PURCHASE AGREEMENT
TABLE OF CONTENTS
ARTICLE I - PURCHASE AND SALE OF SELLER EQUITY
Section 1.1 Seller Equity 1
Section 1.2 Purchase Price 2
Section 1.3 Adjustment to Purchase Price 4
Section 1.4 Allocation 5
Section 1.5 Employment Agreement 5
ARTICLE II - CLOSING
Section 2.1 Time and Place of the Closing 5
Section 2.2 Procedure at the Closing 5
ARTICLE III - REPRESENTATIONS AND WARRANTIES OF THE SELLER
Section 3.1 Sellers' Representations and Warranties 9
Section 3.1.1 Organization; Power and Authority; Subsidiaries 9
Section 3.1.2 Due Authorization; Binding Obligation;
No Conflicts; Consents 10
Section 3.1.3 Company Capital Structure; Sellers 11
Section 3.1.4 Financial Statements 12
Section 3.1.5 Real Estate 12
Section 3.1.6 Franchise Rights 13
Section 3.1.7 Good Title to and Condition of the Assets 14
Section 3.1.8 Licenses and Permits 14
Section 3.1.9 Documents of and Information with Respect to the
Companies 14
Section 3.1.10 Litigation 15
Section 3.1.11 No Adverse Change 15
Section 3.1.12 Absence of Certain Acts or Events 16
Section 3.1.13 Compliance with Laws 17
Section 3.1.14 Environmental Matters 17
Section 3.1.15 Labor Relations 18
Section 3.1.16 Employee Benefits 18
Section 3.1.17 Securities Representation 19
Section 3.1.18 Tax Matters 19
Section 3.1.19 Proprietary Rights 19
Section 3.2 Disclaimer of Other Representations and Warranties 20
Section 3.3 Broker's Fee 20
ARTICLE IV - REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
Section 4.1 General 20
Section 4.2 Organization, Power and Authority 20
Section 4.3 Due Authorization; Binding Obligations; No Conflict 20
Section 4.4 Litigation 21
Section 4.5 Seller Shares 21
Section 4.6 Accuracy of SEC Documents 21
Section 4.7 Broker's Fee 21
ARTICLE V - ADDITIONAL COVENANTS OF THE SELLER
Section 5.1 Conduct of Business Pending the Closing 22
Section 5.2 Access to Properties and Records 22
Section 5.3 Retention of Seller Equity 23
Section 5.4 Best Efforts 23
ARTICLE VI - ADDITIONAL COVENANTS OF THE PURCHASER
Section 6.1 Best Efforts 23
Section 6.2 Additional Information 23
Section 6.3 Satisfaction of Debt 23
ARTICLE VII - ADDITIONAL MUTUAL COVENANTS
Section 7.1 No Disclosure 23
Section 7.2 Seller Tax Distribution 24
Section 7.3 Cooperation to Effect Company 24
ARTICLE VIII - CONDITIONS TO OBLIGATIONS OF THE PURCHASER
Section 8.1 Accuracy of Representations and Warranties and
Compliance with Obligations 25
Section 8.2 Receipt of Necessary Consents 25
Section 8.3 No Adverse Litigation 25
Section 8.4 Delivery of Documents 26
Section 8.5 No Adverse Charge 26
ARTICLE IX - CONDITIONS TO OBLIGATIONS OF THE SELLERS
Section 9.1 Accuracy of Representations and Warranties and
Compliance with Obligations 26
Section 9.2 Securities Laws 26
Section 9.3 Opinions of Counsel 27
Section 9.4 Delivery of Documents 27
Section 9.5 No Adverse Charge 27
ARTICLE X - CERTAIN ACTIONS AFTER THE CLOSING
Section 10.1 Execution of Further Documents 27
Section 10.2 Employment Matters 27
Section 10.3 Responsibility for Taxes 27
ARTICLE XI - INDEMNIFICATION
Section 11.1 Agreement to Indemnify 28
Section 11.2 Agreement by Seller to Indemnify 28
Section 11.3 Agreement by the Purchaser to Indemnify 29
Section 11.4 Notice and Resolution of Claim 30
Section 11.5 Exclusive Remedies` 30
ARTICLE XII - SECURITIES LAW MATTERS
Section 12.1 Disposition of Seller Shares 31
Section 12.2 Legend 32
Section 12.3 Registration Rights for Seller Shares; Filing of
Registration Statement 32
Section 12.4 Amendments and Supplements 32
Section 12.5 Furnishing of Documents 33
Section 12.6 Duration 33
Section 12.7 Indemnification 33
ARTICLE XIII - MISCELLANEOUS
Section 13.1 Transaction Expenses 34
Section 13.2 Amendment and Modification 34
Section 13.3 Specific Performance 34
Section 13.4 Termination 34
Section 13.5 Entire Agreement 36
Section 13.6 Interpretation 36
Section 13.7 Execution in Counterpart 36
Section 13.8 Notices 36
Section 13.9 Governing Law 37
Section 13.10 Severability 37
Section 13.11 Assignment 38
Section 13.12 Binding Effect; No Third Party Beneficiaries 38
SCHEDULES
Schedule 1.2.2 - Scheduled Debt
Schedule 1.4 - Participating Percentages
Schedule 2.2.1(g) - Excluded Seller Contracts
Schedule 2.2.2(e) - Seller Share Registration Instructions
Schedule 3.1.1 - Foreign Business Qualifications
Schedule 3.1.2 - Consents
Schedule 3.1.3 - Capitalization; Shareholder Information
Schedule 3.1.4 - Financial Statements
Schedule 3.1.5 - Real Estate
Schedule 3.1.6 - Franchise Systems
Schedule 3.1.7 - Liens
Schedule 3.1.8 - Licenses and Permits
Schedule 3.1.9 - Documents and Information
Schedule 3.1.10 - Seller Litigation
Schedule 3.1.12 - Acts or Events since date of Financial Statements
Schedule 3.1.16 - Employee Benefit Plans
Schedule 3.1.19 - Proprietary Rights
Schedule 4.4 - Purchaser Litigation
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EXHIBITS
Exhibit 1.5 - Coccoli Employment Agreement
Exhibit 2.2.1(e) - Sellers' Counsel Opinion Items
Exhibit 2.2.3(c) - Amendment to Agreement of Limited Partnership
Exhibit 3.1.17 - SEC Documents
Exhibit 10.3.1 - Section 1362(e)(3) Election
Exhibit 13.6 - Definitions Table
<PAGE>
PURCHASE AGREEMENT
THIS PURCHASE AGREEMENT (this "AGREEMENT") is made and entered into as of this
28th day of September, 2000 between and among Creative Host Services, Inc., a
California corporation (the "PURCHASER") and Edwin L. Klett ("KLETT"), Louis
Coccoli, Jr. ("COCCOLI"), Herbert H. Gill ("GILL") and the Virgil A. Gladieux
Marital Trust ("TRUST") (and together with Klett, Coccoli and Gill collectively
referred to as the "SELLERS").
RECITALS
WHEREAS, the Sellers own all of the issued and outstanding shares of capital
stock of GladCo Enterprises, Inc., a Pennsylvania corporation ("GLADCO"); and
WHEREAS, the Sellers own all of the issued and outstanding shares of capital
stock of HLG Acquisition Corporation, a Pennsylvania corporation ("HLG
ACQUISITION"); and
WHEREAS, the Sellers own all of the issued and outstanding limited partnership
interests in HLG Franchise Marketing Company, a Pennsylvania limited partnership
("HLG MARKETING" and together with GladCo and HLG Acquisition, collectively
referred to as the "COMPANIES"); and
WHEREAS, the Sellers desire to sell, transfer and assign to the Purchaser and
the Purchaser desires to purchase from the Sellers all of the issued and
outstanding shares of capital stock of GladCo and HLG Acquisition and all of the
outstanding limited partnership interests of HLG Marketing for the consideration
as herein provided and on the terms and conditions hereinafter set forth (the
"TRANSACTION").
NOW, THEREFORE, in consideration of the mutual representations, warranties and
covenants and subject to the conditions herein contained, the parties hereto,
intending to be legally bound hereby, agree as follows:
ARTICLE I
PURCHASE AND SALE OF SELLER EQUITY
1.1. SELLER EQUITY. At the Closing (as defined in Section 2.1 hereof),
the Sellers shall sell, convey, transfer, assign and deliver to the Purchaser,
and the Purchaser shall purchase from the Sellers, free and clear of all liens,
mortgages, pledges, security interests, claims, assessments, restrictions,
encumbrances and charges of every kind (collectively, "LIENS"), on the terms and
subject to the conditions set forth in this Agreement, the following:
(a) all of the issued and outstanding shares of all classes of capital stock
of GladCo (the "GLADCO SHARES");
(b) all of the issued and outstanding shares of all classes of capital stock
of HLG Acquisition (the "HLG SHARES"); and
(c) all of the outstanding limited partnership interests of HLG Marketing
(the "HLG PARTNERSHIP INTEREST," and together with the GladCo Shares and the HLG
Shares, hereinafter collectively referred to as the "SELLER EQUITY").
1.2. PURCHASE PRICE. The Purchaser agrees to pay to the Sellers and
shall deliver in the manner provided in Section 2.2.2 hereof, subject to and
upon the terms and conditions set forth in this Agreement, an aggregate amount
equal to Seven Million and 00/100 Dollars ($7,000,000.00) (the "PURCHASE
PRICE"), plus any Adjustment Amount due pursuant to Section 1.3 hereof, as
follows:
1.2.1. The Purchaser has previously paid to Sellers, upon the execution of
the letter of intent dated July 19, 2000, three hundred thousand and 00/100
dollars ($300,000.00) (the "DEPOSIT") which is being held in escrow with
Pennsylvania Capital Bank pending the Closing of the Transaction. Upon Closing
or the occurrence of any other event which the Purchaser and Sellers have agreed
herein would require the release of the Deposit to the Sellers, the Purchaser
shall perform all things necessary on the part of the Purchaser to cause the
release of the Deposit to the Seller. Upon Closing or the occurrence of any
other event which the Purchaser and Sellers have agreed herein would require the
release of the Deposit to the Purchaser, the Sellers shall perform all things
necessary on the part of the Sellers to cause the release of the Deposit to the
Purchaser. The Deposit is non-refundable by the Sellers, except in the event of
the following:
(i) the Closing does not occur as a direct result of Sellers' failure to
obtain any third party consent or authorization as required pursuant to this
Agreement; or
(ii) the Closing does not occur for reasons other than the Purchaser's
default under the terms of this Agreement.
1.2.2. At the Closing, the Purchaser shall repay all outstanding principal
and accrued interest of, or assume obligations under, all liabilities set forth
in Schedule 1.2.2 (the "SCHEDULED DEBT"). The total aggregate amount of
outstanding principal and accrued interest of the Scheduled Debt shall not be in
excess of two million five hundred thousand and 00/100 dollars ($2,500,000.00).
The Purchaser shall cause (at Purchaser's sole cost and expense) the release and
termination at the Closing of all corresponding guarantees or security
agreements of the Sellers (or any one or more of them) associated with any such
Scheduled Debt (collectively, the "SELLER SECURITY DOCUMENTS").
