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Sample Business ContractsHome: Sample Business Contracts:
ASSET PURCHASE AGREEMENT
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This ASSET PURCHASE AGREEMENT, dated as of March 24, 1997, is entered into
by and between AFC ENTERPRISES, INC., a Minnesota corporation ("Seller" or
"AFC"), and ATLANTA FRANCHISE DEVELOPMENT COMPANY, LLC, a Delaware limited
liability company ("Purchaser").
WHEREAS, Seller is engaged, in part, in the business of franchising,
owning and operating Churchs Chicken Restaurants;
WHEREAS, Seller desires to sell and/or lease, and Purchaser desires to
purchase and/or lease, one hundred (100) Churchs Chicken Restaurants
(collectively, the "Restaurants" and singularly, a "Restaurant") currently owned
and operated by Seller and listed on Exhibit "A" hereto; and
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WHEREAS, Seller desires to sell and/or lease, and Purchaser desires to
purchase and/or lease, the Assets, as defined herein;
NOW, THEREFORE, in consideration of the recitals and of the respective
covenants, representations, warranties and agreements herein contained, and
intending to be legally bound hereby, the parties hereto do hereby agree as
follows:
ARTICLE 1
PURCHASE AND SALE
1.1 AGREEMENT TO SELL. On the Closing Date (as defined in Section 2.1),
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upon and subject to the terms and conditions of this Agreement, Seller shall
either: (a) except as provided in Article 9, grant, sell, assign, transfer and
deliver to Purchaser, all right, title and interest of Seller in and to all of
the Assets, as defined below, free and clear of all mortgages, liens, pledges,
security interests, charges, claims, restrictions and encumbrances of any nature
whatsoever (except Permitted Liens as defined in Section 3.1.13), or (b) to the
extent provided in Article 9, lease to Purchaser certain of the Assets.
1.1.1 INCLUDED ASSETS. The "Assets" shall include the following
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assets, properties and rights of Seller used in the operation of the
Restaurants:
(a) all assets listed on the asset ledger for each Restaurant,
as set forth on Schedule 1.1.1(a) to be provided by Seller at Closing;
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(b) all the land, structures, improvements and fixtures and
all rights of way, uses, licenses, easements, and appurtenances
appertaining thereto, including, but not limited to, eighty-six (86) owned
parcels of land and buildings associated with the Restaurants and fourteen
(14) leaseholds of land and buildings associated with the Restaurants, as
set forth on
<PAGE>
Schedule 1.1.1(b) attached hereto, but subject to the provisions of Article
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9 regarding LPUR, as defined therein;
(c) except to the extent included in the POS System Agreement (as
defined in Section 5.2.6), all machinery, restaurant equipment, appliances,
utensils, furniture, furnishings, fixtures, signage, uniforms, office,
advertising and other supplies, leasehold improvements, goods, equipment
and other tangible personal property, including, but not limited to, all
equipment leases (including menu-board and fountain equipment leases) used
at, in or on the Restaurants and located at the Restaurants on the Closing
Date, excluding motor vehicles;
(d) all cash on hand, held by or for the Restaurants as of the
Closing Date (the "Cash on Hand");
(e) all prepaid items, deposits, unbilled costs and fees, and
accounts, notes and other receivables as of the Closing Date, if any, which
items shall be prorated as set forth in Section 1.3.1;
(f) all unadulterated, edible and merchantable food and beverage
inventories located in the Restaurants as of the Closing Date
(collectively, the "Inventories");
(g) subject to Section 2.3 and to the extent permitted by
applicable law, all rights under the written or oral contracts identified
on Schedule 1.1.1(g) (collectively, the "Contracts");
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(h) subject to Section 2.3 and to the extent permitted by
applicable law and to the extent transferable, all rights under any
Authorization (as defined in Section 3.1.13) that constitutes or relates to
or affects exclusively the Restaurants or the Assets;
(i) all rights or choses in action arising out of occurrences
before or after the Closing excluding insurance claims or refunds,
including without limitation, all rights under express or implied
warranties relating to the Assets and any noncompetition agreements with
current or former employees relating to the Restaurants (which shall
exclude employees of Seller operating other than from the Restaurant
locations); and
(j) all Records, as hereinafter defined in Section 7.3;
1.2 AGREEMENT TO PURCHASE. On the Closing Date, Purchaser shall purchase
---------------------
and/or lease the Assets from Seller, upon and subject to the terms and
conditions of this Agreement and in reliance on the representations, warranties
and covenants of Seller contained herein, in consideration of the Purchase Price
(hereinafter defined in Section 1.3 hereof). In addition, Purchaser shall assume
on the Closing Date and agree to pay, discharge or perform, as appropriate,
certain liabilities and obligations of Seller only to the extent and as provided
in Section 1.4 of this Agreement.
1.3 THE PURCHASE PRICE; FRANCHISE FEES; DEVELOPMENT FEES
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1.3.1 PURCHASE PRICE. The Purchase Price (as adjusted as provided by this
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Agreement, the "Purchase Price") for the Assets shall be an amount equal to:
(a) SIXTEEN MILLION THREE HUNDRED THOUSAND DOLLARS
($16,300,000.00), plus
----
(b) Seller's actual cost of the Inventories; plus
----
(c) An amount equal to Cash on Hand; plus
----
(d) Amounts due pursuant to the POS System Agreement; plus
----
(e) The Warrant defined in Section 1.3.4(b); plus
----
(f) The Assumed Liabilities defined in Section 1.4.1.
The Purchase Price shall be subject to adjustment at Closing in accordance
with Article 9. All items of expense or income directly relating to the Assets
and the operations of the Restaurants shall be prorated between Seller and
Purchaser as of the Closing Date. Items to be prorated shall include, without
limitation, real and personal property taxes, rents (including percentage rents)
and other prepaid items (including deposits). Prorations will be on a dollar-
for-dollar basis. Any prorations not determinable as of the Closing Date shall
be prorated on the basis of the most current information available at Closing;
provided, however, Seller and Purchaser agree that, after the Closing Date, upon
presentation of confirmation of overpayment or underpayment based on such
estimate, the party that has received the benefit of such overpayment will
reimburse the other party as soon as possible. Each party hereto agrees to
furnish the other party with any documents or records in such party's
possession that may be needed for the other party to confirm the adjustment and
prorations in this Section 1.3.1. The component of the Purchase Price under
subparts (b) and (c) of this Section shall be determined from Seller's business
records and Seller shall not be obligated to participate in a physical
accounting of such items. If the parties are unable to have a complete list of
the Inventories and the Cash-on-Hand as of the Closing Date, any such amounts
unaccounted for shall be promptly counted and paid for by the Purchaser as soon
as possible (but in no event more than 30 days) after the Closing Date.
1.3.2 FRANCHISE FEES. At the Closing, Purchaser shall pay to Seller
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for the franchise rights to operate the Restaurants, franchise fees ("Franchise
Fees") in the aggregate amount of TWO MILLION FIVE HUNDRED THOUSAND DOLLARS
($2,500,000), and Seller and Purchaser shall enter into Franchise Agreements in
the form attached hereto as Exhibit "B" (the "Franchise Agreements") with
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respect to each Restaurant; provided, however, the Franchise Agreements shall
specify that the royalty rates to be paid by Purchaser thereunder shall be four
and one-half percent (4-1/2%) of gross sales for years of operation one (1) and
two (2), five and one-half percent (5-1/2%) for years of operation three (3) and
four (4), and five percent (5%) thereafter throughout the remainder of the
term, and that the initial term of the Franchise Agreements shall be twenty (20)
years with an option in the Purchaser to extend such initial term by an
additional term of ten (10) years, and the Franchise Agreements shall specify
(i) that, for so long as AFC has agreed that its fountain drink concessions
shall exclusively offer Coca Cola products (or other products from time to time
selected by AFC), Purchaser shall do the same; (ii) that royalty and related
payments shall be made by direct electronic payment; and (iii) that when it is
adopted the franchisee will benefit, as will all Churchs'
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<PAGE>
franchisees, from the impact policy currently being negotiated by the Seller and
the Churchs' Independent Franchisee Association ("CIFA "). Any conflict between
the terms of this Agreement and of the Franchise Agreements shall be governed by
the Franchise Agreements.
1.3.3 DEVELOPMENT AGREEMENT AND DEVELOPMENT FEES. Purchaser and
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Seller shall at the Closing enter into one or more Development Agreements in the
form attached hereto as Exhibit "C" (the "Development Agreements"), and
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Purchaser shall pay to Seller development fees ("Development Fees") in the
aggregate amount of ONE MILLION DOLLARS ($1,000,000), for the rights to develop
one hundred (100) additional restaurants upon the terms set forth in the
Development Agreements.
1.3.4 PAYMENT OF PURCHASE PRICE AND FRANCHISE FEES. At the Closing,
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Purchaser shall deliver to Seller, in payment of the Purchase Price, Development
Fees and the Franchise Fees, the following (hereinafter, such payment of the
Purchase Price, Development Fees and the Franchise Fees, being referred to
collectively as the "Closing Payment"):
(a) NINETEEN MILLION EIGHT HUNDRED THOUSAND DOLLARS
($19,800,000.00), plus or minus any adjustments pursuant to Section 1.3.1,
---- -----
in immediately available funds to such account as Seller shall designate;
plus
----
(b) Purchaser shall deliver to Seller a warrant in the form
attached hereto as Exhibit "D" (the "Warrant") to purchase a five percent
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(5%) interest in Purchaser on a fully-diluted basis at the time of
exercise, exercisable at any time and from time to time prior to the tenth
anniversary of the Closing Date. Such Warrant shall set forth mutually
acceptable provisions for registration of the equity underlying such
Warrant if Purchaser registers its equity in a public offering. Seller and
Purchaser shall enter into, or the Warrant or the Operating Agreement (as
defined in Section 3.2.1) shall contain, a Right of First Refusal Agreement
mutually acceptable to the parties hereto (the "Right of First Refusal
Agreement"), providing that Purchaser shall have a right of first refusal
if Seller wishes to transfer or assign any membership interest in
Purchaser.
1.3.5 ALLOCATION OF PURCHASE PRICE. The total consideration for the
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Assets, consisting of the Purchase Price and the liabilities assumed by
Purchaser in accordance with Section 1.4 hereof and any non-recourse liabilities
to which any Assets are subject, shall be allocated among the Assets as set
forth on Schedule 1.3.5 hereto. Seller and Purchaser each hereby covenant and
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agree that each will not take a position on any income tax return, before any
governmental agency charged with the collection of any income tax, or in any
judicial proceeding that is in any way inconsistent with the terms of said
schedule.
1.4 ASSUMPTION OF LIABILITIES. At the Closing and except as otherwise
-------------------------
specifically provided in this Section 1.4, Purchaser shall assume and agree to
pay, discharge or perform, as appropriate, the liabilities and obligations of
Seller set forth in Section 1.4.1 (hereinafter "Assumed Liabilities"):
1.4.1 ASSUMED LIABILITIES. The Assumed Liabilities shall be as
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follows:
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(a) all liabilities and obligations of Seller related to
owning or operating each Restaurant occurring after the Closing Date,
excluding, however, those set forth in Schedule 1.4.2 hereto;
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(b) all liabilities and obligations of Seller under the
Contracts that arise or are attributable to events occurring after the
Closing Date.
