EXHIBIT 2.1
STOCK PURCHASE AGREEMENT
BETWEEN
AFC ENTERPRISES, INC.
AND
STARBUCKS CORPORATION
Dated as of April 15, 2003
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT is made and entered into as of the 15th
day of April, 2003 by and between AFC ENTERPRISES, INC., a Minnesota
corporation ("AFC"), and STARBUCKS CORPORATION, a Washington corporation
("Purchaser").
RECITALS
A. AFC owns all of the issued and outstanding capital stock of Seattle
Coffee Company, a Georgia corporation ("SCC").
B. SCC is the owner and operator, either directly or through its
wholly-owned subsidiaries, Seattle's Best Coffee LLC, a Washington limited
liability company ("Best") and Torrefazione Italia LLC, a Washington limited
liability company ("Italia"), of businesses that are engaged in (i) operating a
coffee roasting facility (the "Roasting Business"); (ii) developing and
operating systems (the "Systems") for the operation of retail cafes and kiosks
(the "Cafes") specializing in the sale of gourmet coffees and related items;
opening and operating Cafes; and franchising to others the right to open and
operate Cafes (the "Retail Business"); (iii) operating a mail order catalogue
business (the "Mail Order Business"); and (iv) operating a wholesale
distribution business specializing in the sale and distribution of gourmet
coffees and related items (the "Wholesale Business").
C. Purchaser desires to acquire and AFC desires to sell the businesses
of SCC, Best and Italia through the purchase of all of the issued and
outstanding shares of capital stock of SCC, all on the terms and conditions set
forth in this Agreement.
AGREEMENT
In consideration of the mutual covenants and conditions hereinafter
set forth, the receipt, sufficiency and adequacy of which are hereby
acknowledged, the parties hereto hereby mutually agree as follows:
1. DEFINITIONS. For purposes of this Agreement, the following terms shall
have the following meanings:
"ACCOUNTS RECEIVABLE" is defined in Paragraph 6.g.iv.
"ACQUISITION DATE" means March 18, 1998, the date of AFC's acquisition
of its interest in the Companies.
"ADVERTISING FUND" means the marketing and advertising fund maintained
by Best for the benefit of any of the Franchisees.
"ADVERTISING FUND LIABILITY" is defined in Paragraph 6.r.
"AFC AFFILIATED GROUP" means the Affiliated Group of which AFC and the
Companies are members.
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"AFC FINANCIAL STATEMENTS" is defined in Paragraph 6.d hereof.
"AAFES" means the Army-Air Force Exchange Service.
"AAFES AGREEMENT" is defined in Paragraph 8.w hereof.
"AFFILIATE" means, with respect to any Person, any Person directly or
indirectly controlling, controlled by, or under common control with such other
Person. For purposes of determining whether a Person is an Affiliate, the term
"control" shall mean the possession, directly or indirectly, of the power to
direct or cause the direction of the management and policies of a Person,
whether through ownership of securities, contract or otherwise. No Persons now
employed by any of the Companies who remain employees of the Companies or
Purchaser shall be deemed an Affiliate of AFC for purposes of this Agreement.
"AFFILIATED GROUP" means any affiliated group within the meaning of
Code ss.1504(c) or any similar group defined under a similar provision of
state, local or foreign law.
"ALTERNATIVE TRANSACTION" means any offer or proposal for, or any
indication of interest in (i) a merger, consolidation, share exchange, business
combination, reorganization, recapitalization or any other similar transaction
involving the Companies, or (ii) the acquisition, directly or indirectly, of
(a) an interest in the Companies, or (b) one or more of the Businesses or any
of the Company Assets other than the transactions contemplated by this
Agreement.
"ANTITRUST DIVISION" is defined in Paragraph 5 hereof.
"APPLICABLE LAWS" means all laws, rules, ordinances, governmental
regulations and orders of all governmental authorities and/or jurisdictions
applicable to the conduct of the Businesses.