1.2.3. At the Closing, the Purchaser shall issue to the Sellers shares of
common stock of the Purchaser of the same class as the common stock of the
Purchaser which is currently registered under the Securities Exchange Act of
1934, as amended, (the "EXCHANGE ACT") and currently traded on the NASDAQ small
cap exchange ("CHST STOCK"), as determined in accordance with this Section 1.2.3
and further subject to the provisions of Article XII hereof. The number of
shares of CHST Stock issueable and to be registered to the Sellers hereunder
(the "SELLER SHARES") shall be determined by dividing:
(i) Five hundred thousand dollars ($500,000.00) (the "GROSS STOCK
CONSIDERATION"); by
(ii) the average of closing prices of CHST Stock on the NASDAQ small cap
exchange for each of the thirty (30) trading days ending two trading days prior
to Closing Date (the "CHST CLOSING SHARE PRICE")
1.2.4. In addition to the Purchaser's obligations with respect to the Seller
Shares contained elsewhere in this Agreement, the Purchaser hereby agrees as
follows:
(i) Gill, Klett and the Trust (each individually referred to as an "ELECTING
SELLER") may elect, by written notice to the Purchaser delivered within three
(3) days after the date on which the Seller Shares then held by such Electing
Seller, first become tradable without any restriction imposed under the
Securities Act of 1933 (the "SECURITIES ACT") or this Agreement (the "EFFECTIVE
DATE") on a United States stock exchange (the "LISTING EXCHANGE") to require the
Purchaser to repurchase from such Electing Seller all (but not less than all) of
the Seller Shares then owned by such Electing Seller at a price equal to
(hereinafter, the "OPTION REPURCHASE PRICE"):
(A) the CHST Closing Share Price, multiplied by
(B) the number of Seller Shares then owned by such Electing Seller.
The Purchaser shall pay to an Electing Seller the Option Repurchase Price with
respect to the Seller Shares repurchased from such Electing Seller in
immediately available funds upon the Electing Seller's delivery to the Purchaser
(or the Purchaser's transfer agent or other representative) of all Seller Shares
subject to repurchase from such Electing Seller.
(ii) In the event that the CHST Closing Share Price on the Effective Date is
greater than the average closing prices of the CHST Stock on the Listing
Exchange for the thirty (30) day period ending on the last trading day of the
Listing Exchange immediately prior to the Effective Date (the "EFFECTIVE DATE
SHARE PRICE"), then the Purchaser shall pay to Coccoli in immediately available
funds, an amount equal to:
(A) the difference between (x) the CHST Closing Share Price, and (y)
Effective Date Share Price; multiplied by
(B) the total number of Seller Shares then owned by Coccoli.
(iii) In the event that the Proposed Registration Statement (as defined in
Article XII hereof) does not become effective on or before the date which is one
hundred eighty (180) days after the date on which the Proposed Registration
Statement is filed with the Securities and Exchange Commission, or the CHST
Stock is not listed on (or has been delisted from) the NASDAQ or any other
United States stock exchange at any time on or before the date which is one year
after the date on which the Proposed Registration Statement is filed with the
Securities and Exchange Commission (each such date hereinafter referred to as
the "MANDATORY REDEMPTION DATE"), then the Purchaser shall redeem the Seller
Shares then held by the Sellers for an aggregate amount equal to the number of
Seller Shares then held by the Sellers multiplied by the greater of:
(x) the Gross Stock Consideration divided by the total number of Seller
Shares initially issued to Sellers pursuant to Section 1.2.3 hereof; or
(y) the average of the closing prices of CHST Stock on the NASDAQ Stock
Market (or other Listing Exchange if the CHST is no longer listed on the NASDAQ
Stock Market) for each of the thirty (30) trading days ending on the last
trading day prior to the Mandatory Redemption Date.
1.3. ADJUSTMENT TO PURCHASE PRICE. The Purchase Price shall be subject
to positive adjustment at any time prior to the date which is one calendar year
after the Closing Date (the "ADJUSTMENT EXPIRATION DATE") by the amounts stated
below (collectively, the "ADJUSTMENT AMOUNT") upon the execution of a definitive
lease, sub-lease or other operating agreement by any one or more of the
Companies, the Purchaser or any of their respective affiliates (collectively the
"CONSOLIDATED GROUP") with respect to each of the following prospective
operations:
(a) two hundred eighty thousand and 00/100 dollars ($280,000.00) due upon
the execution of a definitive lease, sub-lease or other operating agreement by
any one or more of the Consolidated Group with respect to each of two retail
sites and commercial operations of any one or more of the Consolidated Group to
be located at the Newark, New Jersey International Airport (each such payment
referred to as a "NEWARK INSTALLMENT"); and
(b) two hundred ninety-five thousand six hundred and 00/100 dollars
($295,600.00) due upon the execution of a definitive lease, sub-lease or other
operating agreement by any one or more of the Consolidated Group with respect to
any retail sites and commercial operations of any one or more of the
Consolidated Group to be located at the Harrisburg, Pennsylvania International
Airport (the "HARRISBURG INSTALLMENT"); and
(c) one hundred twenty thousand and 00/100 dollars ($120,000.00) due upon
the execution of a definitive lease, sub-lease or other operating agreement by
any one or more of the Consolidated Group with respect to any retail sites and
commercial operations of any one or more of the Consolidated Group to be located
at the Rensselaer Railroad Station in Albany, New York (the "ALBANY
INSTALLMENT").
The Purchaser shall pay to the Sellers within thirty (30) days after Closing,
and in immediately available funds, the Adjustment Amount then due pursuant to
clauses (a) through (c) above. If at any time after Closing any payment of any
installment of Adjustment Amount becomes due as specified in clauses (a) through
(c) of this Section, than the Purchaser shall pay to the Sellers, in immediately
available funds, the applicable installment of Adjustment Amount within thirty
(30) days after the date on which such amount becomes due as specified above.
1.4. ALLOCATION. The Sellers shall be permitted to allocate the
Purchase Price and any Adjustment Amount (or any portion thereof) as
consideration for the Sellers' obligations under this Agreement as the Sellers
may determine between and among themselves and as to the GladCo Shares, the HLG
Shares and the HLG Partnership Interest. All payments of the Purchase Price and
any Adjustment Amount shall be paid to Sellers, pro-rata in accordance with the
percentages specified in Schedule 1.4 (the "PARTICIPATING PERCENTAGES").
1.5. EMPLOYMENT AGREEMENT. The Purchaser and Coccoli have previously
entered into the agreement attached hereto at Exhibit 1.5 (the "COCCOLI
EMPLOYMENT AGREEMENT"), pursuant to which the Purchaser and/or GladCo shall
continue to employ Coccoli in an executive capacity and as President of GladCo.
The Coccoli Employment Agreement shall remain in effect in accordance with its
terms from and after Closing.
ARTICLE II
CLOSING
2.1 TIME AND PLACE OF THE CLOSING. Subject to and after the
fulfillment or waiver of the conditions set forth in Articles VIII and IX, the
closing of the sale and purchase of the Seller Equity shall take place at the
offices of Klett Rooney Lieber & Schorling, 40th Floor, One Oxford Centre,
Pittsburgh, Pennsylvania 15219, on Monday, October 2, 2000, and shall be
effective as of Midnight, 12:00 a.m., Eastern Standard Time, on Saturday,
September 30, 2000 or on such other date and at such other time and place as the
parties may agree. In this Agreement, such event is referred to as the
"CLOSING" and such date and time are referred to as the "CLOSING DATE."
2.2 PROCEDURE AT THE CLOSING. At the Closing, the parties shall take
the following actions and all such actions shall be deemed to have occurred
simultaneously:
2.2.1 THE SELLERS' DELIVERIES.
(a) The Sellers shall deliver to the Purchaser a certificate of Sellers and
any other evidence reasonably required by the Purchaser, in such form as is
satisfactory to the Purchaser, that each of the conditions to the obligations of
the Purchaser to purchase the Seller Equity from the Sellers which is set forth
in Article VIII has been satisfied.
(b) The Sellers shall deliver to the Purchaser the certificate required
pursuant to Section 8.1.
(c) The Sellers shall deliver to the Purchaser a certificate of good
standing with respect to each of the Companies, if applicable, issued by the
Secretary of State of each of New York and Pennsylvania dated not earlier than
thirty (30) days prior to the Closing Date.
(d) With the exception of those consents identified in Schedule 3.1.2
hereof, the Sellers shall deliver to the Purchaser copies of all necessary
consents and approvals of third parties to any of the transactions contemplated
hereby, in form and substance satisfactory to the Purchaser; provided however,
that the Sellers shall not be required to deliver any such consent or approval
which is expressly waived or excluded from this delivery requirement pursuant to
the terms hereof or by the Purchaser's consent or written waiver delivered to
the Sellers at any time prior to Closing.
(e) The Sellers shall deliver to the Purchaser copies of:
(i) resolutions adopted by the board of directors of GladCo and by the
Sellers authorizing the transactions contemplated by this Agreement;
(ii) the certificate of incorporation and by-laws of GladCo, as in effect on
the Closing Date, certified in each case by the secretary or assistant secretary
of GladCo;
(iii) resolutions adopted by the board of directors of HLG Acquisition and
by the Sellers authorizing the transactions contemplated by this Agreement;
(iv) the certificate of incorporation and by-laws of HLG Acquisition, as in
effect on the Closing Date, certified in each case by the secretary or assistant
secretary of HLG Acquisition;
(v) resolutions adopted by the board of directors of HLG Acquisitions,
acting as general partner of HLG Marketing, authorizing the transactions
contemplated in this agreement; and
(vi) the certificate and the agreement (as amended) of limited partnership
of HLG Marketing, as in effect on the Closing Date, certified in each case by
the general partner.
(f) The Sellers shall deliver to the Purchaser all stock certificates and/or
other documents evidencing the Seller Equity, accompanied by all necessary and
appropriate transfer powers duly endorsed.
(g) The Sellers shall deliver to Purchaser satisfactory evidence that all
outstanding shareholders agreements, employment agreements, consulting
agreements, and any other agreements among the Sellers and/or between any of the
Sellers and any of the Companies, other than those agreements identified on
Schedule 2.2.1 (g) hereto have been terminated.
(h) The Sellers shall execute and deliver such amendments to the HLG
Partnership Agreement as necessary and appropriate to evidence and effect their
withdrawal from HLG Marketing as limited partners.
(i) The Sellers shall deliver to the Purchaser duly executed resignations of
each of the directors and officers of GladCo and HLG Marketing (other than
Coccoli and Robert van Snik) as required by the Purchaser.
(j) The Companies and the Sellers shall deliver to the Purchaser an opinion
dated the Closing Date from counsel for the Companies and the Sellers, subject
to counsel's reasonable assumptions and qualifications, containing the opinions
set forth on Exhibit 2.2.1(j) hereto.
(k) The Sellers (other than the Trust) shall deliver to the Purchaser the
written consent of their respective spouses to the Transaction in form and
substance acceptable to the Purchaser.
2.2.2 THE PURCHASER'S DELIVERIES.
(a) The Purchaser shall deliver to the Sellers evidence, in such form as is
satisfactory to the Sellers, that each of the conditions to the obligations of
the Sellers to sell the Seller Equity to the Purchaser which is set forth in
Article IX has been satisfied.
(b) The Purchaser shall deliver to the Sellers the certificate required
pursuant to Section 9.1.
(c) The Purchaser shall pay to Sellers upon the Closing, in immediately
available funds, an amount equal to:
(i) the Purchase Price plus any Adjustment Amount due and then payable
pursuant to Section 1.3 above; minus
(ii) the Deposit; minus
(iii) the amount of the Scheduled Debt (in the amounts set forth on Schedule
1.2.2 attached hereto) which is paid, credited to or assumed by the Purchaser as
of the Closing Date; minus
(iv) the Gross Stock Consideration.
(d) The Purchaser shall do all things necessary on the part of the Purchaser
to cause the immediate release of the Deposit to the Sellers.
(e) The Purchaser shall deliver to the Sellers the Seller Shares, issued in
the names of the Sellers and representing that number of shares as specified in
Schedule 2.2.2(e), hereto.
(f) The Purchaser shall deliver to the Sellers a certificate of good
standing of the Purchaser issued by the appropriate officer of the State of
California, dated not earlier than thirty (30) days prior to the Closing Date.
(g) The Purchaser shall deliver to the Seller copies of resolutions adopted
by the board of directors of the Purchaser authorizing the transactions
contemplated by this Agreement.