1.4.2 EXCLUDED LIABILITIES. All claims against and liabilities
--------------------
and obligations of Seller not specifically assumed by Purchaser pursuant to
Section 1.4.1 (the "Excluded Liabilities"), including, without limitation, the
following claims and liabilities of Seller, are excluded, and shall not be
assumed or discharged by Purchaser:
(a) any liabilities or obligations relating to contracts
or discount coupons for food purchases which Purchaser elects to not
recognize and that are not specifically assumed at the Closing or prior to
the Closing Date;
(b) any liabilities or obligations arising out of and to
the extent attributable to any breach by Seller of any provision of any
Contract or other commitment of Seller of which Seller or the counterparty
to such contract has not advised Purchaser prior to Closing;
(c) any liabilities or obligations for which Purchaser is
indemnified by Seller under Article 9 or any of the FPUR Leases (as defined
in Article 9), or any liabilities or obligations arising solely from an
environmental condition existing at any of the Restaurants prior to the
Closing Date;
(d) any claim, whether or not asserted, for injury to
person or property existing prior to the Closing Date, except as provided
in Section 4.1.12;
(e) except as expressly set forth in Section 7.1 hereof
or the 401(k) Transfer Agreement (as defined in Section 7.2), any
liability or obligation of Seller arising prior to the Closing Date or as a
result of the Closing to any employees, agents or independent contractors
of Seller (except as may be set forth in the Contracts), whether or not
employed by Purchaser after the Closing, including, without limitation, any
liabilities for accrued and unpaid wages, salaries, bonuses, commissions,
sick leave, vacation time or compensated time off owing by Seller to its
employees or pursuant to any compensation, collective bargaining, pension,
retirement, severance, termination or other benefit plans (including,
without limitation, any Employee Plans (as defined in Section 3.1.22(b)
hereof)) or under any other similar arrangement or practice or any federal,
state or municipal law.
(f) except to the extent prorated under Section 1.3.1,
any liabilities or obligations of Seller for any taxes arising prior to the
Closing Date or attributable to the possession, ownership or operation of
the Restaurants prior to the Closing Date or arising from the sale of the
Assets under this Agreement (including, without limitation, any liability
or obligation for any federal, state or local income or other tax payable
with respect to the Seller or any of its affiliates or for real estate
taxes attributable to the Real Property prior to the Closing Date);
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<PAGE>
(g) any liabilities or obligations for or related to
indebtedness of Seller to banks, financial institutions, or other person or
entities, except as provided in Section 1.4.1;
(h) any liabilities or obligations for retrospective or
similar insurance premium adjustments;
(i) any of the liabilities or obligations listed on
Schedule 1,4,2 attached hereto;
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(j) except to the extent provided otherwise under this
Agreement, any other liabilities or obligations of Seller that are
attributable to or arise from facts, events, or conditions that occurred or
came into existence prior to the Closing Date; and
(k) any liability or obligation of Seller arising or
incurred in connection with the negotiation, preparation and execution of
this Agreement and the transactions contemplated hereby and fees and
expenses of counsel, accountants, other experts or anyone else employed by
Seller with respect to these transactions.
ARTICLE 2
CLOSING
2.1 CLOSING AND CLOSING DATE. The closing (the "Closing") of the sale and
------------------------
purchase of the Assets shall take place at 10:00 A.M., local time, on March
23,1997, or at such other time and at such place in the Atlanta, Georgia
metropolitan area as may be mutually agreed upon in writing by Purchaser and
Seller. The effective date of the Closing (the "Closing Date") shall be that
local time when each Restaurant regularly opens for business in the morning
hours of March 24, 1997, after it has closed out business from March 23, 1997.
2.2 ITEMS TO BE DELIVERED AT CLOSING. At the Closing and subject to the
--------------------------------
terms and conditions herein contained:
(a) Subject to Section 2.3, Seller shall deliver to Purchaser
the following:
(i) such special warranty deeds (which shall include
Seller's standard restrictive covenants which generally prohibit the
use of the property for the operation of a fast food restaurant where
20% or more of annual gross sales are generated from bone-in fried
chicken except for a fast food restaurant operated under a franchise
agreement with Seller) and bills of sale with special warranty and
other instruments of conveyance and transfer, in form reasonably
satisfactory to Purchaser and its counsel, as shall be necessary and
effective to transfer and assign to, and vest in, Purchaser all of
Seller's right, title and interest in and to the Assets; and
---
(ii) such assignments (or subleases on forms substantially
similar to those forms used for the FPUR Leases, as defined in Section
9.3.2) of Leases (as defined in Section 3.1.21(c) and equipment leases
and such other instruments of transfer or assignment, or evidence of
consent as may be necessary to evidence or
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<PAGE>
perfect the transfer of the Assets, in each case free and clear of all
liens, security interests, claims, charges or encumbrances (except for
Permitted Liens);
and simultaneously with such delivery, all such steps will be taken as may be
required to put Purchaser in actual possession and operating control of the
Assets on the Closing Date.
(b) Purchaser shall deliver to Seller the following:
(i) the Closing Payment; and
(ii) an undertaking whereby Purchaser will assume and agree
to pay, discharge or perform, as appropriate, the Assumed Liabilities
in form reasonably satisfactory to Seller and its counsel; and
(c) Seller and Purchaser shall enter into the following
documents (the "Additional Documents"):
(i) the Franchise Agreements referred to in Section
1.3.2, together with the Re-Imaging Schedules (as defined in Section
5.2.8) to the Franchise Agreements;
(ii) the Development Agreement(s) referred to in Section
1.3.3;
(iii) the Warrant and the Right of First Refusal Agreement
(if any) referred to in Section 1.3.4(b);
(iv) the POS System Agreement referred to in Section 5.2.6;
(v) the FPUR Leases contemplated by Section 9.3.2;
(vi) the 401(k) Transfer Agreement referred to in Section
7.2; and
(vii) such other documents as are legally required,
necessary or customary and appropriate such as, by way of illustration
but not limitation, non-foreign certificates of Purchaser, seller's
affidavits of Seller, closing statements and similar documents.
(d) The parries hereto shall also deliver to each other the
agreements, opinions, certificates, documents, instruments and further
assurances referred to in Article 5 hereof.
2.3 THIRD PARTY CONSENTS. To the extent that Seller's rights under any
--------------------
agreement, contract, commitment, lease, Authorization or other Asset to be
assigned to Purchaser hereunder may not be assigned without the consent of
another person which has not been obtained, this Agreement shall not constitute
an agreement to assign the same if an attempted assignment would constitute a
breach thereof or be unlawful, and Seller, at its expense, shall use its best
efforts to obtain any such required consent(s) as promptly as possible;
provided, however, (i) Seller shall not be required to make
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an additional payment or incur any obligation to any third party (other than as
provided in Section 8.3 hereof) in order to obtain such consent, and (ii) Seller
shall not make any agreement or reach any understanding not approved in writing
by Purchaser as a condition for obtaining any such consent. If any such consent
shall not be obtained or if any attempted assignment would be ineffective or
would impair Purchaser's rights under the Asset in question so that Purchaser
would not in effect acquire the benefit of all such rights, Seller, to the
maximum extent permitted by law, shall act after the Closing as Purchaser's
agent in order to obtain for it the benefits thereunder and shall cooperate, to
the maximum extent permitted by law, with Purchaser in any other reasonable
arrangement designed to provide such benefits to Purchaser subject, in any such
case, to the provisos contained in the preceding sentence. To the extent the
assignment by Seller of Seller's interest in any Real Property (as defined in
Section 3.1.21) being leased by Seller requires the consent of Seller's landlord
which Seller has not obtained, Seller may sublease such Real Property to
Purchaser in a manner so as to achieve the intent and purpose of this Section
2.3 where such sublease transaction does not similarly require such a consent
which has not been obtained (any such landlord's consent referred to in this
sentence is referred to in this Agreement as a "Landlord's Consent").
2.4 FURTHER ASSURANCES AND COOPERATION POST-CLOSING. Seller and Purchaser
-----------------------------------------------
from time to time after the Closing (but without obligation separate from the
obligations expressly provided by this Agreement), will execute, acknowledge and
deliver to the other such instruments of conveyance and transfer and will take
such other actions and execute and deliver such other documents, certifications
and further assurances as either party, such party's counsel or Purchaser's
title insurance company may reasonably request with respect to the assignment,
transfer and delivery of the Assets, the obtaining of any consents that are a
condition precedent to the obligations of the parties (unless expressly waived
in writing by the other party) in order to close the transaction contemplated
herein, and the consummation in full of the transactions provided for herein.
2.5 BULK SALES LAW. Purchaser waives compliance with any applicable "bulk
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sales law" or similar law by Seller, and Seller shall indemnify and hold
Purchaser harmless against any liability under any such law and any losses
resulting from non-compliance therewith or Seller's application of the proceeds
of the transactions contemplated by this Agreement.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES
3.1 REPRESENTATIONS AND WARRANTIES OF THE SELLER. As used in this Article
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3, "Knowledge" of Seller shall be deemed to be the actual knowledge of the
individuals listed on Schedule 3.1 attached hereto, without inquiry. The term
------------
"Knowledge" shall be deemed to encompass those matters expressly contained in
any written communication addressed to and personally received by any one or
more of the individuals listed on Schedule 3.1 between December 1, 1996 and the
date of Closing. In addition, Seller and Purchaser acknowledge that in the
months preceding the execution of this Agreement, the Purchaser has had ongoing
contact with a number of Seller's employees that work in the Restaurants, or who
supervise one or more of the Restaurants. In connection therewith, many of these
individuals may have been contacted by the Purchaser and provided information to
the Purchaser which has not been provided to the Seller. Notwithstanding
anything to the contrary herein, to the extent such communications have provided
the Purchaser with actual knowledge of a matter that would render any of the
following representations and warranties of Seller incorrect, then to the extent
of such
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knowledge, the Purchaser shall be deemed to be informed, and Seller's failure to
account for such matters herein shall not be deemed a default hereunder, or a
breach of the following representations and warranties. The Seller hereby
represents and warrants to Purchaser, and covenants and agrees with Purchaser
that:
3.1.1 CORPORATE EXISTENCE. Seller is a corporation duly organized,
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validly existing and in good standing under the laws of the jurisdiction of its
incorporation. Seller is duly qualified to do business and is in good standing
as a foreign corporation in each jurisdiction where it is required to be so
qualified, except where the failure to be so qualified would not have a material
adverse effect on the conduct of the operation of the Restaurants by Purchaser
or the ownership of the Assets by Purchaser.
3.1.2 CORPORATE POWER; AUTHORIZATION; ENFORCEABLE OBLIGATIONS.
-------------------------------------------------------
Subject to Section 5.2.7, Seller has the corporate power, authority and legal
right to execute, deliver and perform this Agreement. Subject to Section 5.2.7,
the execution, delivery and performance of this Agreement by Seller has been
duly authorized by all necessary corporate action. This Agreement has been, and
the other agreements, documents and instruments required by this Agreement to be
delivered by Seller to which Seller is a party (the "Seller's Documents") will
be, duly executed and delivered on behalf of the Seller by duly authorized
officers of Seller, and this Agreement constitutes, and the Seller's Documents
when executed and delivered will constitute, the legal, valid and binding
obligations of the Seller, enforceable against the Seller in accordance with
their respective terms, subject to the effect of bankruptcy, insolvency,
reorganization, moratorium and similar laws relating to or affecting the rights
of creditors and general principles of equity.
3.1.3 NO INTEREST IN OTHER ENTITIES. No shares of any corporation or
-----------------------------
any ownership or other investment interest, either of record, beneficially or
equitably, in any association, partnership, joint venture or other legal entity
are included in the Assets.
