuer.
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The information set forth in response to Item 4 above is
incorporated herein by reference.
Item 7. Material To Be Filed As Exhibits.
--------------------------------
1. Share Exchange Agreement, by and among Quality Dining, Inc.,
Bruegger's Corporation, Nordahl L. Brue and Michael J.
Dressell, dated as of September 3, 1997.
2. Agreement and Plan of Merger, by and among Quality
Dining, Inc., Bagel Disposition Corporation and LETHE
LLC, dated as of September 3, 1997.
7
<PAGE>
SIGNATURES
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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.
Dated: September 4, 1997
By: /s/ Nordahl L. Brue
--------------------
Nordahl L. Brue
By: /s/ Michael J. Dressell
--------------------
Michael J. Dressell
By: /s/ Steven P. Schonberg
--------------------
Steven P. Schonberg
By: /s/ David T. Austin
--------------------
David T. Austin
8
<PAGE>
EXHIBIT INDEX
1. Share Exchange Agreement, by and among Quality Dining, Inc.,
Bruegger's Corporation, Nordahl L. Brue and Michael J.
Dressell, dated as of September 3, 1997.
2. Agreement and Plan of Merger, by and among Quality
Dining, Inc., Bagel Disposition Corporation and LETHE
LLC, dated as of September 3, 1997.
9
Exhibit 1
SHARE EXCHANGE AGREEMENT
BY AND AMONG
QUALITY DINING, INC.,
BRUEGGER'S CORPORATION,
NORDAHL L. BRUE
AND
MICHAEL J. DRESSELL
DATED AS OF
SEPTEMBER 3, 1997
<PAGE>
TABLE OF CONTENTS
Page
1. Definitions; Rules of Construction.............................. 2
(a) Certain Definitions.................................... 2
(b) Rules of Construction..................................11
2. Exchange of Brueggers Shares; Closing...........................12
3. Net Working Capital Adjustment..................................13
(a) Estimated Adjustment...................................13
(b) Preparation and Delivery of Proposed Final Closing Date
Balance Sheet..........................................14
(c) Resolution of Disagreement.............................15
(d) Cooperation............................................17
4. Representations and Warranties of QDI...........................17
(a) Organization, Etc......................................17
(b) Authorization; Execution; Binding Effect...............18
(c) Capitalization.........................................19
(d) No Conflicting Agreements or Charter Provisions........20
(e) Litigation.............................................21
(f) Environmental Matters..................................21
(g) Bagel Companies........................................22
(h) Audited Financial Statements...........................23
(i) No Undisclosed Liabilities.............................23
(j) Default................................................23
(k) Compliance with Laws...................................24
(l) No Adverse Changes.....................................25
(m) Intellectual Property..................................27
(n) Certain Transactions...................................29
(o) Pension and Benefit....................................29
(p) Tax Matters............................................31
(q) Material Contracts.....................................33
(r) Insurance..............................................35
(s) Labor Matters..........................................36
(t) Real Property; Leases of Real Property.................37
(u) Personal Property......................................37
(v) Title to Assets........................................38
(w) Brokers and Finders....................................38
(x) Excluded Stores........................................38
5. Representations and Warranties of the Holders...................38
(a) Ownership..............................................38
(b) Execution; Binding Effect..............................39
(c) No Conflicting Provisions..............................39
(d) Investment Representations.............................40
(e) Litigation.............................................40
(f) Brokers and Finders....................................41
(g) Financing Commitments..................................41
6. Conditions to the Obligations of the Holders and QDI............41
7. Additional Conditions to the Obligation of QDI..................41
(a) Representations and Warranties.........................42
(b) Performance............................................42
(c) Absence of Proceedings.................................42
(d) TCB Credit Agreement...................................42
<PAGE>
(e) Transitional Services Agreement....................... 43
(f) Closing under the Subsidiary Merger Agreement......... 43
(g) Opinion of the Holders' Special Counsel............... 43
(h) Tax Certificate....................................... 43
(i) QDI Shares............................................ 43
(j) Resignation of Directors.............................. 43
(k) Releases.............................................. 43
(l) Subordinated Note..................................... 44
(m) Repayment of Intercompany Debt........................ 44
(n) Escrow Agreement...................................... 44
(o) Franchisee Claim Guarantee............................ 44
(p) Other Matters......................................... 44
8. Additional Conditions to the Obligations of the Holders............. 45
(a) Representations and Warranties........................ 45
(b) Performance........................................... 45
(c) Absence of Proceedings................................ 46
(d) Resignations.......................................... 46
(e) Transitional Services Agreement....................... 46
(f) Closing under the Subsidiary Merger Agreement......... 46
(g) Termination of Certain Employees...................... 46
(h) Brueggers Shares...................................... 46
(i) Financing............................................. 47
(j) TCB Credit Agreement.................................. 47
(k) Good Standings; etc................................... 47
(l) Officer's Certificate of QDI.......................... 47
(m) Releases.............................................. 48
(n) Assumption of Obligations Relating to Excluded Assets. 48
(o) Tax Certificate....................................... 48
(p) Opinion of the Counsel to QDI......................... 48
(q) No Indebtedness....................................... 48
(r) Termination of Certain Contracts...................... 49
(s) Other Matters......................................... 49
9. Covenants of QDI.................................................... 49
(a) Conduct of Business................................... 49
(b) Access to Documents; Opportunity to Ask Questions..... 50
(c) Cooperation with the Holders.......................... 51
(d) Regulatory Approvals and Other Consents............... 51
(e) Reasonable Commercial Efforts......................... 51
(f) Supplements........................................... 52
(g) Settlements and Directors' and Officers' Liability
Insurance............................................. 52
(h) Consent of TCB........................................ 53
10. Covenants of the Holders....................................... 53
(a) Cooperation with QDI.................................. 53
(b) Regulatory Approvals and Other Consents............... 54
(c) Reasonable Commercial Efforts......................... 54
(d) Employee Benefits..................................... 54
(e) Settlements........................................... 55
(f) Funding Escrow Account................................ 55
11. Publicity; Confidentiality; Preservation of Records............ 56
12. Indemnification................................................ 58
(a) QDI Indemnification................................... 58
(b) Holders/Brueggers Indemnification..................... 60
(c) Procedures for Claims................................. 61
<PAGE>
(d) Certain Limitations on Remedies....................... 64
(e) Indemnifiable Franchisee Claims....................... 64
(f) Other Matters......................................... 68
(g) Allocations........................................... 69
13. Tax Indemnification and Other Matters.......................... 70
14. Termination.................................................... 76
15. Notices........................................................ 77
16. Non-Competition................................................ 78
17. General........................................................ 79
(a) Entire Agreement...................................... 79
(b) Survival.............................................. 79
(c) Further Assurances.................................... 80
(d) Amendment; Waiver..................................... 80
(e) Binding Effect; Assignment............................ 80
(f) Section Headings...................................... 81
(g) Governing Law......................................... 81
(h) Severability.......................................... 81
(i) Expenses.............................................. 81
(j) Counterparts.......................................... 81
(k) No Third Party Beneficiaries.......................... 81
(l) Tax Certificates...................................... 82
Annex I The Bagel Companies
Annex II Agreed Procedures
Annex III QDI Responsibility Employees
Annex IV Excluded Stores
Annex V Benefit Plans to be Provided to Bagel Employees by the Bagel
Companies Post-Closing
Annex VI Franchisee Claims for which QDI Receives Credit Towards
Indemnifiable Franchisee Claims
Exhibit A Subordinated Note
Exhibit B Transitional Services Agreement
Exhibit C Opinion of Weil, Gotshal & Manges LLP
Exhibit D Tax Certificate
Exhibit E Releases of QDI and Fitzpatrick by each of Brue, Dressell and
Austin
Exhibit F-1 Escrow Agreement
Exhibit F-2 Franchisee Claim Guarantee
Exhibit G Releases of Brue, Dressel, Austin and Schonberg by QDI and
Fitzpatrick
Exhibit H Assumption Agreement
Exhibit I Opinion of Baker & Daniels
Exhibit J Opinion of Milbank, Tweed, Hadley & McCloy
Exhibit K Opinion of the General Counsel of QDI
<PAGE>
SHARE EXCHANGE AGREEMENT
------------------------
THIS SHARE EXCHANGE AGREEMENT (this "Agreement"), dated as of
September 3, 1997, by and among Quality Dining, Inc., an Indiana corporation
("QDI"), Bruegger's Corporation, a Delaware corporation wholly owned by QDI
("Brueggers"), Nordahl L. Brue, an individual ("Brue"), and Michael J. Dressell,
an individual ("Dressell" and, collectively with Brue, the "Holders").
W I T N E S S E T H:
WHEREAS, QDI, through certain of its direct and indirect
subsidiaries (including Brueggers) listed on Annex I hereto (collectively with
Brueggers, the "Bagel Companies"), are engaged in the business of franchising,
owning and operating Brueggers bagel bakeries throughout the United States (the
"Bagel Business"); and
WHEREAS, the Holders own an aggregate of 4,310,740 shares (the
"QDI Shares") of common stock, no par value, of QDI ("QDI Common Stock"); and
WHEREAS, QDI desires to exchange all of the issued and
outstanding shares of common stock, par value $.01 per share, of Brueggers (the
"Brueggers Shares") for the QDI Shares owned by the Holders and the Holders
desire to so exchange the QDI Shares for the Brueggers Shares, all in accordance
with the terms and subject to the conditions hereinafter set forth; and
WHEREAS, as of the date hereof, LETHE LLC, a Delaware limited
liability company whose members include Affiliates (as hereinafter defined) of
the Holders ("LETHE"), Bagel Disposition Corporation, a Delaware corporation and
wholly-owned subsidiary of QDI ("BDC"), and QDI have entered into the Agreement
and Plan of Merger, pursuant to which, upon the
<PAGE>
terms and subject to the conditions thereof, each of the Direct Subsidiaries (as
hereinafter defined) will merge with and into BDC and, immediately thereafter,
BDC will merge with and into LETHE (the "Subsidiary Merger Agreement");
NOW, THEREFORE, in consideration of the foregoing premises and
the mutual covenants hereinafter contained, the parties hereto, intending to be
legally bound, hereby agree as follows:
1. Definitions; Rules of Construction.
----------------------------------
(a) Certain Definitions. The following terms, as used
herein, have the following meanings:
"Acquired Company" has the meaning set forth in Section 16.
"Affiliate" means, as to any Person, any other Person which,
directly or indirectly, controls, is controlled by or is under common control
with such Person. For the purposes of this definition and of the definition of
Subsidiary, "control" means the possession of the power to direct or cause the
direction of management and policies of such Person, whether through the
ownership of voting securities, by contract or otherwise.
"Affiliate Franchise Fees" means franchise fees received by
BFC from "Bruegger's" bagel stores owned by the Holders, Brueggers, Lethe or any
of their respective Affiliates from and after the Closing Date.
"Agreed Procedures" shall mean the procedures set forth in
Annex II hereto.
"Apollo Investment Agreement" shall mean that certain
Investment agreement dated as of February 14, 1997 among Apollo Investment Fund
III, L.P., Apollo Overseas Partners III, L.P. and Apollo (UK) Partners III, L.P.
(collectively, the "Apollo Parties").
<PAGE>
"Audited Financial Statements" means the audited combined
Statement of Net Assets to be Sold and the audited combined Statement of
Revenues and Direct Operating Expenses of the Bagel Companies as of May 11, 1997
and for the two fiscal quarters then ended.
"Austin" means David T. Austin, an individual.
"Bagel Business" has the meaning set forth in the forepart of
this Agreement.
"Bagel Companies" has the meaning set forth in the forepart of
this Agreement.
"Bagel Employee" has the meaning set forth in Section 4(s).
"Bagel Subsidiaries" means all of the Bagel Companies other
than the Direct Subsidiaries and BDC.
"BDC" has the meaning set forth in the forepart of this
Agreement.
"Benefit Plans" has the meaning set forth in Section 4(o)(i).
"BFC" has the meaning set forth in Section 10(f).
"Brue" has the meaning set forth in the forepart of this
Agreement.
"Brueggers" has the meaning set forth in the forepart of this
Agreement.
"Brueggers Acquisition Date" means June 7, 1996.
"Brueggers Common Stock" has the meaning set forth in
Section 4(c).
"Brueggers Intellectual Property Rights" has the meaning set
forth in Section 4(m)(iii).
"Brueggers Shares" has the meaning set forth in the forepart
of this Agreement.
<PAGE>
"Business Day" means any day other than Saturday, Sunday and
any day on which banks are required or authorized to close in New York City.
"Closing" has the meaning set forth in Section 2(b).
"Closing Date" has the meaning set forth in Section 2(b).
"Code" means the Internal Revenue Code of 1986, as amended.
"Competing Business" has the meaning set forth in Section 16.
"Contract" means any contract, agreement, lease, indenture,
note, bond, loan agreement, instrument, lien, conditional sales contract,
mortgage, license, franchise, insurance policy, commitment or other binding
understanding or arrangement. "Damages" has the meaning set forth in Section
12(a).
"Direct Subsidiaries" means Bagel Acquisition Corporation, an
Indiana corporation, Best Bagels, Inc., an Indiana corporation, Mohold
Franchise Corporation, an Indiana corporation, and Mohold Inc., a Colorado
corporation.
"Dressell" has the meaning set forth in the forepart of this
Agreement.
"ERISA" means the Employee Retirement Income Security Act of
1974 (or any successor legislation thereto), as amended from time to time.
"Environmental Laws" has the meaning set forth in Section
4(f).
"Escrow Account" has the meaning set forth in Section 10(f).
"Escrow Agent" has the meaning set forth in Section 7(n).
"Escrow Agreement" has the meaning set forth in Section 7(n).
"Estimated Closing Date Balance Sheet" has the meaning set
forth in Section 3(a).
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
<PAGE>
"Excluded Accounts Receivable" means each account receivable
relating to the Bagel Business that is over seventy-five (75) days old on the
Closing Date and for which there is no written agreement for repayment which
provides that at least fifty percent (50%) of the amount then due will be paid
within six (6) months of the Closing and the remaining amount will be paid
within one (1) year of the Closing; provided that "Excluded Accounts Receivable"
shall not include any accounts receivable due from either of the Holders or any
of their respective Affiliates.
"Excluded Assets" means (i) all leases and other assets in
respect of the Excluded Stores and the Burlington, Vermont regional office of
Brueggers, (ii) the Franchisee Promissory Note and (iii) the Excluded Accounts
Receivable.
"Excluded Liabilities" means all liabilities and other
obligations, whether known or unknown, fixed or contingent, liquidated or
unliquidated, accrued or unaccrued, in respect of (i) the Excluded Assets, (ii)
the Apollo Investment Agreement, (iii) any employee benefit plans subject to
Code Section 412 or Title IV of ERISA which, as of the Closing Date, are, or
within the preceding six years were, maintained or contributed to by QDI or any
of its Affiliates, (iv) Severance Expenses related to Bagel Employees terminated
(A) prior to the Closing or (B) by any of the Bagel Companies following the
Closing if such employees were QDI Responsibility Employees on the Closing Date
but are not listed on Annex III hereto, (v) liabilities in respect of the
Benefit Plans as of the Closing Date, (vi) the Florida Guarantee, (vii) the Finn
Employment Agreement and (viii) workers compensation arising under or in
connection with any Bagel Employee's employment with any of the Bagel Companies
on or prior to the Closing Date.
<PAGE>
"Excluded Stores" means all stores or commissaries that (i)(A)
were intended to be used in the Bagel Business or (B) were used in the Bagel
Business and (ii) were not open and operating on the date hereof, which stores
are listed on Annex IV hereto.
"Final Closing Date Balance Sheet" has the meaning set forth
in Section 3(b).
"Financing Commitments" means the commitments for financing
delivered by the Holders concurrently with the execution and delivery of this
Agreement.
"Finn Employment Agreement" shall mean any contract between
Stephen Finn and QDI or any of its Subsidiaries.
"Fitzpatrick" means Daniel Fitzpatrick, an individual.
"Florida Guarantee" means that certain $4.5 million guarantee
by QDI or its Subsidiaries of certain obligations of BFBC Ltd.
"Franchisee Claim Guarantee" has the meaning set forth in
Section 7(o).
"Franchisee Claims" means (i) any claim, action, suit or
proceeding pending on the date hereof (including the prior proceeding brought by
the franchisee of the Bagel Business listed on Schedule 1(a)) or (ii) any claim
threatened or asserted or any action, suit or proceeding (at law or in equity,
in any court of competent jurisdiction) which is commenced against QDI, any of
the Bagel Companies or either of the Holders or any of their respective
Affiliates on or after the date hereof and on or prior to the eighteenth-month
anniversary of the Closing Date, in each case, by a current or former
franchisee, or its Affiliates, of the Bagel Business which arises out of or
relates to any of the following, in each case, occurring prior to the Closing
Date: (A) the operation of the Bagel
<PAGE>
Business, (B) alleged violation of franchise or securities laws in connection
with the purchase and sale of franchises, (C) breach of promise to purchase the
franchisee's business or lend money to the franchisee or (D) common law fraud.
"Franchisee Promissory Note" means the promissory note issued
by the franchisee of the Bagel Business to QDI listed on Schedule 1(a).
"GAAP" means generally accepted accounting principles in the
United States of America as in effect from time to time set forth in the
opinions and pronouncements of the Accounting Principles Board and the American
Institute of Certified Public Accountants and the statements and pronouncements
of the Financial Accounting Standards Board, or in such other statements by such
other entity as may be in general use by significant segments of the accounting
profession, which are applicable to the circumstances as of the date of
determination.
"Governmental Body" means any government or governmental or
regulatory body of any country or any political subdivision thereof (whether
federal, state, local or foreign), any agency, instrumentality or authority of
any such government, any court of competent jurisdiction or any arbitrator.
"Guarantors" has the meaning set forth in Section 7(o).
"Hart-Scott Act" means the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended.
"Holders" has the meaning set forth in the forepart of this
Agreement.
"Indemnifiable Franchisee Claims" means Franchisee Claims in
respect of which the aggregate Damages payable by the Indemnified Parties
<PAGE>
do not exceed $14,000,000 (without giving effect to insurance recoveries as
provided in Section 12(e)).
"Indemnified Party" has the meaning set forth in
Section 12(c)(ii).
"Indemnifying Party" has the meaning set forth in
Section 12(c)(ii).
"Independent Accountants" has the meaning set forth in
Section 3(c).
"Intellectual Property Right" means any trademark, service
mark, trade name, invention, patent, trade secret, copyright, know-how
(including any registrations or applications for registration of any of the
foregoing), or any other similar type of proprietary intellectual property
right.
"Inventory" means all inventory, merchandise, goods and other
personal property owned by the Bagel Companies which are held for sale.
"IRS" means the United States Internal Revenue Service.
"LETHE" has the meaning set forth in the forepart of this
Agreement.
"Lien" means any mortgage, claim, encumbrance, deed of trust,
pledge, hypothecation, assignment, deposit arrangement, encumbrance, lien
(statutory or other), security interest or preference, priority or other
security agreement.
"Litigation Certificate" has the meaning set forth in Section
12(e).
"Material Adverse Effect" means a material adverse effect on
the financial condition, results of operations, assets, liabilities, business or
properties of the Bagel Companies, considered as a whole.
<PAGE>
"Net Working Capital" means (A) the sum of accounts receivable
(minus Excluded Accounts Receivable), inventory, prepaid expenses, deposits
(excluding any amounts historically reflected as pre-opening expenses), less (B)
the sum of accounts payable, accrued expenses, unearned income, capitalized
lease obligations and any other noncurrent liabilities, in each case excluding
the Franchisee Promissory Note and any working capital items relating to
Excluded Stores, all as reflected on the Final Closing Date Balance Sheet.
"OSHA" means the federal Occupational Safety and Health Act
and any similar state or local statutes.
"PBGC" means the Pension Benefit Guaranty Corporation, or any
successor thereto.
"Person" means any individual, corporation, partnership, firm,
joint venture, association, joint-stock company, trust, unincorporated
organization, Governmental Body or other entity.
"Prevailing Rate" means the rate announced from time to time
by Chase Manhattan Bank as its prime rate.
"QDI" has the meaning as set forth in the forepart of this
Agreement.
"QDI Consolidated or Combined Returns" has the meaning set
forth in Section 13(c)(i).
"QDI Responsibility Employees" shall mean all Persons who are
or were employees of the Bagel Companies on or prior to the Closing Date, other
than those who are employed as of the Closing Date at the store or commissary
level (except at Excluded Stores) or as district managers.
"Schonberg" means Steven P. Schonberg, an individual.
"Securities Act" means the Securities Act of 1933, as amended.
<PAGE>
"Settlement Certificate" has the meaning set forth in Section
12(f).
"Severance Expenses" means all liabilities or obligations
arising under or in connection with, and all expenses relating to, the
termination of employment of any employee of any of the Bagel Companies,
including, without limitation, liabilities or obligations with respect to: (i)
any and all Benefits Plans, (ii) severance benefits required to be made to such
individuals, (iii) liabilities under WARN, (iv) group health continuation
requirements of Section 4980B of the Code and Part 6 of Title I of ERISA, (v)
any deferred compensation plan, program, agreement, arrangement or the like
operated by any of the Bagel Companies, and (vi) workers compensation arising
under or in connection with such terminated employee's employment with any of
the Bagel Companies on or prior to the Closing Date.
"Statement" has the meaning set forth in Section 13(c)(iii).
"Subordinated Note" means the junior subordinated promissory
note to be issued by Brueggers to QDI pursuant to this Agreement in the
principal amount of $10 million, such note to be in the form of Exhibit A
hereto.
"Subsidiary" means, with respect to any Person, any other
Person which is, directly or indirectly, controlled by such Person. For purposes
of this Agreement each of the Bagel Companies shall be deemed a "Subsidiary" of
QDI.
"Subsidiary Merger Agreement" has the meaning set forth in the
forepart of this Agreement.
"Tax Certificate" has the meaning set forth in Section 7(h).
<PAGE>
"Tax Laws" means the Code, any federal, state, county or local
laws relating to Taxes and any regulations or official administrative
pronouncements released thereunder.
"Tax Returns" means any report, return, statement or other
information required to be supplied to a taxing authority in connection with
Taxes.
"Taxes" means all taxes, charges, fees, levies, or other
similar assessments, including (a) income, gross receipts, ad valorem, premium,
excise, real property, personal property, windfall profit, sales, use, transfer,
licensing, withholding, employment, payroll, alternative or add-on minimum tax,
estimated and franchise taxes imposed by the United States of America, any
state, local or foreign government, or any subdivision, agency or other similar
Person of the United States or any such government; and (b) any interest, fines,
penalties, assessments or additions to tax resulting from, attributable to or
incurred in connection with any such tax or any contest or dispute thereof.
"TCB" means Texas Commerce Bank National Association.
"TCB Credit Agreement" shall mean that certain Amended and
Restated Revolving Credit Agreement dated as of April 26, 1996, as amended,
between QDI, BF Holding, Inc. and GAGHC, Inc., as Borrowers, the banks party
thereto and TCB, as Agent.
"Third Party Licenses" has the meaning set forth in
Section 4(m)(ii).