"ASSIGNED AGREEMENTS" is defined in Paragraph 9.h hereof
"BENEFIT PLANS" is defined in Paragraph 6.w.
"BEST" is defined in Recital B hereof.
"BEST-OWNED CAFES" is defined in Paragraph 6.e.i hereof.
"BEST MEMBERSHIP INTERESTS" means the interests in the capital,
profits and voting rights of Best.
"BEST SYSTEM" is defined in Paragraph 6.e.i hereof.
"BUSINESS DAY" means any day other than a Saturday, Sunday or a legal
holiday in Seattle, Washington or any other day on which commercial banks in
Seattle, Washington are authorized or permitted by law or governmental decree
to close.
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"BUSINESSES" means the Roasting Business, the Retail Business, the
Mail Order Business and the Wholesale Business, collectively, and "Business"
means each of the Businesses, individually.
"CAFES" is defined in Recital B hereof.
"CAA" is defined in Paragraph 6.x.i hereof.
"CERCLA" is defined in Paragraph 6.x hereof.
"CLAIM NOTICE" is defined in Paragraph 14.a hereof.
"CLOSING" means the closing of the transactions contemplated by this
Agreement.
"CLOSING AGREEMENT" is defined in Paragraph 6.h.ix hereof.
"CLOSING DATE" is defined in Paragraph 3 hereof.
"CLOSING FINANCIAL STATEMENTS" is defined in Paragraph 2.c hereof.
"CODE" means the Internal Revenue Code of 1986, as amended.
"COMPANIES" means SCC and each of the Subsidiaries, collectively, and
"COMPANY" means each of the Companies, individually.
"COMPANY ASSETS" means all of the assets owned by the Companies of
whatsoever kind or nature and include, without limitation, the assets
referenced in Paragraph 6.g hereof.
"COMPANY AUDITED FINANCIAL STATEMENTS" is defined in ▇▇▇▇▇▇▇▇▇ ▇.▇
hereof.
"COMPANY CONTRACTS" is defined in Paragraph 6.t hereof.
"COMPANY-OWNED CAFE PREMISES" is defined in Paragraph 6.e.i hereof.
"COMPANY-OWNED CAFES" is defined in Paragraph 6.e.i hereof.
"CT" is defined in Paragraph 6.e.i hereof
"CURRENT COMPANY FINANCIAL STATEMENTS" is defined in Paragraph 6.d
hereof.
"DEVELOPERS" is defined in Paragraph 6.q.i hereof.
"DEVELOPMENT AGREEMENTS" is defined in Paragraph 6.q.i hereof.
"EBITDA" is defined in Paragraph 2.d hereof.
"ENVIRONMENTAL LAWS" is defined in Paragraph 6.x.i hereof.
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"EQUIPMENT LEASES" and "MATERIAL EQUIPMENT LEASES" are defined in
Paragraph ▇.▇.▇▇ hereof.
"EXISTING LIENS" is defined in Paragraph 6.c.i hereof.
"FF & E" is defined in Paragraph 6.g.i hereof.
"FIRPTA AFFIDAVIT" is defined in Paragraph 11.a.vii hereof.
"FTC" is defined in Paragraph 5 hereof.
"FINANCIAL STATEMENTS" is defined in Paragraph 6.d hereof.
"FOREIGN CORRUPT PRACTICES ACT" is defined in Paragraph 6.jj hereof.
"FOREIGN OFFICIAL" is defined in Paragraph 6.jj hereof.
"FRANCHISE AGREEMENTS" is defined in Paragraph 6.p.i(a) hereof.
"FRANCHISED CAFES" is defined in Paragraph 6.p.i(a) hereof.
"FRANCHISEES" is defined in Paragraph 6.p.i(a) hereof.
"FRANCHISOR" is defined in Paragraph 6.p.i(a) hereof.