3.1.4 VALIDITY OF CONTEMPLATED TRANSACTIONS, ETC. To Seller's
------------------------------------------
Knowledge, the execution, delivery and performance of this Agreement and any
other agreement contemplated herein by the Seller does not and will not violate
or result in the breach of any term, condition or provision of, or require the
consent of any other person under, (a) any existing law, ordinance, or
governmental rule or regulation to which the Seller is subject, (b) any
judgment, order, writ, injunction, decree or award of any court, arbitrator or
governmental or regulatory official, body or authority which is applicable to
the Seller, (c) the articles of incorporation and bylaws of the Seller, or (d)
except as set forth in Schedule 3.1.4, any written mortgage, indenture,
--------------
agreement, contract, commitment, lease, plan, Authorization (hereinafter defined
in Section 3.1.13), or other written instrument, document or understanding to
which the Seller is a party, by which the Seller may have rights or by which any
of the Assets may be bound or affected, or give any party with rights thereunder
the right to terminate, accelerate or otherwise change the existing rights or
obligations of Seller thereunder except to the extent that any such violation or
breach or failure to obtain such consent would not have a material adverse
effect on the Restaurants or Assets. To Seller's Knowledge, except as set forth
in Schedule 3.1.4, no authorization, approval or consent of, and no registration
--------------
or filing with, any court, receiver, referee, panel, committee or governmental
or regulatory official, body or authority is required in connection with the
execution, delivery or performance of this Agreement by Seller.
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3.1.5 NO THIRD PARTY OPTIONS. There are no existing agreements,
----------------------
options, commitments or rights with, of or to any person (other than Purchaser)
to acquire any of Seller's interests in any of the Assets (i.e., those interests
in Assets which under this Agreement are to be conveyed by Seller to Purchaser).
3.1.6 OPERATING STATEMENTS. Attached as Schedule 3.1.6 hereto are
-------------------- --------------
operating statements for each of the Restaurants for the thirteen (13) periods
ending December 29, 1996 (collectively, the "Operating Statements"). Such
Operating Statements are prepared in accordance with Seller's standard practices
for preparing such statements for restaurants operated by the Seller.
3.1.7 ABSENCE OF UNDISCLOSED LIABILITIES. To the Knowledge of Seller,
----------------------------------
there are no liabilities relating to the Restaurants that would materially,
adversely affect Purchaser's operation of the Restaurants other than the Assumed
Liabilities and the Excluded Liabilities.
3.1.8 TAX AND OTHER RETURNS AND REPORTS. To Seller's Knowledge: (i)
---------------------------------
all federal, state, local and foreign tax returns, statements and other similar
filings required to have been filed by Seller (the "Tax Returns") with respect
to any federal, state or local taxes, assessments, interest, penalties,
deficiencies, fees and other governmental charges (including, without
limitation, all income tax, unemployment compensation, social security, payroll,
sales and use, excise, privilege, property, ad valorem, franchise, license, and
any other tax or similar governmental charge under laws of the United States or
any state or municipal or political subdivision thereof) (the "Taxes") have been
(or if not yet due, will be) filed with the appropriate governmental agencies in
all jurisdictions in which such Tax Returns are required to be filed, and all
such Tax Returns properly reflect the liabilities of Seller for Taxes for the
periods, property or events covered thereby, except to the extent failure to
file or properly reflect liabilities would not have a materially adverse effect
on the Restaurants or Assets; (ii) all Taxes, including, without limitation,
those which are called for by the Tax Returns, or heretofore claimed to be due
by any taxing authority from Seller, have been properly accrued or paid except
to the extent that failure to pay or accrue such Taxes would not have a material
adverse effect on the Restaurants or Assets; (iii) except as set forth on
Schedule 3.1.8, Seller has not received any written notice of assessment or
--------------
proposed assessment and there are not pending tax examinations of or tax claims
asserted against the Seller with respect to the Restaurants or any of the
Assets; (iv) there are no valid tax liens (other than any lien for current taxes
not yet due and payable and Permitted Liens) on any of the Assets; and, (v)
there is no basis for any additional assessment of any Taxes with respect to the
Restaurants or Assets.
3.1.9 BOOKS OF ACCOUNT. The books, records and accounts of Seller
----------------
maintained with respect to the Restaurants accurately and fairly reflect, in
reasonable detail and in all respects material to the financial statements of
Seller, the transactions and the operations, assets and liabilities of Seller
with respect to the Restaurants, including, without limitation, employment
records.
3.1.10 EXISTING CONDITION. Except as otherwise set forth on Schedule
------------------ --------
3.1.10, since December 29, 1996 (the "Due Diligence Date") through the date
------
hereof, the Seller with respect to the operation of the Restaurants and Assets
has not, to Seller's Knowledge:
(a) incurred any liabilities, other than liabilities incurred
in the ordinary course of business consistent with past practice, or
discharged or satisfied any lien or encumbrance, or paid any liabilities,
other than in the ordinary course of business consistent
10
<PAGE>
with past practice, or failed to pay or discharge when due any liabilities
of which the failure to pay or discharge has caused or will cause any
material damage or risk of material loss to it or any of its assets or
properties;
(b) sold, encumbered, assigned or transferred any of the
Assets that would have been included in the Assets if the Closing had been
held on the Due Diligence Date or on any date since then other than in the
ordinary course of business and except for assets replaced with similar
assets or otherwise not material to the Restaurant where such asset was
located;
(c) mortgaged, pledged or subjected any of its Assets to any
mortgage, lien, pledge, security interest, conditional sales contract or
other encumbrance of any nature whatsoever which will survive Closing,
except for Permitted Liens or purchase money security interests;
(d) made or suffered any amendment or termination of any
material agreement, contract, commitment, lease or plan to which it is a
party or by which it is bound, or cancelled, modified or waived any
substantial debts or claims held by it or waived any rights of substantial
value, related directly to the Assets or the operation of the Restaurants,
whether or not in the ordinary course of business;
(e) suffered any damage, destruction or loss, whether or not
covered by insurance, materially and adversely affecting the operation of
the Restaurants or the Assets, or suffered any repeated, recurring or
prolonged shortage, cessation or interruption of supplies or utility or
other services required to operate the Restaurants;
(f) suffered any material adverse change (financial or
otherwise) affecting the operation of the Restaurants or the Assets;
(g) received written notice of any actual or threatened labor
dispute (including, without limitation, any charge, complaint or
investigation before any federal, state or municipal government entity)
that has had or might have a material adverse effect on operation of the
Restaurants or the Assets;
(h) made commitments or agreements for capital expenditures
relating directly to the Assets or the operation of the Restaurants and
exceeding Fifteen Thousand Dollars ($15,000.00) per Restaurant, except such
as may be involved in ordinary repair, maintenance or replacement of the
Assets; or
(i) otherwise entered into any material transaction with
respect to the Assets or operation of the Restaurants other than in the
ordinary course of business consistent with past practice.
3.1.11 TITLE TO PROPERTIES. To Seller's Knowledge, Seller has good,
-------------------
valid and marketable title to all of the Assets, free and clear of all
mortgages, liens, pledges, security interests, charges, claims, restrictions and
other encumbrances and defects of title of any nature whatsoever, except for (i)
liens for current real, personal or other property taxes not yet due and
payable, (ii) liens disclosed in Schedule 3.1.11, (iii) liens that are
------
immaterial in character, amount, and extent, and which
11
<PAGE>
do not materially affect the value, or do not materially interfere with the
present use, of the Assets, (iv) matters which would disclosed by a true and
accurate survey of the Assets which constitute real property or (v) liens that
will be satisfied or removed at Closing from the Closing Payment ("Permitted
Liens").
3.1.12 TANGIBLE ASSETS
---------------
(a) To Seller's Knowledge, Schedule 1.1.1(a) lists all major
-----------------
items of equipment, furniture and fixtures included in the Assets as of the
date specified therein.
(b) To Seller's Knowledge, all buildings, structures,
facilities, equipment and other material items of tangible property and
assets which would be included in the Assets if the Closing took place on
the date hereof are currently in operating condition and repair, subject to
normal wear and maintenance. No person other than Seller owns any of the
Assets, except for leased items of personal property disclosed in Schedule
--------
3,1,12, leased real property disclosed in Schedule 1.1.1 (b), and items
------- ------------------
which are immaterial to the Restaurants.
(c) Except for non-assignable governmental permits or
approvals required for the operation of the Restaurants by Purchaser, the
Assets (including, without limitation, the Contracts, the Leases, and the
equipment leases), together with the FPUR Leases, the POS System Agreement,
and the Franchise and Development Agreements, include all rights, property,
equipment, supplies, licenses, certificates, and other tangible and
intangible property necessary to operate the Restaurants as currently
conducted by Seller. Purchaser acknowledges that this provision does not
excuse any obligations of Purchaser set forth in the Franchise Agreements
or Development Agreements.
(d) The Assets have been physically maintained by Seller in
accordance with its standard business practices.
3.1.13 COMPLIANCE WITH LAW; AUTHORIZATIONS.
-----------------------------------
(a) To the Knowledge of Seller, (i) Seller has complied with,
and is not in violation of, any law, ordinance, or governmental or
regulatory rule or regulation, whether federal, state, local or foreign, to
which the Restaurants, or the Assets are subject ("Regulations"), except to
the extent that any noncompliance would not have a material adverse effect
on the operation of the Restaurants or the ownership and use of the Assets
by Purchaser; (ii) Seller owns, holds, possesses or lawfully uses in the
operation of the Restaurants all approvals, licenses, permits, easements,
rights, applications, filings, registrations, certificates of need,
accreditation and other authorizations "Authorizations") which are in any
manner necessary for it to operate the Restaurants, or for the ownership
and use of the Assets, in compliance with all Regulations except to the
extent that any failure to comply with such regulations or to hold any such
Authorization would not have a material adverse effect on the operation of
the Restaurants or the ownership and use of the Assets by Purchaser; (iii)
each Restaurant is in substantial compliance with all requirements and
standards of the applicable health department; and (iv) Seller is not in
material default with respect to any such Authorization.
12
<PAGE>
(b) To Seller's Knowledge, Seller has not, directly or
indirectly, paid or delivered or agreed to pay or deliver any fee,
commission or other sum of money or item of property, however
characterized, to any person, government official or other party which is
in any manner related to the operation of the Restaurants and which the
Seller knows or has reason to believe to have been illegal under any
federal, state or local law.
3.1.14 TRANSACTIONS WITH AFFILIATES. No shareholder, director, officer
----------------------------
or employee of the Seller, or any of their affiliates (a) has been a party to
any material contract with Seller with respect to the Restaurants or the Assets
in the last year or (b) owns any property or right, tangible or intangible, or
any interest therein, used in the operation of the Restaurants in the last year.