"Third Person Assertion" has the meaning set forth in
Section 12(c)(ii).
"Transitional Services Agreement" has the meaning set forth in
Section 7(e).
<PAGE>
"WARN" means the Worker Adjustment and Retraining Notification
Act.
(b) Rules of Construction. As used in this Agreement, neutral
pronouns and any variations thereof shall be deemed to include the feminine and
masculine and all terms used in the singular shall be deemed to include the
plural, and vice versa, as the context may require. The words "herein,"
"hereof," "hereto" and "hereunder" and other words of similar import refer to
this Agreement as a whole, including the Schedules and Exhibits hereto, as the
same may from time to time be amended or supplemented. The word "including" when
used herein is not intended to be exclusive and means "including, without
limitation." References herein to a Section, subsection, clause, Schedule or
Exhibit shall refer to the appropriate Section, subsection, clause, Schedule or
Exhibit in or to this Agreement. References herein to "days" shall mean calendar
days unless the term "Business Days" is used.
2. Exchange of Brueggers Shares; Closing.
-------------------------------------
(a) At the Closing and pursuant to the terms and subject to
the conditions set forth in this Agreement, (i) QDI shall transfer, assign and
deliver 49.81% of the Brueggers Shares to Brue and 50.19% of the Brueggers
Shares to Dressell by delivery of certificates representing the Brueggers
Shares, in genuine and unaltered form, duly endorsed in blank or accompanied by
duly executed stock powers endorsed in blank, with requisite stock transfer
stamps, if any, attached, and (ii) the Holders shall transfer, assign and
deliver the QDI Shares to QDI in exchange for the Brueggers Shares by delivery
of certificates representing the QDI Shares, in genuine and unaltered form, duly
endorsed in blank or accompanied by
<PAGE>
duly executed stock powers endorsed in blank, with requisite stock transfer
stamps, if any, attached.
(b) The closing of the exchange of the QDI Shares for the
Brueggers Shares as provided herein (herein referred to as the "Closing") shall
take place at the offices of Milbank, Tweed, Hadley & McCloy, 1 Chase Manhattan
Plaza, New York, New York 10005 on the second Business Day following
satisfaction of the conditions set forth in Sections 6, 7 and 8, or at such
other date and time and/or such other place as the Holders and QDI shall
mutually agree (the "Closing Date").
(c) All proceedings taken and all documents executed and
delivered by the parties at the Closing shall be deemed taken and executed
simultaneously, and no proceedings shall be deemed taken nor any documents
executed or delivered until all have been taken, executed and delivered.
(d) At the Closing, QDI and the Holders will deliver, or cause
to be delivered, all stock certificates, opinions, officer's certificates and
other documents to be delivered by them in order to satisfy the conditions
precedent set forth in Sections 7 and 8.
3. Net Working Capital Adjustment.
------------------------------
(a) Estimated Adjustment. At least ten (10) days prior to the
Closing Date, QDI shall deliver to Holders a balance sheet (not including
Excluded Assets) reflecting its good faith estimate of the financial condition
of the Bagel Companies as of the Closing Date (the "Estimated Closing Date
Balance Sheet"), together with a certificate of QDI's chief financial officer or
chief accounting officer stating that such Estimated Closing Date Balance Sheet
was prepared on a basis consistent with the audited Statement of Net Assets to
be Sold included in the Audited Financial Statements and the Agreed Procedures.
QDI shall make available
<PAGE>
to the Holders and their accountants all corporate records, books of account,
work papers and other documents used in, and shall allow the Holders'
accountants to observe, the preparation of the Estimated Closing Date Balance
Sheet, and shall cause the managerial employees, accountants and advisors of QDI
to assist the Holders and their accountants in their review thereof. At the
Closing, if the Net Working Capital based on the Estimated Closing Date Balance
Sheet is positive, Brueggers shall pay to QDI the amount thereof or, if the Net
Working Capital based on the Estimated Closing Date Balance Sheet is negative,
QDI shall pay to Brueggers the amount thereof. Within five (5) Business Days
after the final determination of the Net Working Capital in accordance with
Sections 3(b) and (c), if the Net Working Capital based on the Final Closing
Date Balance Sheet exceeds the Net Working Capital based on the Estimated
Closing Date Balance Sheet, Brueggers shall pay to QDI the amount of such excess
or, if the Net Working Capital based on the Estimated Closing Date Balance Sheet
exceeds the Net Working Capital based on the Final Closing Date Balance Sheet,
QDI shall pay to Brueggers the amount of such excess, in either case together
with interest on the amount of such payment from the Closing Date to and
including the date such payment is made at the Prevailing Rate in effect from
time to time during the period from the Closing Date to the date of payment. Any
amount payable pursuant to the immediately preceding sentence shall be paid by
wire transfer of immediately available funds to a single account which is
designated in writing by the party entitled to receive such payment to the other
party not later than three (3) Business Days prior to the date such payment is
due. QDI acknowledges and agrees that neither (i) the Holders' failure to object
to the Estimated Closing Date Balance Sheet, the Net Working Capital
<PAGE>
reflected thereon or any component thereof, nor (ii) the making of any payment
with respect to Net Working Capital at the Closing in accordance with Section
3(a), shall be construed as the Holders' agreement with the Estimated Closing
Balance Sheet, the determination of such Net Working Capital or any such
component, and shall be without prejudice to the final determination of the Net
Work Capital in accordance with Sections 3(b) and (c).
(b) Preparation and Delivery of Proposed Final Closing Date
-------------------------------------------------------
Balance Sheet. As soon as reasonably practicable but in no event later than
- -------------
forty five (45) days after the Closing Date, QDI shall prepare a proposed
balance sheet (not including Excluded Accounts Receivable) reflecting the
financial condition of the Bagel Companies as of the Closing Date (the "Final
Closing Date Balance Sheet") and deliver it to the Holders, together with a
report of Coopers & Lybrand, QDI's accountants, stating that such proposed Final
Closing Date Balance Sheet was prepared on a basis consistent with the audited
Statement of Net Assets to be Sold included in the Audited Financial Statements
and the Agreed Procedures. Coopers & Lybrand will make available to the Holders
all work papers including those relating to account balances with actual
variances in samples and projected variances on populations, adjusting entries
and past adjusting entries, except for those work papers which cannot be
disclosed because of firm policy. Coopers & Lybrand, for purposes of the working
capital portion of the audit, will not use a materiality threshold of greater
than $100,000. If the Holders disagree with the determination of the Net Working
Capital based on the Final Closing Date Balance Sheet or the computation of any
component thereof (provided such disagreement is limited strictly to whether the
Final Closing Date Balance Sheet was
<PAGE>
prepared on a basis consistent with the audited Statement of Net Assets to be
Sold included in the Audited Financial Statements and the Agreed Procedures),
the Holders may, at any time on or before thirty (30) days after the delivery of
such proposed Final Closing Date Balance Sheet, deliver a written notice to QDI
setting forth in reasonable detail the Holders' disagreement with such
determination or any such computation. In the event the Holders do not furnish a
notice of disagreement in accordance with this Section 3(b) within such 30-day
period, the proposed Final Closing Date Balance Sheet shall constitute the Final
Closing Date Balance Sheet for purposes hereof, and shall not be subject to
further challenge by any of the parties hereto.
(c) Resolution of Disagreement. If a notice of disagreement
--------------------------
shall be duly delivered by the Holders to QDI pursuant to Section 3(b), the
parties shall, during the thirty (30) days following such delivery, use their
reasonable commercial efforts to resolve any and all disputed items or amounts
and agree in writing upon the Final Closing Date Balance Sheet for purposes
hereof. In the event that the parties shall for any reason be unable to agree in
writing upon the Final Closing Date Balance Sheet within such 30-day period,
either party shall have the right, exercisable by written notice to the other,
to request that the items or amounts remaining in dispute be submitted to Arthur
Andersen LLC, a firm of independent accountants (the "Independent Accountants"),
and such dispute shall be submitted to the Independent Accountants within ten
(10) Business Days after such written notice. In the event that Arthur Andersen
LLC shall fail or for any reason refuse to serve as the Independent Accountants
for purposes hereof, QDI and the Holders shall promptly choose another mutually
acceptable firm of independent accountants of nationally recognized
<PAGE>
standing (who shall not have any material relationship with QDI or the Holders
or their respective Affiliates) to serve as the Independent Accountants for
purposes of this Section 3(c) (and, in the event that the parties fail or are
unable to select such a firm within ten (10) Business Days after the written
request by either party to the other, such a firm shall be selected in
accordance with rules of the American Arbitration Association) and the dispute
shall be submitted to the Independent Accountants subsequently selected promptly
after such selection. The Independent Accountants shall consider only those
items or amounts in the proposed Final Closing Date Balance Sheet that are in
dispute, and the Holders and QDI shall cause the Independent Accountants to have
access to such books, records and work papers of QDI and the Bagel Companies and
their accountants as the Independent Accountants deem necessary or appropriate
to resolve those items or amounts in dispute. The Independent Accountants shall
be instructed to determine all items and amounts in dispute and to deliver to
QDI and the Holders, as promptly as practicable and no later than thirty (30)
days after the dispute has been submitted to such Independent Accountants, a
written report setting forth such determination, which determination shall be
final and binding upon the parties hereto. The proposed Final Closing Date
Balance Sheet, as modified by any agreement of the parties pursuant to this
Section 3(c) or determination of the Independent Accountants, shall constitute
the Final Closing Date Balance Sheet, and shall not be subject to further
challenge by any of the parties hereto. The cost of the Independent Accountants
shall be borne equally by QDI and Brueggers.
(d) Cooperation. The parties hereto agree that they
-----------
will, and will use reasonable commercial efforts to cause their respective
<PAGE>
accountants to, cooperate with and assist each other in the preparation and
review of the proposed Final Closing Date Balance Sheet pursuant to this Section
3, including making available on a confidential basis, to the extent necessary
or appropriate, all of their and their Affiliates', and their respective
accountants', books, records, work papers and personnel (subject, in the case of
any firm of independent accountants, to such firm's policies).
4. Representations and Warranties of QDI. QDI hereby
-------------------------------------
represents and warrants to the Holders, and from and after the Closing, the
Bagel Companies as follows:
(a) Organization, Etc. Each of QDI and the Bagel Companies is
-----------------
a corporation duly incorporated, validly existing and in good standing as a
corporation under the laws of its jurisdiction of incorporation and has all
requisite corporate power and authority (i) to conduct its business as it is now
conducted and (ii) to own or lease all of the properties owned or leased by it.
True, correct and complete copies of the certificate of incorporation and
by-laws of each of the Bagel Companies (together with all amendments thereto and
restatements thereof as of the date hereof) have been previously delivered to
the Holders. Each of the Bagel Companies is duly qualified to do business as a
foreign corporation and is in good standing in all jurisdictions in which the
ownership or lease of property by it or the conduct of its business makes such
qualification necessary, except where the failure to be so qualified would not
have a Material Adverse Effect.
(b) Authorization; Execution; Binding Effect. (i) QDI
----------------------------------------
has full corporate power and authority to execute and deliver this Agreement and
the Subsidiary Merger Agreement and to perform its obligations hereunder and
<PAGE>
thereunder to consummate the transactions contemplated hereby and thereby. The
execution, delivery and performance of this Agreement and the Subsidiary Merger
Agreement by QDI and the consummation by QDI of the transactions provided for
herein and therein have been duly authorized by all necessary corporate action
on the part of QDI, including approval of the Subsidiary Merger Agreement by QDI
as the sole stockholder of BDC and each of the Direct Subsidiaries. This
Agreement and the Subsidiary Merger Agreement have been duly and validly
executed and delivered by QDI and (assuming the due authorization, execution and
delivery by the Holders and LETHE) constitute the legal, valid and binding
obligations of QDI, enforceable against QDI in accordance with their terms,
except as enforceability may be limited by bankruptcy, insolvency,
reorganization or other laws affecting creditors' rights and remedies generally
and by general principles of equity (regardless of whether such enforceability
is considered in a proceeding in equity or at law).
(ii) BDC and each of the Direct Subsidiaries has
full corporate power and authority to execute and deliver the Subsidiary Merger
Agreement and to perform its obligations thereunder and to consummate the
transactions contemplated thereby. The execution, delivery and performance of
the Subsidiary Merger Agreement by BDC and the Direct Subsidiaries and the
consummation by BDC and the Direct Subsidiaries of the transaction provided for
therein have been duly authorized by all necessary corporate action on the part
of each of BDC and the Direct Subsidiaries and QDI as sole stockholder of BDC
and each Direct Subsidiary. The Subsidiary Merger Agreement has been duly and
validly executed and delivered by each of BDC and the Direct Subsidiaries and
(assuming the due authorization, execution and delivery by LETHE and Sub)
constitutes the legal, valid and binding
<PAGE>
obligation of each of BDC and the Direct Subsidiaries, enforceable against each
of BDC and the Direct Subsidiaries in accordance with its terms, except as
enforceability may be limited by bankruptcy, insolvency, reorganization or other
laws affecting creditors' rights and remedies generally and by general
principles of equity (regardless of whether such enforceability is considered in
a proceeding in equity or at law).
(c) Capitalization. The authorized capital stock of Brueggers
--------------
consists of 5,250,000 shares of common stock, par value $.01 per share
("Brueggers Common Stock"), of which there are 100 shares issued and
outstanding, all of which shares are fully paid and non-assessable and have been
duly authorized and validly issued to QDI. None of the Brueggers Shares has been
issued in violation of any preemptive rights or any federal or state securities
law. Brueggers does not have any other voting or equity securities or interests.
Except for this Agreement, there is no existing subscription, option, warrant,
call, right, commitment or other agreement to which QDI, Brueggers or any of
their Affiliates is a party requiring, and there are no convertible or
exchangeable securities of Brueggers outstanding which upon conversion or
exchange would require, directly or indirectly, the issuance of any additional
shares of Brueggers Common Stock or other capital stock of Brueggers. There are
no outstanding contractual obligations of Brueggers to sell or otherwise dispose
of or to repurchase, redeem or otherwise acquire any outstanding capital stock
of Brueggers. There are no preemptive rights in respect of the shares of
Brueggers Common Stock. QDI is the record and beneficial owner of all of the
Brueggers Shares, free and clear of any Lien and, subject to applicable federal
and state securities laws, free of any other limitation or restriction
(including any restriction on the right to vote, sell or
<PAGE>
otherwise dispose of the Brueggers Shares), and QDI will transfer and deliver to
the Holders at the Closing good and marketable title to the Brueggers Shares
free and clear of any Lien and (except as aforesaid) free of any such limitation
or restriction.
(d) No Conflicting Agreements or Charter Provisions.
-----------------------------------------------
Except as set forth on Schedule 4(d), the execution, delivery and compliance
with and performance of the terms and provisions of this Agreement and the
Subsidiary Merger Agreement by QDI will not conflict with or result in a breach
of the terms, conditions or provisions of, or constitute a default (or an event
of which, with notice, lapse of time, or both, would constitute a default)
under, or result in any violation of, (i) the certificate or articles of
incorporation or by-laws of QDI or any of the Bagel Companies, or any
resolutions adopted by the shareholders or the Board of Directors of QDI or any
of the Bagel Companies, (ii) any provision of any Contract to which QDI or any
of its Subsidiaries is a party or by which any property or asset of QDI or any
of its Subsidiaries may be bound, or (iii) any order, judgment, decree, license,
permit, statute, law, rule or regulation of any Governmental Body or any stock
exchange or other self- regulatory organization or industry association to which
QDI or any of its Subsidiaries is subject, other than, in the cases of clause
(ii) and (iii) above, any such conflict, breach or default which, individually
or in the aggregate, would not reasonably be expected to have a Material Adverse
Effect. The execution, delivery and performance of this Agreement will not
result in the creation of any Lien upon any material portion of the assets or
properties of the Bagel Companies.
(e) Litigation. Except as set forth on Schedule 4(e), there is
----------
no action, suit, proceeding or investigation pending or, to QDI's
<PAGE>
knowledge, threatened, at law or in equity, in or before any Governmental Body
or any stock exchange or other self-regulatory organization or industry
association (i) to which any of the Bagel Companies, or any of its directors or
officers, is a party or by which any of their respective properties or assets is
bound, which, individually or in the aggregate, would be reasonably expected to
have a Material Adverse Effect or (ii) questioning or otherwise affecting the
validity of this Agreement or the Subsidiary Merger Agreement or any action
taken or to be taken by QDI in connection with this Agreement or the Subsidiary
Merger Agreement or the documents executed or to be executed by QDI pursuant to
or in connection with the provisions of this Agreement or the Subsidiary Merger
Agreement.
(f) Environmental Matters. (a) Except as disclosed on Schedule
---------------------
4(f), (i) to QDI's knowledge, the real property owned, operated or leased by any
of the Bagel Companies and the facilities and operations thereon are in
compliance with all applicable statutes, codes, rules or regulations of any
Governmental Body relating to the environment, natural resources and public or
employee health and safety ("Environmental Laws"), other than for such
non-compliance which, individually or in the aggregate, would not reasonably be
expected to have a Material Adverse Effect; (ii) there are no judicial or
administrative actions, proceedings or investigations pending or, to QDI's
knowledge, threatened against any of the Bagel Companies or any real property
owned, operated or leased by any of the Bagel Companies or alleging the
violation of or seeking to impose liability pursuant to any Environmental Law
which, individually or in the aggregate, would reasonably be expected to have a
Material Adverse Effect; and (iii) to QDI's knowledge, none of the Bagel
Companies is subject to any liabilities pursuant to Environmental Laws, and
there are no facts,
<PAGE>
circumstances or conditions relating to, arising from, associated with or
attributable to the operations of any of the Bagel Companies or any real
property owned, operated or leased by any of the Bagel Companies that would
reasonably be expected to result in any of the Bagel Companies incurring any
liabilities under Environmental Laws other than in each case liabilities which,
individually or in the aggregate, would not reasonably be expected to have a
Material Adverse Effect.
(g) Bagel Companies. Schedule 4(g) lists each Bagel Company,
---------------
the authorized capital stock of each Bagel Company and the issued and
outstanding shares of capital stock of each Bagel Company and the owners of such
shares. All shares of outstanding capital stock of each Bagel Company have been
duly authorized, validly issued and are fully paid and non-assessable. None of
the outstanding shares of capital stock of any Bagel Company has been issued in
violation of any preemptive rights or any federal or state securities law.
Except for this Agreement and the Subsidiary Merger Agreement there is no
existing subscription, option, warrant, call, right, commitment or other
agreement to which QDI, Brueggers or any of their Affiliates is a party
requiring, and there are no convertible or exchangeable securities of any Bagel
Company outstanding which upon conversion or exchange would require, directly or
indirectly, the issuance of any additional shares of capital stock of any Bagel
Company. There are no outstanding contractual obligations of any Bagel Company
to sell or otherwise dispose of or to repurchase, redeem or otherwise acquire
any outstanding capital stock. There are no preemptive rights in respect of the
shares of capital stock of any Bagel Company. None of the Bagel Companies owns,
directly or indirectly, or controls any equity or voting interest in any Person
other than capital stock with an
<PAGE>
aggregate value not in excess of $10,000 of publicly held companies. None
of the Direct Subsidiaries has any Subsidiaries.
(h) Audited Financial Statements. QDI has delivered to the
----------------------------
Holders the Audited Financial Statements together with a report of Coopers &
Lybrand thereon stating (a) that the examination has been made in accordance
with GAAP, and (b) such financial statements present fairly the consolidated
financial position of the Bagel Companies as at the date thereof. Except as set
forth on Schedule 4(h), the Audited Financial Statements (i) are in accordance
with the books and records of QDI and its Subsidiaries, (ii) have been prepared
in accordance with GAAP and (iii) present fairly the net assets to be sold and
the revenues and direct operating expenses of the Bagel Companies, as at the
date and for the periods indicated.
(i) No Undisclosed Liabilities. Except as reflected on the
--------------------------
Audited Financial Statements and the accompanying notes or set forth on Schedule
4(i), the Bagel Companies have no obligations, indebtedness or liabilities
(whether accrued, absolute, contingent or otherwise, and whether due or to
become due) other than such as (i) may have been incurred or may have arisen
since May 11, 1997 in the ordinary course of business or (ii) are not,
individually or in the aggregate, material to the Bagel Companies taken as a
whole.
(j) Default. Except as set forth on Schedule 4(j), none of the
-------
Bagel Companies is in default or, to the knowledge of QDI, alleged to be in
default with respect to any judgment, order, writ, injunction or decree of any
Governmental Body or any stock exchange or other self-regulatory organization or
industry association, other than defaults which individually or in the aggregate
would not reasonably be expected to have a
<PAGE>
Material Adverse Effect. Except as set forth on Schedule 4(j), none of the Bagel
Companies is in breach or default or, to the knowledge of QDI, alleged to be in
breach or default under any Contract and there is no condition or state of facts
which is reasonably likely to cause or create a breach by or default of any of
the Bagel Companies under any such Contract, other than breaches and defaults
which individually or in the aggregate would not reasonably be expected to have
a Material Adverse Effect. Except as set forth on Schedule 4(j), to QDI's
knowledge there is no other party to any Contract to which any of the Bagel
Companies is a party that is in breach or default or alleged to be in breach or
default thereunder and there is no condition or state of facts which is
reasonably likely to cause or create a breach by or default of such other party
under any such Contract, other than breaches or defaults which individually or
in the aggregate would not reasonably be expected to have a Material Adverse
Effect.
(k) Compliance with Laws. Except as set forth on Schedule
--------------------
4(k), each of the Bagel Companies (i) has made or obtained each registration,
filing, submission, license, permit, certificate, determination or governmental
approval necessary to enable it to carry on its business, including but not
limited to registration and disclosure requirements relating to the sale of
franchises, other than where the lack thereof, individually or in the aggregate,
would not reasonably be expected to have a Material Adverse Effect, (ii) has
complied with all other laws, regulations and orders which are applicable to its
business as presently conducted, including the regulations of all stock
exchanges and other self-regulatory organizations, other than for such
non-compliance which, individually or in the aggregate, would not reasonably be
expected to have
<PAGE>
a Material Adverse Effect, and (iii) possesses all permits, licenses and other
governmental approvals, authorizations and orders specifically applicable to, or
necessary for the conduct of, its business as presently conducted, other than
where the lack thereof, individually or in the aggregate, would not reasonably
be expected to have a Material Adverse Effect. Except for filings required by,
and the expiration of the waiting period under, the Hart-Scott Act, QDI and its
Subsidiaries have obtained all approvals, consents, certifications and waivers
of any Governmental Body, and have made all filings, given all notices and
otherwise complied with all laws, rules and regulations of any Governmental
Body, which are required on the part of QDI and its Subsidiaries in order for
QDI to enter into and perform this Agreement and to sell the Brueggers Shares
and to otherwise consummate the transactions provided for in this Agreement and
the Subsidiary Merger Agreement.