(h) The Purchaser shall deliver to the Sellers evidence of the payment
and/or assumption of the outstanding principal and accrued interest of the
Scheduled Debt set forth in Schedule 1.2.2.
(i) The Purchaser shall deliver to the Sellers evidence of the release and
termination of all Seller Security Documents.
(j) The Purchaser shall deliver to Sellers evidence of the Purchaser's
fulfillment of its obligations under Section 6.3 hereof.
2.2.3 JOINT DELIVERIES.
(a) The Purchaser and the Sellers shall execute and deliver a cross receipt
acknowledging their respective receipt of the Seller Equity, the amounts due
pursuant to Sections 2.2.2(c) and 2.2.2(e) above, and the Seller Shares.
(b) The Purchaser and Sellers shall execute and deliver the Section
1362(e)(3) Election in the form attached hereto as Exhibit 10.3.1.
(c) The Purchaser, Sellers and HLG Marketing shall execute and deliver as
the Amendment to Agreement of Limited Partnership and assignment of limited
partnership interests in the form attached hereto as Exhibit 2.2.3(c).
ARTICLE III
REPRESENTATIONS AND WARRANTIES
OF THE SELLERS
3.1. To induce the Purchaser to enter into this Agreement and to
consummate the transactions contemplated hereby, each Seller with respect to
himself individually and not jointly, to the best of his knowledge, makes the
representations and warranties contained in Sections 3.1.1 through 3.1.19 below,
which representations and warranties shall survive the Closing for a period of
one (1) year.
3.1.1. ORGANIZATION, POWER AND AUTHORITY; SUBSIDIARIES.
3.1.1.1. GLADCO. GladCo is a corporation duly organized, validly existing
and in good standing under the laws of the Commonwealth of Pennsylvania and has
all requisite corporate power and authority to own or lease its properties and
assets and to carry on its business as it is now being conducted. Except as set
forth on Schedule 3.1.1 hereto, GladCo is legally qualified to transact business
as a foreign corporation in each of the jurisdictions in which its business or
property is such as to require that it be thus qualified, and it is in good
standing in each of the jurisdictions in which it is so qualified. GladCo does
not own, of record or beneficially, any capital stock or equity interest or
investment in any corporation, partnership, joint venture, association or other
business entity.
3.1.1.2. HLG ACQUISITION. HLG Acquisition is a corporation duly organized,
validly existing and in good standing under the laws of the Commonwealth of
Pennsylvania and has all requisite corporate power and authority to own or lease
its properties and assets and to carry on its business as it is now being
conducted. Except as set forth on Schedule 3.1.1 hereto, HLG Acquisition is
legally qualified to transact business as a foreign corporation in each of the
jurisdictions in which its business or property is such as to require that it be
thus qualified, and it is in good standing in each of the jurisdictions in which
it is so qualified. Except for its general partner interest in HLG Marketing,
HLG Acquisition does not own, of record or beneficially, any capital stock or
equity interest or investment in any corporation, partnership, joint venture,
association or other business entity.
3.1.1.3. HLG MARKETING. HLG Marketing is a limited partnership duly
organized, validly existing and in good standing under the laws of the
Commonwealth of Pennsylvania and has all requisite power and authority to own or
lease its properties and assets and to carry on its business as it is now being
conducted. Except as set forth on Schedule 3.1.1 hereto, HLG Marketing is
legally qualified to transact business in each of the jurisdictions in which its
business or property is such as to require that it be thus qualified, and it is
in good standing in each of the jurisdictions in which it is so qualified. HLG
Marketing does not own, of record or beneficially, any capital stock or equity
interest or investment in any corporation, partnership, joint venture,
association or other business entity.
3.1.2. DUE AUTHORIZATION; BINDING OBLIGATION; NO CONFLICTS; CONSENTS. The
delivery and performance of this Agreement and the consummation of the
transactions contemplated hereby have been duly authorized by the Companies to
the extent necessary to effect the Transaction. Each Seller, with respect to
himself, hereby represents that he has the full power, authority and capacity to
enter into this Agreement and to perform their respective obligations hereunder.
This Agreement has been duly executed and delivered by the Sellers and is a
valid and binding obligation of the Sellers, enforceable against each of them in
accordance with its terms. Except as set forth in Schedule 3.1.2 hereto, the
execution and delivery of this Agreement by the Sellers does not, and the
consummation of the transactions contemplated hereby will not:
(a) contravene any provision of the Companies' charter or by-laws;
(b) violate or conflict with any federal, state or local law, statute,
ordinance, rule, regulation or any decree, writ, injunction, judgment or order
of any court or administrative or other governmental body or of any arbitration
award which is either applicable to, binding upon or enforceable against the
Companies, any of the Sellers or the Seller Equity;
(c) conflict with, result in any breach of, or constitute a default (or an
event which would, with the passage of time or the giving of notice or both,
constitute a default) under, or give rise to a right to terminate, amend,
modify, abandon or accelerate, any mortgage, contract, agreement, lease,
license, indenture, trust or other instrument which is either binding upon or
enforceable against the Companies, the Sellers or the Seller Equity;
(d) violate any legally protected right arising in the operation of the
Companies' business of any person or entity or give to any person or entity
(including in each case the Sellers) a right or claim against the Seller Equity;
(e) result in or require the creation or imposition of any Lien upon or with
respect to the Seller Equity or the property of the Companies;
(f) require the consent, approval or authorization of any governmental
authority or any other person or entity; or
(g) result in the loss of, or require the repayment by the Companies (or any
one or more of them) of any government grant, subsidy or tax credit previously
received or claimed by any of the Companies.
3.1.3. COMPANY CAPITAL STRUCTURE; SELLERS.
3.1.3.1. The authorized capital stock of GladCo consists of 1,000 shares of
common stock, $1.00 par value per share, all of which shares are issued and
outstanding. The authorized capital stock of HLG Acquisition consists of 1,000
shares of common stock, $1.00 par value per share, all of which shares are
issued and outstanding. Except as set forth on Schedule 3.1.3, there are no:
(a) existing preemptive rights, options, warrants, rights of first refusal
or other rights, or other agreements or commitments obligating or prohibiting
any of GladCo, HLG Acquisition or any Sellers to issue, repurchase, redeem
transfer or sell any shares of capital stock of GladCo or HLG Acquisition; or
(b) voting trusts, shareholder agreements or other agreements or
understandings to which GladCo or HLG Acquisition or any Sellers are a party
with respect to the voting of capital stock of GladCo or HLG Acquisition
3.1.3.2. HLG Acquisition is the sole general partner of HLG Marketing. The
Sellers comprise all of the owners of the limited partner interests in HLG
Marketing. Except as set forth on Schedule 3.1.3, there are no:
(a) existing preemptive rights, options, warrants, rights of first refusal
or other rights, or other agreements or commitments obligating or prohibiting
HLG Marketing or any Sellers to issue, repurchase, redeem transfer or sell any
interest in HLG Marketing; or
(b) voting trusts, partnership agreements or other agreements or
understandings to which HLG Marketing or any Sellers are a party with respect to
the voting of the partnership interests in HLG Marketing.
3.1.3.3. The Sellers own the Seller Equity as set forth on Schedule 3.1.3,
free and clear of all Liens (other than those Liens specified on Schedule
3.1.3). The Seller Equity set forth on Schedule 3.1.3 constitutes all of the
authorized, issued and outstanding shares of capital stock of GladCo and HLG
Acquisition and all of the authorized, issued and outstanding partnership
interests of HLG Marketing. The Seller Equity owned by the Sellers has been
duly and validly authorized and issued and is in each case fully paid and
non-assessable. Other than as specified on Schedule 3.1.3 hereto, the Sellers
are the sole beneficial and record owners of the Seller Equity, and each Seller
has (and will have) the unrestricted right to deliver the Seller Equity to the
Purchaser at Closing.
3.1.4. FINANCIAL STATEMENTS. The Sellers previously have furnished, or
shall furnish prior to Closing, to the Purchaser the financial statements
identified on Schedule 3.1.4, including the notes pertaining thereto
(collectively, the "FINANCIAL STATEMENTS"), of the Companies. The Financial
Statements present fairly, and are true, correct and complete statements of, the
financial position of the Companies at each of the balance sheet dates specified
therein and the results of operations for each of the said periods covered. The
Companies do not have any liabilities or obligations, either accrued, absolute,
contingent or otherwise, except: (i) to the extent reflected or taken into
account in the Financial Statements and not heretofore paid or discharged; (ii)
to the extent specifically set forth in any of the schedules to this Agreement;
(iii) liabilities incurred in the ordinary course of business of a type not
required to be reflected in financial statements prepared in accordance with
generally accepted accounting principles; and (iv) contract liabilities of a
type not required to be reflected in financial statements prepared in accordance
with generally accepted accounting principles (collectively, "EXCLUDED
LIABILITIES"). The Financial Statements have been prepared in accordance with
generally accepted accounting principles and have been verified to such effect
by the Companies' internal comptroller. The books and records of the Companies
properly and accurately reflect all material transactions, properties, assets
and liabilities of the Companies. As of the Closing Date, the Companies will
have no material liabilities of any nature, whether accrued, contingent or
otherwise, and whether due or to become due ("LIABILITIES"), which are not
specifically disclosed or provided for in the Financial Statements, or listed on
Schedule 3.1.4. Since the date of the Financial Statements identified in
Schedule 3.1.4, and except as set forth on Schedule 3.1.12 hereto, the Companies
have not incurred any Liabilities other than accounts payable and accrued
expenses incurred in the ordinary course of business consistent with historical
levels (subject to any increases from such historical levels attributable to
business expansion), and Excluded Liabilities. All such Liabilities incurred
since the date of the Financial Statement are fully reflected or reserved on the
books and records of the Companies.
3.1.5. REAL ESTATE
3.1.5.1. None of the Companies own any real estate.
3.1.5.2. Schedule 3.1.5 contains an accurate and complete listing of each
lease sublease, concession agreement and similar agreement with respect to
premises leased by the Companies (the "LEASEHOLD PREMISES"). A true and
complete copy of each lease agreement listed on Schedule 3.1.5, including all
amendments thereto and modifications thereof as of the date of this Agreement
(collectively, the "LEASES"), has been delivered to (or made available to) the
Purchaser prior to the date hereof. Schedule 3.1.5 also sets forth a
description of the nature and amount of all Liens on the Companies' interest in
the Leasehold Premises and on the underlying real property and all improvements
to and buildings thereon. The Leases are in full force and effect, the
Companies are not in material default or material breach under any Lease and no
event has occurred which with the passage of time or the giving of notice, or
both, would cause a material breach of or default under any Lease. There is no
breach or anticipated breach of any Lease by any other party to such Lease.
3.1.5.3. The Companies have not received notice of:
(a) any condemnation proceeding with respect to any portion of the Leasehold
Premises or any access thereto, and no proceeding is contemplated by any
governmental authority; or
(b) any special assessment which may affect any of the Leasehold Premises,
and no such special assessment is contemplated by any governmental authority.
3.1.6. FRANCHISE RIGHTS. Schedule 3.1.6 contains an accurate and complete
description of each franchise agreement with respect to the franchise systems
and/or rights licensed to the Companies (the "FRANCHISE SYSTEMS"). A true and
complete copy of each franchise agreement listed on Schedule 3.1.6, including
all amendments thereto and modifications thereof as of the date of this
Agreement (collectively, the "FRANCHISE AGREEMENTS"), has been delivered to (or
made available to) the Purchaser prior to the date hereof. Except as identified
on Schedule 3.1.6, the Franchise Agreements are in full force and effect, the
Companies are not in material default or material breach under any Franchise
Agreement and no event has occurred which, with the passage of time or the
giving of notice, or both, would cause any material breach of, or default under
any Franchise Agreement. Purchaser acknowledges that Sellers and the Companies
have not obtained any consents (the "SCHLOTZSKY'S CONSENT") which may required
under that certain Schlotzsky's Unit Franchise Agreement dated December 30, 1997
(the "SCHLOTZSKY'S FRANCHISE AGREEMENT") between GladCo and Schlotzsky's, Inc.,
in connection with the transactions contemplated under this Agreement.