3.1.15 LITIGATION. To Seller's Knowledge, except as set forth on
----------
Schedule 3.1.15 (i) no litigation, including any arbitration, investigation
---------------
(including, without limitation, any investigation initiated by any of Seller's
current or former employees working at the Restaurants which is being conducted
by the Equal Employment Opportunity Commission or similar state or municipal
authority) or other proceeding of or before any court, arbitrator or
governmental or regulatory official, body or authority is pending or threatened
by written communication against the Seller which relates to the operation of
the Restaurants or the Assets, or the transactions contemplated by this
Agreement, the result of which could materially adversely affect the operation
of any particular Restaurant or the Assets, or the transactions contemplated
hereby; and (ii) Seller is not a party to or subject to the provisions of any
judgment, order, writ, injunction, decree or award of any court, arbitrator or
governmental or regulatory official, body or authority or any court supervision
or receivership which may materially adversely affect the operation of the
Restaurants or the Assets, or the transactions contemplated hereby. To Seller's
Knowledge, Schedule 3.1.15 discloses all pending claims, investigations,
---------------
charges, citations, hearings, consents, decrees or litigation before any court,
arbitrator or governmental or regulatory official, body or authority involving
Seller and which relate to the operation of the Restaurants or the Assets, or
the transactions contemplated by this Agreement, the result of which could
materially adversely affect the operation of any particular Restaurant or the
Assets or the transactions contemplated hereby, with respect to (A) wages,
compensation, bonuses, commissions or awards or payroll deductions; (B) equal
employment or human rights violations under any applicable equal employment laws
of any federal, state or municipal government entity prohibiting discrimination;
(C) representation petitions or unfair labor practices; (D) grievances or
arbitrations pursuant to current or expired collective bargaining agreements;
(E) occupational safety and health; (F) workers' compensation; (G) wrongful
termination, negligent hiring, invasion of privacy or defamation; or (H)
immigration.
3.1.16 INSURANCE. The Assets and the operation of the Restaurants by
---------
Seller are insured under various policies of general liability and other forms
of insurance, all of which are in full force and effect in accordance with
Seller's insurance program for substantially all of the Restaurants owned and
operated by Seller.
3.1.17 CONTRACTS AND COMMITMENTS. Except as set forth in Schedule
------------------------- --------
3.1.17, with respect to the Restaurants, and except as may be undertaken in
------
connection with the transactions contemplated by this Agreement, Seller is not,
to Seller's Knowledge, a party to any written:
13
<PAGE>
(a) agreement, contract or commitment with any present or
former employee or consultant or for the employment of any person,
including any consultant, who provides services in connection with the
operation of the Restaurants;
(b) agreement, contract or commitment for the future purchase
of, or payment for, supplies or products, or for the performance of
services by a third party, which supplies, products or services used in the
operation of the Restaurants that involves $1,000.00 per Restaurant per
month or more;
(c) agreement, contract or commitment relating to the
Restaurants continuing for a minimum, non-cancelable term with respect to
the Restaurants over a period of more than one (1) year;
(d) lease under which it is either lessor or lessee relating
to the Assets;
(e) note, debenture, bond, equipment trust agreement, letter
of credit agreement, loan agreement or other contract or commitment for the
borrowing or lending of money relating to the Restaurants or agreement or
arrangement for a line of credit or guarantee, pledge or undertaking of the
indebtedness of any other person relating to the Restaurants;
(f) agreement, contract or commitment for any charitable or
political contribution exclusively relating to the Restaurants;
(g) except as provided in Schedule 3.1.10, commitments or
---------------
agreements for any capital expenditure or leasehold improvement in excess
of Fifteen Thousand Dollars ($15,000.00) per Restaurant;
(h) no employee of Seller engaged in the operation of the
Restaurants is subject to any agreement, contract or commitment prohibiting
such employee's participation in the operation of the Restaurants; or
(i) except as disclosed herein, material agreement, contract
or commitment relating to the operation of the Restaurants not made in the
ordinary course of business.
To Seller's Knowledge, except as set forth in Schedule 3.1.17, no item
---------------
listed therein requires the consent of any party in connection with the
transactions contemplated hereby, and no default exists under such items that
would have a material adverse effect on the operation of the Restaurants or the
Assets.
3.1.18 ADDITIONAL INFORMATION. Schedule 3.1.18 contains accurate lists
---------------------- ---------------
and summary descriptions of the following:
(a) the names and titles of and annual base salary or hourly
rates (as of the dates set forth in such Schedules) for all managerial
employees of Seller engaged exclusively in the operation of the
Restaurants, together with a statement of the full amount and nature of any
other remuneration, whether in cash or kind, paid to each such person
during the past or
14
<PAGE>
current fiscal year or payable to each such person in the future and the
bonuses accrued for, the vacation, sick leave, commissions, retirement,
pension and severance benefits to which, each such person is entitled; and
(b) all names under which Seller has operated the Restaurants
in the past five years.
3.1.19 LABOR MATTERS. To Seller's Knowledge, Seller has not suffered
-------------
any strike, slowdown, picketing or work stoppage by any union or other group of
employees. As to the operation of the Restaurants, Seller is not a party to any
agreement, collective bargaining or otherwise, with any party regarding the
rates of pay or working conditions of any of Seller's employees nor is Seller
obligated under any agreement to recognize or bargain with any labor
organization or union. To Seller's Knowledge, no representation campaign or
election is now in progress with respect to any of the employees of the Seller.
3.1.20 EMPLOYEE BENEFIT MATTERS.
-------------------------
(a) Except as disclosed on Schedule 3.1.20, to Seller's
---------------
Knowledge, Seller has no employment contracts, severance contracts or other
contracts (whether oral or written) relating to the employment or
compensation of any person or entity employed exclusively in the operation
of the Restaurants, nor does Seller maintain, contribute to or have any
liability with respect to any "employee benefit plan" (within the meaning
of Section 3(3) of ERISA) or any other pension, profit sharing, retirement,
severance, bonus, stock option, deferred compensation, disability or other
employee benefit or welfare plans, agreements, arrangements or commitments
(collectively, "Employee Plans") for or with any of its present employees
who are employed in the operation of the Restaurants which will be assumed
by Purchaser.
(b) Each group health plan (within the meaning of either
Section 5000(b)(1) of the Internal Revenue Cede, as amended (the "Code")
or Section 607(1) of ERISA) maintained or contributed to, currently or in
the past, by Seller is and at all ftmes in all material respects has been
operated in compliance with the continuation coverage requirements of Part
6, Subtitle B of Title I of ERISA and Section 4980B of the Code.
(c) Except as disclosed on Schedule 3.1.20, Seller does not
---------------
maintain and has never maintained an "employee benefit pension plan",
within the meaning of ERISA Section 3(2), that is or was subject to Title
IV of ERISA.
(d) Except as disclosed on Schedule 3.1.20, Seller does not
---------------
have and has not ever had any past, present or future obligation or
liability to contribute to any "multiemployer plan", as defined in ERISA
Section 3(37).
For purposes of this Section 3.1.20, the term "Seller" shall be deemed to
include any other corporation, trade, business or other entity, other than
Seller, that, together with Seller, now or in the past, would constitute a
"single employer" within the meaning of Section 414 of the Code.
15
<PAGE>
3.1.21 REAL PROPERTY.
-------------
(a) Real Property Defined. All real property and improvements
---------------------
included in the Assets are listed on Schedule 1.1.1(b) (the "Real
-----------------
Property").
(b) Title to Owned Real Property. With respect to the Real
----------------------------
Property that is identified on Schedule 1.1.1(b) as being owned by Seller,
-----------------
title to such Real Property is, and at Closing shall be, good and
marketable, fee simple absolute, free and clear of all liens, adverse
claims and other matters affecting Seller's title to or possession of such
Real Property, excepting only such easements, restrictions and covenants
presently of record which have not materially interfered with or impaired
Seller's use of any of the Real Property as restaurants, and the Permitted
Liens. At Closing, title to the Real Property owned by Seller shall be
insurable by a national title insurance company, free of all exceptions
except as described in this subpart (b) and standard, pre-printed title
insurance exceptions, at no more than standard title insurance premium
rates for the local area in which each Restaurant is located.
(c) Leased Real Property. With respect to the Real Property
--------------------
that is identified on Schedule 1.1.l(b) as being leased by Seller, to
----------------
Seller' s Knowledge:
(i) Seller has provided to Purchaser or its contractors
a true and complete copy of every lease and sublease to which the
Seller is tenant or subtenant (the "Leases"), and shall list each
Lease on Schedule 3.1.21(c);
------------------
(ii) To Seller's Knowledge, each Lease is, and at Closing
shall be, in full force and effect and has not been assigned,
modified, supplemented or amended except as listed on Schedule
--------
3.1.21(c), and neither the Seller nor any of the landlords or
---------
sublandlords under any Lease is in default under any of the Leases,
and no circumstances or state of facts presently exists which, with
the giving of notice or passage of time, or both, would permit any
landlord or sublandlord under any Lease to terminate any Lease; and
(iii) Seller has not subleased any of the Real Property to
any other person or entity.
(d) Zoning. To Seller's Knowledge, the Real Property is in
------
compliance in all material respects with all applicable zoning and other
land use requirements.
(e) Utility Services. The water, electric, gas and sewer
----------------
utility services and the septic tank and storm drainage facilities
currently available to the Real Property are adequate for Seller to
operate the Restaurants, are being supplied to Seller by utility companies
or municipalities, and to Seller's Knowledge there is no current condition
which will give rise to a valid right to terminate the present access from
the Real Property to such utility services and other facilities.
(f) Access. Except for the Permitted Liens, there are no
------
restrictions on entrance to or exit from the Real Property to adjacent
public streets and to Seller's Knowledge
16
<PAGE>
no current conditions exist which will give rise to a valid right to
terminate the present access from the Real Property to existing highways
and roads.
(g) Eminent Domain. To Seller's Knowledge, except as set forth
--------------
on Schedule 3.1.21(g), it has not received any written notices, nor has
------------------
Seller any reason to believe, that any governmental body having the power
of eminent domain over the Real Property has commenced or intends to
exercise the power of eminent domain or a similar power with respect to all
or any part of the Real Property. If between the date of this Agreement and
Closing the Real Property or any portion thereof or interest therein shall
be taken or condemned as a result of the exercise of the power of eminent
domain, or if a governmental body having the power of eminent domain
informs Seller or the Purchaser that it intends to take or condemn all or
part of the Real Property then Seller may assign to Purchaser the sole
right, in the name of the Seller, to negotiate for, claim, contest and, if
the Closing occurs, receive all damages on account thereof, in which event
(i) Seller shall be relieved of its obligation to convey to the Purchaser
the Real Property taken or condemned, (ii) at Closing Seller shall assign
to the Purchaser all of Seller's rights to all damages payable for such
taking or injury of the Real Property and shall pay to the Purchaser all
damages theretofore paid to Seller by reason thereof, (iii) following
Closing, Seller shall give the Purchaser such further assurances of such
rights and assignment as the Purchaser may from time to time reasonably
request, and (iv) Seller shall not be in breach of this Subpart (g) and
Purchaser shall not be excused from the performance of its obligations
under this Agreement by reason of this subpart (g).
(h) Flood Plain. To Seller 's Knowledge, no material part of
-----------
the Real Property is located within a 100 year flood plain.
(i) Governments. To Seller's Knowledge, no material work for
-----------
municipal improvements has been commenced on or in connection with any
parcel of Real Property or any street adjacent thereto and no such
improvements are contemplated; no material assessment for public
improvements has been made against the sites covered by the Leases which
remains unpaid; and no notice from any county, township, or other
governmental body has been served upon the Real Property or received by
Seller, requiring or calling attention to the need for any material work,
repair, construction, alteration, or installation on or in connection with
the Real Property which has not been substantially complied with.
(j) Improvements. Each parcel of Real Property constituting a
------------
separate Restaurant site included in the Assets has a one-story Churchs
Restaurant located thereon, and to Seller's Knowledge no such parcel is
affected by encroachments of buildings or improvements from adjoining
properties which materially adversely affects the current use of such
parcel.
3.1.22 AVAILABILITY OF DOCUMENTS. Seller has made available to
-------------------------
Purchaser and its contractors its legal files and certain other documents and
materials, all of which Seller has kept in the ordinary course of business.
17
<PAGE>
3.1.23 CONDITIONS AFFECTING SELLER. Seller has used its commercially
---------------------------
reasonable best efforts to keep available to Purchaser the services of the
employees, agents, customers and suppliers of Seller active in the operation of
the Restaurants.