(l) No Adverse Changes. Except as set forth on Schedule 4(l),
------------------
since May 11, 1997, there has not been, occurred or arisen (i) any change in any
method of accounting or accounting practice by QDI or its Subsidiaries
applicable to the Bagel Companies, (ii) any damage or destruction to any
property or asset of the Bagel Companies in the nature of a casualty loss,
whether covered by insurance or not, or any notice of termination of any lease,
Contract or other agreement to which any of the Bagel Companies is subject,
which has or would reasonably be expected to have a Material Adverse Effect,
(iii) any increase in the compensation, commission, bonus or other direct or
indirect remuneration payable by QDI or any of its Subsidiaries or any of the
Bagel Companies to any employee, consultant or advisor of or to the Bagel
Business, except in the ordinary course of business consistent with past
practice, (iv) any actual or
<PAGE>
threatened strike relating to the Bagel Business or any unionization activity
with respect thereto, (v) any extraordinary item (as defined by GAAP from time
to time) resulting in a loss suffered by the Bagel Business which, individually
or in the aggregate, has or is reasonably likely to have a Material Adverse
Effect, (vi) any waiver by any of the Bagel Companies of any right or rights
relating to the Bagel Business which, individually or in the aggregate, has or
would reasonably be expected to have a Material Adverse Effect, (vii) any Lien
on any of the assets of the Bagel Business, (viii) any obligation incurred by
any of the Bagel Companies other than any in the ordinary course of business or
which, individually or in the aggregate, with all other obligations so incurred,
is or are not material to the Bagel Companies taken as a whole, (ix) any binding
representation or promise by QDI or any of its Affiliates (including the Bagel
Companies) to any officer, director, employee, agent or other similar
representative of any of the Bagel Companies concerning any Benefit Plan, which
representation or promise is inconsistent in any material respect with the terms
of such Benefit Plan then in effect, (x) except as contemplated by this
Agreement or the Subsidiary Merger Agreement, any adoption, entering into,
amendment, alteration or termination partially or completely of any Benefit Plan
relating to or affecting any employee of any of the Bagel Companies, (xi) any
Contract with an officer, director, employee, agent or other similar
representative of any of the Bagel Companies that is not terminable, without
penalty or other liability, upon not more than 60 days' notice, (xii) the
assumption, entering into, amendment, alteration or termination of any labor or
collective bargaining agreement to which any of the Bagel Companies is a party
or by which any of their properties or assets is bound, (xiii) the
<PAGE>
hiring of any officer, director, employee, agent or other similar representative
of any of the Bagel Companies whose annual salary or wage (excluding bonus and
commission) exceeds $50,000, or (xiv) any other event, condition or state of
facts of any character peculiar to any of the Bagel Companies or to their
respective operations and not generally applicable to enterprises in the Bagel
Business, which has or would reasonably be expected to have a Material Adverse
Effect.
(m) Intellectual Property. (i) Schedule 4(m)(i) contains a
---------------------
list of all patents and registered trademarks, service marks, trade names and
copyrights (and any application for any of the foregoing), owned by or licensed
to any of the Bagel Companies, which are material to the conduct of the Bagel
Business (other than Intellectual Property Rights relating to publicly available
software used by any of the Bagel Companies in the administration and operation
of their businesses), specifying as to each, as applicable: (A) the nature of
such Intellectual Property Right; (B) the owner of such Intellectual Property
Right; (C) the jurisdictions by or in which any such Intellectual Property Right
owned by any of the Bagel Companies is registered or in which an application for
registration has been filed, including the respective registration or
application numbers; (D) the expiration or termination date of each Third Party
License (as hereafter defined); and (E) any third Persons to whom such
Intellectual Property Rights owned by any of the Bagel Companies are licensed or
sublicensed. Each of the Intellectual Property Rights shown as owned by any of
the Bagel Companies on such Schedule is exclusively owned by such Bagel Company
free and clear of Liens and each patent and trademark shown on such Schedule is
in good standing.
<PAGE>
(ii) All licenses or other Contracts under which
any of the Bagel Companies is licensed or otherwise authorized to use, market,
distribute or incorporate into its products or services any Intellectual
Property Rights owned by third Persons which are material to the conduct of the
Bagel Business ("Third Party Licenses") are valid, enforceable and in full force
and effect, and the interests of the Bagel Companies under such Third Party
Licenses are held exclusively, free and clear of any Liens. Except pursuant to
the Third Party Licenses set forth on Schedule 4(m)(i), none of the Bagel
Companies has any obligation to make any material royalty, license, sublicense
or other payment to any Person in connection with the use of or right to use any
Intellectual Property Right.
(iii) The Intellectual Property Rights owned by the
Bagel Companies and set forth on Schedule 4(m)(i), together with the interests
of the Bagel Companies under the Third Party Licenses (collectively, the
"Brueggers Intellectual Property Rights"), constitute all Intellectual Property
Rights necessary for the conduct of the Bagel Business as it is currently
conducted in all material respects.
(iv) (A) To QDI's knowledge, the Brueggers
Intellectual Property Rights which are material to the conduct of the Bagel
Business do not infringe, violate or conflict with any U.S. patent or any other
Intellectual Property Rights of any other Person and neither QDI nor any of its
Subsidiaries has been a defendant in any action, suit, investigation or
proceeding relating to, and has not been notified of, any alleged claim of
infringement, violation or conflict as to any Intellectual Property Rights, (B)
except as set forth on Schedule 4(m)(iv), to QDI's knowledge, there has not been
any infringement by any other Person of any Brueggers Intellectual Property
Rights which are material to the conduct of the Bagel Business,
<PAGE>
(C) to QDI's knowledge, no Brueggers Intellectual Property Right which is
material to the conduct of the Bagel Business is subject to any outstanding
judgment, injunction, order, decree or agreement restricting the use thereof by
any of the Bagel Companies or restricting the licensing thereof by any of the
Bagel Companies to any Person and (D) none of the Bagel Companies has entered
into any Contract to indemnify any other Person against any charge of
infringement of any Brueggers Intellectual Property Right.
(n) Certain Transactions. Except as set forth on Schedule
--------------------
4(n), there are no Contracts or business or financial arrangements involving or
affecting the business, properties, assets or operations of any of the Bagel
Companies between, on the one hand, any of the Bagel Companies and, on the other
hand, (i) QDI or any of its Affiliates, (ii) any officer or director of QDI or
any of its Subsidiaries other than Contracts relating to terms of employment
disclosed pursuant to this Agreement, or (iii) any family members or Affiliates
of any officer or director of QDI or any of its Subsidiaries.
(o) Pension and Benefit. (i) Schedule 4(o)(i) sets
-------------------
forth: (A) all "employee benefit plans," as defined in Section 3(3) of ERISA,
(B) all employment, consulting or other compensation agreements, and (C) all
severance pay, sick leave, vacation pay, salary continuation, disability,
deferred compensation, bonus or other incentive compensation, stock purchase,
life insurance and educational assistance policies, programs or arrangements,
pursuant to which any of the Bagel Companies could have any obligation or
liability (contingent or otherwise) (the "Benefit Plans"). None of
the Benefit Plans is a "multiemployer plan," as defined in
<PAGE>
Section 3(37) of ERISA, or is or has been subject to Sections 4063 or 4064 of
ERISA.
(ii) True, correct and complete copies of the
following documents with respect to each of the Benefit Plans have been
delivered or made available to the Holders by QDI: (A) any plans and related
trust documents, and amendments thereto; (B) the most recent Form 5500; (C) the
last IRS determination letter; (D) summary plan descriptions; and (E) the most
recent actuarial report.
(iii) The Benefit Plans intended to qualify under
Section 401 of the Code and the trusts maintained pursuant thereto are exempt
from federal income taxation under Section 501 of the Code, and, to QDI's
knowledge, nothing has occurred with respect to the operation of such plans
which could create a material risk of the loss of such qualification or
exemption or the imposition of any material liability, penalty or tax under
ERISA or the Code.
(iv) All contributions (including all employer
contributions and employee salary reduction contributions) and payments required
to have been made under any of the Benefit Plans or by law (without regard to
any waivers granted under Section 412 of the Code) have been made by the due
date therefor (including any valid extension), and all contributions and
payments for any period ending on or before the Closing Date which are not yet
due will have been paid or accrued (in accordance with GAAP) on or prior to the
Closing Date. No accumulated funding deficiencies exist in any of the Benefit
Plans subject to Section 412 of the Code.
(v) The Benefit Plans have been maintained and
operated, in all material respects, in accordance with their terms and with all
<PAGE>
provisions of ERISA and other applicable federal and state laws, and none of the
Bagel Companies has incurred any liability, direct or indirect, for any
"prohibited transaction" within the meaning of Section 4975 of the Code or
Section 406 of ERISA with respect to any Benefit Plan.
(vi) Except as set forth on Schedule 4(o)(vi),
there are no pending actions, claims or lawsuits which have been asserted or
instituted against the Benefit Plans, the assets of any of the trusts under such
plans or the plan sponsor or the plan administrator, or against any fiduciary of
the Benefit Plans with respect to the operation of such plans (other than
routine benefit claims), nor, to QDI's knowledge, are there any facts which
would reasonably be expected to form the basis for any such claim or lawsuit.
(vii) Except as disclosed in Schedule 4(o)(i),
neither QDI nor any of its Subsidiaries maintains Benefit Plans which are post-
employment medical or life insurance plans and which provide for continuing
benefits or coverage for any participant or any beneficiary of a participant
except (A) as may be required under Part 6 of Title I of ERISA and at the
expense of the participant or the participant's beneficiary or (B) any medical
expense reimbursement account plans.
(viii) Except as set forth in Schedule 4(o)(viii),
neither the execution and delivery of this Agreement or the Subsidiary Merger
Agreement nor the consummation of the transactions contemplated hereby or
thereby will (A) increase any benefits payable under any Benefit Plan, (B)
result in the acceleration of the time of payment or vesting of any such
benefits, (C) restrict or otherwise limit any of the Bagel Companies'
opportunity to change the terms and conditions of employment with respect to any
individual who is not a member of a collective bargaining unit or
<PAGE>
(D) result in any payment becoming due to any employee (current, former or
retired) of any of the Bagel Companies.
(ix) None of the Bagel Companies has any Contract to
create any additional employee benefit plan or to modify any existing Benefit
Plan.
(p) Tax Matters. Except as set forth in Schedule 4(p):
-----------
(i) All Tax Returns required to be filed by or with
respect to QDI and its Subsidiaries have been timely filed, and all such Tax
Returns are true and complete in all material respects. QDI and its Subsidiaries
have timely paid (or there has been paid on its behalf) all Taxes that are due,
or claimed or asserted by any taxing authority to be due, from or with respect
to it for the periods prior to the date hereof. With respect to any period for
which Tax Returns have not yet been filed, or for which Taxes are not yet due or
owing, QDI has made due and sufficient current accruals for such Taxes in the
Audited Financial Statements. QDI and its Subsidiaries have made (or there has
been made on their behalf) all required estimated Tax payments sufficient to
avoid any underpayment penalties.
(ii) QDI has previously made available to the
Holders true and complete copies of each of (x) the United States federal Tax
Returns of QDI and its Subsidiaries and the state, local, and foreign Tax
Returns of QDI and its Subsidiaries in each case for each of the last three
taxable years, and (y) any audit reports issued within the last three years
relating to the United States federal, state, local or foreign Taxes due from or
with respect to QDI or its Subsidiaries for any taxable period.
(iii) No deficiencies for any Taxes have been
proposed, asserted or assessed against any of the Bagel Companies that have not
been
<PAGE>
fully paid or adequately provided for in the Audited Financial Statements, no
requests for waivers of the time to assess any Taxes are pending, and no power
of attorney with respect to any Taxes has been executed or filed with any taxing
authority. No issues relating to Taxes have been raised in writing by the
relevant taxing authority during any presently pending audit or examination.
(iv) No Liens for Taxes exist with respect to any
assets or properties of any of the Bagel Companies, except for statutory Liens
for Taxes not yet due.
(v) None of the Bagel Companies is a party to or is
bound by any Tax sharing agreement, Tax indemnity obligation or similar
agreement, arrangement or practice with respect to Taxes (including any advance
pricing agreement, closing agreement or other agreement relating to Taxes with
any taxing authority).
(vi) The Bagel Companies have complied in all
material respects with all applicable laws, rules and regulations relating to
the payment and withholding of Taxes.
(vii) No federal, state, local or foreign audits or
other administrative proceedings or court proceedings are presently pending with
regard to any federal, state, local or foreign Taxes or Tax Returns of any of
the Bagel Companies and none of the Bagel Companies has received a written
notice of any pending audit or proceeding.
(viii) None of the Bagel Companies has agreed to or
is required to make any adjustment under Section 481(a) of the Code.
(ix) No property owned by any of the Bagel Companies
(i) is property required to be treated as being owned by another Person pursuant
to the provisions of Section 168(f)(8) of the Internal Revenue Code of
<PAGE>
1954, as amended and in effect immediately prior to the enactment of the Tax
Reform Act of 1986; (ii) constitutes "tax exempt use property" within the
meaning of Section 168(h)(1) of the Code; or (iii) is tax-exempt bond financed
property within the meaning of Section 168(g) of the Code.
(x) There is no Contract covering any Person that,
individually or collectively, could give rise to the payment of any amount that
would not be deductible by any of the Bagel Companies by reason of Section 280G
of the Code.
(xi) None of the Bagel Companies has, with regard
to any assets or property held or acquired by any of them, filed a consent to
the application of Section 341(f) of the Code or agreed to have Section
341(f)(2) of the Code apply to any disposition of a subsection (f) asset (as
such term is defined in Section 341(f)(4) of the Code) owned by any of the Bagel
Companies.
(q) Material Contracts. (i) Except as set forth on Schedule 4
------------------
(q)(i), none of the Bagel Companies is a party to or bound by any (A) franchise
or development Contract, including any amendment or modification thereof; (B)
employment, severance or golden parachute Contract; (C) Contract which has, as a
principal purpose, the provision of indemnification to any Person; (D) Contract
involving the commitment to pay, or to acquire or to provide goods or services
with a fair market value, in excess of $100,000; (E) partnership or joint
venture Contract; (F) Contract for the acquisition, sale or lease of any assets
of any of the Bagel Companies, other than in the ordinary course of business;
(G) mortgage, pledge, conditional sales contract, security agreement, factoring
agreement or other similar Contract with respect to any real, tangible or
intangible personal property (except
<PAGE>
for sales of Inventory) of any of the Bagel Companies; (H) loan agreement,
credit agreement, promissory note, guarantee, subordination agreement, letter of
credit or any other similar type of Contract; (I) exclusive retainer Contract
with attorneys, accountants, actuaries, appraisers, investment bankers or other
professional advisers; or (J) Contract that limits the freedom of any of the
Bagel Companies to compete in any line of business or with any Person or in any
area.
(ii) QDI has made available to the Holders true,
correct and complete copies of the Contracts listed on Schedule 4(q)(i),
together with all amendments, modifications, supplements or side letters
affecting the obligations of any party thereunder.
(iii) Except as set forth in Schedule 4(q)(iii),
each of the Contracts listed on Schedule 4(q)(i) is valid, in full force and
effect and enforceable in accordance with its terms, subject to applicable
bankruptcy, insolvency, reorganization and similar laws affecting creditors'
rights and remedies generally and subject, as to enforceability, to general
principles of equity (regardless of whether enforcement is sought in a
proceeding at law or in equity), and, to QDI's knowledge, there is no default
under any Contract listed on such Schedule by any of the Bagel Companies or 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, except in
each case to the extent that such default does not or would not reasonably be
expected to have a Material Adverse Effect. Except as disclosed in Schedule
4(q)(i) or in Schedule 4(t)(ii), assuming the assignee of any occupancy lease is
either Bruegger's Franchise Corporation or a bona fide franchisee of Bruegger's
Franchise Corporation, no consent of any third party is required under any
<PAGE>
Contract disclosed on Schedule 4(q)(i) as a result of or in connection with, and
the enforceability and terms of any such Contract will not be affected in any
manner by, the execution, delivery and performance of this Agreement and the
Subsidiary Merger Agreement and the consummation of the transactions
contemplated hereby and thereby. Except as disclosed in any other Schedule to
this Agreement, to QDI's knowledge, no previous or current party to any such
Contract has given to QDI or any of its Subsidiaries notice of or made a claim
with respect to any breach or default thereunder, except in each case to the
extent that such default does not or would not reasonably be expected to have a
Material Adverse Effect.
(iv) The Apollo Investment Agreement and all related
agreements between QDI and its Subsidiaries and any Apollo Parties have been
terminated and are of no further force or effect.
(r) Insurance. Schedule 4(r) sets forth a list of all
---------
insurance policies and other surety arrangements of any kind or nature
whatsoever which are in force and to which QDI or any of its Subsidiaries is a
named party or beneficiary and which relate to the Bagel Business, specifying
the insurance carrier and the type of insurance coverage. The insurance policies
and other surety arrangements listed on Schedule 4(r) that will continue in
effect after the Closing have been marked with an asterisk on Schedule 4(r).
(s) Labor Matters.
-------------
(i) Schedule 4(s) sets forth a list containing the
name, position and date of employment of each employee of QDI and its
Subsidiaries whose job duties relate to the Bagel Business as of the date
<PAGE>
hereof (a "Bagel Employee"). A list setting forth each Bagel Employee's current
base salary or wage rate has been delivered by QDI to the Holders.
(ii) Neither QDI nor any of its Subsidiaries is a
party to any labor or collective bargaining agreement, and there are no labor or
collective bargaining agreements, which pertain to any Bagel Employee. To QDI's
knowledge, no labor organization has made a pending demand for recognition or
has filed a petition seeking a representation proceeding which is presently
pending before the National Labor Relations Board.
(iii) Except as disclosed on Schedule 4(s), to QDI's
knowledge, there are no complaints, charges or claims against QDI or any of its
Subsidiaries pending or threatened to be brought or filed with any Governmental
Body based on, arising out of, in connection with, or otherwise relating to, the
employment or termination of employment of any Bagel Employee by QDI or any of
its Subsidiaries.
(iv) The Bagel Companies are in compliance with all
laws, regulations and orders relating to the employment of labor, including all
such laws, regulations and orders relating to wages, hours, WARN, OSHA,
collective bargaining, discrimination, civil rights, safety and health, workers'
compensation and the collection and payment of withholding and/or social
security taxes and any similar tax, except for any failure to be in compliance
which, individually or in the aggregate, would not reasonably be expected to
result in a Material Adverse Effect.
(t) Real Property; Leases of Real Property. None of the Bagel
--------------------------------------
Companies owns any real property.
(i) Schedule 4(t)(i) includes a list of all leases
of real property to which any of the Bagel Companies was a party or is otherwise
liable on May 11, 1997 or to which it subsequently became a party. Such
<PAGE>
leases constitute all leases of real property relating to the Bagel Business.
Complete and correct copies of each such lease have been made available to the
Holders.
(ii) Except as set forth on Schedule 4(j), each
lease listed on Schedule 4(t)(i) is in full force and effect and has not been
amended or modified. The manner of occupancy and use of each premise being
leased or subleased to any of the Bagel Companies or occupied by any of them
complies in all material respects with the applicable lease or sublease.
(u) Personal Property. QDI has made available to the Holders a
true and complete list of all tangible assets (or categories thereof) reflected
on the audited Statement of Net Assets to be Sold included in the Audited
Financial Statements. Since May 11, 1997, none of the Bagel Companies has
disposed of any tangible assets reflected on the audited Statement of Net Assets
to be Sold included in the Audited Financial Statements other than through the
sale of Inventory in the ordinary course of business. Other than assets used to
provide services to be provided by QDI pursuant to the Transitional Services
Agreement, the Bagel Companies own, lease under valid and enforceable leases or
control all the significant assets necessary to carry on the Bagel Business as
presently conducted in all material respects, and all items thereof are in good
operating condition and repair, ordinary wear and tear excepted. The Bagel
Companies do not hold any personal property of any Person pursuant to any
consignment or similar arrangement.
(v) Title to Assets. Each of the Bagel Companies holds and
---------------
owns and has an unrestricted right to transfer title to all of the tangible
assets used in its business in each case free and clear of any Lien, other
<PAGE>
than (i) Liens specifically described in the audited Statement of Net Assets to
be Sold included in the Audited Financial Statements or noted on any Schedule
hereto; (ii) assets leased by the Bagel Companies as described in the audited
Statement of Net Assets to be Sold included in the Audited Financial Statements
or any Schedule hereto; (iii) Liens for current property Taxes and assessments
not in default; or (iv) Liens that do not materially interfere with or impair
the present and continued use thereof in the usual and normal conduct of the
business of the Bagel Companies.
(w) Brokers and Finders. No broker, investment banker or
-------------------
finder has been retained by or authorized to act on behalf of QDI or any of its
Subsidiaries who might be entitled to any fee or other commission in connection
with this Agreement or the Subsidiary Merger Agreement or the transactions
contemplated hereby or thereby, other than the fee payable by QDI to Schroder &
Co. Inc., which fee shall be paid by QDI.
(x) Excluded Stores. Annex IV hereto contains a complete and
---------------
accurate list of the Excluded Stores.
5. Representations and Warranties of the Holders. The
---------------------------------------------
Holders hereby represent and warrant to QDI as follows:
(a) Ownership. Brue is the record and beneficial owner of
---------
2,147,039 shares of QDI Common Stock and Dressell is the record and beneficial
owner of 2,163,701 shares of QDI Common Stock. Except as set forth in Schedule
5(a), the QDI Shares are, and as of Closing will be, free and clear of any Lien
and any other limitation or restriction (including, without limitation, any
limitation or restriction on the right to vote, sell or otherwise dispose of
such QDI Shares), other than restrictions imposed by federal or state securities
laws.
<PAGE>
(b) Execution; Binding Effect. This Agreement has been duly
-------------------------
and validly executed and delivered by the Holders and (assuming the due
execution and delivery by QDI) constitutes the legal, valid and binding
obligation of the Holders, enforceable against the Holders in accordance with
its terms, except as enforceability may be limited by bankruptcy, insolvency,
reorganization or other laws affecting creditors' rights and remedies generally
and by general principles of equity (regardless of whether such enforceability
is considered in a proceeding in equity or at law).
(c) No Conflicting Provisions. Except as set forth in Schedule
-------------------------
5(c), the execution, delivery and compliance with and performance of the terms
and provisions of this Agreement will not conflict with or result in a breach of
the terms, conditions or provisions of, or constitute a default (or an event
which, with notice, lapse of time, or both, would constitute a default) under,
or result in any violation of, or any provision of any Contract to which the
Holders, individually or together, are a party or by which any property or asset
of the Holders may be bound, or any order, judgment, decree, license, permit,
statute, law, rule or regulation of any Governmental Body or any stock exchange
or other self-regulatory organization or industry association to which the
Holders are subject, except for such breaches, defaults or violations which
would not, individually or in the aggregate, materially and adversely affect the
Holders' ability to consummate the transactions contemplated hereby. Except for
filings required by, and the expiration of the waiting period under, the
Hart-Scott Act, the Holders have obtained all approvals, consents,
certifications and waivers of any Governmental Body, and has made all filings,
given all notices and otherwise complied with all laws, rules
<PAGE>
and regulations of any Governmental Body, which are required on the part of the
Holders or their Affiliates in order for the Holders to enter into and perform
this Agreement, and to exchange the QDI Shares for the Brueggers Shares, and to
otherwise consummate the transactions provided for in this Agreement.