"GAAP" means generally accepted accounting principles in the United
States as in effect on the date hereof.
"GOVERNMENTAL ENTITY" means any court, administrative, regulatory or
other governmental agency, commission, authority or instrumentality, foreign or
domestic, or any non-governmental self-regulatory agency, commission or
authority, foreign or domestic.
"HSR ACT" means the ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Antitrust Improvements Act of
1976, as amended and all rules and regulations promulgated pursuant thereto.
"HAZARDOUS SUBSTANCES" is defined in Paragraph 6.x.ii hereof.
"INCOME TAXES" means any Taxes determined by reference to net income.
"INDEMNIFIED CLAIM" is defined in Paragraph 14.a hereof.
"INDEMNIFIED PARTY" is defined in Paragraph 14.a hereof.
"INDEMNIFYING PARTY" is defined in Paragraph 14.a hereof.
"ITALIA" is defined in Recital B hereof.
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"ITALIA MEMBERSHIP INTERESTS" means the interests in the capital,
profits and voting rights of Italia.
"ITALIA-OWNED CAFES" is defined in Paragraph 6.e.i hereof.
"ITALIA SYSTEM" is defined in Paragraph 6.e.i hereof.
"KNOWLEDGE OF AFC" and "AFC'S KNOWLEDGE" mean the actual knowledge of
the executive officers of AFC and the Companies listed on APPENDIX A, without
conducting a due diligence investigation in connection with the execution of
this Agreement.
"LANDLORD ESTOPPEL LETTER" is defined in Paragraph 8.x hereof.
"LEASED PREMISES" is defined in Paragraph 6.f.ii hereof.
"LICENSE AGREEMENTS" is defined in Paragraph 6.p.ii.a hereof.
"LICENSES" is defined in Paragraph 6.u.
"LICENSEES" is defined in Paragraph 6.p.ii.a hereof.
"LIENS" means any mortgage, lien, pledge, charge, license, security
interest, right of first refusal or other similar right, option, voting or
control agreement, or any other encumbrance of any nature whatsoever.
"LOSSES" means any and all loss, liability, claim, cost, damage or
deficiency, including interest, penalties, and reasonable attorneys' fees
actually incurred by any party entitled to indemnification or reimbursement
hereunder, but in no event shall Losses include special or consequential
damages.
"MAIL ORDER BUSINESS" is defined in Recital B hereof.
"MARKS" is defined in Paragraph 6.o.i.
"MATERIAL ADVERSE EFFECT" or "MATERIAL ADVERSE CHANGE" means any
change, effect, event, occurrence, fact or condition that is, or is reasonably
likely to be, materially adverse to the business, financial condition, assets,
results of operations, or prospects of the Companies, in the aggregate, or the
value of the Shares or the Businesses.
"MATERIAL SUPPLIER" is defined in Paragraph ▇.▇▇ hereof.
"MEMBERSHIP INTERESTS" means the Best Membership Interests and the
Italia Membership Interests, collectively.
"MTCA" is defined in Paragraph 6.x.i hereof.
"OCTOBER FINANCIAL STATEMENTS" is defined in Paragraph 2.c hereof.
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"OPERATING ASSETS" is defined in Paragraph 6.g.iii hereof.
"OTHER PREMISES" is defined in Paragraph 6.f.i hereof.
"PATENTS" is defined in Paragraph 6.o.iii.