3.2 REPRESENTATIONS AND WARRANTIES OF PURCHASE. Purchaser represents and
------------------------------------------
warrants to Seller, and covenants and agrees with Seller, as follows:
3.2.1 CORPORATE EXISTENCE. Purchaser is a limited liability company
-------------------
duly organized, validly existing and in good standing under the laws of the
State of Delaware. Purchaser is duly qualified to do business and as of the
Closing will be in good standing in each jurisdiction where the conduct of its
business requires it to be so qualified. Prior to Closing, Purchaser shall
deliver to Seller a final draft of its operating agreement (the "Operating
Agreement"), complete in all respects, for Seller's review, and the parties
agree to make such modifications to said operating agreement to make it comply
with the provisions of the Warrants. Attached as Schedule 3.2.1 is a list of all
--------------
members and managers of Purchaser, setting forth each member's ownership
interest therein, and role thereunder. Purchaser, together with its manager and
its manager's affiliates (other than C.V.B., L.L.C.), (i) does not have assets
of $10,000,000 or more, and (ii) has not had annual sales of $10,000,000 or
more.
3.2.2 CORPORATE POWER; AUTHORIZATION; ENFORCEABLE OBLIGATIONS.
-------------------------------------------------------
Purchaser has the power, authority and legal right to execute, deliver and
perform this Agreement. The execution, delivery and performance of this
Agreement by Purchaser has been duly authorized by all necessary action. This
Agreement has been, and the other agreements, documents and instruments required
to be delivered by Purchaser to which Purchaser is a party (the "Purchaser's
Documents") will be, duly executed and delivered on behalf of Purchaser by duly
authorized officers of Purchaser, and this Agreement constitutes, and the
Purchaser's Documents when executed and delivered will constitute, the legal,
valid and binding obligations of Purchaser, enforceable against Purchaser in
accordance with their respective terms, subject to the effect of bankruptcy,
insolvency, reorganization, moratorium and similar laws relating to or affecting
the rights of creditors and general principles of equity.
3.2.3 VALIDITY OF CONTEMPLATED TRANSACTIONS, ETC. The execution,
------------------------------------------
delivery and performance of this Agreement by Purchaser does not and will not
violate, conflict with or result in the breach of any term, condition or
provision of, or require the consent of any other person under, (a) any existing
law, ordinance, or governmental rule or regulation to which Purchaser is
subject, (b) any judgment, order, writ, injunction, decree or award of any
court, arbitrator or governmental or regulatory official, body or authority
which is applicable to Purchaser, (c) the Operating Agreement of Purchaser, or
(d) any material mortgage, indenture, agreement, contract, commitment, lease,
plan, authorization, or other instrument, document or understanding, oral or
written, to which Purchaser is a party. Except as set forth in Schedule 3.2.3,
--------------
no authorization, approval or consent of, and no registration or filing with,
any governmental or regulatory official, body or authority is required in
connection with the execution, delivery or performance of this Agreement by
Purchaser.
3.2.4 WARRANTS. The interests in Purchaser which shall be subject to
--------
the Warrants have been and shall have been at the Closing duly and validly
authorized.
3.2.5 NO PRIOR BUSINESS: FINANCIAL STATEMENTS. Purchaser has not
---------------------------------------
conducted any business operation prior to the Closing Date other than activity
to prepare for the within transactions. The balance sheet and other financial
statements of Purchaser included on Schedule 3.2.5 accurately
--------------
18
<PAGE>
set forth in all material respects the financial condition and the results of
operations of Purchaser as of the date and for the period set forth therein
(which date shall be not more than 30 days prior to the Closing Date). No
payment or other distribution has been made by Purchaser to any of its equity
owners or affiliates, and no third party has made any payment to Purchaser or
any of Purchaser's equity owners or affiliates in connection with the
transactions contemplated by this Agreement, except as disclosed on Schedule
--------
3.2.5.
-----
3.2.6 ACTIONS PENDING. Except as set forth in Schedule 3.2.6 hereto,
--------------- --------------
there is no action, suit, investigation, proceeding or claim pending or, to the
best knowledge of Purchaser, threatened against or affecting (a) Purchaser or
any of its subsidiaries, (b) their respective properties or rights, (c) any
assets or business divested by Purchaser as to which Purchaser or any subsidiary
may have contingent liabilities, or (d) to the best knowledge of Purchaser, any
member, manager, director, officer, employee or agent of Purchaser, before any
court or by or before any governmental body or arbitration board or tribunal
(including, without limitation, claims made in respect of employment contracts
of such director, officer, employee or agent with third parties and improper
disclosure or use of trade secrets or proprietary information of third parties
by such affiliated persons), either alone or together with other similar
actions, the outcome of which might result in a material adverse effect on the
financial condition, operating results or business of Purchaser and its
subsidiaries taken as a whole.
3.2.7 COMPLIANCE WITH LAWS. Purchaser is not in default in any
--------------------
material respect under any order of any court, governmental authority or
arbitration board or tribunal or, to the best knowledge of Purchaser, under any
laws, ordinances, governmental rules or regulations to which Purchaser is
subject. Purchaser has not failed to obtain any licenses, permits, franchises or
other governmental authorizations necessary to the ownership of its properties
or to the conduct of its business, except where the failure to obtain such
license, permit, franchise or other governmental authorization would not result
in a material adverse effect on the financial condition, operating results or
business of Purchaser, taken as a whole.
3.3 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations and
------------------------------------------
warranties made by the parties in Sections 3.1.1, 3.1.2, 3.1.3, 3.1.4, 3.1.5,
3.1.13, 3.1.14, 3.1.15, 3.1.16, 3.1.19, 3.1.20 and in Section 3.2, of this
Agreement shall survive the Closing for a period of one year, and all other
representations and warranties contained in this Section 3 shall terminate at
Closing. Except as detailed in the Section 3.1 preamble, and notwithstanding any
investigation or audit conducted before or after the Closing Date or the
decision of any party to complete the Closing, each party shall be entitled to
rely upon the representations and warranties set forth herein, as such
representations and warranties may be updated or modified at or before the
Closing, except to the extent that such party shall have knowledge of any
inaccuracy of such representation and warranty at or before the Closing.
19
<PAGE>
ARTICLE 4
AGREEMENTS PENDING CLOSING
4.1 AGREEMENTS OF SELLER PENDING THE CLOSING. For purposes of this
----------------------------------------
Section 4.1, the term "commercially reasonable efforts" shall mean those
practices normally employed by Seller in the ordinary and usual course of
Seller's business and shall not require Seller to incur any extraordinary
expenses (for which purposes expenses of over $25,000 in the aggregate shall be
deemed extraordinary) nor incur any obligation to any third party which is not
entirely ordinary and customary to the conduct of Seller's business in the
usual course. Seller covenants and agrees that, pending the Closing and except
as otherwise agreed to in writing by Purchaser:
4.1.1 BUSINESS IN THE ORDINARY COURSE. Seller shall use commercially
-------------------------------
reasonable efforts to operate the Restaurants solely in the ordinary course
consistent with Seller's past practice.
4.1.2 EXISTING CONDITION. Seller shall use its commercially
------------------
reasonable efforts to not cause nor permit to occur any of the events or
occurrences described in Section 3.1.10 hereto.
4.1.3 MAINTENANCE OF PHYSICAL ASSETS. Seller shall use its
------------------------------
commercially reasonable efforts to continue to maintain and service the physical
assets used in the operation of the Restaurants which comprise the Assets in the
same manner and frequency as has been its consistent past practice at Churchs'
Restaurants that Seller owns and operates.
4.1.4 EMPLOYEES AND BUSINESS RELATIONS. Seller shall use its
--------------------------------
commercially reasonable efforts to keep available the services of the present
employees and agents of the Restaurants and to maintain the relations and
goodwill with suppliers and any others having business relations with the
Restaurants.
4.1.5 MAINTENANCE OF INSURANCE. Seller shall promptly notify
------------------------
Purchaser of any material changes in the terms of the insurance policies and
binders referred to in Section 3.1.16.
4.1.6 MAINTENANCE OF AUTHORIZATIONS. Seller shall use its
-----------------------------
commercially reasonable efforts to maintain in full force and effect all
material Authorizations currently in effect used in the operation of the
Restaurants.
4.1.7 COMPLIANCE WITH LAWS, ETC. Seller shall use its commercially
-------------------------
reasonable efforts to not breach Section 3.1.13 pending Closing.
4.1.8 UPDATE SCHEDULES. Seller shall promptly disclose to Purchaser
----------------
any material information provided to Purchaser if, to Seller's Knowledge, it
becomes incomplete or no longer correct in all material respects after the date
hereof until the Closing, except to the extent Seller would violate any court
order to maintain in confidence any claim or investigation initiated by any of
Seller's employees described in Section 3.1.15. Notwithstanding anything to the
contrary herein, this Agreement may be executed with one or more of the
schedules either incomplete or to be attached. The parties agree to cooperate in
completing or attaching these schedules, so that they will be complete
20
<PAGE>
at or before Closing. Notwithstanding anything to the contrary herein, no
liability of any kind shall attach to either party with respect to schedules
that are not attached, or are incomplete, as of the date hereof, so long as the
parties use reasonable efforts to provide complete and accurate schedules by the
Closing, or at such earlier time as is required hereunder.
4.1.9 CONDUCT OF BUSINESS. Seller shall use its commercially
-------------------
reasonable efforts to conduct its business in such a manner that on the Closing
Date the representations and warranties of Seller contained in this Agreement
shall be substantially true and correct in all material respects as though such
representations and warranties were made on and as of such date. Furthermore,
the Seller shall cooperate with Purchaser and use its commercially reasonable
efforts to cause all of the conditions to the obligations of Purchaser and
Seller under this Agreement to be satisfied on or prior to the Closing Date.
4.1.10 CONSENTS AND APPROVALS. Seller shall use its efforts, as set
----------------------
forth in Section 2.3, to obtain those consents and approvals listed on Schedule
--------
5.1.5.
-----
4.1.11 SALE OF ASSETS; NEGOTIATIONS. Seller agrees to deal
----------------------------
exclusively with Purchaser with respect to the sale of the Restaurants and the
Assets unless and until this Agreement terminates or is terminated by the
parties.
4.1.12 ACCESS. Seller shall give to Purchaser's officers, employees,
------
counsel, accountants, consultants and other representatives full access to and
the right to inspect, during normal business hours, all of the premises,
properties, assets, records, contracts and other documents relating to the
Restaurants and the Assets including, without limitation, information regarding
employees, and shall permit them to consult with the officers, employees,
accountants, counsel, consultants and agents of Seller for the purpose of making
such investigation of the Restaurants as Purchaser shall desire to make,
provided, however, that such investigation shall be reasonably related to the
Assets and the Restaurants to be acquired hereunder, shall not unreasonably
interfere with Seller's business operations and shall be coordinated
exclusively through the following individuals: Bob Thomason, Hala Moddelmog,
Carl Jakaitis, Mike Cortino, John Holly and Bill Mathieu. Furthermore, Seller,
for Purchaser, its lenders, and their agents, shall furnish, or make available
at its corporate office, all such documents and copies of documents and records
and information with respect to the affairs of the Restaurants and Real Property
and copies of any working papers relating thereto as Purchaser shall from time
to time reasonably request and shall permit Purchaser and its agent to make such
physical inventories and inspections of the Assets as Purchaser may reasonably
request from time to time. Purchaser agrees to indemnify and hold harmless
Seller from and against any and all claims, damage or loss to persons or
property whatsoever arising as a result of any interview, research, study,
survey, testing, or any other form of investigation (collectively, the
"Investigations") physically conducted at or on the Real Property, or on other
premises owned and/or operated by Seller, by or on behalf of Purchaser.