(d) Investment Representations. The Brueggers Shares to be
--------------------------
transferred to the Holders hereunder are being transferred to the Holders as
principal solely for their own account for investment purposes only and not with
a view to the distribution thereof in violation of the Securities Act or any
applicable state securities law, and the Holders have such knowledge and
experience in financial and business matters as to be capable of evaluating the
merits and risks of their investment as contemplated hereby. The Holders hereby
acknowledge that the Brueggers Shares have not been registered or qualified
under the Securities Act or any other securities law and may not be sold in the
United States except pursuant to a registration statement effective under the
Securities Act or pursuant to an exemption from registration under the
Securities Act, and in compliance with all other applicable securities laws.
(e) Litigation. Except as set forth in Schedule 5(e), there is
----------
no action, suit, proceeding or investigation pending or, to the knowledge of the
Holders, threatened, at law or in equity, in or before any Governmental Body or
any stock exchange or other self-regulatory organization or industry association
questioning or otherwise affecting the validity of this Agreement or the
Subsidiary Merger Agreement or any action taken or to be taken by the Holders in
connection with this Agreement or by LETHE under the Subsidiary Merger
Agreement, or the documents executed or
<PAGE>
to be executed by the Holders and LETHE pursuant to or in connection with the
provisions of this Agreement and the Subsidiary Merger Agreement.
(f) Brokers and Finders. No broker, investment banker or
-------------------
finder has been retained or authorized to act on behalf of the Holders or any of
their Affiliates who might be entitled to any fee or other commission in
connection with this Agreement or the Subsidiary Merger Agreement and the
transactions contemplated hereby or thereby, other than the fee payable by the
Holders to Gleacher NatWest Inc., which fee shall be paid by the Holders.
(g) Financing Commitments. The Holders have delivered to QDI
---------------------
correct and complete copies of all Financing Commitments.
6. Conditions to the Obligations of the Holders and QDI.
----------------------------------------------------
The obligations of the Holders and QDI to consummate the Closing are subject to
the satisfaction, on or prior to the Closing Date, of the following conditions,
any or all of which may be waived in writing by the party entitled to waive such
condition:
(a) Any applicable waiting period under the Hart-Scott Act
relating to the transactions contemplated hereby shall have expired or been
terminated.
(b) No provision of any applicable law or regulation and no
judgment, injunction, order or decree shall restrain or prohibit the
consummation of the Closing.
(c) All actions by or in respect of or filings with any
Governmental Body required to permit the consummation of the Closing shall have
been taken or made.
7. Additional Conditions to the Obligation of QDI. The
----------------------------------------------
obligation of QDI to consummate the Closing is subject to the satisfaction,
<PAGE>
on or prior to the Closing Date, of all of the following conditions, any or all
of which may be waived in writing by QDI in its sole discretion:
(a) Representations and Warranties. The representations and
------------------------------
warranties made by the Holders in Section 5 shall be true and correct on the
date hereof and on and as of the Closing Date as though such representations and
warranties were made on and as of such date, with only such exceptions as would
not in the aggregate reasonably be expected to have a material adverse effect on
the ability of the Holders to consummate the transactions contemplated hereby,
and QDI shall have received a certificate executed by the Holders, dated as of
the Closing Date, to such effect.
(b) Performance. The Holders shall have performed and complied
-----------
in all material respects with all agreements, obligations, covenants and
conditions required herein to be performed or complied with by the Holders on or
prior to the Closing Date, and QDI shall have received a certificate executed by
the Holders, dated as of the Closing Date, to such effect.
(c) Absence of Proceedings. No action or proceeding shall have
----------------------
been instituted after the date hereof which (i) shall be pending against QDI or
any of its Subsidiaries before any Governmental Body or any stock exchange or
other self-regulatory organization and (ii) is likely to result in a judgment,
order or decree restraining or prohibiting the consummation of the transactions
contemplated hereby.
(d) TCB Credit Agreement. QDI shall have obtained any required
--------------------
consent of the Banks (as defined in the TCB Credit Agreement) required under the
TCB Credit Agreement with respect to the transactions contemplated hereby.
<PAGE>
(e) Transitional Services Agreement. QDI and Brueggers shall
-------------------------------
have executed and delivered a Transitional Services Agreement in substantially
the form of Exhibit B hereto (the "Transitional Services Agreement"), pursuant
to which QDI agrees to provide certain administrative and other services to the
Bagel Companies for the period specified therein.
(f) Closing under the Subsidiary Merger Agreement. The
---------------------------------------------
transactions contemplated by the Subsidiary Merger Agreement shall have
been consummated simultaneously with the Closing.
(g) Opinion of the Holders' Special Counsel. QDI shall have
---------------------------------------
received a signed opinion of Weil, Gotshal & Manges LLP, special counsel to the
Holders, dated the Closing Date, substantially in the form of Exhibit C hereto.
(h) Tax Certificate. QDI shall have received the signed
---------------
certificates substantially in the form of Exhibit D hereto (collectively,
the "Tax Certificate").
(i) QDI Shares. QDI shall have received certificates
----------
representing the QDI Shares, together with stock powers duly endorsed in blank
by the holders thereof.
(j) Resignation of Directors. Brue, Dressell and Austin shall
------------------------
have resigned from the Board of Directors of QDI.
(k) Releases. Brue, Dressell and Austin shall have executed
--------
and delivered to QDI, Fitzpatrick and Schroder & Co. Inc. releases of any claims
that they may have against such parties or their Affiliates (other than (in the
case of QDI) for claims arising pursuant to this Agreement (including Section
12) and rights to indemnification and exculpation from liability they may have,
in their capacities as directors, under QDI's
<PAGE>
certificate of incorporation or by-laws), in substantially the form of
Exhibit E hereto.
(l) Subordinated Note. Brueggers shall have issued and
-----------------
delivered to QDI the Subordinated Note.
(m) Repayment of Intercompany Debt. Brueggers shall have
------------------------------
repaid on the Closing Date $16 million of intercompany indebtedness owed by it
to QDI.
(n) Escrow Agreement. QDI, Brueggers and an escrow agent
----------------
mutually agreeable to QDI and Brueggers (the "Escrow Agent") shall have executed
and delivered the escrow agreement in substantially the form of Exhibit F-1 (the
"Escrow Agreement"), provided that, if prior to Closing Brueggers and its
Subsidiaries shall have received not less than $10 million of aggregate proceeds
from the sale or sales (whether in one or more offerings) of equity and/or debt
securities in an arms' length transaction with an institutional investor or
lender with, in the case of debt securities, a scheduled maturity date of not
less than 360 days from the date of issuance, this condition shall be deemed
waived by QDI.
(o) Franchisee Claim Guarantee. The Holders shall have
--------------------------
delivered to QDI a guarantee in substantially the form of Exhibit F-2 (the
"Franchisee Claim Guarantee") executed by each of the guarantors named therein
(the "Guarantors"), provided that, if prior to Closing Brueggers and its
Subsidiaries shall have received not less than $10 million of aggregate proceeds
from the sale or sales (whether in one or more offerings) of equity and/or debt
securities in an arms' length transaction with an institutional investor or
lender with, in the case of debt securities, a scheduled maturity date of not
less than 360 days from the date of issuance, this condition shall be deemed
waived by QDI.
<PAGE>
(p) Other Matters. QDI shall have received such other
-------------
documents and certificates as may reasonably be requested by QDI and its counsel
in connection with the transactions contemplated hereby.
8. Additional Conditions to the Obligations of the Holders.
-------------------------------------------------------
The obligation of the Holders to consummate the Closing are subject to the
satisfaction, on or prior to the Closing Date, of all of the following
conditions, any or all of which may be waived in writing by the Holders in their
sole discretion:
(a) Representations and Warranties. The representations and
------------------------------
warranties made by QDI in Section 4 that are qualified as to materiality or
"Material Adverse Effect" shall be true and correct on the date hereof and on
and as of the Closing Date as though such representations and warranties were
made on and as of such date, and any such representations and warranties that
are not so qualified shall be true and correct in all material respects on the
date hereof and on and as of the Closing Date as though such representations and
warranties were made on and as of such date, and the Holders shall have received
a certificate executed on behalf of QDI by the President or any Vice President
of QDI, dated as of the Closing Date, to such effect; provided that,
notwithstanding anything to the contrary contained in Sections 4(e) and 8(a),
the Holders shall not be entitled to refuse to consummate the Closing in the
event any action or proceeding is instituted against QDI or any of its
Subsidiaries after the date hereof unless the condition contained in Section
8(c) is not satisfied.
(b) Performance. QDI shall have performed and complied in all
-----------
material respects with all agreements, obligations, covenants and
conditions required hereby to be performed or complied with by QDI on or
<PAGE>
prior to the Closing Date, and the Holders shall have received a certificate
executed on behalf of QDI by the President or any Vice President of QDI, dated
as of the Closing Date, to such effect.
(c) Absence of Proceedings. No action or proceeding shall have
----------------------
been instituted after the date hereof which (i) shall be pending against QDI or
any of its Subsidiaries or the Holders before any Governmental Body or any stock
exchange or other self-regulatory organization and (ii) is likely, either alone
or together with other actions or proceedings, to (A) have a Material Adverse
Effect or (B) result in a judgment, order or decree restricting or prohibiting
the consummation of the transactions contemplated hereby.
(d) Resignations. The Holders shall have received the
------------
resignations effective as of the Closing Date of those officers and/or members
of the Board of Directors of each of the Bagel Companies identified in writing
by the Holders prior to the Closing Date.
(e) Transitional Services Agreement. QDI and Brueggers shall
-------------------------------
have executed and delivered the Transitional Services Agreement.
(f) Closing under the Subsidiary Merger Agreement. The
---------------------------------------------
transactions contemplated by the Subsidiary Merger Agreement shall have
been consummated simultaneously with the Closing.
(g) Termination of Certain Employees. QDI shall have caused
--------------------------------
the Bagel Companies to terminate prior to Closing those Bagel Employees (other
than any who is employed at the store or commissary level or as a district
manager or at an Excluded Store) as shall have been identified by the Holders to
QDI in writing delivered not less than ten (10) Business Days prior to the
Closing Date.
<PAGE>
(h) Brueggers Shares. The Holders shall have received
-----------------
certificates evidencing the Brueggers Shares, duly registered in the name
of the Holders or their designees.
(i) Financing. The Holders and/or their Affiliates shall have
---------
obtained financing for the transactions contemplated by the Financing
Commitments in accordance with the terms and conditions of the Financing
Commitments.
(j) TCB Credit Agreement. The Holders shall have received
--------------------
evidence in form and substance reasonably satisfactory to them that each of the
Bagel Companies shall have been unconditionally and irrevocably released from
any Lien or other obligation under the TCB Credit Agreement.
(k) Good Standings; etc. The Holders shall have received (i)
-------------------
certificates dated as of the most recent practicable date prior to the Closing
Date, with telegram updates where available, showing that each of the Bagel
Companies is in good standing in its jurisdiction of organization and is
qualified as a foreign corporation and in good standing in all other
jurisdictions in which it is qualified to transact business; and (ii) copies of
the certificates of incorporation and all amendments thereto of each of the
Bagel Companies, certified as of a recent date by the Secretary (or a similar
official) of its jurisdiction of organization and copies of each of the Bagel
Companies' by-laws, certified by the Secretary or Assistant Secretary of each of
the Bagel Companies as being true and correct as of the Closing Date.
(l) Officer's Certificate of QDI. The Holders shall have
----------------------------
received an Officer's Certificate of QDI, dated as of the Closing Date,
certifying as to the (i) incumbency and signatures of the officers of QDI
executing this Agreement and any other certificate or other document to be
<PAGE>
delivered pursuant hereto, (ii) resolutions of the Board of Directors of QDI
approving the consummation of the transactions contemplated hereby and that such
resolutions are in full force and effect on the Closing Date, and (iii) adoption
of said resolutions by at least a majority of the members of the Board of
Directors and a majority of the disinterested directors of QDI.
(m) Releases. QDI and Fitzpatrick shall have executed and
--------
delivered to Brue, Dressell, Schonberg and Austin releases of any claims that
QDI or Fitzpatrick may have against them or their Affiliates (other than for
claims arising pursuant to this Agreement (including Section 12) and rights to
indemnification and exculpation from liability that Fitzpatrick may have, in his
capacity as a director or officer, under the certificates of incorporation or
by-laws of the Bagel Companies) in substantially the form of Exhibit G hereto.
(n) Assumption of Obligations Relating to Excluded Assets.
-----------------------------------------------------
The Holders and Brueggers shall have received the Assumption Agreement executed
by QDI in substantially the form of Exhibit H hereto.
(o) Tax Certificate. The Holders shall have received a
---------------
signed copy of the Tax Certificate.
(p) Opinion of the Counsel to QDI. The Holders shall have
-----------------------------
received a signed opinion of Baker & Daniels, counsel to QDI, a signed opinion
of Milbank, Tweed, Hadley & McCloy and a signed opinion of the General Counsel
of QDI, in each case, dated the Closing Date and substantially in the form of
Exhibits I, J and K, respectively, hereto.
(q) No Indebtedness. The Holders shall have received
---------------
evidence in form and substance reasonably satisfactory to them that, as of the
Closing Date and following the repayment of the intercompany debt in
<PAGE>
accordance with Section 7(m), the Bagel Companies shall have no indebtedness for
borrowed money or guaranties.
(r) Termination of Certain Contracts. The Holders shall have
--------------------------------
received evidence in form and substance reasonably satisfactory to them that, as
of the Closing Date, the Contracts and other business or financial arrangements
identified with an asterisk on Schedule 4(n) shall have been terminated.
(s) Other Matters. The Holders shall have received such
-------------
other documents and certificates as may reasonably be requested by the Holders
and their counsel in connection with the transactions contemplated hereby.
9. Covenants of QDI.
----------------
(a) Conduct of Business. From and after the date hereof until
-------------------
the Closing Date, QDI shall, and shall cause each of the Bagel Companies, (i) to
conduct the Bagel Business in the ordinary course, consistent with the present
conduct of such business, except that no store shall be closed (except those in
the markets listed on Schedule 9(a)) without the Holders' consent, not to be
unreasonably withheld, (ii) to use their reasonable commercial efforts to
maintain, preserve and protect the assets and good-will of the Bagel Business,
(iii) except as otherwise contemplated by this Agreement and the Subsidiary
Merger Agreement, to use their reasonable commercial efforts to keep available
the services of present officers and employees of the Bagel Business, (iv) to
use their reasonable commercial efforts to preserve their relationships with
others doing business with the Bagel Business, (v) not to adopt any amendment of
the certificate or articles of incorporation or by-laws of any of the Bagel
Companies, (vi) not to sell, license or otherwise dispose of any material assets
or property relating to the Bagel Business and reflected on the audited
<PAGE>
Statement of Net Assets to be Sold included in the Audited Financial Statements
except (A) as disclosed on Schedule 9(a), (B) Excluded Assets or (C) in the
ordinary course consistent with past practice, (vii) to refrain from taking any
action that would reasonably be expected to make any representation or warranty
of QDI hereunder inaccurate in any respect at, or as of any time prior to, the
Closing Date, (viii) not to enter into, amend, modify or waive any material
rights under any franchise or development Contract relating to the Bagel
Business without the prior written consent of the Holders and (ix) not to agree
to commit to take any action inconsistent with QDI's obligations under clauses
(i) through (viii) above.
(b) Access to Documents; Opportunity to Ask Questions.
-------------------------------------------------
From and after the date hereof until the Closing Date (except as otherwise
contemplated by this Agreement and the Subsidiary Merger Agreement), QDI shall,
and shall cause the Bagel Companies to, continue to make available for
inspection by the Holders and their duly authorized representatives, during
normal business hours, the corporate records, books of account, Contracts,
reports and all other documents of or relating to any of the Bagel Companies
which are reasonably requested by the Holders or such representatives in order
to make reasonable inspection and examination of the business, assets and
affairs of the Bagel Companies. QDI will continue to cause the managerial
employees, counsel, regular independent certified public accountants and
consultants of QDI and each of its Subsidiaries to be available upon reasonable
notice to answer questions of the Holders and their duly authorized
representatives concerning the Bagel Business. All information furnished to the
Holders pursuant to this Section 9(b) shall be subject to the confidentiality
provisions set forth in Section 11. Any
<PAGE>
investigations carried out by the Holders or their authorized representatives
shall not affect or mitigate QDI's covenants, representations and warranties in
this Agreement or the Subsidiary Merger Agreement, which shall continue in full
force and effect.
(c) Cooperation with the Holders. QDI shall, and shall cause
----------------------------
the Bagel Companies to, cooperate with the Holders in connection with the
Holders' fulfillment of the covenants and conditions set forth herein to be
performed or satisfied prior to the Closing and, in connection therewith, QDI
shall, and shall cause each of the Bagel Companies to, furnish the Holders with
all information reasonably requested by the Holders with respect to the
transactions contemplated by this Agreement and the Subsidiary Merger Agreement.
QDI further acknowledges and agrees that the Holders and their representatives
may contact franchisees of the Bagel Business to discuss their relationships and
Contracts with the Bagel Companies and may negotiate with such franchisees
changes in such relationships or Contracts which would become effective on or
after the Closing. All information furnished to the Holders pursuant to this
Section 9(c) shall be subject to the confidentiality provisions set forth in
Section 11.
(d) Regulatory Approvals and Other Consents. QDI shall, and
---------------------------------------
shall cause its Subsidiaries to, use their reasonable commercial efforts to make
all filings with Governmental Bodies as soon as practicable after the date
hereof and to obtain any and all governmental approvals and any and all other
approvals, consents, certifications and waivers (and will provide copies of such
notices to the Holders), including under the Hart-Scott Act, which are required
on the part of QDI and its Subsidiaries, in connection
<PAGE>
with entering into this Agreement and the Subsidiary Merger Agreement and
consummating the transactions contemplated hereunder and thereunder.
(e) Reasonable Commercial Efforts. QDI shall, and shall cause
-----------------------------
its Subsidiaries to, use their reasonable commercial efforts to satisfy the
conditions precedent (other than the Holders' obligations under Section 8(i)) to
the performance by the parties hereto of their respective obligations under this
Agreement, including, without limitation, obtaining any required consent under
the TCB Credit Agreement as set forth in Section 7(d), and the performance of
the obligations of the parties to the Subsidiary Merger Agreement.
(f) Supplements. From and after the date hereof until the
-----------
Closing, if any Schedule referred to in Section 4 shall be or become incorrect,
QDI shall have the right to deliver to the Holders a supplement to such Schedule
in order that such Schedule, as so supplemented, shall be true and correct.
Notwithstanding the foregoing, it is agreed that the delivery of any such
supplement by QDI to the Holders shall not in any manner constitute a waiver by
the Holders of their rights and remedies resulting from any breaches of a
representation or warranty on the date hereof; provided, however, that the
Holders shall not be entitled to assert any claim for indemnification hereunder
arising out of matters disclosed prior to the Closing on such a supplemental
Schedule relating to events occurring subsequent to the date hereof but, if such
matter or matters cause a condition in Section 8(a) not to be satisfied,
notwithstanding anything to the contrary contained in this Agreement, the
Holders shall not be obligated to consummate the transactions contemplated by
this Agreement.
(g) Settlements and Directors' and Officers' Liability
--------------------------------------------------
Insurance. (i) QDI and the Holders agree that all rights to
- ---------
<PAGE>
indemnification and exculpation from liability for acts or omissions occurring
on or prior to the Closing Date and existing as of the Closing Date in favor of
Brue, Dressell and Austin, in their capacity as directors, granted to the
Holders pursuant to Section 11.03(c) of the Agreement and Plan of Merger
pursuant to which QDI acquired Brueggers, are, as of the Closing Date, null and
void. QDI also agrees with the Holders that any settlement of an action or
proceeding including claims against Brue, Dressell or Austin, in their
capacities as directors of QDI, shall include a release in form and substance
reasonably satisfactory to them.
(ii) QDI agrees that, for a period of not less than six years
from the Closing Date, if it renews or replaces its existing directors' and
officers' liability insurance policy, it will seek to provide coverage for the
Holders and Austin, in their capacity as directors or former directors of QDI,
under such policy for events occurring prior to the Closing; provided that QDI
shall not be required to provide such coverage if to do so would result in
policy premiums that would exceed 125% of the premiums that QDI otherwise would
be required to pay for such policy.
(h) Consent of TCB. For a period of twenty-one (21) days
--------------
following the date of termination of this Agreement pursuant to Section
14(a)(iii) or (iv), QDI shall not, without the consent of the Holders, enter
into any written agreement by which QDI agrees to (A) sell the stock of any of
the Bagel Companies to another Person, (B) sell assets comprising a substantial
portion of the Bagel Business to another Person or (C) merge any of the Bagel
Companies with another Person, provided that nothing contained in this Section
9(h) shall prohibit QDI from soliciting, discussing or negotiating the possible
sale, acquisition or merger of any of the Bagel Companies to, by or with another
Person. QDI will promptly
<PAGE>
notify the Holders of its receipt of notification from TCB that the Banks (as
defined in the TCB Credit Agreement) have refused to grant the consent required
under the TCB Credit Agreement with respect to the transactions contemplated
hereby.
10. Covenants of the Holders.
------------------------
(a) Cooperation with QDI. The Holders shall cooperate with QDI
--------------------
in connection with QDI's fulfillment of the covenants and conditions set forth
herein to be performed or satisfied prior to the Closing and, in connection
therewith, the Holders shall furnish QDI with all information reasonably
requested by QDI with respect to the transactions contemplated by this Agreement
and the Subsidiary Merger Agreement. All information furnished to QDI pursuant
to this Section 10(a) shall be subject to the confidentiality provisions set
forth in Section 11.
(b) Regulatory Approvals and Other Consents. The Holders shall
---------------------------------------
use their reasonable commercial efforts to make all filings with Governmental
Bodies as promptly as practicable after the date hereof and to obtain all
governmental approvals and any and all other approvals, consents, certifications
and waivers, including under the Hart-Scott Act, which are required on the part
of the Holders in connection with entering into this Agreement and the
Subsidiary Merger Agreement and consummating the transactions contemplated
hereunder and thereunder.
(c) Reasonable Commercial Efforts. The Holders shall use
-----------------------------
their reasonable commercial efforts to satisfy the conditions precedent to the
performance by the parties hereto of their respective obligations under this
Agreement, including, without limitation, obtaining the financing contemplated
by the Financing Commitments, and the performance of the obligations of the
parties to the Subsidiary Merger Agreement. The Holders
<PAGE>
will promptly notify QDI of its receipt of notification from the financing
sources who are parties to the Financing Commitments that they will not be
providing the financing contemplated by the Financing Commitments, and of what
actions, if any, the Holders have taken or propose to take to obtain alternative
financing.
(d) Employee Benefits. Brueggers shall cause the Bagel
-----------------
Companies to provide, for a period of at least 12 months following the Closing
Date, employee benefits to its employees that are comparable to the employee
benefits currently provided to similarly situated employees of Affiliates of the
Holders engaged in the bagel business as set forth on Annex V hereto.