Purchaser hereby agrees that receipt of the any Schlotzsky's Consent will not be
a prerequisite to Purchaser's obligations under this Agreement and that any
Schlotzsky's Consent shall be excluded from the items which Sellers are required
to deliver to Purchaser pursuant to Section 2.2.1(d) hereof.
3.1.7. GOOD TITLE TO AND CONDITION OF ASSETS. Except as set forth in
Schedule 3.1.7, the Companies have good and marketable title to all of their
properties and assets (other than the Leasehold Premises, Franchise Systems and
personal property which are leased by, or licensed to, any of the Companies),
free and clear of any Liens. The property and assets of the Companies
constitute, in the aggregate, all of the property necessary for the conduct of
the business of the Companies in the manner, and to the extent, currently being
conducted. The inventory of the Company consists of items of a quality and
quantity usable and saleable in the ordinary course of the Company's business
and have been valued on the books of the Companies in a manner consistent with
the valuation methods employed in prior years.
3.1.8. LICENSES AND PERMITS. The Companies possess all licenses and
required governmental or official approvals, permits or authorizations
(including licenses or permits for the sale of alcoholic beverages)
(collectively, the "PERMITS") for the business and operations of the Companies
as currently conducted. All such Permits are valid and in full force and
effect, the Companies are in material compliance with their requirements, and no
proceeding is pending or threatened to revoke or amend any of them. Schedule
3.1.8 contains a complete list of all such Permits. Except as indicated on
Schedule 3.1.2, none of such Permits is or will be impaired or in any way
affected by the execution and delivery of this Agreement or the consummation of
the transactions contemplated hereby.
3.1.9. DOCUMENTS OF AND INFORMATION WITH RESPECT TO THE COMPANIES.
Schedule 3.1.9 is an accurate and complete list of the following:
(a) each policy of insurance in force with respect to the assets and
properties of the Companies and each of the performance or other surety bonds
maintained by the Companies in the conduct of their respective business;
(b) each loan, credit agreement, guarantee, security agreement or similar
document or instrument to which the Companies are a party or by which they are
bound;
(c) each lease of personal property to which the Companies are a party or by
which they are bound;
(d) any other agreement, contract or commitment to which the Companies are a
party or by which they are bound which involves a future commitment by the
Companies in excess of Fifteen Thousand Dollars ($15,000) and which cannot be
terminated without liability on thirty (30) days or less notice;
(e) the name and current annual salary of each officer or other employee of
the Companies and the profit sharing, bonus or any other form of compensation
(other than salary) paid or payable by the Companies to or for the benefit of
each such person through the Closing Date, and any employment or other agreement
of the Companies with any of its officers or employees;
(f) the names of the directors and officers of GladCo and HLG Acquisition
and the names of the limited partners of HLG Marketing;
(g) all agreements currently in effect between any of the Companies and any
of the Sellers (or other officer, director or affiliate of the Companies),
including without limitation any promissory notes, leases, consulting agreement,
or license; and
(h) the name of each bank in which the Companies have an account or
safe-deposit box, the name in which the account or box is held and the names of
all persons authorized to draw thereon or to have access thereto.
The Sellers have previously furnished or made available to the Purchaser an
accurate and complete copy of each such agreement, contract or commitment listed
on Schedule 3.1.9. There has not been any material breach of or material
default in any obligation to be performed under any such instrument. All of
such instruments are valid, binding and enforceable and in full force and effect
in accordance with their respective terms.
3.1.10. LITIGATION. Except as set forth on Schedule 3.1.10, there are no
actions, suits, claims, governmental investigations or arbitration proceedings
pending or threatened against or affecting the Companies, the Seller Equity or
any of the assets or liabilities of the Companies, or which question the
validity or enforceability of this Agreement or any action contemplated hereby,
and there is no basis for any of the foregoing. There are no outstanding
orders, decrees or stipulations issued by any federal, state, local or foreign
judicial or administrative authority in any proceeding to which the Companies
are or were a party or which affect the Seller Equity or any of the assets or
liabilities of the Companies.
3.1.11. NO ADVERSE CHANGE. Except with respect to any adverse change which
may occur (or which may have occurred) as the proximate result of any action or
inaction of the Purchaser, since the date of the Financial Statements of the
Companies attached hereto at Exhibit 3.1.4, there has not been:
(a) any change in the business or properties of the Companies, or in the
financial condition of the Companies, other than changes occurring in the
ordinary course of business which have not had a materially adverse effect on
the business, properties, financial condition, or operating results of the
Companies taken as a whole; or
(b) any threatened event or condition of any character whatsoever which
could have a materially adverse effect on the assets, business, financial
condition or results of operations of the Companies taken as a whole.
3.1.12. ABSENCE OF CERTAIN ACTS OR EVENTS. Except as disclosed in Schedule
3.1.12, since the date of the Financial Statements, the Companies have not:
(a) authorized or issued any of its shares of capital stock (including any
held in its treasury) of GladCo or HLG Acquisition, or limited partnership
interests on HLG Marketing, or any other securities;
(b) declared or paid any dividend or made any other distribution of or with
respect to the Seller Equity or other securities or purchased or redeemed any of
the Seller Equity;
(c) paid any bonus or increased the rate of compensation of any of their
respective salaried management employees, other than as may have been agreed to
or approved prior to the date of the Financial Statements;
(d) sold or transferred any of their respective assets other than in the
ordinary course of business;
(e) incurred any material obligations or liabilities (including any
indebtedness) or entered into any material transaction, except for this
Agreement and the transactions contemplated hereby;
(f) suffered any theft, damage, destruction or casualty loss in excess of
Twenty-five thousand Dollars ($25,000); or
(g) suffered any extraordinary losses.
3.1.13. COMPLIANCE WITH LAWS.
3.1.13.1. The Companies are in compliance with all laws, regulations and
orders applicable to it or its assets or business except where such
non-compliance would not have a materially adverse effect. The Companies have
not been cited, fined or otherwise notified of any asserted past or present
failure to comply with any laws and no proceeding with respect to any such
violation is contemplated.
3.1.13.2. The Companies are and at all times have been in full compliance
with the terms and provisions of the Immigration Reform and Control Act of 1986
(the "IMMIGRATION ACT").
3.1.13.3. The Companies have not been cited, fined, served with a Notice of
Intent to Fine or with a Cease and Desist Order, nor has any action or
administrative proceeding been initiated or threatened against the Companies by
reason of any actual or alleged failure to comply with the Immigration Act or
any other laws.
3.1.14. ENVIRONMENTAL MATTERS.
3.1.14.1. None of the Companies have transported, stored, handled, treated
or disposed, nor have any of the Companies allowed or arranged for any third
parties to transport, store, handle, treat or dispose of Hazardous Substances or
other waste to or at any location other than a site lawfully permitted to
receive such Hazardous Substances or other waste for such purposes. The
Companies have not stored, handled, treated or disposed of, or allowed or
arranged for any third parties to store, handle, treat or dispose of, Hazardous
Substances or other waste upon property owned or leased by it, except as
permitted by law. As used in this Agreement, "HAZARDOUS SUBSTANCE" means any
pollutant, contaminant, petroleum or petroleum product, toxic substance,
hazardous or extremely hazardous substance or chemical, solid or hazardous
waste, liquid, industrial or other waste, hazardous material, or other material,
substance or agent that is designated as such or otherwise regulated under the
Environmental Laws (as defined below) as of the Closing Date.
3.1.14.2. The Companies have not received notice of any facts which could
give rise to any notice, that the Companies are a potentially responsible party
for a federal or state environmental cleanup site or for corrective action under
CERCLA or any other applicable law or regulation. The Companies have not
received any written or oral request for information in connection with any
federal or state environmental cleanup site.
3.1.14.3. The Companies do not use, and have not used, any Underground
Storage Tanks. For purposes of this Section 3.1.14 the term "Underground
Storage Tanks" shall have the meaning given it in the Resource Conservation and
Recovery Act (42 U.S.C. Sections 6901 et seq.).
3.1.14.4. The Companies have not received any citations issued under the
Occupational Safety and Health Act (29 U.S.C. Section 651 et. seq.) relating to
or affecting the Companies or any of the Leasehold Premises. The Companies have
not had any of the following performed or prepared:
(a) environmental audits, assessments or occupational health studies
undertaken by the Companies or their agents or undertaken by governmental
agencies relating to or affecting the Companies or any of the Leasehold
Premises;
(b) ground, water, soil, air or asbestos monitoring undertaken by the
Companies or its agents or undertaken by governmental agencies relating to or
affecting the Companies or any of the Leasehold Premises; and
(c) written communications between the Companies and environmental agencies;
3.1.14.5. As used in this Agreement, "ENVIRONMENTAL LAWS" means those
federal, state and local laws, rules, regulations, or ordinances including
common law, in effect and as interpreted as of the Closing Date, which are
applicable to the Companies and which relate to:
(a) pollution, or loss of or injury to, or adverse effect upon, the
environment;
(b) the protection, cleanup or restoration of, or removal, remediation or
mitigation of conditions affecting the environment;
(c) the release, discharge, emission, generation, handling, transportation,
use, treatment, storage or disposal of any Hazardous Substances as defined in
Section 3.1.14.1; or
(d) the protection of the safety or health of humans, including, but not
limited to, exposure to Hazardous Substances; or
(e) the Comprehensive Environmental Response, Compensation and Liability Act
of 1980, as amended, 42 U.S.C. 9601 et seq. ("CERCLA"), the Toxic Substances
Control Act, 15 U.S.C. 2601 et seq. ("TSCA"), the Resource Conservation and
Recovery Act of 1976, 42 U.S.C. 6901 et seq. as amended ("RCRA"), the Clean
Air Act, 42 U.S.C. 7401 et seq., as amended, and the Clean Water Act, 33
U.S.C. 1251 et seq., as amended.
3.1.15. LABOR RELATIONS. The Companies are not a party to or bound by any
collective bargaining agreement or any other agreement with a labor union, and
there has been no effort by any labor union during the twenty-four (24) months
prior to the date hereof to organize any employees of the Companies (or any one
of them) into one or more collective bargaining units. There is not pending or,
threatened any labor dispute, strike or work stoppage which affects or which may
affect the business of the Companies or which may interfere with the continued
operation of any one or more of the Companies. Neither the Companies nor any
agent, representative or employee of any of the Companies has within the last
twenty-four (24) months committed any unfair labor practice as defined in the
National Labor Relations Act, as amended, and there is not now pending or
threatened any charge or complaint against any of the Companies by or with the
National Labor Relations Board or any representative thereof. There has been no
strike, walkout or work stoppage involving any of the employees of the Companies
during the twenty-four (24) months prior to the date hereof.
3.1.16. EMPLOYEE BENEFITS. Except as set forth on Schedule 3.1.16, the
employees of the Companies do not participate (and have not participated in the
preceding five calendar years) in any "employee benefit plan", as defined in
section 3(3) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), nor in any other retirement, profit-sharing, deferred compensation,
bonus, stock option, stock purchase or similar plan, program or arrangement of
the Companies. None of the Companies has terminated, or will terminate before
the Closing Date, any plan subject to Title IV of ERISA. None of the Companies
contribute to any "multi-employer plan," as defined in section 414(f) of the
Code or section 3(37) of ERISA.