Purchaser further agrees not to permit any liens or claims of lien to attach to
the Real Property or the Assets as a result of any such Investigations.
Notwithstanding the foregoing, Purchaser shall have no liability under this
indemnity arising by the simple discovery by it, or its agents, of a condition
unfavorable to Seller, including, without limitation, the discovery of an
environmental condition on one of the Real Properties that could result in
liability to Seller. Notwithstanding the foregoing or anything to the contrary
herein, Purchaser shall perform no invasive or destructive testing of the
Assets, including, without
21
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limitation, the Real Property, without the prior written consent of the Seller,
which consent shall be given or withheld in Seller's sole discretion.
4.1.13 PERSONNEL LIST. Prior to Closing, Seller shall provide
--------------
Purchaser with a true and complete list of all employees of the Restaurants
(including, without limitation, all full-time, part-time and temporary employees
and any employee on a leave of absence or subject to recall after a layoff),
their salaries or wage rates, their location of employment and their status
(i.e., active, inactive, etc.), with such list reflecting such information as
---- ---
of a date no less current than the four-week standard accounting period
immediately preceding the four-week standard accounting period within which the
Closing occurs. Purchaser shall keep such information confidential, in
accordance with such practices and standards as would be applicable if such
employees were employees of Purchaser.
4.1.14 EMPLOYEE MATTERS. Seller shall be solely responsible for all
----------------
wages, salaries, bonuses and other direct and indirect compensation and benefits
earned by employees employed by the Restaurants through the Closing Date.
4.2 AGREEMENTS OF PURCHASER PENDING THE CLOSING. Purchaser covenants and
-------------------------------------------
agrees that, pending the Closing and except as otherwise agreed to in writing by
Seller:
4.2.1 CONSENTS AND APPROVALS. Purchaser shall obtain all approvals
----------------------
necessary for the due authorization by Purchaser of all matters contemplated by
this Agreement. Purchaser shall cooperate with Seller as may be reasonably
requested to obtain all consents and approvals required to effect Closing, and
shall use its best efforts to make all filings and registrations necessary or
required for the consummation of the transactions contemplated hereby.
4.2.2 INSURANCE. As of the Closing Date, Purchaser shall have
---------
obtained such insurance for the Assets and the operation by Purchaser of the
Restaurants under various policies of general liability and other forms of
insurance as Purchaser deems necessary for the operation of the Restaurants and
as required by the Purchaser's lender and the Franchise Agreements.
4.2.3 CONTACT WITH SELLER'S EMPLOYEES. From the date hereof until
-------------------------------
the Closing Date, neither Purchaser, nor anyone in connection with Purchaser,
shall have any contact with any of Seller's employees working in connection
with the operation of the Restaurants without the prior, express approval of one
of the persons listed in Section 4.1.12. Purchaser agrees not to request that
any repairs, maintenance, alteration or modification of the Restaurants or the
Assets be undertaken by any of Seller's employees prior to the Closing Date,
whether at Seller's expense, or at Purchaser's expense, except as may be
approved by prior, written consent by Bob Thomason, AFC's Vice President of
Assets Management.
4.3 PRESS RELEASE. Each of Seller and Purchaser covenants and agrees that,
-------------
except as required by applicable law, neither Seller nor Purchaser will give
notice to third parties or otherwise make any public statement or releases
concerning this Agreement or the transactions contemplated hereby except for
such written information as shall have been approved in writing as to form and
content by the other parties hereto, which approval shall not be reasonably
withheld.
22
<PAGE>
ARTICLE 5
CONDITIONS PRECEDENT TO THE CLOSING
5.1 CONDITIONS PRECEDENT TO PURCHASER'S OBLIGATIONS. All obligations of
-----------------------------------------------
Purchaser under this Agreement are subject to the fulfillment or satisfaction,
prior to or at the Closing, of each of the following conditions precedent:
5.1.1 REPRESENTATIONS AND WARRANTIES TRUE AS OF THE CLOSING. The
------------------------------------------------------
representations and warranties of Seller contained in this Agreement or in any
schedule, certificate or document delivered by Seller to Purchaser pursuant to
the provisions hereof shall have been true on the date hereof in all material
respects, and shall be true in all material respects as of the Closing as if
made at the Closing.
5.1.2 COMPLIANCE WITH THIS AGREEEMENT. Seller shall have performed
-------------------------------
and complied in all material respects with all agreements and conditions
required by this Agreement to be performed or complied with by it prior to or at
the Closing.
5.1.3 OPINIONS OF COUNSEL FOR SELLER. Seller's in-house counsel shall
------------------------------
have delivered to Purchaser a written opinion, dated the date of Closing, in
form and substance reasonably satisfactory to the Purchaser's counsel, but
subject to customary assumptions and qualifications, to the effect that:
(a) Seller is duly incorporated, validly existing and in good
standing of the laws of the State of Minnesota. Seller is duly authorized
to conduct business and is in good standing under the laws of the states in
which any of the Restaurants are located.
(b) Seller has the requisite corporate power to carry on its
business as it is now being conducted and to perform its obligations under
the Agreement and the Seller's Documents.
(c) The execution and delivery by Seller of this Agreement and
the other Seller's Documents do not, and if Seller were now to perform its
obligations under this Agreement and such other Seller's Documents, such
performance would not result in any (i) violation of the Seller's articles
of incorporation or bylaws, (ii) violation of any existing federal or state
constitution, statute, regulation, rule, order or law to which Seller or
the Assets are subject (except the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended, concerning which Purchaser shall rely exclusively
on the opinion of its counsel), (iii) breach of or default under any
material written agreements to which, to such counsel's knowledge, Seller
is a party or which, to such counsel's knowledge, Seller or the Assets are
bound, or (iv) violation of any judicial or administrative decree, writ,
judgment or order to which, to such counsel's knowledge, Seller or the
Assets are subject.
(d) To such counsel's knowledge, no legal action or
proceeding against Seller is pending or overly threatened by written
communication which, if successful, would prohibit the consummation or
require rescission of the transactions contemplated by the Agreement.
23
<PAGE>
(e) The Agreement and the other Seller's Documents have been
duly executed and delivered by Seller and they constitute the legal, valid
and binding obligation of Seller, enforceable against Seller in accordance
with their respective terms.
5.1.4 NO THREATENED OR PENDING LITIGATION. As of the Closing, no
-----------------------------------
suit, action or other proceeding, or injunction or final judgment relating
thereto, shall be threatened or be pending before any court or governmental or
regulatory official, body or authority in which it is sought to restrain or
prohibit or to obtain damages or other relief in connection with this Agreement
or the consummation of the transactions contemplated hereby, and no
investigation that might result in any such suit, action or proceeding shall be
pending or threatened.
5.1.5 CONSENTS AND APPROVALS. Each consent or approval listed on
----------------------
Schedule 5.1.5 required or necessary under contract or applicable law for the
--------------
consummation of the transactions contemplated hereby shall have been obtained;
provided, however, that those certain consents or approvals identified on
Schedule 5.1.5 as being subject to deferral ("Deferrable Consents") need not
--------------
have been obtained on or before the Closing, to the extent that Seller shall
have made appropriate arrangements to secure to Purchaser the practical and
economic benefits of the agreements, licenses, Authorizations or other
arrangements to which such consents or approvals relate. To the extent any
Landlord's Consent shall not have been obtained on or before the Closing, Seller
and Purchaser agree that they shall work together in good faith, subject to the
similar cooperation and commitment of Purchaser's lender, to consummate the
transactions contemplated by this Agreement, on terms satisfactory to Purchaser
and Seller in the respective exercise of their sole discretion, as to (i) the
balance of the Assets not affected by such Landlord's Consents at the Closing
and (ii) the Assets affected by such Landlord's Consent, within 6 months
thereafter.
5.1.6 CLOSING DOCUMENTS. The documents to be delivered by Seller at
-----------------
Closing pursuant to Section 2.2 (including, without limitation, the Additional
Documents) shall have been executed and delivered.
5.1.7 CLOSING CERTIFICATES. Purchaser shall have received a
--------------------
certificate from Seller dated the date of Closing certifying in such detail as
Purchaser may reasonably request that the conditions specified in Sections 5.1.1
and 5.1.2 hereof have been fulfilled.
5.2 CONDITIONS PRECEDENT TO THE OBLIGATIONS OF SELLER. All obligations of
-------------------------------------------------
Seller under this Agreement are subject to the fulfillment or satisfaction,
prior to or at the Closing, of each of the following conditions precedent:
5.2.1 REPRESENTATIONS AND WARRANTIES TRUE AS OF THE CLOSING DATE. The
----------------------------------------------------------
representations and warranties of Purchaser contained in this Agreement or in
any list, certificate or documents delivered by Purchaser to Seller pursuant to
the provisions hereof shall have been true on the date hereof in all material
respects, and shall be true in all material respects as of the Closing as if
made at the Closing.
5.2.2 COMPLIANCE WITH THIS AGREEMENT. Purchaser shall have performed
------------------------------
and complied in all material respects with all agreements and conditions
required by this Agreement to be performed or complied with by it prior to or at
the Closing.
24
<PAGE>
5.2.3 ACQUISITION AND OPERATIONS PLAN. Purchaser shall have completed
-------------------------------
and delivered to Seller prior to Closing its acquisition and operations plan
addressing its company organizational matters, including its business structure,
personnel policies, compensation and benefits, store level hiring practices,
business transition, management accounting and operational system, operational
procedures, facilities coordination, marketing and promotion, finance and
accounting policies; and the urban economic development aspects of Purchaser's
acquisition program. Seller shall either approve or disapprove of such plan
within three business days following Seller's receipt of such plan from
Purchaser. If Seller's disapproves such plan, Purchaser may (but need not)
revise same in any manner requested by Seller; otherwise Seller may, at Seller's
option, terminate this Agreement.
5.2.4 PURCHASER'S CAPITAL STRUCTURE. Purchaser shall have provided to
-----------------------------
Seller copies of its organizational documents (including, without limitation,
its limited liability company operating agreement), which shall be reasonably
satisfactory to Seller and its counsel, in accordance with this Section 5.2.4
and Section 3.2.1. Purchaser shall demonstrate to Seller that Purchaser's
existing equity and debt financing provide to Purchaser, after payment by
Purchaser of all its obligations accrued through the Closing Date, working
capital of not less than $750,000 in addition to the financing contemplated by
Section 5.2.8. Prior to Closing, Purchaser shall deliver to Seller a balance
sheet of Purchaser setting forth on a pro forma basis the assets and liabilities
of Purchaser as of the Closing Date, which Seller shall either approve or
disapprove within three business days following Seller's receipt thereof. If
Seller disapproves such pro forma balance sheet, Purchaser may (but need not)
revise same in any manner requested by Seller; otherwise Seller may, at Seller's
option, terminate this Agreement. Purchaser's financial condition at the
Closing and as of the Closing Date shall be no less favorable than as set forth
in such pro forma balance sheet as approved by Seller or revised by Purchaser to
incorporate Seller's requests.