"PERMITTED ENCUMBRANCES" means: (a) liens imposed by law for taxes,
assessments or governmental charges or claims that are not yet due; (b)
carriers', warehousemen's, mechanics', materialmen's, repairmen's, landlords'
and other like liens imposed by law, arising in the ordinary course of business
and securing obligations that are not past due or delinquent; (c) pledges and
deposits made in the ordinary course of business in compliance with workers'
compensation, unemployment insurance and other social security laws or
regulations; (d) deposits to secure the performance of bids, trade contracts,
leases, statutory obligations, surety, indemnity and appeal bonds, performance
and return-of-money and fiduciary bonds and other obligations of a like nature,
in each case in the ordinary course of business; (e) easements, zoning
restrictions, rights-of-way, licenses, covenants, conditions, minor defects,
encroachments or irregularities in title and similar encumbrances on or
affecting Premises that do not secure any monetary obligations and do not
interfere with the ordinary conduct of business of any of the Companies at the
Premises subject to such liens; (f) leases or subleases identified in the
Schedules hereto; (g) any (i) interest or title of a lessor or sublessor under
any lease, (ii) restriction or encumbrance that the interest or title of such
lessor or sublessor may be subject to, or (iii) subordination of the interest
of the lessee or sublessee under such lease to any restriction or encumbrance
referred to in the preceding clause (ii); (h) liens on goods held by suppliers
arising in the ordinary course of business for sums not yet past due or
delinquent, if such reserve or other appropriate provision, if any, as shall be
required by GAAP shall have been made therefore and as long as such lien
remains unperfected; (i) liens in favor of customs and revenue authorities
arising as a matter of law to secure payment of customs duties in connection
with the importation of goods; (j) rights of Franchisees and Licensees under
Franchise Agreements, License Agreements and Development Agreements in keeping
with the Companies' historical business practices and in accordance with the
Franchise Agreements, License Agreements and Development Agreements; and (k)
the effect of any moratorium, eminent domain or condemnation proceedings of
which the Companies have not received notice; provided that the term "PERMITTED
ENCUMBRANCES" shall not include any lien securing indebtedness for money
borrowed by any Company.
"PERSON" means any individual, corporation, unincorporated
association, business trust, estate, partnership, limited liability company,
trust, or Governmental Entity.
"PRE-CLOSING TAX PERIOD" is defined in Paragraph 4.e.ii hereof
"PREMISES LEASE", "PREMISES LEASES" is defined in Paragraph 6.f.ii
hereof.
"PROPRIETARY RIGHT CLAIM" is defined in Paragraph 6.o.ix hereof.
"PROPRIETARY RIGHTS" is defined in Paragraph 6.o.vii hereof.
"PURCHASE PRICE" is defined in Paragraph 2.b hereof.
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"RADIUS RESTRICTION CLAUSE" is defined in Paragraph 12.d.
"RCRA" is defined in Paragraph 6.x hereof.
"RECAPITALIZATION EVENT" means any stock split, stock dividend,
recapitalization, subdivision, reclassification, combination, exchange or other
similar event or transaction.
"RECIPES" is defined in Paragraph 6.o.iv hereof.
"REG." means the Federal income tax regulations from time to time
promulgated under the Code by the Internal Revenue Service and the Treasury
Department and "Prop. Reg." means the Federal income tax regulations proposed
from time to time for promulgation under the Code by the Internal Revenue
Service and the Treasury Department.
"REGISTERED COPYRIGHTS" is defined in Paragraph ▇.▇.▇▇ hereof.
"REQUESTING PARTY" is defined in Paragraph 4.b hereof.
"REQUIRED POLICIES" is defined in Paragraph 6.p.i.(g) hereof.
"RESTATED FINANCIAL STATEMENTS" is defined in Paragraph 8.q.
"RETAIL BUSINESS" is defined in Recital B hereof.
"RETURNS" means all reports, estimates, declarations of estimated tax,
information statements and returns relating to, or required to be filed in
connection with, any Taxes, including information returns or reports with
respect to backup withholding and other payments to third parties.
"ROASTING BUSINESS" is defined in Recital B hereof.
"▇▇▇▇" is defined in Paragraph 6.x hereof.
"SCC" is defined in Recital A hereof.
"SMS" is defined in Paragraph 8.r hereof.