3.1.17. SECURITIES REPRESENTATIONS. The Sellers have received the following
documents from the Purchaser (collectively, the "SEC DOCUMENTS"), copies of
which are attached hereto as Exhibit 3.1.17:
(a) an annual report to stockholders of the Purchaser for the fiscal year
ended December 31, 1999;
(b) an annual report of the Purchaser on Form 10-QSB for the year ended
December 31, 1999; and
(c) quarterly reports of the Purchaser on Form 10-QSB for each of the
quarters ended March 31, 2000 and June 30, 2000
3.1.18. TAX MATTERS. The Companies have timely filed all tax returns and
reports required to be filed by such Companies prior to the Closing Date, and
have paid in full or made adequate provision by the establishment of reserves
for all taxes and other charges which are or will become due and payable by the
Companies for any tax period ending on or before the Closing Date.
3.1.19. PROPRIETARY RIGHTS. The proprietary rights of the Company, including
all copyrights and copyright registrations, trademarks, trade names, trademark
and trademark registrations, service marks and service mark registrations, ,
licenses thereof, trade secrets, technology, know-how, computer software,
processes, operating rights, other licenses and permits with respect to any of
the foregoing, and other similar intangible property and rights relating to the
products or business of the Company (collectively, the "PROPRIETARY RIGHTS"),
include all proprietary rights the failure to possess which would have an
adverse effect on the business, financial condition or results of operations of
the Company. Schedule 3.1.19 contains an accurate and complete list of all of
the Proprietary Rights, including a list of:
(i) all United States and foreign trademarks and trade names, trademark and
trade name registrations, service marks and service mark registrations,
copyrights and copyright registrations, unexpired as of the date hereof, all
United States applications pending on said date for trademark or trade name
registrations, service mark registrations, or copyright registrations, and all
trademark and trade names, service marks, labels and other trade rights in use
on said date, all of the foregoing being owned in whole or in part as noted
thereon on said date by the Companies;
(ii) all licenses granted by or to the Companies and all other agreements to
which the Companies (or any one of them) are a party, which relate in whole or
in part to any items of the categories mentioned in clause (i) above or to any
other Proprietary Rights, whether owned by the Companies (or any one of them) or
otherwise.
Except as set forth on Schedule 3.1.19: (i) the Companies own all right, title
and interest in and to all of the Proprietary Rights; and (ii) there have been
no claims made against the Companies (or any one of them) for the assertion of
the invalidity, abuse, misuse, infringement or unenforceability of any such
rights.
3.2. DISCLAIMER OF OTHER REPRESENTATIONS AND WARRANTIES. Except as
expressly set forth in Section 3.1, none of the Sellers make any representations
or warranty express or implied, at law or in equity, in respect of the Companies
or any of their respective assets, liabilities or operations, including with
respect to merchantability or fitness for any particular purpose, and any such
other representations or warranties are hereby expressly disclaimed. All
representations of each of the Sellers contained herein are given by each of
them to the best of his individual knowledge.
3.3. BROKER'S FEE. Seller (nor any one of them) has any liability or
obligation to pay any fees or commissions to any broker, finder or agent with
respect to the transactions contemplated by this Agreement for which the
Purchaser could become liable or obligated.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
4.1. GENERAL. To induce the Sellers to enter into this Agreement and
to consummate the transactions contemplated hereby, the Purchaser makes the
representations and warranties set forth in Sections 4.2 through 4.7 below,
which representations and warranties shall survive the Closing for a period of
one year.
4.2. ORGANIZATION, POWER AND AUTHORITY. The Purchaser is a corporation
duly organized, validly existing and in good standing under the laws of the
State of California, and has all requisite corporate power and authority to
enter into this Agreement and all other agreements contemplated hereby and to
perform its obligations hereunder and thereunder.
4.3. DUE AUTHORIZATION; BINDING OBLIGATION; NO CONFLICTS. The
execution, delivery and performance of this Agreement and all other agreements
contemplated hereby and the consummation of the transactions contemplated hereby
(including the obligations of the Purchaser under Article XII hereof) have been
duly authorized by all necessary corporate action of the Purchaser. This
Agreement has been duly executed and delivered by the Purchaser and is a valid
and binding obligation of the Purchaser, enforceable against the Purchaser in
accordance with its terms. Neither the execution and delivery of this Agreement
nor the consummation of the transactions contemplated hereby will:
(a) contravene any provision of the certificate of incorporation or by-laws
of the Purchaser;
(b) violate or conflict with any federal, state or local law, statute,
ordinance, rule, regulation or any decree, writ, injunction, judgment or order
of any court or administrative or other governmental body or of any arbitration
award which is either applicable to, binding upon or enforceable against the
Purchaser;
(c) conflict with, result in any breach of or default (or an event which
would, with the passage of time or the giving of notice or both, constitute a
default) under any material mortgage, contract, agreement, lease, license,
indenture, will, trust or other instrument which is either binding upon or
enforceable against the Purchaser; or
(d) require the consent, approval or authorization of, or the registration,
recording, filing or qualification with, or notice to, or the taking of any
other action in respect of, any governmental authority or any other person or
entity (other than any reporting requirements under the Securities Exchange Act
of 1934, as amended, and any applicable state securities law filings, approvals
by the boards of directors of the transactions contemplated hereby).
4.4. LITIGATION. Except as set forth on Schedule 4.4, there are no
actions, suits, claims, governmental investigations, arbitration proceedings, or
action by or before any self-regulatory organization or public securities
exchange pending or threatened against or affecting the Purchaser, the CHST
Stock or any of the assets or liabilities of the Purchaser, or which question
(or otherwise would adversely affect) the validity or enforceability of this
Agreement or any action contemplated hereby, and there is no basis for any of
the foregoing. There are no outstanding orders, decrees or stipulations issued
by any federal, state, local or foreign judicial or administrative authority or
self-regulatory organization or public security exchange in any proceeding to
which the Purchaser is or was a party or which affect the Purchaser, CHST Stock
or any of the assets or liabilities of the Purchaser.
4.5. SELLER SHARES. The shares of CHST Stock representing the Seller
Shares have been reserved for issuance by the Purchaser in accordance with its
obligations under the provisions of this Agreement. Upon the issuance and
delivery of the Seller Shares in accordance with this Agreement, such Seller
Shares will constitute legally and validly authorized and issued, fully paid and
non-assessable shares of CHST Stock; and upon the effective date of the proposed
Registration Statement such shares of the CHST Stock shall be fully registered
for trading on the NASDAQ or other Listing Exchange.
4.6. ACCURACY OF SEC DOCUMENTS. As of their respective dates, the SEC
Documents did not contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading.
4.7. BROKER'S FEE. Purchaser has no liability or obligation to pay any
fees or commissions to any broker, finder or agent with respect to the
transactions contemplated by this Agreement for which the Sellers (or any one of
them) could become liable or obligated.
ARTICLE V
ADDITIONAL COVENANTS OF THE SELLERS
5.1. CONDUCT OF BUSINESS PENDING THE CLOSING. From and after the
execution and delivery of this Agreement and until the Closing Date, except as
otherwise provided by the prior written consent of the Purchaser:
5.1.1. The Companies will conduct their respective business and operations
in the manner in which the same have heretofore been conducted, and Sellers will
use their best efforts to:
(a) preserve the Companies' respective business organizations;
(b) keep available to the Purchaser the services of the Companies'
respective officers, employees and agents; and
(c) preserve the Companies' respective relationships with customers,
suppliers and others having dealings with the Companies.
5.1.2. The Companies will maintain all of their respective properties in
customary repair, order and condition, reasonable wear and use and damage by
unavoidable casualty excepted, and will maintain insurance of such types and in
such amounts upon all of its properties and with respect to the conduct of its
business as are in effect on the date of this Agreement.
5.1.3. The Companies will not:
(a) authorize or issue any additional Seller Equity or any other securities;
(b) except as set forth in Section 3.1.9, pay any bonus or increase the rate
of compensation of any of its employees or enter into any new employment
agreement or amend any existing employment agreement;
(c) sell or transfer any of its assets other than in the ordinary course of
business; or
(d) amend the Companies' respective charters, by-laws or partnership
agreements.
5.2. ACCESS TO PROPERTIES AND RECORDS. From and after the execution
and delivery of this Agreement, the Companies will afford to representatives of
the Purchaser: (i) access, upon reasonable notice, to the Companies' premises
sufficient to enable the Purchaser to inspect the assets and to make available
to the Purchaser such information reasonably requested by the Purchaser which
concerns the business and operations of the Companies; and (ii) the opportunity
to ask questions of, and receive answers and documentation from representatives
of the Companies concerning the business and operations of the Companies;
provided, however, that any furnishing of such information to the Purchaser
remains confidential pursuant to the terms of this Agreement.
5.3. RETENTION OF SELLER EQUITY. The Sellers will not, prior to the
Closing Date, sell, assign, transfer, pledge, encumber or otherwise dispose any
of the Seller Equity which they own or their voting rights with respect thereto.
5.4. BEST EFFORTS. The Sellers will use their best efforts to cause to
be satisfied as soon as practicable and prior to the Closing Date all of the
conditions set forth in Article VIII to the obligation of the Purchaser to
purchase the Seller Equity hereunder.
ARTICLE VI
ADDITIONAL COVENANTS OF THE PURCHASER
6.1 BEST EFFORTS. The Purchaser will use its best efforts to cause to
be satisfied as soon as practicable and prior to the Closing Date all of the
conditions set forth in Article IX to the obligations of the Sellers to sell the
Seller Equity hereunder. The Purchaser shall use its best efforts to perform in
accordance with the time limitations and requirements for such performance set
forth in Section 9.2 and Article XII.
6.2 ADDITIONAL INFORMATION. At any time prior to the Closing, the
Purchaser will provide the Sellers the opportunity to ask questions of, and
receive answers and receive documentation from the Purchaser, and its officers
and directors concerning the Purchaser and to make available to the Sellers such
information reasonably requested by the Sellers which concerns the Purchaser.
6.3 SATISFACTION OF DEBT. Upon Closing, the Purchaser shall pay, or
cause to be paid or assumed, in full, the Scheduled Debt which is listed on
Schedule 1.2.2 hereto. The Purchaser and shall obtain, upon Closing or
immediately thereafter all releases, satisfactions, terminations or other
documents necessary and appropriate (in the Sellers' sole reasonable
determination) to effect and evidence the Sellers release of the Seller Security
Documents. The obligations of the Purchaser pursuant to Section 1.2.2 are not
made in limitation of the continuing obligation of the Companies to perform the
Companies respective obligations under any agreement which is in effect as of
the Closing Date, and nothing contained in this Agreement shall be deemed to
impose any obligation on the Sellers (or any one of them) for any obligations of
the Companies except as expressly provided herein.
ARTICLE VII
ADDITIONAL MUTUAL COVENANTS
7.1. NO DISCLOSURE. Without prior written consent of the other party,
the parties hereto will not, prior to the Closing Date, disclose the existence
of or any term or condition of this Agreement to any person or entity, except
that such disclosure may be made to any lender to or other person or entity in a
business relationship with the Companies or Purchaser to whom such disclosure is
necessary in order to satisfy any of the conditions to the consummation of the
purchase of the Seller Equity which are set forth in this Agreement. Purchaser
shall be permitted to make such public disclosure which it believes in good
faith to be required by applicable securities laws or regulations or by the
terms of any listing agreement with a securities exchange (in which case
Purchaser will consult with Seller prior to making such disclosure). If any
public notice is required by law, the party which is required to give such
notice shall provide the other parties hereto with written notice of any such
public disclosure at least four (4) business days prior to the date on which
such public notice is expected to be made.