(e) Settlements. Brueggers agrees (on behalf of the Bagel
-----------
Companies post-Closing) that any settlement of an action or proceeding including
claims against any director or officer or former director or officer of any of
the Bagel Companies, in their capacities as such, shall include a release in
form and substance reasonably satisfactory to them.
(f) Funding Escrow Account. Within two (2) Business Days
----------------------
following receipt of Affiliate Franchise Fees by Bruegger's Franchise
Corporation, a Delaware corporation wholly owned by Brueggers ("BFC"), Brueggers
shall cause BFC to deposit into the escrow account maintained by the Escrow
Agent pursuant to the Escrow Agreement (the "Escrow Account") amounts equal to
fifty percent (50%) of such Affiliate Franchise Fees received by BFC until the
total amount deposited into such account, and interest and investment earnings
thereon (without giving effect to disbursments made from such account in
satisfaction of Indemnifiable Franchisee Claims) equals [the difference between
$7 million and the amount of the Franchisee Claim Guarantee]. The funding
obligation under this
<PAGE>
Section 10(f) shall terminate if and when Brueggers and its Subsidiaries shall
have received not less than $10 million of aggregate proceeds from the sale or
sales (whether in one or more offerings) of equity and/or debt securities in an
arms' length transaction with an institutional investor or lender with, in the
case of debt securities, a scheduled maturity date of not less than 360 days
from the date of issuance at which time all funds in the Escrow Account shall be
released to Brueggers.
11. Publicity; Confidentiality; Preservation of Records.
---------------------------------------------------
(a) Each party hereto recognizes and acknowledges that
the timing and manner of any public disclosure of information relating to the
transactions contemplated hereby is of material importance to the business and
affairs of the other party. Accordingly, the parties hereto agree to consult
with each other and to cooperate in issuing any press release or other public
statement with respect to the transactions contemplated hereby. Any such press
release or other public statement may only be issued with the prior written
consent of the other parties hereto, which consent shall not be unreasonably
withheld; provided, however, nothing contained herein shall restrain or prohibit
any party from making any press release or other public disclosure which, in the
reasonable judgment of such party's counsel, is required by any applicable law
or rule or regulation of any Governmental Body or stock exchange or other
self-regulatory organization and, provided further, the parties shall use
reasonable commercial efforts to provide notice of, and to cooperate with
respect to the timing and content of, any press release or other public
disclosure contemplated by the immediately preceding proviso.
(b) From and after the Closing Date, the Holders and
the Bagel Companies will hold, and will use their best efforts to cause, as
<PAGE>
applicable, their respective officers, directors, employees, accountants,
counsel, consultants, advisors and agents to hold, in confidence, unless
compelled to disclose by judicial or administrative process or by other
requirements of law (including the rules of any stock exchange or other
self-regulatory organization), (i) all confidential documents and information
concerning QDI and its Subsidiaries (other than the Bagel Companies) furnished
to the Holders or their representatives in connection with the transactions
contemplated by this Agreement, except to the extent that such information can
be shown to have been (A) previously known on a nonconfidential basis by the
Holders, (B) in the public domain through no fault of the Holders or (C) later
lawfully acquired by the Holders from sources other than QDI and its
Subsidiaries; provided, however, that the Holders may disclose any information
covered by this Section 11(b) to its employees, accountants, counsel,
consultants, advisors and agents in connection with the transactions
contemplated by this Agreement, so long as such Persons are informed by the
Holders of the confidential nature of such information and are directed by the
Holders to treat such information confidentially. The obligation of the Holders
and the Bagel Companies to hold any such information in confidence shall be
satisfied if they exercise the same care with respect to such information as
they would take to preserve the confidentiality of their own similar
information.
(c) From and after the Closing Date, QDI will, and will cause
each of its Subsidiaries to, hold, and use their best efforts to cause their
respective officers, directors, employees, accountants, counsel, consultants,
advisors and agents to hold, in confidence, unless compelled to disclose by
judicial or administrative process or by other requirements of law (including
the rules of any stock exchange or other self-regulatory
<PAGE>
organization), (i) all confidential documents and information concerning the
Holders and their Affiliates furnished to QDI or any of its representatives in
connection with the transactions contemplated by this Agreement, and (ii) with
respect to the Bagel Companies, all other confidential documents and information
in its possession, except to the extent that such information can be shown to
have been, in the case of clause (i), (A) in the public domain through no fault
of QDI or any of its Subsidiaries or (B) later lawfully acquired by QDI or any
of its Subsidiaries from sources other than the Holders and their Affiliates or,
in the case of clause (ii), in the public domain through no fault of QDI or any
of its Subsidiaries; provided, however, that QDI may disclose any information
covered by this Section 11(c) to its officers, directors, employees,
accountants, counsel, consultants, advisors and agents in connection with the
transactions contemplated by this Agreement, so long as such Persons are
informed by QDI of the confidential nature of such information and are directed
by QDI to treat such information confidentially. The obligation of QDI and its
Affiliates to hold any such information in confidence shall be satisfied if they
exercise the same care with respect to such information as they would take to
preserve the confidentiality of their own similar information.
(d) QDI and the Holders agree that each of them shall preserve
and keep the records held by them relating to the Bagel Business for a period of
six (6) years following the Closing Date and shall make such records and
personnel available to the other as may be reasonably required by such party in
connection with, among other things, any insurance claims by, legal proceedings
against or governmental investigations of QDI or the Holders or any of their
respective Affiliates or in order to enable QDI or
<PAGE>
the Holders to comply with their respective obligations under this Agreement and
each other agreement, document or instrument contemplated hereby. In the event
QDI or the Holders wish to destroy such records after that time, such party
shall first give ninety (90) days' prior written notice to the other and such
other party shall have the right at its option and expense, upon prior written
notice given to such party within that ninety (90) day period, to take
possession of the records within one hundred and eighty (180) days after the
date of such notice.
12. Indemnification.
---------------
(a) QDI Indemnification. In addition to and without limiting
-------------------
in any manner the indemnification set forth in Section 13 (it being understood
that any indemnification by QDI in respect of Taxes shall be governed solely by
Section 13), QDI hereby indemnifies the Holders, LETHE and their Affiliates
(including, from and after the Closing, the Bagel Companies) against, and agrees
to hold each of them harmless from, without duplication, any and all damage,
loss, liability (whether fixed or contingent, known or unknown), and expense
(including reasonable expenses of investigation and reasonable attorneys' fees
and expenses in connection with any action, suit or proceeding) (collectively,
"Damages"), incurred or suffered by the Holders, LETHE or any of their
Affiliates or any of the Bagel Companies arising out of or in respect of (i) any
breach of representation or warranty of QDI or any of its Subsidiaries contained
herein (other than with respect to representations and warranties contained in
Section 4(p), the breach of which shall be governed by Section 13) or in the
Subsidiary Merger Agreement; (ii) any breach of covenant or agreement to be
performed by QDI or any of its Subsidiaries hereunder or under the Subsidiary
Merger Agreement; (iii) any Indemnifiable Franchisee Claims in
<PAGE>
accordance with Section 12(e); (iv) the Excluded Liabilities; (v) Severance
Expenses relating to Bagel Employees terminated (A) by QDI prior to the Closing
or (B) by any of the Bagel Companies following the Closing if such employees
were QDI Responsibility Employees on the Closing Date but are not listed on
Annex III hereto; and (vi) the Florida Guarantee. Notwithstanding anything to
the contrary contained in clause (i) of this paragraph (a), (x) the Holders
(and, from and after the Closing, the Bagel Companies) shall not be entitled to
indemnity under that clause for Damages arising out of or in respect of a breach
of a representation or warranty contained herein that forms the basis of a
Franchisee Claim (the breach of which shall instead be governed by Section
12(a)(iii) and Section 12(e)), except to the extent that it is finally
determined by a nonappealable order of a court of competent jurisdiction that
QDI has breached its representation and warranty contained in Section 4(q) (it
being understood that treating a claim as a Franchisee Claim shall not prejudice
the rights of an Indemnified Party to seek indemnity under Section 12(a)(i) for
Damages arising from a breach of any representation or warranty under Section
4(q)); and (y) QDI shall have no liability for any breach of a representation or
warranty made by QDI in this Agreement in the event and to the extent that QDI
can demonstrate by clear and convincing evidence that (I) the subject matter of
such breach involves facts or events that occurred prior to the Brueggers
Acquisition Date and (II) either of the Holders had actual knowledge of such
facts or events.
(b) Holders/Brueggers Indemnification. The Holders (in the
---------------------------------
case of clauses (i) and (ii) below) and Brueggers (in the case of clauses (iii),
(iv) and (v) below) hereby indemnify QDI, its Affiliates and any current or
former director or officer of the Bagel Companies against, and agrees to
<PAGE>
hold each of them harmless from, without duplication, any and all Damages
incurred or suffered by QDI or any of its Affiliates arising out of or in
respect of (i) any breach of representation or warranty of the Holders contained
herein; (ii) any breach of a covenant or agreement to be performed by the
Holders hereunder; (iii) any Franchisee Claims which are not Indemnifiable
Franchisee Claims in accordance with Section 12(e); (iv) any payments made by
QDI in satisfaction of its obligations under any guarantee of any lease to which
any of the Bagel Companies is a party, except to the extent such guarantee
covers pre-Closing defaults or obligations of QDI or any of its Subsidiaries,
relates to an Excluded Store or otherwise would be a claim subject to
indemnification under Section 12(a); and (v) any severance expenses in
connection with the termination following the Closing of any employee of any of
the Bagel Companies (other than QDI Responsibility Employees to the extent
provided in Section 12(a)(v)).
(c) Procedures for Claims. (i) Except for fraud, the sole
---------------------
remedy after the Closing for Damages resulting from any breach of any
representation or warranty is the pursuit of a claim for indemnification
pursuant to this Section 12 (or, in the case of the representations contained in
Section 4(p), Section 13).
(ii) (A) A party seeking indemnification
pursuant to this Section 12 (an "Indemnified Party") from or against (x) the
assertion of any claim, or the commencement of any action, suit or proceeding,
by a third Person, other than a current or former franchisee of the Bagel
Business in respect of which indemnity may be sought under Section 12(a)(iii) (a
"Third Person Assertion") or (y) a Franchisee Claim shall give prompt notice to
the party from whom indemnification is sought (the
<PAGE>
"Indemnifying Party") and shall provide the Indemnifying Party such information
with respect thereto as the Indemnifying Party may reasonably request, but no
failure to give such notice or provide such information shall relieve the
Indemnifying Party of any liability hereunder (except to the extent the
Indemnifying Party has suffered actual prejudice by such failure).
(B) The Indemnifying Party shall have the right,
exercisable by written notice to the Indemnified Party within ten (10) Business
Days following receipt of notice from the Indemnified Party pursuant to Section
12(c)(ii) of a Third Person Assertion, to assume the defense of such Third
Person Assertion with counsel reasonably acceptable to the Indemnified Party;
provided, however, that the Indemnifying Party shall expressly agree in its
notice to the Indemnified Party that as between the Indemnifying Party and the
Indemnified Party, solely the Indemnifying Party shall be obligated to satisfy
and discharge such Third Person Assertion. If the Indemnifying Party assumes
such defense, the Indemnifying Party shall be obligated to pay the costs
(including reasonable attorney's fees and expenses) incurred by the Indemnified
Party in defending such Third Person Assertion between the date of the
commencement of such Third Person Assertion and the date of the Indemnifying
Party's assumption of such defense, but not any such costs incurred thereafter.
(C) If the Indemnifying Party does not assume
the defense of any Third Person Assertion in accordance with clause (B) above
or, having so assumed such defense, unreasonably fails to defend against such
Third Person Assertion at any time after the Indemnifying Party shall have
assumed the defense of such Third Person Assertion pursuant to Section
<PAGE>
12(c)(ii), then, upon five (5) Business Days' prior written notice to the
Indemnifying Party, the Indemnified Party may assume the defense of such Third
Person Assertion and shall have the right to consent to the entry of judgment
with respect to, or otherwise settle, such Third Person Assertion with the
consent of the Indemnifying Party, which consent shall not be unreasonably
withheld; provided, however, the Indemnifying Party may withhold its consent if
such settlement (1) imposes a continuing non-monetary obligation on the
Indemnifying Party or any of its Affiliates which could reasonably be expected
to be materially adverse to its business, or (2) does not include an
unconditional release of the Indemnifying Party and its Affiliates from all
liability in respect of claims that are the subject of such Third Party
Assertion. In such event, the Indemnified Party shall be entitled under this
Section 12 as part of its Damages to indemnification for the costs of such
defense, but only to the extent it is otherwise entitled to indemnity under this
Section 12.
(D) The Indemnifying Party, if it shall have
assumed the defense of any Third Person Assertion, shall have the right to
consent to the entry of judgment with respect to, or otherwise settle, such
Third Person Assertion with the consent of the Indemnified Party, which consent
shall not be unreasonably withheld; provided, however, that the Indemnified
Party may withhold its consent if any such settlement (1) imposes a continuing
non-monetary obligation on the Indemnified Party or any of its Affiliates which
could reasonably be expected to be materially adverse to its business, or (2)
does not include an unconditional release of the Indemnified Party and its
Affiliates from all liability in respect of claims that are the subject matter
of such Third Person Assertion.
<PAGE>
(E) The Indemnifying Party and the Indemnified
Party shall cooperate, and cause their respective Affiliates to cooperate, in
the defense or prosecution of any Third Person Assertion and shall furnish or
cause to be furnished such records, information and testimony, and attend such
conferences, discovery proceedings, hearings, trials or appeals, as may be
reasonably requested in connection therewith. The Indemnifying Party or the
Indemnified Party, as the case may be, shall have the right to participate, at
its own expense, in the defense or settlement of any Third Person Assertion
which the other is defending.
(iii) Brueggers shall assume the defense of any Franchisee
Claim and Brueggers and QDI shall have the respective rights and obligations
under Section 12(c)(ii) as would be the case if Brueggers assumed the defense of
a Third Person Assertion under Section 12(c)(ii) (except that Damages shall be
borne in accordance with Section 12(e)).
(iv) In the event an Indemnified Party should have a claim
against any Indemnifying Party under this Section 12 that (x) does not involve
either a Third Person Assertion or a Franchisee Claim or (y) involves a Third
Person Assertion as to which the Indemnifying Party does not elect to assume the
defense, the Indemnified Party shall deliver notice of such claim with
reasonable promptness to the Indemnifying Party. If the Indemnifying Party does
not notify the Indemnified Party within thirty (30) days following its receipt
of such notice that the Indemnifying Party disputes its liability to the
Indemnified Party under Section 12, such claim specified by the Indemnified
Party in such notice shall be conclusively deemed a liability of the
Indemnifying Party and the Indemnifying Party shall pay the amount of such
liability to the Indemnified Party within five (5) days after expiration of such
30-day
<PAGE>
period. If the Indemnifying Party timely disputes its liability with respect to
such claim, the Indemnifying Party and the Indemnified Party shall proceed in
good faith to negotiate a resolution of such dispute and, if not resolved within
ten (10) Business Days, either party may institute legal proceedings relating
thereto.
(d) Certain Limitations on Remedies. QDI shall not have any
-------------------------------
liability under Section 12(a)(i) unless the aggregate amount of Damages to the
Holders, LETHE and their Affiliates under Section 12(a)(i) exceeds $500,000 in
the aggregate, in which event QDI shall have liability for the total amount of
Damages in excess of $500,000; provided that QDI shall not be required to
indemnify the Holders, LETHE and their Affiliates for any Damages under Section
12(a)(i) in excess of $6,000,000. QDI's obligation to indemnify the Holders,
LETHE and their Affiliates for Damages under Section 12(a)(i) shall be satisfied
by (x) the reimbursement in cash of the Holders, LETHE and their Affiliates for
the first $3,000,000 of any Damages and (y) the reduction of the outstanding
principal amount and accrued interest as provided under the Subordinated Note
for the remaining $3,000,000 of any Damages.
(e) Indemnifiable Franchisee Claims.
-------------------------------
(A) Procedures for Indemnifiable Franchisee Claims. If an
----------------------------------------------
Indemnified Party pursuant to Section 12(a)(iii) intends to make a claim to seek
reimbursement of Damages incurred in respect of an Indemnifiable Franchisee
Claim, the Indemnified Party shall deliver to QDI either (i) a certificate
executed by the Indemnified Party (A) stating that a final, nonappealable order
of a court of competent jurisdiction has been entered against it in respect of a
Franchisee Claim as to which such Indemnified Party is entitled to be
indemnified hereunder, and attaching a copy of such
<PAGE>
order, (B) setting forth in reasonable detail the cash amounts required to be
paid by such Indemnified Party in satisfaction of such order and court awarded
interest and costs pursuant to such order, (C) setting forth in reasonable
detail the expenses (including reasonable attorneys' fees) incurred in defending
such action and attaching copies of all invoices, calculations or other
information used to calculate such expenses and (D) attaching copies of checks
(both front and back) and such other evidence demonstrating that the Indemnified
Party has made all payments and disbursements of amounts for which
indemnification is sought (a "Litigation Certificate"), or (ii) a certificate
executed by the Indemnified Party (A) stating that it has entered into a final
settlement agreement with a franchisee in respect of a Franchisee Claim as to
which such Indemnified Party is entitled to be indemnified hereunder, and
attaching a copy of such settlement agreement, (B) in the case of a settlement
of a Franchisee Claim that involves any action, suit or proceeding pending
before a court of competent jurisdiction, stating that a stipulation,
application, motion or similar filing has been made with the court which will,
or asks the court to, dismiss with prejudice the action, suit or proceeding and
attaching a copy of such stipulation, application, motion or filing, (C) setting
forth in reasonable detail any cash settlement amounts paid by such Indemnified
Party pursuant to such agreement, (D) setting forth in reasonable detail the
expenses (including reasonable attorneys' fees) incurred in defending such
action and reaching such settlement and attaching copies of all invoices,
calculations or other information used to calculate such expenses, (E) stating
that such settlement agreement contains a general release of QDI for all claims
such franchisee may have against QDI and its Affiliates that has been approved
by QDI in writing and (F) attaching
<PAGE>
copies of checks (both front and back) and such other evidence demonstrating
that the Indemnified Party has made all payments and disbursements of amounts
for which indemnification is sought (a "Settlement Certificate"). The
Indemnified Parties will not enter into a settlement agreement with respect to a
Franchisee Claim, regardless of whether the Indemnified Party is seeking or is
entitled to seek indemnification for such claim, unless (x) such settlement
agreement represents the good faith resolution of such Franchisee Claim and (y)
the settlement agreement provides for an unconditional release of QDI and its
Affiliates of any and all Franchisee Claims which the franchisee may have
against QDI and its Affiliates. Further, the Indemnified Parties shall not enter
into any agreement which would have the effect of reducing or offsetting any
settlement sums which are Damages constituting Indemnifiable Franchisee Claims
without QDI also receiving the benefit of such reduction or offset pro rata to
its indemnity obligation under this Section 12(e).
(B) Certain Limitations on Indemnifiable Franchisee Claims.
------------------------------------------------------
Notwithstanding anything to the contrary contained in this Agreement, within
five (5) Business Days following the receipt by QDI of a Litigation Certificate
or a Settlement Certificate, QDI shall reimburse, and QDI's obligation to
indemnify the Indemnified Parties in respect of Indemnifiable Franchisee Claims
shall be limited to the reimbursement of, the Indemnified Parties (x) in cash
for fifty cents ($.50) of every dollar ($1.00) of any Damages in respect of the
first $6 million of Indemnifiable Franchisee Claims and (y) by reduction of the
outstanding principal amount under the Subordinated Note for fifty cents ($.50)
of every dollar ($1.00) of any Damages in respect of the remaining Indemnifiable
Franchisee Claims, as and when such Damages are paid by the Indemnified Parties;
provided that (i)
<PAGE>
QDI shall only be liable for Damages arising from settlement of Indemnifiable
Franchisee Claims if such settlement includes a release in form and substance
reasonably satisfactory to QDI by such franchisee in favor of QDI and its
Affiliates for all claims such franchisee may have against QDI and its
Affiliates, (ii) QDI shall not be responsible for any settlement entered into
with a franchisee more than eighteen (18) months following the Closing Date
(except for settlement of any litigation initiated within eighteen (18) months
following the Closing Date and pending as of the conclusion of such eighteen
(18) month period), (iii) QDI will be deemed to have indemnified the Indemnified
Parties for Indemnifiable Franchisee Claims (x) dollar-for-dollar to the extent
that QDI incurs reasonable expenses (including attorney's fees) in connection
with the Franchisee Claims listed on Annex VI hereto, and (y) dollar-for-dollar
to the extent that QDI makes any payment to a franchisee in satisfaction of a
Franchisee Claim, as approved by Brueggers (which approval shall not be
unreasonably withheld), which sums, in each such case, shall be credited as
payments made by QDI for Indemnifiable Franchisee Claims against QDI's potential
liability of $7 million hereunder, and (iv) for purposes of Section 12(a)(iii),
"Damages" shall include only out-of-pocket cash payments made to franchisees (A)
in settlement of Franchisee Claims and (B) in satisfaction of a final,
non-appealable order of a court of competent jurisdiction, each together with
all expenses (including reasonable expenses of investigation and reasonable
attorneys' fees and expenses) incurred in connection therewith. Notwithstanding
the foregoing, if, pursuant to a final, nonappealable judgment or order of a
court of competent jurisdiction, QDI pays any Damages with respect to a
Franchisee Claim in excess of the amounts which
<PAGE>
it is required to pay in accordance with this Section 12(e)(B) and neither
Brueggers nor any of the Guarantors under the Franchisee Claim Guarantee shall
have reimbursed QDI within two (2) Business Days following written demand
therefor, in addition to any rights and remedies otherwise available to QDI
under this Agreement or at law or equity, QDI may, with respect to up to $7
million of such Damages, deliver a written notice to Brueggers to the effect
that (i) QDI has paid such Damages in satisfaction of such judgment or order and
(ii) the amount of such Damages shall be automatically added to the then
outstanding principal amount of the Subordinated Note, in which event the
outstanding principal amount of the Subordinated Note shall be so adjusted.
(C) The Holders and QDI shall each use commercially reasonable
efforts to maximize recoveries under all available liability insurance policies
maintained by or on behalf of QDI and its Subsidiaries, on the one hand, and the
Bagel Companies, on the other, in respect of Damages resulting from or incurred
in connection with Franchisee Claims. To the extent that the carriers under any
such liability insurance make any payment or reimbursement with respect to
Damages in respect of any Franchisee Claim, such payment or reimbursement shall
not reduce the maximum amount of Indemnifiable Franchisee Claims for which QDI
is responsible under this Section 12(e).
(f) Other Matters. Notwithstanding anything to the contrary
-------------
contained in this Agreement, it is the explicit intent of each party hereto
that QDI is making no representation or warranty whatsoever, express or
implied, except those representations and warranties contained in Section 4
of this Agreement and the Subsidiary Merger Agreement and in any
certificate delivered pursuant to Section 8(a) or 8(b). In particular, QDI
<PAGE>
makes no representation or warranty with respect to (i) the information set
forth in any offering circular or confidential memo delivered to the Holders by
or on behalf of QDI or (ii) any financial projection or forecast relating to the
Bagel Business delivered to the Holders by or on behalf of QDI. With respect to
any projection or forecast delivered by or on behalf of QDI to the Holders, the
Holders acknowledge that (i) there are uncertainties inherent in attempting to
make such projections and forecasts, (ii) they are familiar with such
uncertainties, (iii) they are taking full responsibility for making their own
evaluation of the adequacy and accuracy of all such projections and forecasts
furnished to it and (iv) they shall have no claim against QDI with respect
thereto.