5.2.5 RE-IMAGING SCHEDULES. Purchaser shall have entered into the
--------------------
Re-Imaging Schedules to the Franchise Agreements with Seller, containing
provisions mutually satisfactory to the parties and providing that Purchaser
shall renovate, in conformance with Seller's designs attached hereto as Exhibit
-------
"E" and made a part hereof, fifty (50) of the Restaurants within eighteen (18)
---
months after the Closing Date, and fifty (50) Restaurants within twelve (12)
months following the eighteen (18) month period, as detailed exactly in the
Franchise and Development Agreements (the "Re-Imaging Schedules").
Notwithstanding anything to the contrary herein, or in the Franchise Agreements,
or the Development Agreements, or Seller's operating manuals and documents with
respect to franchisee operations of Churchs Restaurants, Seller understands and
agrees that some of the Restaurants may have maintenance or image problems that
cause the Restaurants not to conform with applicable standards for Churchs
franchisees as of the Closing Date. So long as Purchaser is not in default
otherwise under this Agreement, or under any of the documents or instruments
delivered pursuant to the transactions contemplated by this Agreement, and so
long as Purchaser makes diligent efforts to correct such situations, Seller
agrees not to default Purchaser under this Agreement, or under any of the
documents or instruments delivered pursuant to the transactions contemplated by
this Agreement, solely because of a condition at the Restaurants that existed
prior to the Closing Date that does not comply with Seller's current standards
for franchisee restaurants.
5.2.6 POS SYSTEM. Purchaser shall have entered into the POS System
----------
Agreement with Seller in the form attached hereto as Exhibit "F" (the "POS
-----------
System Agreement") obligating Purchaser to pay for POS and accounting services
provided by Seller or its contractors pending
25
<PAGE>
installation of a new POS System, and to acquire a POS System approved by Seller
for the Restaurants (the "POS System") and complete the installation of such POS
System within two years from the Closing Date, complete with such hardware and
software as may be required for such POS System to be linked up to and online
with Seller's information technology system, with appropriate protection for
Purchaser's confidential information.
5.2.7 CONSENTS AND APPROVALS. Each consent or approval necessary or
----------------------
required to be obtained by Purchaser or Seller (including, without limitation,
the approval required of Seller's Board of Directors) for the consummation of
the transactions contemplated hereby shall have been obtained. To the extent any
Landlord's Consent shall not have been obtained on or before the Closing, Seller
and Purchaser agree that they shall work together in good faith, subject to the
similar cooperation and commitment of Purchaser's lender, to consummate the
transactions contemplated by this Agreement, on terms satisfactory to Purchaser
and Seller in the respective exercise of their sole discretion, as to (i) the
balance of the Assets not affected by such Landlord's Consents at the Closing
and (ii) the Assets affected by such Landlord's Consent, within 6 months
thereafter.
5.2.8 LOAN COMMITMENTS. Purchaser shall produce at the Closing the
----------------
following binding loan commitments to Purchaser or otherwise demonstrate to
Seller an assured source of funding as follows:
(a) SIX MILLION DOLLARS ($6,000,000.00) for Purchaser to meet
its re-imaging commitment to Seller under the Re-Imaging Schedule; and
(b) TWO MILLION DOLLARS ($2,000,000.00) for Purchaser to meet
its obligations under Section 5.2.6 to purchase and install the POS System
at each of the Restaurants.
5.2.9 CLOSING DOCUMENTS. The documents to be delivered by Purchaser
-----------------
at Closing pursuant to Section 2.2 (including, without limitation, the
Additional Documents) shall have been executed and delivered.
5.2.10 CLOSING CERTIFICATES. Seller shall have received a certificate
--------------------
from Purchaser dated the date of Closing certifying in such detail as Seller may
reasonably request that the conditions specified in Section 5.2.1, 5.2.2 and the
last sentence of Section 5.2.4 hereof have been fulfilled.
5.2.11 OPINION OF COUNSEL FOR PURCHASER. Powell, Goldstein, Frazer &
--------------------------------
Murphy, LLP, or other independent, counsel to Purchaser specially engaged with
respect to such matter, shall have delivered to Seller a written opinion, dated
the date of Closing, in form and substance reasonably satisfactory to Seller's
counsel, but subject to customary assumptions and qualifications, to the
following effect:
(a) Purchaser is a limited liability company duly organized, validly
existing and in good standing under the laws of the State of Delaware.
Purchaser is duly authorized to
26
<PAGE>
conduct business and is in good standing under the laws of the states in
which any of the Restaurants are located.
(b) Purchaser has the requisite power to carry on its business as
it is now being conducted and to perform its obligations under the
Agreement and the Purchaser's Documents.
(c) The execution and delivery by Purchaser of this Agreement and
the other Purchaser's Documents do not, and if Purchaser were now to
perform its obligations under this Agreement and such other Purchaser's
Documents, such performance would not result in any (i) violation of
Purchaser's organizational documents, (ii) violation of any existing
federal or state constitution, statute, regulation, rule, order or law to
which Purchaser is subject, (iii) breach of or default under any material
written agreements to which, to such counsel's knowledge, Purchaser is a
party or which, to such counsel's knowledge, Purchaser is bound, or (iv)
violation of any judicial or administrative decree, writ, judgment or order
to which, to such counsel's knowledge, Purchaser is subject.
(d) To such counsel's knowledge, no legal action or proceeding
against Purchaser is pending or overtly threatened by written communication
which, if successful, would prohibit the consummation or require the
rescission of the transactions contemplated by the Agreement.
(e) The Agreement and the other Purchaser's Documents have been duly
executed and delivered by Purchaser and they constitute the legal, valid
and binding obligation of Purchaser, enforceable against Purchaser in
accordance with their respective terms.
(f) The consummation of the transactions as contemplated by the
Agreement do not require the filing of any notification or report under or
in connection with the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended.
(g) Assuming (i) that Purchaser hires, and does not within ninety
(90) days after the Closing Date cause an "employment loss" (as defined
under WARNA) of the Hired Employees other than those employees set forth on
Schedule 7.1 of the Agreement, (ii) that the information set forth on the
------------
list provided pursuant to Section 4.1.13 is true and correct as of the
Closing Date and (iii) that no other "employment loss" (as defined under
WARNA) caused by Seller would be required to be aggregated with the
transactions contemplated by the Agreement under applicable laws, the
consummation of the transactions contemplated by the Agreement will not
violate WARNA or any similar State laws which require advance notice to
employees affected by plant closings or mass layoffs ("State Plant Closing
Laws.")
(h) Upon payment of the exercise price as set forth in the Warrant,
the securities to be issued pursuant to the Warrant will have been duly
authorized and validly issued.
27
<PAGE>
5.2.12 NO THREATENED OR PENDING LITIGATION. As of the Closing, no
-----------------------------------
suit, action or other proceeding, or injunction or final judgment relating
thereto, shall be threatened or be pending before any court or governmental or
regulatory official, body or authority in which it is sought to restrain or
prohibit or to obtain damages or other relief in connection with this Agreement
or the consummation of the transactions contemplated hereby, and no
investigation that might result in any such suit, action or proceeding shall be
pending or threatened.
5.2.13 APPROVALS. All of the actions to be taken by the parties or
---------
Purchaser's lender in connection with the transactions contemplated by this
Agreement, and all other matters associated with this Agreement and such
transactions (excluding the capitalization of Purchaser which is addressed by
Sections 5.2.4 and 5.2.8) shall be satisfactory to Seller in its reasonable
discretion.
ARTICLE 6
INDEMNIFICATION
6.1 INDEMNIFICATION OF PURCHASER. Subject to the limitations set forth in
----------------------------
Sections 6.3, 6.4 and 6.5, Seller shall indemnify and hold Purchaser harmless
from, against, for and in respect of (i) any and all damages, losses, settlement
payments, obligations, liabilities, claims, actions or causes of action
suffered, sustained, incurred or required to be paid by Purchaser, net of any
resulting income tax benefits (using an assumed tax rate equal to the current
highest federal income tax rate applicable to net income of corporations under
the Code) to Purchaser, because of the breach of any written representation,
warranty, agreement or covenant of Seller contained in this Agreement (as the
same shall have been modified at any time at or before Closing including,
without limitation, any modification contained in any certificate of Seller
concerning such matters delivered at the Closing) which is provided in this
Agreement to survive the Closing; (ii) any and all Excluded Liabilities (other
than under Section 1.4.2(a) or under Section 1.4.2(c) which shall be governed
exclusively by Article 9 and the FPUR Leases); (iii) any and all debts,
liabilities and obligations arising under or in connection with the Worker
Adjustment and Restraining Notification Act of 1988 ("WARNA"), or any State
Plant Closing Laws, as a result of Purchaser's reliance on any material
inaccuracy in the number of employees at each Restaurant as set forth in the
information contemplated to be provided by the Seller under Section 4.1.13; and
(iv) all reasonable costs and expenses (including, without limitation,
attorneys' fees, interest and penalties) incurred by Purchaser in connection
with any action, suit, proceeding, demand, assessment or judgment incident to
any of the matters indemnified against in this Section 6.1.
6.2 INDEMNIFICATION OF SELLER. Subject to the limitations set forth in
-------------------------
Sections 6.3, 6.4 and 6.5, Purchaser shall indemnify and hold Seller harmless
from, against, for and in respect of: (i) any and all damages, losses,
settlement payments, obligations, liabilities, claims, actions or causes of
action suffered, sustained, incurred or required to be paid by Seller, net of
any resulting income tax benefits (using an assumed tax rate equal to the
current highest federal income tax rate applicable to net income of corporations
under the Code) to Seller, because of the breach of any written representation,
warranty, agreement or covenant of Purchaser contained in this Agreement (as the
same shall have been modified at any time at or before Closing including,
without
28
<PAGE>
limitation, any modification contained in any certificate of Purchaser
concerning such matters delivered at the Closing) which is provided in this
Agreement to survive the Closing; (ii) any and all Assumed Liabilities and all
liabilities in connection with the operation of the Restaurants in respect of
periods on and after the Closing Date; (iii) any and all debts, liabilities and
obligations arising under or in connection with WARNA or any State Plant Closing
Laws, as a result of Purchaser's failure to re-hire employees working at the
Restaurants as provided in Section 7.1 of this Agreement, or any subsequent
termination of such employees on or after the Closing, except to the extent the
foregoing results from any material inaccuracy in the number of employees at
each Restaurant as set forth in the information contemplated to be provided by
Seller under Section 4.1.13; and (iv) all reasonable costs and expenses
(including, without limitation, attorneys' fees, interest and penalties)
incurred by Seller in connection with any action, suit, proceeding, demand,
assessment or judgment incident to any of the matters indemnified against in
this Section 6.2.
6.3 SURVIVAL OF INDEMNIFICATION OBLIGATIONS. Notice of any claim under the
---------------------------------------
indemnification provisions hereof must be given prior to the expiration of two
years (one (1) year in the case of the breach of the representations and
warranties referred to in Section 3.3) from the Closing Date, and any claims not
made within such period shall be of no force or effect.
6.4 GENERAL RULES REGARDING INDEMNIFICATION. The obligations and
---------------------------------------
liabilities of each indemnifying party hereunder with respect to claims
resulting from the assertion of liability by the other party shall be subject to
the following terms and conditions:
(a) The indemnified party shall give prompt (so as not to materially
prejudice the position of the indemnifying party) written notice (which in
no event shall exceed 30 days from the date on which the indemnified party
first became aware of such claim or assertion) to the indemnifying party of
any claim which might give rise to a claim by the indemnified party against
the indemnifying party based on the indemnity agreements contained in
Sections 6.1 or 6.2 hereof, stating the nature and basis of said claims and
the amounts thereof, to the extent known;
(b) If any action, suit or proceeding is brought against the
indemnified party with respect to which the indemnifying party may have
liability under the indemnity agreements contained in Sections 6.1 or 6.2
hereof, the action, suit or proceeding shall, at the election of the
indemnifying party, be defended (including all proceedings on appeal or for
review which counsel for the indemnified party shall deem appropriate) by
the indemnifying party. The indemnified party shall have the right to
employ its own counsel in any such case, but the fees and expenses of such
counsel shall be at the indemnified party's own expense unless the
employment of such counsel and the payment of such fees and expenses both
shall have been specifically authorized in writing by the indemnifying
party in connection with the defense of such action, suit or proceeding.