7.2. SELLER TAX DISTRIBUTION. The Purchaser agrees and consents to the
Companies (or any one of them) declaring and paying a special dividend or
distribution at any time prior to the Closing Date to the Sellers in an
aggregate amount not in excess of Two hundred seventy-five thousand and 00/100
dollars ($275,000.00) (the "TAX DISTRIBUTION") for the purposes of providing the
Sellers with funds necessary to pay any tax liability imposed upon the Sellers
(or to become due) with respect to the business of the Companies for any tax
period(s) (or portion thereof) prior to the Closing Date; provided, however,
that such dividends or distributions shall not include any taxes due (or to
become due) from the Sellers for capital gains or other types related to the
sale of the Seller Equity pursuant hereto. In order to allow the Companies to
plan and manage the short-term capital needs of the Companies for the period
immediately following the Closing Date, the Companies may make the Tax
Distribution (or any portion thereof) payable to any one or more of the Sellers
pursuant to a promissory note providing for a maturity date no later than
December 31, 2000 and in form and substance acceptable to the Companies and the
Sellers (each such promissory note referred to as a "TAX DISTRIBUTION PROMISSORY
NOTE"). The Purchaser acknowledges and agrees that after the Closing Date each
Tax Distribution Promissory Note shall be an obligation of the respective
Companies issuing any such promissory note., and the Purchaser shall guaranty,
for the benefit of the holders of any Tax Distribution Promissory Note, the full
payment and performance of the Companies obligations thereunder.
7.3. COOPERATION TO EFFECT OBLIGATIONS. Immediately following Closing,
the Purchaser shall take all action reasonably necessary to effect the release
and termination, without recourse to any of the Sellers, of:
(i) the Seller Security Documents;
(ii) the obligations of any Seller under any guaranty or surety with respect
to GladCo's obligations under the Schlotzsky's Franchise Agreement; and
(iii) any other obligation, security agreement, guaranty, surety or other
agreement which obligates any of the Sellers (and/or their spouses or
affiliates) (individually or jointly) with respect to the payment or performance
of any of the Companies' respective obligations under any debt instrument,
financing arrangement or contractual commitment.
The Sellers and the Purchaser shall cooperate, in good faith, to effect the
Purchaser's obligations under Sections 6.3 and 7.3 hereof. In the event that
the Purchaser is not able to fulfill its obligations under Section 6.3 on the
Closing Date, the Purchaser and Sellers hereby agree to establish an escrow for
the purpose of holding funds deposited by the Purchaser as necessary and to be
used for effecting such satisfaction or release.
ARTICLE VIII
CONDITIONS TO OBLIGATIONS OF THE PURCHASER
The obligation of the Purchaser to purchase the Seller Equity shall be subject
to the fulfillment at or prior to the Closing Date of each of the following
conditions:
8.1 ACCURACY OF REPRESENTATIONS AND WARRANTIES AND COMPLIANCE WITH
OBLIGATIONS. The representations and warranties of the Sellers contained in
this Agreement shall have been true and correct to the best knowledge of the
Sellers at and as of the date hereof, and they shall be true and correct to the
best knowledge of the Sellers at and as of the Closing Date with the same force
and effect as though made at and as of that time. The Sellers shall have
performed and complied with all of their obligations required by this Agreement
to be performed or complied with at or prior to the Closing Date. The Sellers
shall have delivered to the Purchaser a certificate, dated as of the Closing
Date and signed by the Sellers, certifying that such representations and
warranties were true and correct to the best knowledge of the Sellers at and as
of the date hereof, and are true and correct to the best knowledge of the
Sellers at and as of the Closing Date with the same force and effect as though
made at and as of that time, and that all such obligations have been thus
performed and complied with.
8.2. RECEIPT OF NECESSARY CONSENTS. All necessary consents or
approvals of third parties (other than the consent or approval of the Purchaser
or its affiliates) to any of the transactions contemplated hereby, the absence
of which would materially affect the Purchaser's rights hereunder (other than
those consents identified on Schedule 3.1.2), shall have been obtained and shown
by written evidence satisfactory to the Purchaser; provided, however, that the
Sellers' failure to obtain any required consent because of a third-party's:
(i) requirement of a fee, payment, charge or set-off of Five thousand
dollars ($5,000.00) or more other than that which is expressly provided for
under any agreement pursuant to which such consent is required;
(ii) imposition of any charges or fees of Five thousand dollars ($5,000.00)
or more, or any other unreasonable requirements upon the Sellers or the
Companies, notwithstanding any provision of any agreement under which consent is
required, as a condition of providing such consent, or
(iii) refusal and/or failure to consent to the Transaction for any reason or
matter which applies solely to the Purchaser
shall not be deemed a breach or default of the Sellers' or the Companies'
obligations hereunder and the Purchaser shall: (x) not be entitled to enforce
any rights of specific performance against the Sellers with respect to such
failure to obtain a third-party consent; and (y) be deemed to have waived the
condition precedent to the Transaction with respect to any such required
third-party consent.
8.3. NO ADVERSE LITIGATION. Except as set forth in Schedule 3.1.10,
there shall not be pending or threatened any action or proceeding by or before
any court or other governmental body which shall seek to restrain, prohibit or
invalidate the sale of the Seller Equity to the Purchaser or any other
transaction contemplated hereby, or which might affect the right of the
Purchaser to own, operate in their entirety or control the Seller Equity and the
property and assets of the Companies, and which, in the reasonable judgment of
the Purchaser, makes it inadvisable to proceed with the transactions
contemplated hereby.
8.4. DELIVERY OF DOCUMENTS. The items required to be delivered by the
Sellers at Closing pursuant to Section 2.2 shall have been delivered to
Purchaser's satisfaction.
8.5. NO ADVERSE CHANGE. There shall not have occurred and be continuing as
of the Closing Date any material adverse change to the business or operations of
the Companies (or any one of them) since the date of the most recent Financial
Statement; provided, however, that none of the following events or circumstances
shall be deemed to constitute a material adverse change for purposes of this
Section 8.5:
(a) the performance of any obligations of the Companies (or any one of them)
or the Purchaser of their respective obligations under this Agreement;
(b) any event or circumstance which arises solely as a result of the action
or inaction of the Purchaser; or
(c) any event or circumstance which arises as a consequence of the
Schlotzsky's Franchise Agreement or the inability of the Sellers to obtain the
Schlotzsky's Consent on or prior to the Closing Date.
ARTICLE IX
CONDITIONS TO OBLIGATIONS OF THE SELLERS
The obligations of the Sellers to sell the Seller Equity shall be subject to the
fulfillment at or prior to the Closing Date of each of the following conditions:
9.1. ACCURACY OF REPRESENTATIONS AND WARRANTIES AND COMPLIANCE WITH
OBLIGATIONS. The representations and warranties of the Purchaser contained in
this Agreement shall have been true and correct at and as of the date hereof,
and they shall be true and correct at and as of the Closing Date with the same
force and effect as though made at and as of that time. The Purchaser shall
have performed and complied with all of its obligations required by this
Agreement to be performed or complied with at or prior to the Closing Date. The
Purchaser shall have delivered to the Sellers a certificate, dated as of the
Closing Date and signed by an executive officer of the Purchaser, certifying
that such representations and warranties were true and correct at and as of the
date hereof, and are true and correct at and as of the Closing Date with the
same force and effect as though made at and as of that time, and that all such
obligations have been thus performed and complied with.
9.2. SECURITIES LAWS. The Purchaser shall have received all necessary
permits and otherwise complied with any applicable federal and state securities
laws applicable to the issuance of the Seller Shares in connection with the
Transaction. The Purchaser shall have completed (or taken all necessary and
reasonable action to complete) its obligations under Article XII hereof and to
maintain the NASDAQ listing of the CHST Stock.
9.3. OPINIONS OF COUNSEL. The Purchaser shall have delivered to the
Sellers opinions, dated the Closing Date and in form reasonably acceptable to
the Sellers, from counsel for the Purchaser, as to the matters which have been
agreed with counsel for the Sellers as of the date hereof.
9.4. DELIVERY OF DOCUMENTS. The items required to be delivered by the
Purchaser at Closing pursuant to Section 2.2 shall have been delivered to
Sellers satisfaction.
9.5. NO ADVERSE LITIGATION. Except as set forth in Schedule 4.4, there
shall not be pending or threatened any action or proceeding by or before any
court or other governmental body which shall seek to restrain, prohibit or
invalidate the sale of the Seller Equity to the Purchaser, the issuance of the
Seller Shares, or any other transaction contemplated hereby, or which might
affect the right of the Sellers to own the Seller Shares, and which, in the
reasonable judgment of the Sellers, makes it inadvisable to proceed with the
transactions contemplated hereby.
ARTICLE X
CERTAIN ACTIONS AFTER THE CLOSING
10.1. EXECUTION OF FURTHER DOCUMENTS. From and after the Closing, upon
the reasonable request of any party hereto, the Purchaser and/or the Sellers
shall execute, acknowledge and deliver all such further acts, deeds,
assignments, transfers, conveyances, powers of attorney and assurances as may be
required or reasonably necessary to convey and transfer to and vest in the
Purchaser and protect its right, title and interest in all of the Seller Equity,
and as may be required or otherwise appropriate to carry out the transactions
contemplated by this Agreement.
10.2. EMPLOYMENT MATTERS. Except with respect to Coccoli and any other
employee of any of the Companies who has entered into an employment agreement
with the Purchaser prior to the Closing Date, the Purchaser shall have no
obligation to cause the Companies to continue to employ any of the persons
currently employed by the Companies or to continue, or institute any replacement
or substitution for, any vacation, severance, incentive, bonus, profit sharing,
pension or other employee benefit plan or program of the Companies.
10.3. RESPONSIBILITY FOR TAXES.
10.3.1. Each of GladCo and HLG Acquisition are corporations taxable pursuant
to Subchapter S of the Code, and as such their respective status as an "S
Corporation" will terminate immediately on the Closing Date by virtue of the
consummation of the Transactions. From and after the Closing Date, GladCo and
HLG Acquisition will each be a corporation taxable pursuant to Subchapter C of
the Code. Consequently, for the 2000 tax year, the Sellers, Purchaser, GladCo
and HLG Acquisition will elect, pursuant to Section 1362(e)(3) of the Internal
Revenue Code, to have items assigned to the short taxable year under normal tax
accounting rules. The Sellers agree to consent to such election and to provide
GladCo and HLG Acquisition with a statement of the Sellers' consent to such
action in the form attached hereto as Exhibit 10.3.1. Purchaser agrees to cause
GladCo and HLG Acquisition to comply with the provisions of this Agreement
necessary to effect for the Sellers the tax treatment elected by the Sellers.
10.3.2. The Federal, state and local taxes attributable to the operations of
the Companies and ownership of the Seller Equity: (i) on and prior to the
Closing Date shall be the responsibility of Sellers; and (ii) after the Closing
Date shall be the responsibility of Purchaser. Sellers shall prepare all short
year federal, state, local and foreign tax returns for the Companies required by
law for the period beginning with the first day of the Companies' fiscal years
in which the Closing occurs and ending with the Closing Date (collectively, the
"SHORT-YEAR RETURNS"). Sellers shall be entitled to receive or claim all
refunds, credits, deductions and allowances shown on said returns and any such
refunds received by the Companies (or any one of them) or Purchaser shall be
held in trust for Sellers and shall be promptly remitted to Sellers. Upon
Purchaser's request, the Sellers hereby agree to provide to the Purchaser, after
filing of such Short-Year Returns, copies of all Short-Year Returns filed on
behalf of the Companies.
ARTICLE XI
INDEMNIFICATION
11.1. AGREEMENT TO INDEMNIFY. The parties hereto agree that they will
indemnify and hold harmless the other parties hereto in respect of the aggregate
of all Indemnifiable Damages (as herein defined) to the extent and as set forth
below and subject to the limitations provided in this Article XI. As used
herein, "INDEMNIFIABLE DAMAGES" means, without duplication, the aggregate of all
expenses, losses, costs, deficiencies, liabilities, interest, penalties and
damages (including related counsel and paralegal fees and expenses) incurred or
suffered by an indemnified party hereunder. Any indemnity payable under this
Article XI shall be net of: (i) any insurance proceeds received by the
indemnified party on account of the matter giving rise to the indemnity; and
(ii) any tax benefit enjoyed by the indemnified party to the extent such benefit
is determinable using reasonable attribution methods.