(g) Allocations. Notwithstanding anything to the contrary
-----------
contained in this Section 12:
(i) If the Damages with respect to which QDI is obligated to
indemnify the Indemnified Parties pursuant to this Section 12 were incurred or
suffered primarily by, or relate primarily to, the Bagel Subsidiaries, then QDI
shall make any cash indemnification payment thereof to or as directed by
Brueggers.
(ii) If the Damages with respect to which QDI is obligated to
indemnify the Indemnified Parties pursuant to this Section 12 were incurred or
suffered primarily by LETHE, or relate primarily to the Direct Subsidiaries or
BDC, then QDI shall make any cash indemnification payment in respect thereof to
or as directed by LETHE.
(iii) In any case of doubt as to the Indemnified Party to
which QDI shall make any indemnification payment pursuant to clauses (i) and
(ii) above, QDI shall make such payment to or as directed by the Holders.
<PAGE>
(iv) If QDI satisfies its indemnification obligations under
this Agreement or the Subsidiary Merger Agreement with respect to Damages
suffered or incurred primarily by LETHE, or that relate primarily to the Direct
Subsidiaries or BDC, by means of an offset against the Subordinated Note
pursuant to Section 12(d) or (e), then, as between Brueggers and LETHE, LETHE
shall be deemed to have made a loan to Brueggers in an amount equal to the
amount of such offset, which loan shall bear interest accruing at the rate of
12% per annum, and shall be payable by Brueggers to LETHE on the maturity date
of the Subordinated Note (and prepayable at the option of Brueggers at any
time).
(v) Nothing contained in this Section 12(g) is intended to,
nor shall it, expand or otherwise alter QDI's indemnification obligations as set
forth in this Section 12.
13. Tax Indemnification and Other Matters.
-------------------------------------
(a) In addition to and without limiting in any manner the
indemnification set forth in Section 12 in respect of matters other than Taxes,
QDI will be responsible for, will pay or cause to be paid, and will indemnify
and hold harmless the Holders and their Affiliates (including, from and after
the Closing, the Bagel Subsidiaries) from and against any and all Damages for or
in respect of each of the following:
(i) any and all Taxes with respect to any taxable period of
any of the Bagel Subsidiaries (or any predecessor) ending on or before the
Closing Date;
(ii) any and all Taxes resulting from any of the Bagel
Subsidiaries having been (or ceasing to be) included in any consolidated,
combined, or unitary Tax Return that included any of the Bagel Subsidiaries
<PAGE>
(or any predecessor) for any taxable period (or portion thereof) ending on
or before the Closing Date;
(iii) any and all Taxes of any member of a consolidated,
combined or unitary group (other than any of the Bagel Subsidiaries) of which
any of the Bagel Subsidiaries (or any predecessor) is or was a member on or
prior to the Closing Date, by reason of the liability of any of the Bagel
Subsidiaries pursuant to Treasury Regulation Section 1.1502-6(a) or any
analogous or similar state, local or foreign law or regulation;
(iv) any breach by QDI of any representation, warranty or
covenant contained in Section 4(p) or this Section 13;
(v) any and all Taxes allocated to QDI pursuant to Section
13(b); and
(vi) any and all Taxes arising out of the exchange of the QDI
Shares for the Brueggers Shares pursuant to Section 2, other than Taxes imposed
upon a Holder individually; in each case, except to the extent that a specific
reserve for such Taxes is reflected as a current liability on the Final Closing
Date Balance Sheet.
(b) For U.S. federal income tax purposes, the taxable year of
the Bagel Subsidiaries shall end as of the close of the Closing Date. QDI and
the Holders shall, unless prohibited by applicable law, take all action
necessary or appropriate to close the taxable period of the Bagel Subsidiaries
for all tax purposes on the Closing Date. In any case where applicable law does
not permit any of the Bagel Subsidiaries to close its taxable year on the
Closing Date, then Taxes, if any, attributable to the taxable period of such
Bagel Subsidiary that includes, but does not end on, the Closing Date, shall be
allocated (i) to QDI for the period up to and
<PAGE>
including the Closing Date and (ii) to the Bagel Subsidiaries for the period
subsequent to the Closing Date. Any allocation of income or deductions required
to determine any Taxes attributable to any period that includes, but does not
end on, the Closing Date shall be made by means of a closing of the books of the
Bagel Subsidiary as of the close of business on the Closing Date; provided,
however, that exemptions, allowances or deductions that are calculated on an
annual basis (including, but not limited to, depreciation and amortization
deductions) shall be allocated between the period ending on the Closing Date and
the period after the Closing Date in proportion to the number of days in each
period.
(c) (i) QDI shall include the Bagel Subsidiaries in (A) the
United States consolidated federal income Tax Return of QDI for the taxable
period of the Bagel Subsidiaries ending on the Closing Date, and (B) all other
consolidated and all combined or unitary Tax Returns of QDI or its Affiliates
(other than those including only the Bagel Subsidiaries for the taxable period
of the Bagel Subsidiaries ending (or the portion of any taxable year ending) on
the Closing Date (such Tax Returns referred to in clauses (A) and (B) hereof are
hereinafter referred to as "QDI Consolidated or Combined Returns"). QDI shall
properly prepare and timely file all QDI Consolidated or Combined Returns which
include any of the Bagel Subsidiaries for all taxable periods ending on or
before the Closing Date (which Tax Returns shall include the Bagel Subsidiaries
and the reportable items from the assets or operations of the Bagel Subsidiaries
through and including the Closing Date). QDI also shall properly prepare and
timely file all other Tax Returns of or which include any of the Bagel
Subsidiaries required to be filed on or prior to the Closing Date (without
regard to extensions). The Tax Returns referred to in the two preceding
<PAGE>
sentences (insofar as they relate to any of the Subsidiaries) shall be prepared
in a manner consistent with past practices, and QDI shall pay all Taxes shown
due on such Tax Returns or otherwise levied or assessed upon or any of their
assets on or prior to the Closing Date.
(ii) The Holders shall be responsible for filing or causing to
be filed all Tax Returns required to be filed by or on behalf of any of the
Bagel Subsidiaries after the Closing Date, other than the QDI Consolidated or
Combined Returns.
(iii) With respect to any Tax Return required to be filed by
any of the Bagel Subsidiaries for a taxable period of any of the Bagel
Subsidiaries that includes, but does not end on, the Closing Date, the Holders
shall deliver or cause to be delivered, at least twenty (20) Business Days prior
to the due date for filing of such Tax Return (including extensions), to QDI a
statement setting forth the amount of Tax for which QDI is responsible pursuant
to Section 13(a) or that is allocable to QDI pursuant to Section 13(b), as the
case may be (the "Statement"), and copies of such Tax Return. Subject to the
remaining provisions of this Section 13(c)(iii), the Holders shall cause the
relevant Bagel Subsidiary to file such Tax Return on a timely basis and pay the
Taxes shown as due thereon. QDI shall have the right to review and approve
(which approval shall not be unreasonably withheld) such Tax Return in the ten
(10) Business Day period following receipt thereof. QDI and the Holders shall
attempt in good faith to resolve any disagreement regarding such Tax Returns. In
the event the parties are unable to resolve any dispute within ten (10) Business
Days following the delivery of such Tax Return, the parties shall jointly retain
the Independent Accountants to resolve such dispute. The Independent Accountants
shall resolve any issue in dispute as
<PAGE>
promptly as possible. If the Independent Accountants are unable to make a
determination with respect to any disputed issue within five (5) Business Days
prior to the due date (including extensions) for the filing of the Tax Return in
question, then the Holders shall cause the relevant Bagel Subsidiary to file
such Tax Return on the due date (including extensions) therefor without such
determination having been made. Notwithstanding the filing of such Tax Return,
the Independent Accountants shall make a determination with respect to any
disputed issue, and the amount of Taxes for which QDI is responsible under
Section 13(a) or that are allocated to QDI pursuant to Section 13(b), as the
case may be, shall be as determined by the Independent Accountants. The fees and
expenses of such Independent Accountants shall be borne equally by QDI and the
Holders. Not later than (x) five (5) Business Days before the due date for the
payment of Taxes with respect to such Tax Return or (y) in the event of a
dispute, five (5) Business Days after notice to QDI of the resolution thereof,
QDI shall pay to the Holders an amount equal to the Taxes shown on the Statement
as being the responsibility of QDI under Section 13(a) or allocable to QDI
pursuant to Section 13(b), or in such notice, as the case may be. No payment
pursuant to this Section 13(c)(iii) shall excuse QDI from its indemnification
obligations pursuant to Section 13(a) if the amount of Taxes as ultimately
determined (on audit or otherwise), for the periods covered by such Tax Returns
and which are the responsibility of QDI, exceeds the amount of the QDI's payment
under this Section 13(c)(iii).
(iv) QDI and the Holders shall cooperate fully with each other
and provide to each other in a timely fashion such Tax data and other
information as may be reasonably required by QDI or the Holders for the
preparation of any Tax Returns required to be prepared and filed by QDI or
<PAGE>
the Holders hereunder, or in connection with the preparation or filing of any
election, consent or certification or Tax audit.
(d) (i) The Holders shall promptly notify QDI upon receipt of
written notice of any Tax audit of or assessments against any of the Bagel
Subsidiaries for taxable periods ending on or prior to the Closing Date. QDI
shall have the right to represent the Bagel Subsidiaries' interests in any Tax
audit or administrative or court proceeding relating to taxable periods of any
of the Bagel Subsidiaries ending on or prior to the Closing Date and to employ
counsel of its choice at its expense; provided, however, that QDI may not agree
to a settlement or compromise thereof without the prior consent of the Holders,
which consent will not be unreasonably withheld. QDI shall promptly notify the
Holders if it decides not to control the defense or settlement of any such Tax
audit or administrative or court proceeding and the Holders thereupon shall be
permitted to defend and settle such Tax audit or proceeding.
(ii) With respect to any taxable period of any of the Bagel
Subsidiaries that includes, but does not end on, the Closing Date, the Holders
shall promptly notify QDI upon receipt of written notice of any Tax audit of or
assessments against any of the Bagel Subsidiaries for such period, and the
Holders and QDI shall jointly control the defense and settlement of any Tax
audit or administrative or court proceeding and each party shall cooperate with
the other party at its own expense, and there shall be no settlement or closing
or other agreement with respect thereto without the consent of the other party,
which consent will not be unreasonably withheld.
(iii) QDI will promptly notify the Holders of the commencement
of any claim, audit, examination or other proposed change or adjustment by
<PAGE>
any taxing authority which may affect the liability of any of the Bagel
Subsidiaries for Taxes and QDI shall keep the Holders duly informed of the
progress thereof.
(e) Any refunds of Taxes, to the extent such refunds relate to
a taxable period ending on or before the Closing Date or, with respect to a
taxable period that includes, but does not end on, the Closing Date, the portion
of such taxable period ending on the Closing Date, in both cases for which QDI
indemnifies the Holders hereunder, except to the extent that such amounts are
reflected as an asset on the Final Closing Date Balance Sheet and which are
received by the Holders or any of the Bagel Subsidiaries after the Closing Date,
shall be remitted (net of Tax) to QDI.
(f) Notice of any claim for indemnity pursuant to Section 13
with respect to any taxable period of any of the Bagel Subsidiaries must be
received by the party against whom such claim is made no later than ninety (90)
days after the later of (i) the expiration of the applicable statute of
limitations with respect to such taxable period or (ii) the receipt by the
Holders or any of the Bagel Subsidiaries or their Affiliates of a notice, claim,
demand, assessment or deficiency for Taxes by any Tax authority.
(g) Any dispute as to any matter covered pursuant to Section
13 shall be resolved by the Independent Accountants. The fees and expenses of
such accounting firm shall be borne equally by the parties.
14. Termination. (a) This Agreement may be terminated
-----------
at any time prior to the Closing: (i) by mutual consent of the Holders and QDI,
(ii) by the Holders or by QDI if the Closing shall not have been consummated on
or before forty-five (45) days after the date hereof, or, in the event that the
condition contained in Section 7(d) is satisfied on or
<PAGE>
prior to such forty-fifth (45th) day, thirty (30) days after the date such
condition is satisfied, but in no event less than forty-five (45) days after the
date hereof or more than fifty-one (51) days after the date hereof, (iii) by the
Holders if the condition to QDI's obligations hereunder contained in Section
7(d) shall not have been satisfied after the twenty-first (21st) day after the
date hereof and on or prior to the twenty-eighth day following the date hereof,
(iv) by the Holders or by QDI following receipt by QDI and the Holders of notice
from TCB that the Banks (as defined in the TCB Credit Agreement) have refused to
grant the consent required under the TCB Credit Agreement with respect to the
transactions contemplated hereby or (v) by QDI not less than two (2) Business
Days following the date of receipt by the Holders and QDI of notice that the
financing for the transactions contemplated by the Financing Commitments will
not be made available to the Holders if the Holders shall not have demonstrated
to the reasonable satisfaction of QDI that alternative financing on terms not
materially less favorable to QDI is available; provided, however, that the right
to terminate this Agreement pursuant to clause (ii) shall not be available to
any party whose failure to fulfill any obligation under this Agreement has been
the cause of or resulted in the failure of the Closing to occur on or before
such date.
(b) If this Agreement is terminated pursuant to Section 14(a),
this Agreement (other than Sections 9(h) and 17(i)) shall forthwith become void
and of no further force or effect and there shall be no liability or obligation
on the part of the Holders or QDI hereunder; provided, however, that termination
pursuant to clause (ii), (iii), (iv) or (v) of Section 14(a) shall not relieve
any party of liability for any willful breach of this Agreement arising at or
prior to the time of such termination.
<PAGE>
15. Notices. Any and all notices, designations or any
-------
other communication provided for herein shall be made by hand-delivery,
first-class mail (registered or certified, return receipt requested), telecopier
or overnight air courier (i) in the case of QDI, to Quality Dining, Inc., 4220
Edison Lakes Parkway, Mishawaka, Indiana 46545, Attention: John C. Firth, Esq.,
Secretary, telecopy number (219) 271-4612 (or such other addresses or telecopy
number as QDI may designate), and (ii) in the case of the Holders to Nordahl L.
Brue and Michael J. Dressell, Champlain Management Services, 159 Bank Street,
Burlington, Vermont 05401, telecopy number (802) 660-4034 (or such other address
or telecopy number as the Holders may designate). Except as otherwise provided
in this Agreement, each such notice shall be deemed given at the time delivered
by hand, if personally delivered; five (5) Business Days after being deposited
in the mail, postage prepaid, if mailed; when receipt acknowledged, if
telecopied; and the next Business Day after timely delivery to the courier, if
sent by overnight air courier guaranteeing next day delivery. A copy of such
notice shall be sent by the same means, (A) in the case of a notice to QDI to
(1) Baker & Daniels, 300 North Meridian Street, Indianapolis, Indiana 46204,
Attention: James A. Aschleman, Esq., telecopy number (317) 237- 1000, and (2)
Milbank, Tweed, Hadley & McCloy, One Chase Manhattan Plaza, New York, New York
10005-1413, Attention: Lawrence Lederman, Esq., telecopy number (212) 530-5219,
and (B) in the case of a notice to the Holders to (1) Sheehey, Brue, Gray &
Furlong Professional Corporation, Gateway Square, 30 Main Street, Burlington,
Vermont 05402 Attention: David T. Austin, Esq., telecopy number (802) 864-6815,
and (2) Weil, Gotshal & Manges LLP, 767 Fifth Avenue, New York, New York 10153,
Attention: David E. Zeltner, Esq., telecopy number (212) 310-8007.
<PAGE>
16. Non-Competition. During the period commencing on the
---------------
Closing Date and ending on the eighteen-month anniversary of the Closing Date,
neither QDI nor any of its Subsidiaries will engage anywhere in the world in the
business of owning, operating or franchising bagel bakeries or other retail
stores that specialize in selling bagels (a "Competing Business"); provided,
however, that such covenant shall not (i) prohibit the incidental sale of bagels
by QDI or any of its Subsidiaries through franchise restaurants or stores which
do not specialize in the sale of bagels, (ii) prohibit the sale of QDI or any of
its Subsidiaries to a Person engaged in the business of owning, operating or
franchising bagel bakeries or (iii) the acquisition by QDI of a diversified
company (the "Acquired Company") that owns a Competing Business, provided,
however, that (A) the Competing Business would not constitute a "significant
subsidiary", as defined in Rule 1-02(w) of Regulation S-X under the Exchange
Act, of QDI and its Subsidiaries after the acquisition of the Acquired Company
and (B) if the Competing Business constitutes more than 20% of the consolidated
sales of the Acquired Company (as indicated on the Acquired Company's latest
annual audited financial statements), then QDI shall dispose of the Competing
Business within 12 months after the acquisition date. The parties hereto
acknowledge that the business of the Bagel Companies is of a special, unique and
extraordinary character and that irreparable injury would be sustained by the
Holders in the event of a violation by QDI of any of the provisions of this
Section 16, and by reason thereof QDI consents and agrees that if it violates
any of the provisions of this Section 16, the Holders and Brueggers shall be
entitled to an injunction to be issued by any court of competent jurisdiction
restraining QDI from committing or continuing any violation of this Section 16.
<PAGE>
17. General.
-------
(a) Entire Agreement. This Agreement, including the
----------------
Exhibits and Schedules hereto, contains the entire understanding and agreement
of the parties hereto with respect to the subject matter hereof.
(b) Survival. The covenants and agreements of the parties
--------
contained herein shall survive the execution and delivery of this Agreement and
the transactions contemplated herein. All representations and warranties
contained herein shall survive the execution and delivery of this Agreement, any
examination by or on behalf of the parties hereto, the Closing and the
completion of the transactions contemplated herein for a period of one (1) year
commencing on the Closing Date; provided, however, that (i) the representations
and warranties of QDI contained in Sections 4(b), (c), (g), (n) and (v) of this
Agreement shall survive the Closing and remain in full force and effect
indefinitely, (ii) the representations and warranties of QDI contained in
Sections 4(k), (o) and (p) shall survive the Closing and remain in full force
and effect until the expiration of 30 days after the applicable statutes of
limitations with respect to the matters referred to therein and (iii) the
representations and warranties of the Holders contained in Sections 5(a) and
5(b) shall survive the Closing and remain in full force and effect indefinitely.
Notwithstanding anything to the contrary contained herein, a representation or
warranty that is the basis for a claim for indemnification timely made hereunder
or under the Subsidiary Merger Agreement shall continue to survive with respect
to such claim until the final resolution of such claim.
(c) Further Assurances. The parties hereto each agree to
------------------
execute such other instruments, documents or agreements as may be
<PAGE>
reasonably necessary or desirable for the implementation of this Agreement and
the consummation of the transactions contemplated hereby. In addition, each of
the parties hereto agrees to provide reasonable access to such party's
personnel, documents and materials, upon five (5) Business Days' prior notice,
at the visiting party's expense and without any business interference to the
party providing such access, as may be reasonably necessary or desirable for the
implementation of this Agreement and the consummation of the transactions
contemplated hereby.
(d) Amendment; Waiver. This Agreement may be amended or
-----------------
waived only by a written instrument signed by the party against whom enforcement
thereof is sought.
(e) Binding Effect; Assignment. This Agreement shall be
--------------------------
binding upon and inure to the benefit of the parties hereto and their respective
successors, legal representatives and assigns, provided, however, that no party
may assign, delegate or otherwise transfer any of its rights or obligations
hereunder without the prior written consent of the other party, except that
Holders shall have the right to collaterally assign any of their rights under
this Agreement (including, but not limited to, its indemnification rights) to
the Holders' lenders without QDI's prior written consent.
(f) Section Headings. The section headings contained in this
----------------
Agreement are for reference purposes only and shall not affect in any way
the meaning or interpretation of this Agreement.
(g) Governing Law. This Agreement shall be governed by, and
-------------
construed and enforced in accordance with, the laws of the State of New York,
without giving effect to the provisions, policies or principles thereof
respecting conflict or choice of laws.
<PAGE>
(h) Severability. If at any time subsequent to the date of
------------
this Agreement any provision of this Agreement shall be held by any court of
competent jurisdiction to be illegal, void or unenforceable, such provision
shall be of no force or effect but the illegality or unenforceability of such
provision shall have no effect upon or impair the enforceability of any other
provision.
(i) Expenses. Each party hereto shall pay its own fees and
--------
expenses in connection with this Agreement.
(j) Counterparts. This Agreement may be executed in
------------
counterparts, each of which shall be deemed an original but all of which taken
together shall constitute but one and the same agreement.
(k) No Third Party Beneficiaries. This Agreement shall be
----------------------------
binding upon and inure solely to the benefit of the parties hereto and their
permitted assigns and nothing herein, express or implied, is intended to or
shall confer upon any other Person (other than any Indemnified Party in
accordance with Section 12 and any individual referred to in Section 9(g) or
10(e)) any legal or equitable right, benefit or remedy of any nature whatsoever
under or by reason of this Agreement.
(l) Tax Certificates. No party hereto shall have the right to
----------------
bring any action or claim against any Person delivering a Tax Certificate
pursuant to Section 7(h) to recover Damages in connection with any statements or
representations made in such Tax Certificate.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the day and year first above written.
QUALITY DINING, INC.