Notwithstanding the foregoing, (A) if there are defenses available to the
indemnified party which are inconsistent with those available to the
indemnifying party to such extent as to create a conflict of interest
between the indemnifying party and the indemnified party, the indemnified
party shall have the right to direct the defense of such action, suit or
proceeding insofar as it relates to such inconsistent defenses, and the
indemnifying party
29
<PAGE>
shall be responsible for the reasonable fees and expenses of the
indemnified party's counsel insofar as they relate to such inconsistent
defenses, and (B) if such action, suit or proceeding involves or could have
an effect on matters beyond the scope of the indemnity agreements contained
in Sections 6.1 and 6.2 hereof, the indemnified party shall have the right
to direct (at its own expense) the defense of such action, suit or
proceeding insofar as it relates to such other matters. The indemnified
party shall be kept fully informed of such action, suit or proceeding at
all stages thereof whether or not it is represented by separate counsel.
(c) The indemnified party shall make available to the indemnifying
party and its attorneys and accountants all books and records of the
indemnified party relating to such proceedings or litigation and the
parties hereto agree to render to each other such assistance as they may
reasonably require of each other in order to ensure the proper and adequate
defense of any such action, suit or proceeding. Whether or not the
indemnifying party chooses to defend or prosecute any claim involving a
third party, all parties hereto shall cooperate in the defense or
prosecution thereof and shall furnish such records, information and
testimony and attend such conferences, discovery proceedings, hearings,
trials and appeals as may be reasonably requested in connection therewith.
(d) The indemnified party shall not make any settlement of any claims
without the written consent of the indemnifying party.
6.5 LIMITS ON INDEMNIFICATION OBLIGATION. Notwithstanding anything in
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Sections 6.1 and 6.2 to the contrary or in conflict:
(i) neither Seller nor Purchaser shall be liable under the
indemnity provisions of Section 6.1 or Section 6.2, as applicable, in
any instance until such time as the aggregate liability under such
section exceeds $25,000 (in which event Seller or Purchaser, as is
applicable, shall be liable only for all such amounts in excess of
$25,000); but excluding from this limitation, however, any actual
damages incurred by Purchaser for Seller's breach of Section 3.1.13.
(ii) in no event shall the total obligation of Seller under
Section 6.1 for all losses, costs, claims, damages, liabilities and
expenses of any type or description exceed, in the aggregate, the
Purchase Price less any payments by or expenses of Seller referred to
in Section 9.2.2;
(iii) in no event shall the total obligation of Purchaser under
Section 6.2 for all losses, costs, claims, damages, liabilities and
expenses of any type or description exceed the Purchase Price; and
(iv) any amount for which Seller is obligated to reimburse
Purchaser may, in Seller's sole discretion, be satisfied by reducing
amounts currently due to Seller under the Development Agreements by a
like amount.
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6.6 INSURANCE PROCEEDS.
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(a) In determining the amount of any loss, liability or expense for
which any indemnified party is entitled to indemnification under this Agreement,
the gross amount thereof will be reduced by any insurance proceeds actually paid
to any indemnified party; provided, however, that if such party has been
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indemnified hereunder but does not actually receive such insurance proceeds
until after being indemnified, such party shall reimburse the indemnifying party
for amounts paid to such party to the extent of the insurance proceeds so
received.
(b) Following the Closing Date, if Purchaser should suffer any loss,
liability or expense covered by any of Seller's insurance policies and wishes to
make a claim against the issuer of such policy, Seller shall use its best
efforts to assist Purchaser in ascertaining and establishing coverage, pursuing
such claim and collecting under such policy. In connection with the foregoing
sentence, Seller shall not be required to incur any costs (including attorneys'
fees or demonstrable increases in insurance premiums), other than normal
overhead expenses, or to forego any similar claim of their own with respect to
the same occurrence, in assisting Purchaser in these efforts, unless Seller
shall otherwise be obligated to indemnify Purchaser pursuant to Section 6.1.
(c) Following the Closing Date, if Seller should suffer any loss,
liability or expense covered by any of Purchaser's insurance policies and wish
to make a claim against the issuer of such policy, Purchaser shall use its best
efforts to assist Seller ascertaining and establishing coverage, pursuing such
claim and collecting under such policy. In connection with the foregoing
sentence, Purchaser shall not be required to incur any costs (including
attorneys' fees or demonstrable increases in insurance premiums), other than
normal overhead expenses, or to forego any similar claim of its own with respect
to the same occurrence, in assisting Seller in these efforts, unless Purchaser
shall otherwise be obligated to indemnify Seller pursuant to Section 6.2.
(d) If both an indemnifying party and an indemnified party have
insurance coverage respecting a particular claim for which indemnification is
provided pursuant to Sections 6.1 and 6.2, the parties agree that the insurance
coverage of the indemnifying party will be called upon before the insurance
coverage of the indemnified party is called upon.
ARTICLE 7
POST-CLOSING MATTERS
7.1 HIRED EMPLOYEES. On the Closing Date, Purchaser shall offer
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employment, to commence from and after the Closing Date, to each employee of the
Restaurants who is actively at work immediately prior to the Closing Date (a
"Hired Employee"), other than those employees of the Restaurants identified in
Schedule 7.1. For purposes of this Section 7.1, the term "actively at work"
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shall not include any employee of the Restaurants on a leave of absence, paid or
unpaid,
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for any reason other than an employee who is absent from work on paid vacation
or paid sick leave or whose leave was or would have been required to have been
granted under the provisions of the Family and Medical Leave Act of 1993.
Notwithstanding anything to the contrary contained in this Section or Schedule
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7.1, Purchaser shall not terminate the employment of, or fail to hire that
---
number of employees which would cause Seller to be required to incur any
liability or obligation under WARNA or State Plant Closing Laws. No later than
one day prior to the Closing Date, Seller shall notify all employees of the
Restaurants, other than Hired Employees, that their employment with Seller shall
terminate as of the Closing Date and Seller shall validly terminate such
employees as of the Closing Date.
7.2 EMPLOYEE MATTERS.
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(a) Seller shall retain all liabilities and obligations in
respect of the past, present and future employees of Seller under the
Employee Plans or otherwise and all laws or regulations applicable to the
Employee Plans or the employment of such employees through the Closing
Date. Without limiting the generality of the foregoing, Purchaser shall
have no liability or obligation whatsoever under any Employee Plan, nor
shall Purchaser have any obligation to make any severance or termination
payments to any persons as a result of their termination by Seller.
(b) Seller has offered or shall offer to all employees who were
or will be terminated by Seller the right to continue their coverage under
Seller's group health plans, within the meaning of either Section
5000(b)(1) of the Code (as defined in Section 3.1.22) or Section 607(1) of
ERISA in accordance with and to the extent required by the continuation
coverage requirements of Part 6 of subtitle B of Title I of ERISA and
Section 4980B of the Code. Purchaser shall keep Seller advised of the
employment status of all Hired Employees to facilitate Seller's compliance
with the requirements of this Section.
(c) Seller and Purchaser shall, at the Closing, enter into an
Asset Transfer Agreement in the form attached hereto as Exhibit "G" (the
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"401(k) Transfer Agreement"), providing for the transfer of the assets of
the Hired Employees and related liabilities held in the America's Favorite
Chicken Company 401(k) Savings Plan to a new plan to be maintained by
Purchaser.
For purposes of this Section 7.2, the term "Seller" shall be deemed to
include any other corporation, trade, business or other entity, other than
Seller, that, together with Seller, now or in the past, would constitute a
"single employer" within the meaning of Section 414 of the Code.
7.3 MAINTENANCE OF BOOKS AND RECORDS. Seller shall preserve until the third
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(3rd) anniversary of the Closing Date all records possessed or to be possessed
by such party relating to any of the assets, liabilities or business of the
Restaurants prior to the Closing Date, except for the Records, which shall be
transferred to Purchaser, and are included in the Assets. Seller, after receipt
of a specific written request from Purchaser requesting access to certain
specified records, may, in its reasonable business judgment, permit Purchaser
such access during business hours in
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a manner deemed by Seller not to interfere with operation of its business. For
purposes of this Agreement the term "Records" shall mean those files, records,
data, plans, contracts, information and recorded knowledge held at the
Restaurants for use in the ordinary course of business, but specifically
excluding, however, any proprietary information of the Seller, including,
without limitation, any proprietary information that may be licensed to the
Purchaser pursuant to the Franchise Agreements.
7.4 PAYMENTS RECEIVED. Seller and Purchaser each agree that after the
-----------------
Closing they will hold and will promptly transfer and deliver to the other, from
time to time as and when received by them, any cash, checks with appropriate
endorsements (using their best efforts not to convert such checks into cash), or
other property that they may receive on or after the Closing which properly
belongs to the other party, including without limitation any insurance proceeds,
and will account to the other for all such receipts.
7.5 UCC MATTERS. From and after the Closing Date, Seller will promptly
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refer all inquiries with respect to ownership of the Assets or the Restaurants
to Purchaser. In addition, Seller will execute such documents as Purchaser may
reasonably request from time to time to evidence transfer of the Assets to
Purchaser.
ARTICLE 8
MISCELLANEOUS
8.1 TERMINATION. This Agreement may be terminated and the transaction
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contemplated hereby may be abandoned at any time prior to the Closing:
(a) by mutual consent of Seller and Purchaser;
(b) by either Seller or Purchaser, if such terminating party is
not otherwise in default under this Agreement and if the transaction shall
not have been consummated on or before March 23, 1997 (the "Outside Closing
Date") or such other extended date, if any, arrived at by mutual written
agreement of the parties;
(c) by Purchaser if there has been
(A) a material breach of any covenant or agreement
herein on the part of Seller which has not been cured or adequate
assurance (acceptable to Purchaser in its reasonable discretion)
of cure given in either case within 15 business days following
receipt of notice of such breach, or
(B) a breach of a representation or warranty of Seller
herein which by its nature cannot be cured prior to the Outside
Closing Date, as such date may be extended, other than such
breach that has not had or would not reasonably be expected to
have a material adverse effect in the Restaurants or Assets; or
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(d) by Seller if there has been
(A) a material breach of any covenant or agreement
herein on the part of Purchaser which has not been cured or
adequate assurance (acceptable in Seller's reasonable
discretion) of cure given, in either case within 15 business days
following receipt of notice of such breach, or
(B) a breach of a representation or warranty of
Purchaser herein which by its nature cannot be cured prior to the
Outside Closing Date, as such date may be extended, other than
such breach that has not had or would not reasonably be expected
to have a material adverse effect on Seller.
In the event of termination of this Agreement by either Purchaser or Seller as
provided in Section 8.1, this Agreement shall forthwith become void and there
shall be no further obligation on the part of either Purchaser or Seller (except
that the obligations in this Section 8.1 and Sections 4.1.12, 4.1.13, 4.3, 8.2,
8.4, 8.5, 8.15, 8.18, 8.20 and 8.21 shall survive such termination); provided,
however, that if this Agreement is terminated by a party because of a breach of
this Agreement by the other party or because one or more conditi |