11.2. AGREEMENT BY SELLER TO INDEMNIFY. Each of the Sellers agrees
that he shall indemnify and hold the Purchaser harmless with respect to any
Indemnifiable Damages incurred by the Purchaser to the extent that such
Indemnifiable Damages result from:
(a) any breach of a representation or warranty of such Seller in or pursuant
to this Agreement, provided, however, that no such claim for indemnification as
a result of matters specified in this clause (a) may be initiated by or on
behalf of any party hereto after the date which is fifteen (15) months after the
Closing Date; or
(b) result from any breach of the covenants or agreements of such Seller
under this Agreement.
11.2.1. Each of the representations and warranties made by each Seller in
this Agreement or pursuant hereto are made as of the Closing Date by such Seller
individually and only to the best of his knowledge.
11.2.2. The obligations of the Sellers, individually or as a group, pursuant
to this Section 11.2 shall be subject to the following limitations:
11.2.2.1. The Sellers shall not have any obligation to indemnify the
Purchaser from and against any Indemnifiable Damages pursuant to this Section
11.2:
(i) until such time as the Purchaser has suffered Indemnifiable Damages by
reason of all such claims in an aggregate amount in excess of One Hundred
Thousand Dollars ($100,000.00) (after which point the Sellers will be obligated
only to indemnify the Purchaser from and against further such Indemnifiable
Damages); or
(ii) which are incurred by Purchaser (or any of the Companies following
Closing) as a consequence of any event or circumstance which arises (A) pursuant
to or based upon the Schlotzsky's Franchise Agreement, or (B) due to the
inability of the Sellers or the Companies (or any one of them) to obtain the
Schlotzsky's Consent.
11.2.2.2. The Sellers' aggregate obligations under this Article XI shall be
limited to an amount (the "SELLER INDEMNIFIABLE AMOUNT") not to exceed one
hundred percent (100.0%) of:
(i) the Purchase Price, plus
(ii) any Adjustment Amount actually paid to the Sellers by the Purchaser,
minus
(iii) the amount of all Scheduled Debt.
11.2.2.3. The Purchaser shall not be entitled to recover Indemnifiable
Damages from any individual Seller with respect to any claim for indemnification
hereunder in excess of the amount of Indemnifiable Damages arising from such
claim multiplied by such Seller's Participating Percentage.
11.3. AGREEMENT BY THE PURCHASER TO INDEMNIFY.
11.3.1 The Purchaser shall indemnify and hold harmless the Sellers in
respect of all Indemnifiable Damages incurred or suffered by the Sellers to the
extent that such Indemnifiable Damages result from:
(a) any breach of a representation or warranty of the Purchaser contained in
this Agreement, provided, however, that no claim for indemnification based upon
matters specified in this clause (a) may be initiated by any party hereto after
this date which is fifteen (15) months after the Closing Date;
(b) any default in the performance of any of the covenants or agreements of
Purchaser in this Agreement; or
(c) any claim made against any Seller from and after the Closing Date under
any Seller Security Documents or other agreement of guaranty or surety with
respect to any obligations of the Companies reasonably disclosed by the Sellers
pursuant to their respective representations and warranties hereunder.
11.3.2 The Purchaser shall assume the defense of any claim or action
initiated against any Seller based upon the Sellers' consummation of the
Transaction without having first obtained Schlotzsky's written consent to the
Transaction to the extent necessary or required under the Schlotzsky's Franchise
Agreement (hereinafter, such claim action is referred to as a "SCHLOTZSKY'S
TRANSFER CLAIM"). The Purchaser shall not have any obligation to indemnify
Gill, Klett or the Trust for any cost or expense which such Seller may incur for
their respective individual legal counsel in connection any Schlotzsky's
Transfer Claim, except as expressly provided in this Section 11.3.2.
11.4. NOTICE AND RESOLUTION OF CLAIM. An indemnified party hereunder
shall promptly give written notice to the indemnifying party after obtaining
knowledge of any claim against the indemnified party as to which recovery may be
sought against the indemnifying party because of the indemnity set forth above
specifying in reasonable detail the claim and the basis for indemnification. If
such indemnity shall arise from the claim of a third party, the indemnified
party shall permit the indemnifying party to assume the defense of any such
claim or any litigation resulting from such claim. If the indemnifying party
assumes the defense of such claim or litigation, the obligations of the
indemnifying party hereunder shall include taking all steps necessary in the
defense or settlement of such claim or litigation (including the retention of
legal counsel) and holding the indemnified party harmless from and against any
and all Indemnifiable Damages caused by or arising out of any settlement
approved by the indemnifying party or any judgment in connection with such claim
or litigation. The indemnifying party shall not, in the defense of such claim
or litigation, consent to entry of any judgment (except with the written consent
of the indemnified party), or enter into any settlement (except with the written
consent of the indemnified party), which does not include as an unconditional
term thereof the giving by the claimant or the plaintiff to the indemnified
party a release from all liability in respect of such claim or litigation.
11.5. EXCLUSIVE REMEDIES. The Purchaser and the Sellers acknowledge
and agree that following the closing, except as provided in Section 13.3 hereof
(with respect to specific performance) or Section 12.7, the indemnification
provisions of this Article XI shall be the sole and exclusive remedy of the
Purchaser and the Sellers for any breach by the Sellers or the Purchaser of the
representations and warranties in this Agreement and for any failure by the
Sellers or the Purchaser to perform and comply with any covenants and agreements
that, by their terms, were to have been performed or complied with by such party
prior to the Closing. No breach of any representation, warranty, covenant or
agreement contained herein shall give rise to any right on the part of any party
hereto, after the consummation of the purchase and sale of the Seller Equity
contemplated by this Agreement, to rescind this Agreement or any of the
transactions contemplated hereby. Notwithstanding anything to the contrary
contained in this Agreement, no party hereto shall have any liability under any
provision of this Agreement for, and in no event shall any amount specified in
Section 11.2.2.1 above be applied to, any consequential damages.
ARTICLE XII
SECURITIES LAW MATTERS
The Purchaser and Sellers agree as follows with respect to the sale or other
potential disposition of the Seller Shares by the Sellers after the Closing:
12.1. DISPOSITION OF SELLER SHARES.
12.1.1. The Sellers represent and warrant that the Seller Shares are being
acquired and will be acquired for their own accounts and will not be sold or
otherwise disposed of except pursuant to: (i) an exemption or exclusion from
the registration requirements under the Securities Act, which does not require
the filing by the Purchaser with the United States Securities and Exchange
Commission (the "COMMISSION") of any registration statement, offering circular
or other document, in which case the Sellers shall first supply to the Purchaser
an opinion of counsel (which opinion and counsel shall be satisfactory to the
Purchaser) that such exemption or exclusion is available; or (ii) a registration
statement filed by the Purchaser with the Commission under the Securities Act.
12.1.2. The Trust hereby agrees that the Trust will not execute any sale
transaction on or through a Listing Exchange with respect to the Seller Shares
then held by the Trust which would be for an amount of Seller Shares which, when
taken together with all sales of Seller Shares by the Trust within the preceding
thirty (30) calendar days, would be in excess of ten percent (10.0%) of the
total number of shares of Seller Shares delivered to all Sellers pursuant to
this Agreement as set forth on Schedule 2.2.2(e) hereto. In the event that the
Trust should breach its agreement pursuant to this Section 12.1.2, the
Purchaser's obligations under Section 1.2.4(i) and (iii) with respect to the
Seller Shares then held by the Trust shall immediately terminate.
12.1.3. Coccoli hereby agrees that Coccoli will not execute any sale
transaction on or through a Listing Exchange with respect to the Seller Shares
then held by Coccoli which would be for an amount of Seller Shares which, when
taken together with all sales of Seller Shares by Coccoli within the preceding
thirty (30) calendar days, would be in excess of ten percent (10.0%) of the
total number of shares of Seller Shares delivered to all Sellers pursuant to
this Agreement as set forth on Schedule 2.2.2(e) hereto. In the event that
Coccoli should breach his agreement pursuant to this Section 12.1.3, the
Purchaser's obligations under Sections 1.2.4 (ii) and (iii) with respect to the
Seller Shares then held by Coccoli shall immediately terminate.
12.2. LEGEND. The certificates for the Seller Shares received shall
bear the following legend:
"The Shares represented by this certificate have not been registered under the
Securities Act of 1933, as amended, and may not be sold, transferred or
otherwise disposed of by the holder without an effective registration statement
being filed under and pursuant to said Act or an opinion of counsel in form and
substance satisfactory to the issuer that an exemption from registration is
available. Creative Host Services, Inc., may, unless a registration statement
covering such shares is in effect, place stop transfer orders with its transfer
agents with respect to such certificates."
12.3. REGISTRATION RIGHTS FOR SELLER SHARES; FILING OF REGISTRATION
STATEMENT. The Purchaser will utilize its reasonable best efforts to cause,
within ninety (90) business days following the Closing Date, a registration
statement to be filed under the Securities Act or an existing registration
statement to be amended for the purpose of registering the Seller Shares for
resale by a "Holder" thereof (the "PROPOSED REGISTRATION STATEMENT"). For the
purposes of this Article XII, a person is deemed to be a "Holder" of Seller
Shares whenever such person owns Seller Shares or has the right to acquire
Seller Shares, whether or not such acquisition has actually been effected. The
Purchaser will use its reasonable best efforts to have the Proposed Registration
Statement become effective and cause the Seller Shares to be registered under
the Securities Act, and registered, qualified or exempted under applicable state
securities laws of the Commonwealth of Pennsylvania and the State of Ohio, as
soon as is reasonably practicable. The Purchaser shall pay all expenses
incurred in connection with the registration, qualification and/or exemption of
the Seller Shares, including without limitation, any Commission and state
securities law registration and filing fees, printing expenses, fees and
disbursements of the Purchaser's counsel and accountants, transfer agents' and
registrars' fees, fees and disbursements of experts used by the Purchaser in
connection with such registration, qualification and/or exemption, and expenses
incidental to any amendment or supplement to the Proposed Registration Statement
or prospectuses contained therein. The Purchaser shall not, however, be liable
for any sales, broker's or underwriting commissions upon sale by any Holder of
any of the Seller Shares.
12.4. AMENDMENTS AND SUPPLEMENTS. The Purchaser shall prepare and
promptly file with the Commission and promptly notify the Sellers of the filing
of such amendments or supplements to the Proposed Registration Statement or
prospectuses contained therein as may be necessary to correct any statements or
omissions if, at the time when a prospectus relating to the Seller Shares is
required to be delivered under the Securities Act, any event shall have occurred
as a result of which any such prospectus or any other prospectus as then in
effect would include an untrue statement of a material fact or omit to state any
material fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading. The Purchaser shall
also advise the Sellers, promptly after it shall receive notice or obtain
knowledge thereof, of the issuance of any stop order by the Commission
suspending the effectiveness of the Proposed Registration Statement or the
initiation or threatening of any proceeding for that purpose and promptly use
its reasonable best efforts to prevent the issuance of any stop order or to
obtain its withdrawal if such stop order should be issued.
12.5. FURNISHING OF DOCUMENTS. The Purchaser shall furnish to the
Sellers such reasonable number of copies of the Proposed Registration Statement,
such prospectuses as are contained in the Proposed Registration Statement and
such other documents as the Sellers may reasonably request in order to
facilitate the offering of the Seller Shares.
12.6. DURATION. Once the Proposed Registration Statement is declared
effective by the Commission, the Purchaser shall use its reasonable best efforts
to amend or supplement the Proposed Registration Statement or the prospectuses
contained therein and to take such other action as is necessary to cause the
Proposed Registration Statement to remain effective for a period of two years.