By: /s/ Daniel B. Fitzpatrick
---------------------
Name: Daniel B. Fitzpatrick
Title: President
BRUEGGER'S CORPORATION
By: /s/ Daniel B. Fitzpatrick
---------------------
Name: Daniel B. Fitzpatrick
Title:President
/s/ Nordahl L. Brue
----------------------
NORDAHL L. BRUE
/s/ Michael J. Dressell
-----------------------
MICHAEL J. DRESSELL
Exhibit 2
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
QUALITY DINING, INC.,
BAGEL DISPOSITION CORPORATION
AND
LETHE LLC
DATED AS OF
SEPTEMBER 3, 1997
<PAGE>
TABLE OF CONTENTS
Page
----
1. Definitions; Rules of Construction............................... 2
(a) Certain Definitions..................................... 2
(b) Rules of Construction................................... 6
2. The Merger; Closing.............................................. 6
(a) The Merger.............................................. 6
(b) Closing................................................. 6
(c) Effective Time.......................................... 7
(d) Organizational Documents and Limited Liability Company
Agreement of the Surviving Company............................... 7
(e) Managers and Officers of the Surviving Company.......... 7
(f) Effects of the Merger................................... 8
(g) Further Assurances...................................... 8
3. Conversion of the BDC Common Stock............................... 8
(a) Exchange Ratio for the BDC Common Stock. .............. 8
(b) Exchange of Certificates................................ 8
4. Representations and Warranties of QDI............................ 9
(a) Organization, Etc....................................... 9
(b) Authorization; Execution; Binding Effect................ 10
(c) Capitalization of BDC and the Direct Subsidiaries....... 11
(d) No Conflicting Agreements or Charter Provisions......... 11
(e) Litigation.............................................. 13
(f) Brokers and Finders..................................... 13
5. Representations and Warranties of LETHE.......................... 13
(a) Organization............................................ 13
(b) Authorization; Execution; Binding Effect................ 13
(c) No Conflicting Provisions............................... 14
(d) Litigation.............................................. 15
(e) Brokers and Finders..................................... 15
6. Conditions to the Obligations of QDI and LETHE................... 15
7. [Intentionally Omitted.]......................................... 16
8. Additional Condition to the Obligations of LETHE................. 16
9. Covenants of QDI ................................................ 16
(a) Conduct of Business..................................... 16
(b) Access to Documents; Opportunity to Ask Questions....... 17
(c) Cooperation with LETHE.................................. 17
(d) Regulatory Approvals and Other Consents................. 18
(e) Reasonable Commercial Efforts........................... 18
10. Covenants of LETHE............................................... 18
(a) Cooperation with QDI and ............................... 18
(b) Regulatory Approvals and Other Consents................. 19
(c) Reasonable Commercial Efforts........................... 19
<PAGE>
11. Publicity; Confidentiality; Preservation of Records............ 19
12. Indemnification................................................ 22
13. Tax Indemnification and Other Matters.......................... 22
14. Termination.................................................... 25
15. Notices........................................................ 26
16. General........................................................ 27
(a) Entire Agreement...................................... 27
(b) Survival.............................................. 27
(c) Further Assurances.................................... 28
(d) Amendment; Waiver..................................... 28
(e) Binding Effect; Assignment............................ 28
(f) Section Headings...................................... 28
(g) Governing Law......................................... 28
(h) Severability.......................................... 29
(i) Expenses.............................................. 29
(j) Counterparts.......................................... 29
(k) No Third Party Beneficiaries.......................... 29
<PAGE>
AGREEMENT AND PLAN OF MERGER
----------------------------
THIS AGREEMENT AND PLAN OF MERGER (this "Agreement"), dated as
of September 3, 1997, by and among Quality Dining, Inc., an Indiana corporation
("QDI"), Bagel Disposition Corporation, a newly formed Delaware corporation
wholly owned by QDI ("BDC"), and LETHE LLC, a Delaware limited liability company
("LETHE").
W I T N E S S E T H:
WHEREAS, each of Bagel Acquisition Corporation, an Indiana
corporation, Best Bagels, Inc., an Indiana corporation, Mohold Franchise
Corporation, an Indiana corporation, and Mohold Inc., a Colorado corporation
(collectively, the "Direct Subsidiaries"), is a wholly-owned subsidiary of QDI
engaged in the business of owning and operating bagel bakeries in various
locations in the United States (the "Bagel Business"); and
WHEREAS, immediately prior to the Closing (as defined herein),
each of the Direct Subsidiaries will be merged with and into BDC, with BDC as
the surviving corporation of each such merger (the "Direct Subsidiaries
Mergers"); and
WHEREAS, the boards of directors of QDI and BDC, and the
members of LETHE, have each determined that it is advisable and in the best
interests of their respective stockholders, or such members, as the case may be,
to consummate, and have approved, the business combination transaction provided
for herein in which, following the Direct Subsidiaries
<PAGE>
Mergers, BDC will merge with and into LETHE, with LETHE as the surviving company
of such merger; and
WHEREAS, as of the date hereof, QDI and Bruegger's
Corporation, a Delaware corporation wholly owned by QDI ("Brueggers"), have
entered into a Share Exchange Agreement with Nordahl L. Brue and Michael J.
Dressell (each of whom is an Affiliate (as defined herein) of LETHE) pursuant to
which, upon the terms and subject to the conditions thereof, QDI has agreed to
exchange all of the issued and outstanding shares of capital stock of Brueggers
for shares of QDI common stock owned by Messrs. Brue and Dressell (the
"Brueggers Share Exchange Agreement") simultaneously with the Closing;
NOW, THEREFORE, in consideration of the foregoing premises and
the mutual covenants hereinafter contained, the parties hereto, intending to be
legally bound, hereby agree as follows:
1. Definitions; Rules of Construction.
----------------------------------
(a) Certain Definitions. The following terms, as used herein,
have the following meanings:
"Affiliate" means, as to any Person, any other Person which,
directly or indirectly, controls, is controlled by or is under common control
with such Person. For the purposes of this definition and of the definition of
Subsidiary, "control" means the possession of the power to direct or cause the
direction of management and policies of such Person, whether through the
ownership of voting securities, by contract or otherwise.
<PAGE>
"Agreement" has the meaning set forth in the forepart of this
Agreement.
"Bagel Business" has the meaning set forth in the forepart of
this Agreement.
"BDC" has the meaning set forth in the forepart of this
Agreement.
"BDC Common Stock" has the meaning set forth in Section 3(a).
"BDC Shares" has the meaning set forth in Section 4(c).
"BDC Stock Certificates" has the meaning set forth in
Section 3(b).
"Brueggers" has the meaning set forth in the forepart of this
Agreement.
"Brueggers Share Exchange Agreement" has the meaning set forth
in the forepart of this Agreement.
"Business Day" means any day other than Saturday, Sunday and
any day on which banks are required or authorized to close in New York City.
"Certificate of Merger" has the meaning set forth in Section
2(c).
"Closing" has the meaning set forth in Section 2(b).
"Closing Date" has the meaning set forth in Section 2(b).
"Constituent Companies" has the meaning set forth in Section
2(a).
"Contract" means any contract, agreement, lease, indenture,
note, bond, loan agreement, instrument, lien, conditional sales contract,
<PAGE>
mortgage, license, franchise, insurance policy, commitment or other binding
understanding or arrangement.
"Damages" means any and all damages, loss, liability (whether
fixed or contingent, known or unknown) and expenses (including reasonable
expenses of investigation and reasonable attorneys' fees and expenses in
connection with any action, suit or proceeding) incurred by any party entitled
to indemnity under Section 12 and 13.
"Delaware Secretary of State" means the Secretary of State of
the State of Delaware.
"DGCL" means the General Corporation Law of the State of
Delaware.
"Direct Subsidiaries" has the meaning set forth in the
forepart of this Agreement.
"Direct Subsidiaries Mergers" has the meaning set forth in the
forepart of this Agreement.
"Direct Subsidiaries Shares" has the meaning set forth in
Section 4(c).
"DLLCA" means the Limited Liability Company Act of the State
of Delaware.
"Effective Time" has the meaning set forth in Section 2(c).
"Excluded Assets" has the meaning set forth in the Brueggers
Share Exchange Agreement.
"Excluded Stores" means all stores or commissaries that (i)(A)
were intended to be used in the Bagel Business or (B) were used in the
<PAGE>
Bagel Business and (ii) were not open and operating on the date hereof, which
stores are listed on Annex III of the Brueggers Share Exchange Agreement.
"Final Closing Date Balance Sheet" means the Final Closing
Date Balance Sheet prepared in accordance with the Brueggers Share Exchange
Agreement.
"Governmental Body" means any government or governmental or
regulatory body of any country or any political subdivision thereof (whether
federal, state, local or foreign), any agency, instrumentality or authority of
any such government, any court of competent jurisdiction or any arbitrator.
"Hart-Scott Act" means the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended.
"Independent Accountants" means the Independent Accountants
selected pursuant to the Brueggers Share Exchange Agreement.
"LETHE" has the meaning set forth in the forepart of this
Agreement.
"Lien" means any mortgage, claim, encumbrance, deed of trust,
pledge, hypothecation, assignment, deposit arrangement, encumbrance, lien
(statutory or other), security interest or preference, priority or other
security agreement.
"Material Adverse Effect" means a material adverse effect on
the financial condition, results of operations, assets, liabilities, business or
properties of the Direct Subsidiaries considered as a whole.
<PAGE>
"Merger" has the meaning set forth in Section 2(a).
"Merger Price" has the meaning set forth in Section 3(a).
"Person" means any individual, corporation, partnership, firm,
joint venture, association, joint-stock company, trust, unincorporated
organization, Governmental Body or other entity.
"QDI" has the meaning set forth in the forepart of this
Agreement.
"QDI Consolidated or Combined Returns" has the meaning set
forth in Section 13(b).
"Subsidiary" means, with respect to any Person, any other
Person which is, directly or indirectly, controlled by such Person.
"Surviving Company" has the meaning set forth in Section 2(a).
"Tax Returns" means any report, return, statement or other
information required to be supplied to a taxing authority in connection
with Taxes.
"Taxes" means all taxes, charges, fees, levies, or other
similar assessments, including (a) income, gross receipts, ad valorem, premium,
excise, real property, personal property, windfall profit, sales, use, transfer,
licensing, withholding, employment, payroll, alternative or add-on minimum tax,
estimated and franchise taxes imposed by the United States of America, any
state, local or foreign government, or any subdivision, agency or other similar
Person of the United States or any such government; and (b) any interest, fines,
penalties, assessments or additions to tax
<PAGE>
resulting from, attributable to or incurred in connection with any such tax or
any contest or dispute thereof.
(b) Rules of Construction. As used in this Agreement, neutral
---------------------
pronouns and any variations thereof shall be deemed to include the feminine and
masculine and all terms used in the singular shall be deemed to include the
plural, and vice versa, as the context may require. The words "herein,"
"hereof," "hereto" and "hereunder" and other words of similar import refer to
this Agreement as a whole, including the Schedules hereto, as the same may from
time to time be amended or supplemented. The word "including" when used herein
is not intended to be exclusive and means "including, without limitation."
References herein to a Section, subsection, clause or Schedule shall refer to
the appropriate Section, subsection, clause or Schedule in or to this Agreement.
References herein to "days" shall mean calendar days unless the term "Business
Days" is used.
2. The Merger; Closing.
-------------------
(a) The Merger. Upon the terms and subject to the conditions
----------
of this Agreement, at the Effective Time (as defined below), BDC shall be merged
with and into LETHE in accordance with the DGCL and the DLLCA (the "Merger"). At
the Effective Time, the separate existence of BDC shall cease and LETHE shall
continue as the surviving company in the Merger (the "Surviving Company"). LETHE
and BDC are sometimes referred to herein as the "Constituent Companies". As a
result of the Merger, the outstanding shares of capital stock of BDC shall be
converted in the manner provided in Section 3.
<PAGE>
(b) Closing. The closing of the Merger as provided herein
-------
(herein referred to as the "Closing") shall take place at the offices of
Milbank, Tweed, Hadley & McCloy, 1 Chase Manhattan Plaza, New York, New York
10005 on the closing date, and concurrently with the closing, under the
Brueggers Share Exchange Agreement (the "Closing Date"). All proceedings taken
and all documents executed and delivered by the parties at the Closing shall be
deemed taken and executed simultaneously, and no proceedings shall be deemed
taken nor any documents executed or delivered until all have been taken,
executed and delivered.
(c) Effective Time. At the Closing, a certificate of merger
--------------
(the "Certificate of Merger") shall be duly prepared and executed by the
Surviving Company and thereafter delivered to the Delaware Secretary of State
for filing, as provided in Section 264 of the DGCL and Section 18-209 of the
DLLCA, as soon as practicable on the Closing Date, which Merger shall become
effective at the time of filing with the Delaware Secretary of State (the
"Effective Time").
(d) Organizational Documents and Limited Liability Company
------------------------------------------------------
Agreement of the Surviving Company. At the Effective Time, the organizational
- ----------------------------------
documents and limited liability company agreement of LETHE as in effect
immediately prior to the Effective Time shall be the organizational documents
and limited liability company agreement of the Surviving Company until
thereafter amended as provided by law, such organizational documents and such
limited liability company agreement.
<PAGE>
(e) Managers and Officers of the Surviving Company. The
----------------------------------------------
managers and the officers of LETHE immediately prior to the Effective Time
shall, from and after the Effective Time, be the managers and officers,
respectively, of the Surviving Company until their successors shall have been
duly elected or appointed and qualified or until their earlier death,
resignation or removal in accordance with the Surviving Company's organizational
documents and limited liability company agreement.
(f) Effects of the Merger. Subject to the foregoing, the
---------------------
effect of the Merger shall be as provided in the applicable provisions of the
DGCL and the DLLCA.
(g) Further Assurances. Each party hereto will, either prior
------------------
to or after the Effective Time, execute such further documents, instruments,
deeds, assignments and assurances and take such further actions as may
reasonably be requested by the other to consummate the Merger, to vest the
Surviving Company with full title to all assets, properties, rights, approvals,
immunities and franchises of the Constituent Companies or to effect the other
purposes of this Agreement.
3. Conversion of the BDC Common Stock.
----------------------------------
(a) Exchange Ratio for the BDC Common Stock. At the Effective
---------------------------------------
Time, by virtue of the Merger and without any action on the part of the holder
thereof, all issued and outstanding shares of the common stock, par value $.01
per share, of BDC ("BDC Common Stock") shall be converted into the right to
receive $4 million in cash in the aggregate (the "Merger Price"). All shares of
BDC Common Stock converted in accordance with this
<PAGE>
Section 3(a) shall no longer be outstanding and shall automatically be canceled
and retired and shall cease to exist, and each holder of a certificate
representing any such shares shall cease to have any rights with respect
thereto, except the right to receive the Merger Price upon the surrender of such
certificate in accordance with Section 3(b), without interest.
(b) Exchange of Certificates.
------------------------
(i) Exchange Procedures. At the Closing, LETHE shall pay to
-------------------
QDI the Merger Price in immediately available funds by wire transfer to an
account specified by QDI in writing to be delivered no later than two Business
Days prior to the Closing. In exchange for the Merger Price, QDI shall deliver
certificates representing all of the issued and outstanding shares of the BDC
Common Stock (the "BDC Stock Certificates").
(ii) No Further Ownership Rights in BDC Common Stock. The
-----------------------------------------------
payment of the Merger Price upon the surrender for exchange of the BDC Stock
Certificates in accordance with the terms hereof shall be deemed to have been
delivered in full satisfaction of all rights pertaining to the shares of BDC
Common Stock represented thereby. If, after the Effective Time, BDC Stock
Certificates are presented to the Surviving Company for any reason, they shall
be canceled without further consideration.
4. Representations and Warranties of QDI. QDI and BDC
-------------------------------------
hereby represent and warrant to LETHE, as of the date hereof and as of the
Closing Date, as follows:
<PAGE>
(a) Organization, Etc. (i) Each of QDI, BDC and each of the
-----------------
Direct Subsidiaries is a corporation duly incorporated, validly existing and in
good standing as a corporation under the laws of its jurisdiction of
incorporation and has all requisite corporate power and authority (i) to conduct
its business as it is now conducted and (ii) to own or lease all of the
properties owned or leased by it. True, correct and complete copies of the
certificates or articles of incorporation and by-laws of QDI, BDC and each of
the Direct Subsidiaries (together with all amendments thereto and restatements
thereof as of the date hereof) have been previously delivered to LETHE. Each of
the Direct Subsidiaries is duly qualified to do business as a foreign
corporation and is in good standing in all jurisdictions in which the ownership
or lease of property by it or the conduct of its business makes such
qualification necessary, except where the failure to be so qualified would not
have a Material Adverse Effect.
(ii) BDC was formed solely for the purpose of engaging in the
transactions contemplated by this Agreement, has engaged in no other business
activities and has conducted its operations only as contemplated hereby.
(b) Authorization; Execution; Binding Effect. (i) QDI and BDC
----------------------------------------
have full corporate power and authority to execute and deliver this
Agreement and to perform their obligations hereunder and to consummate the
transactions contemplated hereby. The execution, delivery and performance
of this Agreement by QDI and BDC and the consummation by QDI and BDC of the
transactions provided for herein have been duly authorized by all necessary
<PAGE>
corporate action on the part of QDI's and BDC's respective boards of directors
and by QDI as sole stockholder of BDC. The Agreement has been duly and validly
executed and delivered by QDI and BDC and (assuming the due authorization,
execution and delivery by LETHE) constitutes the legal, valid and binding
obligation of QDI and BDC, enforceable against QDI and BDC in accordance with
its terms, except as enforceability may be limited by bankruptcy, insolvency,
reorganization or other laws affecting creditors' rights and remedies generally
and by general principles of equity (regardless of whether such enforceability
is considered in a proceeding in equity or at law).
(ii Each of the Direct Subsidiaries has full corporate
power and authority to consummate the Direct Subsidiaries Mergers contemplated
hereby. The consummation by each of the Direct Subsidiaries of the Direct
Subsidiaries Mergers has been duly authorized by all necessary corporate action
on the part of each of the Direct Subsidiaries' board of directors and by QDI as
sole stockholder of each of the Direct Subsidiaries.
(c) Capitalization of BDC and the Direct Subsidiaries. (i) BDC
-------------------------------------------------
has authorized capital stock of 100 shares of BDC Common Stock, all of which are
issued, outstanding, fully paid and non-assessable (the "BDC Shares"). The BDC
Shares are all owned of record and beneficially by QDI, free and clear of any
Lien and, subject to applicable federal and state securities laws, free of any
other limitation or restriction (including any restriction on the right to vote,
sell or otherwise dispose of such BDC
<PAGE>
Shares). BDC does not own, directly or indirectly, or control any equity
or voting interest in any Person.
(ii) Schedule 4(c) sets forth the authorized capital stock of
-------------
each of the Direct Subsidiaries and the number of shares issued and outstanding,
all of which shares are fully paid and non-assessable and have been duly
authorized and validly issued (the "Direct Subsidiaries Shares"). All of the
Direct Subsidiaries Shares are owned of record and beneficially by QDI, free and
clear of any Lien and, subject to applicable federal and state securities laws,
free of any other limitation or restriction (including any restriction on the
right to vote, sell or otherwise dispose of such Direct Subsidiaries Shares).
None of the Direct Subsidiaries owns, directly or indirectly, or controls any
equity or voting interest in any Person.
(d) No Conflicting Agreements or Charter Provisions. The
-----------------------------------------------
execution, delivery and compliance with and performance of the terms and
provisions of this Agreement will not conflict with or result in a breach
of the terms, conditions or provisions of, or constitute a default (or an
event of which, with notice, lapse of time, or both, would constitute a
default) under, or result in any violation of, (i) the certificates or
articles of incorporation or by-laws of QDI, BDC or any of the Direct
Subsidiaries, or any resolutions adopted by the stockholders or the board
of directors of QDI, BDC or any of the Direct Subsidiaries, (ii) except as
set forth in Schedule 4(d), any provision of any Contract to which QDI, BDC
or any of the Direct Subsidiaries is a party or by which any property or
<PAGE>
asset of QDI, BDC or any of the Direct Subsidiaries may be bound, or (iii) any
order, judgment, decree, license, permit, statute, law, rule or regulation of
any Governmental Body or any stock exchange or other self-regulatory
organization or industry association to which QDI, BDC or any of the Direct
Subsidiaries is subject, other than, in the cases of clause (ii) and (iii)
above, any such conflict, breach or default which, individually or in the
aggregate, would not reasonably be expected to have a material adverse effect on
the ability of QDI, BDC or any of the Direct Subsidiaries to perform its
obligations hereunder and to consummate the transactions contemplated hereby.
Except for the filing of the Certificate of Merger, the filing of certificates
or articles of merger in connection with the Direct Subsidiaries Mergers and any
required filings under the Hart-Scott Act, QDI, BDC and the Direct Subsidiaries
have obtained all approvals, consents, certifications and waivers of any
Governmental Body, and have made all filings, given all notices and otherwise
complied with all laws, rules and regulations of any Governmental Body, which
are required on the part of QDI and BDC in order for QDI and BDC to enter into
and perform this Agreement and for QDI, BDC and the Direct Subsidiaries to
otherwise consummate the transactions provided for in this Agreement. The
execution, delivery and performance of this Agreement will not result in the
creation of any Lien upon any of the assets of BDC or any of the Direct
Subsidiaries.
(e) Litigation. There is no action, suit, proceeding or
----------
investigation pending or, to the knowledge of QDI or BDC, threatened, at
<PAGE>
law or in equity, in or before any Governmental Body or any stock exchange or
other self-regulatory organization or industry association questioning or
otherwise affecting the validity of this Agreement or any action taken or to be
taken by QDI, BDC or any of the Direct Subsidiaries in connection with this
Agreement or the documents executed by QDI, BDC or any of the Direct
Subsidiaries or to be executed pursuant to or in connection with the provisions
of this Agreement.
(f) Brokers and Finders. No broker, investment banker or
-------------------
finder has been retained by or authorized to act on behalf of QDI, BDC or any of
the Direct Subsidiaries who might be entitled to any fee or other commission in
connection with this Agreement or the transactions contemplated hereby, other
than as described in the Brueggers Share Exchange Agreement.
5. Representations and Warranties of LETHE. LETHE hereby
---------------------------------------
represents and warrants to QDI, as of the date hereof and as of the Closing
Date, as follows:
(a) Organization. LETHE is a limited liability company duly
------------
organized, validly existing and in good standing as a limited liability company
under the laws of its jurisdiction of organization.
(b) Authorization; Execution; Binding Effect. LETHE has full
----------------------------------------
power and authority to execute and deliver this Agreement and to perform
its obligations hereunder and to consummate the transactions contemplated
hereby. The execution, delivery and performance of this Agreement by LETHE
and the consummation by LETHE of the transactions provided for herein have
<PAGE>
been duly authorized by the members and managers of LETHE. This Agreement has
been duly and validly executed and delivered by LETHE and (assuming the due
execution and delivery by QDI and BDC) constitutes the legal, valid and binding
obligation of LETHE, enforceable against LETHE in accordance with its terms,
except as enforceability may be limited by bankruptcy, insolvency,
reorganization or other laws affecting creditors' rights and remedies generally
and by general principles of equity (regardless of whether such enforceability
is considered in a proceeding in equity or at law).
(c) No Conflicting Provisions. The execution, delivery and
-------------------------
compliance with and performance of the terms and provisions of this Agreement
will not conflict with or result in a breach of the terms, conditions or
provisions of, or constitute a default (or an event which, with notice, lapse of
time, or both, would constitute a default) under, or result in any violation of,
the organizational documents and limited liability company agreement of LETHE or
any resolutions or provisions adopted by the members or managers of LETHE, or
any provision of any Contract to which LETHE is a party or by which any property
or asset of LETHE may be bound, or any order, judgment, decree, license, permit,
statute, law, rule or regulation of any Governmental Body or any stock exchange
or other self-regulatory organization or industry association to which LETHE is
subject, except for such breaches, defaults or violations which would not,
individually or in the aggregate, materially and adversely affect LETHE's
ability to consummate the transactions contemplated hereby.
<PAGE>
Except for the filing of the Certificate of Merger and any required filings
under the Hart-Scott Act, LETHE has obtained all approvals, consents,
certifications and waivers of any Governmental Body, and has made all filings,
given all notices and otherwise complied with all laws, rules and regulations of
any Governmental Body, which are required on the part of LETHE in order for
LETHE to enter into and perform this Agreement and for LETHE to merge with BDC,
and to otherwise consummate the transactions provided for in this Agreement.
(d) Litigation. There is no action, suit, proceeding or
----------
investigation pending or, to the knowledge of LETHE, threatened, at law or in
equity, in or before any Governmental Body or any stock exchange or other
self-regulatory organization or industry association questioning or otherwise
affecting the validity of this Agreement or any action taken or to be taken by
LETHE in connection with this Agreement or the documents executed or to be
executed by LETHE pursuant to or in connection with the provisions of this
Agreement.
(e) Brokers and Finders. No broker, investment banker or
-------------------
finder has been retained or authorized to act on behalf of LETHE who might be
entitled to any fee or other commission in connection with this Agreement and
the transactions contemplated hereby, other than as described in the Brueggers
Share Exchange Agreement.
6. Conditions to the Obligations of QDI and LETHE. The
----------------------------------------------
obligations of QDI and LETHE to consummate the Closing are subject to the
satisfaction, on or prior to the Closing Date, of the following conditions,
<PAGE>
any or all of which may be waived in writing by the party entitled to waive
such condition:
(a) No provision of any applicable law or regulation and no
judgment, injunction, order or decree shall restrain or prohibit the
consummation of the Closing.
(b) All actions by or in respect of or filings with any
Governmental Body required to permit the consummation of the Closing shall have
been taken or made and any waiting period (and any extension thereof) applicable
to the consummation of the Merger under the Hart-Scott Act shall have expired or
been terminated.
(c) The transactions contemplated by the Brueggers Share
Exchange Agreement shall have been consummated simultaneously with the Closing.
(d) QDI and LETHE shall have received from the other party
such other documents and certificates as may reasonably be requested by QDI or
LETHE or their respective counsel, as the case may be, in connection with the
transactions contemplated hereby.
7. [Intentionally Omitted.]
8. Additional Condition to the Obligations of LETHE.
------------------------------------------------
Each of the Direct Subsidiaries Mergers shall have become effective, each on
terms consistent with this Agreement and otherwise reasonably satisfactory to
LETHE.
<PAGE>
9. Covenants of QDI and BDC.
------------------------
(a) Conduct of Business. From and after the date hereof until
-------------------
the Closing Date, QDI shall, and shall cause the Direct Subsidiaries and BDC to,
(i) conduct the Bagel Business in the ordinary course, consistent with the
present conduct of such business, except that no store shall be closed (except
in one of the markets listed on Schedule 9(a)) without LETHE's consent, not to
be unreasonably withheld, (ii) use their reasonable commercial efforts to
maintain, preserve and protect the assets and good-will of the Bagel Business,
(iii) except as otherwise contemplated hereby, use their reasonable commercial
efforts to keep available the services of present officers and employees of the
Direct Subsidiaries, (iv) use their reasonable commercial efforts to preserve
relationships with others doing business with the Direct Subsidiaries, (v) not
adopt any amendment of the certificates of incorporation or by-laws of the
Direct Subsidiaries, (vi) not sell, license or otherwise dispose of any material
assets or property relating to the Direct Subsidiaries except (A) as disclosed
on Schedule 9(a), (B) Excluded Assets or (C) in the ordinary course consistent
with past practice, (vii) refrain from taking any action that would make any
representation or warranty of QDI or BDC hereunder inaccurate in any material
respect at, or as of any time prior to, the Closing Date, and (viii) not agree
to commit to take any action inconsistent with QDI's and BDC obligations under
clauses (i) through (vii) above.
(b) Access to Documents; Opportunity to Ask Questions. From
-------------------------------------------------
and after the date hereof until the Closing Date (except as otherwise
<PAGE>
contemplated by this Agreement), QDI shall, and shall cause the Direct
Subsidiaries and BDC to, continue to make available for inspection by LETHE and
its duly authorized representatives, during normal business hours, the corporate
records, books of account, Contracts, reports and all other documents of or
relating to each of the Direct Subsidiaries and BDC which are reasonably
requested by LETHE or such representatives in order to make reasonable
inspection and examination of the business, assets and affairs of each of the
Direct Subsidiaries and BDC. QDI shall, and shall cause the Direct Subsidiaries
and BDC to, continue to cause the managerial employees, counsel, regular
independent certified public accountants and consultants of QDI and the Direct
Subsidiaries to be available upon reasonable notice to answer questions of LETHE
and its duly authorized representatives concerning the Bagel Business. All
information furnished to LETHE pursuant to this Section 9(b) shall be subject to
the confidentiality provisions set forth in Section 11.
(c) Cooperation with LETHE. QDI shall, and shall cause the
----------------------
Direct Subsidiaries to, cooperate with LETHE in connection with LETHE's
fulfillment of the covenants and conditions set forth herein to be performed or
satisfied prior to the Closing and, in connection therewith, QDI shall, and
shall cause the Direct Subsidiaries and BDC to, furnish LETHE with all
information reasonably requested by LETHE with respect to the transactions
contemplated by this Agreement. All information furnished to LETHE pursuant to
this Section 9(c) shall be subject to the confidentiality provisions set forth
in Section 11.
<PAGE>
(d) Regulatory Approvals and Other Consents. QDI and BDC
---------------------------------------
shall, and QDI shall cause the Direct Subsidiaries to, use their reasonable
commercial efforts to make all filings with Governmental Bodies as soon as
practicable after the date hereof and to obtain any and all governmental
approvals and any and all other approvals, consents, certifications and waivers
(and will provide copies of such notices to LETHE), which are required on the
part of QDI, BDC or any of the Direct Subsidiaries, in connection with entering
into this Agreement and consummating the transactions contemplated hereunder.
(e) Reasonable Commercial Efforts. QDI and BDC shall, and QDI
-----------------------------
shall cause the Direct Subsidiaries to, use their reasonable commercial efforts
to satisfy the conditions precedent to the performance by the parties hereto of
their respective obligations under this Agreement.
10. Covenants of LETHE.
------------------
(a) Cooperation with QDI and BDC. LETHE shall cooperate with
----------------------------
QDI and BDC in connection with QDI's and BDC's fulfillment of the covenants and
conditions set forth herein to be performed or satisfied prior to the Closing
and, in connection therewith, LETHE shall furnish QDI and BDC with all
information reasonably requested by QDI and BDC with respect to the transactions
contemplated by this Agreement. All information furnished to QDI and BDC
pursuant to this Section 10(a) shall be subject to the confidentiality
provisions set forth in Section 11.
(b) Regulatory Approvals and Other Consents. LETHE shall use
---------------------------------------
its reasonable commercial efforts to make all filings with Governmental
<PAGE>
Bodies as promptly as practicable after the date hereof and to obtain all
governmental approvals and any and all other approvals, consents, certifications
and waivers, which are required on the part of LETHE in connection with entering
into this Agreement and consummating the transactions contemplated hereunder.
(c) Reasonable Commercial Efforts. LETHE shall use its
reasonable commercial efforts to satisfy the conditions precedent to the
performance by the parties hereto of their respective obligations under
this Agreement.
11. Publicity; Confidentiality; Preservation of Records.
---------------------------------------------------
(a) Each party hereto recognizes and acknowledges that
the timing and manner of any public disclosure of information relating to the
transactions contemplated hereby is of material importance to the business and
affairs of the other party. Accordingly, the parties hereto agree to consult
with each other and to cooperate in issuing any press release or other public
statement with respect to the transactions contemplated hereby. Any such press
release or other public statement may only be issued with the prior written
consent of the other parties hereto, which consent shall not be unreasonably
withheld; provided, however, nothing contained herein shall restrain or prohibit
any party from making any press release or other public disclosure which, in the
reasonable judgment of such party's counsel, is required by any applicable law
or rule or regulation of any Governmental Body or stock exchange or other
self-regulatory organization and, provided further, the parties shall use
<PAGE>
reasonable commercial efforts to provide notice of, and to cooperate with
respect to the timing and content of, any press release or other public
disclosure contemplated by the immediately preceding proviso.
(b) From and after the Closing Date, LETHE will hold, and will
use their best efforts to cause its officers, managers, employees, accountants,
counsel, consultants, advisors, agents and Affiliates to hold, in confidence,
unless compelled to disclose by judicial or administrative process or by other
requirements of law (including the rules of any stock exchange or other
self-regulatory organization), (i) all confidential documents and information
concerning QDI and its Subsidiaries (other than BDC and the other "Bagel
Companies" as defined in the Brueggers Share Exchange Agreement) furnished to
LETHE or its representatives in connection with the transactions contemplated by
this Agreement, except to the extent that such information can be shown to have
been (A) in the public domain through no fault of LETHE or (B) later lawfully
acquired by LETHE from sources other than QDI; provided, however, that LETHE may
disclose any information covered by this Section 11(b) to its employees,
accountants, counsel, consultants, advisors and agents in connection with the
transactions contemplated by this Agreement, so long as such Persons are
informed by LETHE of the confidential nature of such information and are
directed by LETHE to treat such information confidentially. The obligation of
LETHE and its Affiliates to hold any such information in confidence shall be
satisfied if they exercise the same care with respect to such
<PAGE>
information as they would take to preserve the confidentiality of their own
similar information.
(c) From and after the Closing Date, QDI will hold, and use
its best efforts to cause its officers, directors, employees, accountants,
counsel, consultants, advisors, agents and Affiliates to hold, in confidence,
unless compelled to disclose by judicial or administrative process or by other
requirements of law (including the rules of any stock exchange or other
self-regulatory organization), (i) all confidential documents and information
concerning LETHE and its Affiliates furnished to QDI or any of its
representatives in connection with the transactions contemplated by this
Agreement, and (ii) with respect to BDC and the Direct Subsidiaries, all other
confidential documents and information in its possession, except to the extent
that such information can be shown to have been, in the case of clause (i), (A)
in the public domain through no fault of QDI or (B) later lawfully acquired by
QDI from sources other than LETHE and its Affiliates or, in the case of clause
(ii), in the public domain through no fault of QDI; provided, however, that QDI
may disclose any information covered by this Section 11(c) to its officers,
directors, employees, accountants, counsel, consultants, advisors and agents in
connection with the transactions contemplated by this Agreement, so long as such
Persons are informed by QDI of the confidential nature of such information and
are directed by QDI to treat such information confidentially. The obligation of
QDI and its Affiliates to hold any such information in confidence shall be
satisfied if they exercise the same care
<PAGE>
with respect to such information as they would take to preserve the
confidentiality of their own similar information.
(d) QDI and LETHE agree that each of them shall preserve and
keep the records held by them relating to the Bagel Business for a period of six
(6) years following the Closing Date and shall make such records and personnel
available to the other as may be reasonably required by such party in connection
with, among other things, any insurance claims by, legal proceedings against or
governmental investigations of QDI, the Direct Subsidiaries or LETHE or any of
their respective Affiliates or in order to enable QDI or LETHE to comply with
their respective obligations under this Agreement and each other agreement,
document or instrument contemplated hereby. In the event QDI or LETHE wishes to
destroy such records after that time, such party shall first give ninety (90)
days' prior written notice to the other and such other party shall have the
right at its option and expense, upon prior written notice given to such party
within that ninety (90) day period, to take possession of the records within one
hundred and eighty (180) days after the date of such notice.
12. Indemnification. Any Damages resulting from a breach of
---------------
representation, warranty, covenant or agreement contained herein or in the
Brueggers Share Exchange Agreement by QDI or BDC shall be subject to
indemnification by QDI to LETHE as, but only to the extent, provided in Section
12 of the Brueggers Share Exchange Agreement. Notwithstanding the previous
sentence, each party hereto may exercise any rights or remedies that it may have
at law or in equity in the event of any breach of any
<PAGE>
representation, warranty, covenant or agreement of the other party
contained in this Agreement.
13. Tax Indemnification and Other Matters.
-------------------------------------
(a) QDI will be responsible for, will pay or cause to be
paid, and will indemnify and hold harmless LETHE and its Affiliates, from and
against any and all Damages for or in respect of each of the following:
(i) any and all Taxes with respect to any taxable period of
any of the Direct Subsidiaries (which for purposes of this Section 13 shall
include BDC) ending on or before the Closing Date;
(ii) any and all Taxes resulting from any of the Direct
Subsidiaries having been (or ceasing to be) included in any consolidated,
combined, or unitary Tax Return that included any of the Direct Subsidiaries for
any taxable period (or portion thereof) ending on or before the Closing Date:
(iii) any and all Taxes of any member of a consolidated,
combined or unitary group (other than any of the Direct Subsidiaries) of which
any of the Direct Subsidiaries (or any predecessor) is or was a member on or
prior to the Closing Date, by reason of the liability of any of the Direct
Subsidiaries pursuant to Treasury Regulation Section 1.1502- 6(a) or any
analogous or similar state, local or foreign law or regulation;
(iv) any breach by QDI of any representation, warranty or
covenant contained in Section 4(p) of the Brueggers Share Exchange Agreement or
in this Section 13; and
<PAGE>
(v) any and all Taxes allocated to QDI pursuant to Section
13(b); in each case, except to the extent that a specific reserve for such Taxes
is reflected as a current liability on the Final Closing Date Balance Sheet.
(b) For U.S. federal income Tax purposes, the taxable year of
the Direct Subsidiary shall end as of the close of the Closing Date. Taxes, if
any, attributable to the taxable year of the Direct Subsidiaries ending on the
Closing Date shall be allocated to QDI. QDI shall include the Direct
Subsidiaries in (A) the United States consolidated federal income Tax Return of
QDI for the taxable period of the Direct Subsidiaries ending on the Closing
Date, and (B) all other consolidated and all combined or unitary Tax Returns of
QDI or its Affiliates ending on the Closing Date (such Tax Returns referred to
in clauses (A) and (B) hereof are hereinafter referred to as "QDI Consolidated
or Combined Returns"). QDI shall properly prepare and timely file all QDI
Consolidated or Combined Returns which include any of the Direct Subsidiaries
for all taxable periods ending on or before the Closing Date (which Tax Returns
shall include the Direct Subsidiaries and the reportable items from the assets
or operations of the Direct Subsidiaries through and including the Closing
Date). QDI also shall properly prepare and timely file all other Tax Returns of
or which include any of the Direct Subsidiaries required to be filed on or prior
to the Closing Date (without regard to extensions). The Tax Returns referred to
in the two preceding sentences (insofar as they relate to any of the Direct
Subsidiaries) shall be prepared in a manner consistent with past
<PAGE>
practices, and QDI shall pay all Taxes shown due on such Tax Returns or
otherwise levied or assessed upon or any of their assets on or prior to the
Closing Date.
(c) QDI and LETHE shall cooperate fully with each other and
provide to each other in a timely fashion such Tax data and other information as
may be reasonably required by QDI or LETHE for the preparation of any Tax
Returns required to be prepared and filed by QDI or LETHE hereunder, or in
connection with the preparation or filing of any election, consent or
certification or Tax audit.
(d) LETHE shall promptly notify QDI upon receipt of written
notice of any Tax audit of or assessments against any of the Direct Subsidiaries
for taxable periods ending on or prior to the Closing Date. QDI shall have the
right to represent the Direct Subsidiaries' interests in any Tax audit or
administrative or court proceeding relating to taxable periods of any of the
Direct Subsidiaries ending on or prior to the Closing Date and to employ counsel
of its choice at its expense provided, however, that QDI may not agree to a
settlement or compromise thereof without the prior consent of LETHE, which
consent will not be unreasonably withheld. QDI shall promptly notify LETHE if it
decides not to control the defense or settlement of any such Tax audit or
administrative or court proceeding and LETHE thereupon shall be permitted to
defend and settle such Tax audit or proceeding. QDI will promptly notify LETHE
of the commencement of any claim, audit, examination or other proposed change or
adjustment by any Taxing authority which may affect the liability of any of the
Direct
<PAGE>
Subsidiaries for Taxes ad QDI shall keep LETHE duly informed of the progress
thereof.
(e) Any refunds of Taxes, to the extent such refunds relate to
a taxable period ending on or before the Closing Date for which QDI indemnifies
LETHE hereunder, except to the extent that such amounts are reflected as an
asset on the Final Closing Date Balance Sheet, and which are received by LETHE
after the Closing Date, shall be remitted (net of Tax) to QDI.
(f) Notice of any claim for indemnity pursuant to Section 13
with respect to any taxable period of any of the Direct Subsidiaries must be
received by the party against whom such claim is made no later than ninety (90)
days after the later of (i) the expiration of the applicable statute of
limitations with respect to such taxable period or (ii) the receipt by LETHE of
a notice, claim, demand, assessment or deficiency for Taxes by any Tax
authority.
(g) Any dispute as to any matter covered pursuant to Section
13 shall be resolved by the Independent Accountants. The fees and expenses of
such accounting firm shall be borne equally by the parties.
14. Termination. (a) This Agreement (i) shall terminate
-----------
automatically upon a termination of the Brueggers Share Exchange Agreement
in accordance with its terms, and (ii) may be terminated at any time prior
to the Closing by mutual consent of LETHE and QDI.
(b) If this Agreement is terminated pursuant to Section 14(a),
this Agreement shall forthwith become void and of no further force or
<PAGE>
effect and there shall be no liability or obligation on the part of LETHE or QDI
hereunder; provided, however, that termination pursuant to clause (i) of Section
14(a) shall not relieve any party of liability for any willful breach of this
Agreement arising at or prior to the time of such termination.
15. Notices. Any and all notices, designations or any other
-------
communication provided for herein shall be made by hand-delivery, first-class
mail (registered or certified, return receipt requested), telecopier or
overnight air courier (i) in the case of QDI, to Quality Dining, Inc., 4220
Edison Lakes Parkway, Mishawaka, Indiana 46545, Attention: John C. Firth, Esq.,
Secretary, telecopy number (219) 271-4612 (or such other address or telecopy
number as QDI may designate), and (ii) in the case of LETHE to Nordahl L. Brue
and Michael J. Dressell, Champlain Management Services, 159 Bank Street,
Burlington, Vermont 05401, telecopy number (802) 660-4034 (or such other address
or telecopy number as LETHE may designate). Except as otherwise provided in this
Agreement, each such notice shall be deemed given at the time delivered by hand,
if personally delivered; five (5) Business Days after being deposited in the
mail, postage prepaid, if mailed; when receipt acknowledged, if telecopied; and
the next Business Day after timely delivery to the courier, if sent by overnight
air courier guaranteeing next day delivery. A copy of such notice shall be sent
by the same means, (A) in the case of a notice to QDI to (1) Baker & Daniels,
300 North Meridian Street, Indianapolis, Indiana 46204, Attention: James A.
Aschleman, Esq., telecopy number (317) 237-
<PAGE>
1000, and (2) Milbank, Tweed, Hadley & McCloy, One Chase Manhattan Plaza, New
York, New York 10005-1413, Attention: Lawrence Lederman, Esq., telecopy number
(212) 530-5219, and (B) in the case of a notice to LETHE to (1) Sheehey Brue
Gray & Furlong, Gateway Square, 30 Main Street, Burlington, Vermont 05402
Attention: David T. Austin, Esq., telecopy number (802) 864-6815, and (2) Weil,
Gotshal & Manges LLP, 767 Fifth Avenue, New York, New York 10153 Attention:
David E. Zeltner, Esq., telecopy number (212) 310-8007.
16. General.
-------
(a) Entire Agreement. This Agreement, together with the
----------------
Brueggers Share Exchange Agreement, including the Exhibits and Schedules hereto
and thereto, contain the entire understanding and agreement of the parties
hereto with respect to the subject matter hereof.
(b) Survival. The covenants and agreements of the parties
--------
contained herein shall survive the execution and delivery of this Agreement and
the transactions contemplated herein. All representations and warranties
contained herein shall survive the execution and delivery of this Agreement, any
examination by or on behalf of the parties hereto, the Closing and the
completion of the transactions contemplated herein for a period of one (1) year
commencing on the Closing Date; provided, however, that (i) the representations
and warranties of QDI and BDC contained in Sections 4(b) and (c) of this
Agreement shall survive the Closing and remain in full force and effect
indefinitely and (ii) the representations and warranties of LETHE contained in
Sections 5(a) and (b) shall survive
<PAGE>
the Closing and remain in full force and effect indefinitely. Notwithstanding
anything to the contrary contained herein, a representation or warranty that is
the basis for a claim of indemnification timely made hereunder shall continue to
survive with respect to such claim until the final resolution of such claim.
(c) Further Assurances. The parties hereto each agree to
------------------
execute such other instruments, documents or agreements as may be reasonably
necessary or desirable for the implementation of this Agreement and the
consummation of the transactions contemplated hereby. In addition, each of the
parties hereto agrees to provide reasonable access to such party's personnel,
documents and materials, upon five (5) Business Days' prior notice, at the
visiting party's expense and without any business interference to the party
providing such access, as may be reasonably necessary or desirable for the
implementation of this Agreement and the consummation of the transactions
contemplated hereby.
(d) Amendment; Waiver. This Agreement may be amended or
-----------------
waived only by a written instrument signed by the party against whom enforcement
thereof is sought.
(e) Binding Effect; Assignment. This Agreement shall be
--------------------------
binding upon and inure to the benefit of the parties hereto and their respective
successors, legal representatives and assigns, provided, however, that no party
may assign, delegate or otherwise transfer any of its rights or obligations
hereunder without the prior written consent of the other party, except that
LETHE shall have the right to collaterally assign any of its
<PAGE>
rights under this Agreement to an Affiliate of LETHE and/or LETHE's lenders
without QDI's prior written consent.
(f) Section Headings. The section headings contained in this
----------------
Agreement are for reference purposes only and shall not affect in any way
the meaning or interpretation of this Agreement.
(g) Governing Law. This Agreement shall be governed by, and
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construed and enforced in accordance with, the laws of the State of New York,
without giving effect to the provisions, policies or principles thereof
respecting conflict or choice of laws, except to the extent that relevant
provisions of the DGCL or the DLLCA are mandatorily applicable.
(h) Severability. If at any time subsequent to the date of
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this Agreement any provision of this Agreement shall be held by any court of
competent jurisdiction to be illegal, void or unenforceable, such provision
shall be of no force or effect but the illegality or unenforceability of such
provision shall have no effect upon or impair the enforceability of any other
provision.
(i) Expenses. Except as otherwise set forth herein, each
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party hereto shall pay its own fees and expenses in connection with this
Agreement.
(j) Counterparts. This Agreement may be executed in
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counterparts, each of which shall be deemed an original but all of which taken
together shall constitute but one and the same agreement.
(k) No Third Party Beneficiaries. This Agreement shall be
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binding upon and inure solely to the benefit of the parties hereto and
<PAGE>
their permitted assigns and nothing herein, express or implied, is intended to
or shall confer upon any other Person (other than any Indemnified Party in
accordance with Section 12 of the Brueggers Share Exchange Agreement) any legal
or equitable right, benefit or remedy of any nature whatsoever under or by
reason of this Agreement.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the day and year first above written.
QUALITY DINING, INC.
By: /s/ Daniel B. Fitzpatrick
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Name: Daniel B. Fitzpatrick
Title: President
BAGEL DISPOSITION CORPORATION
By: /s/ Daniel B. Fitzpatrick
-----------------------
Name: Daniel B. Fitzpatrick
Title: President
LETHE LLC
By: /s/ Nordahl L. Brue
----------------------
Name: Nordahl L. Brue
Title: Authorized Signatory