Purchaser agrees that it shall use its reasonable best efforts to remain
eligible to use Form S-3 under the Securities Act for a period of one year
following the effective date of the Proposed Registration Statement.
12.7. INDEMNIFICATION.
12.7.1. The Purchaser will indemnify and hold harmless the Holders and each
person, if any, who controls a Holder within the meaning of the Securities Act,
from and against any and all losses, damages, liabilities, costs and expenses to
which the Holders or any such controlling person may become subject under the
Securities Act or otherwise, insofar as such losses, claims, damages,
liabilities, costs or expenses are caused by any untrue statement or alleged
untrue statement of any material fact contained in the Proposed Registration
Statement, any prospectus contained therein or any amendment or supplement
thereto, or arise out of or are based upon the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances under which they were
made, not misleading; provided, however, that the Purchaser will not be liable
in any such case to the extent that any such loss, claim, damage, liability,
cost or expense arises out of or is based upon an untrue statement or alleged
untrue statement or omission of material fact which is made in conformity with
information furnished by or on behalf of any Holder or such controlling person
in writing specifically for use in the preparation of the Proposed Registration
Statement, any prospectus contained therein or any amendment or supplement
thereto.
12.7.2. Promptly after receipt by an indemnified party pursuant to the
provisions of this Section 12.7 of notice of the commencement of any action
involving the subject matter of the foregoing indemnity provisions, such
indemnified party will, if a claim thereof is to be made against the
indemnifying party pursuant to the provisions of this Section, promptly notify
the indemnifying party of the commencement thereof; but the omission to so
notify the indemnifying party will not relieve it from any liability which it
may have hereunder unless the indemnifying party has been materially prejudiced
thereby nor will such failure to so notify the indemnifying party relieve it
from any liability which it may have to any indemnified party otherwise than
hereunder. In case such action is brought against any indemnified party and it
notifies the indemnifying party of the commencement thereof, the indemnifying
party shall have the right to participate in, and to assume the defense thereof,
with counsel satisfactory to such indemnified party; provided, however, if the
defendants in any action include both the indemnified party and the indemnifying
party and there is a conflict of interest which would prevent counsel for the
indemnifying party from also representing the indemnified party, the indemnified
party or parties shall have the right to select separate counsel to participate
in the defense of such action on behalf of such indemnified party or parties.
ARTICLE XIII
MISCELLANEOUS
13.1. TRANSACTION EXPENSES. Each party shall bear its own expenses
incurred in connection with the transactions contemplated hereby, except that
the Companies shall bear the expenses of their counsel, Klett, Rooney, Lieber &
Schorling, a Professional Corporation, incurred on behalf of the Companies in
connection herewith. The Purchaser will indemnify and hold harmless the Sellers
from the commission, fee or claim of any person or entity employed or retained
or claiming to be employed or retained by the Purchaser to bring about, or to
represent it in, the transactions contemplated hereby. Each Seller who retained
or engaged a broker will indemnify and hold harmless the Purchaser and each
other Seller from the commission, fee or claim of any person or entity employed
or retained or claiming to be employed or retained by the Sellers to bring
about, or to represent any of them in, the transactions contemplated hereby.
13.2. AMENDMENT AND MODIFICATION. The parties hereto may amend, modify
and supplement this Agreement only by written instrument executed by each of the
parties hereto.
13.3. SPECIFIC PERFORMANCE. The parties agree that irreparable damages
would occur if any of the provisions of this Agreement were not performed in
accordance with their specific terms or were otherwise breached. It is
accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions hereof, except to the extent that may be expressly
provided otherwise herein.
13.4. TERMINATION.
13.4.1. Anything to the contrary herein notwithstanding, this Agreement may
be terminated and the transactions contemplated hereby may be abandoned:
(a) by the mutual written consent of all of the parties hereto at any time
prior to the Closing Date;
(b) by the Purchaser at any time prior to the Closing Date if there shall
be, except as set forth in Schedule 3.1.10, a pending or threatened action or
proceeding by or before any court or other governmental body which shall seek to
restrain, prohibit or invalidate the sale of the Seller Equity to the Purchaser
or any other transaction contemplated hereby, or which might affect the right of
the Purchaser to own, operate in their entirety or control the Seller Equity and
the properties and assets of the Company and which, in the judgment of the
Purchaser, makes it inadvisable to proceed with the transactions contemplated by
this Agreement; or
(c) by any party in the event of the material breach by any other party of
any provision of this Agreement, which breach is not remedied by the breaching
party within thirty (30) days after receipt of written notice thereof from the
terminating party.
If this Agreement is terminated pursuant to clause (a) and (b) of this Section
13.4.1, no party shall have any liability for any costs, expenses, loss of
anticipated profit or any further obligation for breach of warranty or otherwise
to any other party to this Agreement. Any termination of this Agreement
pursuant to clause (c) of this Section 13.4.1 shall be without prejudice to any
other rights or remedies of the respective parties.
13.4.2. The risk of any loss to the properties or assets of the Companies
and all liability with respect to injury and damage occurring in connection
therewith shall be the sole responsibility of the Sellers until the completion
of the Closing. If any material part of said properties shall be damaged by
fire or other casualty prior to the completion of the Closing hereunder, the
Sellers shall so notify the Purchaser and the Purchaser shall have the right and
option:
(a) to terminate this Agreement, without liability to any party hereto; or
(b) to proceed with the Closing hereunder, in which event such casualty
shall not constitute a breach by the Sellers of any representation, warranty or
covenant in this Agreement, and the Purchaser shall be entitled to receive and
retain the insurance proceeds arising from such casualty.
13.4.3. This Agreement may be terminated by any party hereto upon written
notice to all other parties hereto, without liability for any costs, expenses,
loss of anticipated profit or any further obligation for breach of warranty or
otherwise to any party to this Agreement, if the Closing does not occur on or
prior to October 31, 2000.
13.5. ENTIRE AGREEMENT. This Agreement, including the exhibits and
schedules, contains the entire agreement of the parties hereto with respect to
the purchase of the Seller Equity and the other transactions contemplated
hereby, and supersedes all prior understandings and agreements (oral or written)
of the parties with respect to the subject matter hereof. The parties expressly
represent and warrant that in entering into this Agreement they are not relying
on any prior representations made by any other party concerning the terms,
conditions or effects of this Agreement which terms, conditions or effects are
not expressly set forth herein. Any reference herein to this Agreement shall be
deemed to include the schedules and exhibits.
13.6 INTERPRETATION. When a reference is made in this Agreement
(including the exhibits and schedules) to an article, section, paragraph,
clause, schedule or exhibit, such reference shall be to an article, section,
paragraph, clause, schedule or exhibit of this Agreement unless otherwise
indicated. The headings contained herein and on the schedules and exhibits are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement or the schedules and exhibits. Whenever the
words "include," "includes" or "including" are used in this Agreement, they
shall be deemed to be followed by the words "without limitation." For purposes
of this Agreement, the terms "to the knowledge of the Sellers" or "to the best
of the Sellers knowledge" or any statement of similar import shall mean, with
respect to each Seller, the actual knowledge of an individual Seller without
independent investigation or the requirement of such independent investigation
by any of the Sellers. This Agreement shall be construed as if drafted jointly
by the parties hereto, and no presumption or burden of proof shall arise to the
favor or prejudice of any party by virtue of authorship of any of the provisions
of this Agreement. All capitalized terms used in any of the schedules or
exhibits to this Agreement shall have the definition ascribed thereto under this
Agreement, unless expressly defined otherwise in such schedule or exhibit. For
convenience, a definitions table is attached hereto at Exhibit 13.6.
13.7 EXECUTION IN COUNTERPART. This Agreement may be executed in any
number of counterparts, each of which shall be deemed an original, but all of
which taken together shall constitute one and the same instrument.
13.8 NOTICES. Any notice, consent, approval, request, acknowledgment,
other communications or information to be given or made hereunder to any of the
parties by any other party shall be in writing and (a) delivered personally, (b)
sent by certified mail, postage prepaid, or (c) sent by facsimile as follows:
IF TO THE SELLERS, ADDRESSED TO: WITH COPIES TO:
F.X. Matt, Esq.
Jay L. Panzarella, Esq. Doepken Keevican & Weiss, PC
Klett Rooney Lieber & Schorling 58th Floor, USX Tower
40th Floor, One Oxford Centre 600 Grant Street
Pittsburgh, PA 15219 Pittsburgh, PA 15219-2703
Phone : 412-392-2000 Phone:
Facsimile: 412-392-2128 Facsimile:
<PAGE>
IF TO THE SELLERS, ADDRESSED TO: WITH COPIES TO:
James F. White, Jr., Esq.
Shumaker Loop & Kendrick, LLP
1000 Jackson Street
Toledo, OH 43624
Phone: (419) 241-9000
Facsimile: (419) 241-6894
---------------------------
IF TO THE PURCHASER, ADDRESSED TO: WITH COPIES TO:
Mr. Sayed Ali
President and CEO Robert K. Peddycord, Esq.
Creative Host Services, Inc. Knight & Peddycord
6335 Ferris Square 7675 Dagget Street
Suite G Suite 150
San Diego, CA 92121 San Diego, CA 92111.
Phone: Phone:
Facsimile: Facsimile:
Any party may change the address to which notices hereunder are to be sent to
him or it by giving written notice of such change of address in the manner
herein provided for giving notice. Any notice delivered personally shall be
deemed to have been given on the date it is so delivered, any notice delivered
by registered or certified mail shall be deemed to have been given on the date
it is received, and any notice sent by facsimile shall be deemed to have been
given on the date it was sent (so long as the sender receives confirmation of
transmission and a hard copy of such notice is sent by U.S. mail).
13.9 GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the Commonwealth of Pennsylvania applicable to
contracts made and to be performed therein. Any claim or action brought under
or based upon this Agreement or in connection with the Transaction shall be
brought in the state or federal courts situated in Allegheny County,
Pennsylvania, and the parties hereto consent to such venue and waive any
defenses or any such claim or action based upon inconvenience.
13.10 SEVERABILITY. If any term or other provision of this Agreement
is invalid, illegal or incapable of being enforced by any rule of law or public
policy, all other conditions and provisions of this Agreement shall nevertheless
remain in full force and effect so long as the economic or legal substance of
the transactions contemplated hereby is not affected in any manner adverse to
any party. Upon such determination that any term or other provision is invalid,
illegal or incapable of being enforced, the parties hereto shall negotiate in
good faith to modify this Agreement so as to effect the original intent of the
parties as closely as possible in an acceptable manner to the end that the
transactions contemplated hereby are fulfilled to the greatest extent possible.
13.11 ASSIGNMENT. Neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by any of the parties
without the prior consent of the other parties hereto.
13.12 BINDING EFFECT; NO THIRD PARTY BENEFICIARIES. This Agreement
shall inure to the benefit of, be binding upon and be enforceable by and against
the Sellers and the Purchaser and their respective successors and permitted
assigns, and nothing herein expressed or implied shall be construed to give any
other person or entity any legal or equitable rights hereunder.
_______________________________________________
SIGNATURES APPEAR ON NEXT PAGE.
<PAGE>
IN WITNESS WHEREOF, the undersigned have caused this Agreement to be duly
executed as of the day and year first above written.
WITNESS: LOUIS COCCOLI, JR.
/s/ /s/
WITNESS: EDWIN L. KLETT
/s/ /s/
WITNESS: HERBERT H. GILL
/s/ /s/
WITNESS: VIRGIL A. GLADIEUX MARITAL TRUST
/s/ /s/
ATTEST: CREATIVE HOST SERVICES, INC.
/s/ /s/
Tasneem Vakharia, Secretary Sayed Ali, President