"SECURED LENDER" shall mean the lender parties to that certain Credit
Agreement, dated as of May 23, 2002, as amended, among AFC, as Borrower, such
Lender Parties, ▇.▇. ▇▇▇▇▇▇ Securities, Inc., as Joint Bookrunner and Co-Lease
Arranger, Credit Lyonnais New York Branch, as Co-Documentation Agent, Fleet
National Bank, Inc. as Co-Documentation Agent, and SunTrust Bank, as
Co-Document Agent.
"SHARES" means all of the issued and outstanding shares of stock of
SCC existing as of the date hereof and as of the Closing.
"STRADDLE PERIOD" is defined in Paragraph 4.e.iii hereof.
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"SUPPLIERS" is defined in Paragraph 6.p.i(g) hereof.
"SURVIVAL LIMITATION DATE" is defined in Paragraph 12.b hereof.
"SYSTEMS" is defined in Recital B hereof.
"SUBSIDIARIES" means Best and Italia, collectively, and "SUBSIDIARY"
means each of the Subsidiaries, individually.
"TAX" means any tax imposed of any nature including federal, state,
local or foreign net income tax, alternative or add-on minimum tax, profits or
excess profits tax, franchise tax, gross income, adjusted gross income or gross
receipts tax, license fee, employment related tax (including employee
withholding or employer payroll tax, FICA, or FUTA), real or personal property
tax or ad valorem tax, sales or use tax, transfer tax, excise tax, stamp tax or
duty, any withholding or backup withholding tax, value added tax, severance
tax, prohibited transaction tax, premiums tax, occupation tax, windfall profits
tax, environmental tax (including taxes under Code Section 59A), customs
duties, or estimated tax, together with any interest or any penalty, addition
to tax or additional amount imposed by any governmental authority responsible
for the imposition of any such tax, whether disputed or not and including any
obligations to indemnify or otherwise assume or succeed to the Tax liability of
any other Person.
"TSCA" is defined in Paragraph 6.x hereof.
"THIRD PARTY CLAIM" is defined in Paragraph 14.a hereof.
"TRADE DRESS" is defined in Paragraph 6.o.iv hereof.
"TRADEMARK REGISTRATION RIGHTS" is defined in Paragraph 6.o.i hereof.
"TRANSACTION DOCUMENTS" means this Agreement and any and all documents
executed by the parties hereto pursuant to the terms hereof.
"UFOC" is defined in Paragraph 6.s.ii hereof.
"WPCA" is defined in Paragraph 6.x hereof.
"WHOLESALE BUSINESS" is defined in Recital B hereof.
"WORKING CAPITAL" means as of the date of measurement, the sum of
cash, cash equivalents, accounts receivable, inventory, prepaid expenses and
other current assets, less the sum of accounts payable, bank overdrafts,
accrued expenses and liabilities payable within one year of the date of
measurement. For purposes of clarification, the terms set forth in this
definition shall have the meanings assigned to them under GAAP.
"WORKING CASH AND CASH EQUIVALENTS" means as of the date of
measurement, the sum of cash, cash equivalents, and accounts receivable less
the sum of accounts payable, bank overdrafts, accrued expenses and liabilities
payable within one year of the date of measurement.
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For purposes of clarification, the terms set forth in this definition shall
have the meanings assigned to them under GAAP.
2. TERMS OF PURCHASE AND SALE OF SHARES
a. ACQUISITION OF SHARES. Subject to the terms and conditions
hereinafter set forth, on the Closing Date, Purchaser shall
purchase from AFC, and AFC shall sell, assign, transfer, set
over and deliver to Purchaser all right, title and interest
in and to all of the Shares.
b. PURCHASE PRICE. Subject to the provisions of Paragraphs 2.c,
2.d and 2.e, the purchase price (the "Purchase Price") to be
paid by Purchaser for all of the Shares shall be the sum of
Seventy-two Million Dollars ($72,000,000). The Purchase Price
shall be paid in full on the Closing Date by wire transfer to
the account identified on SCHEDULE 2.B.
c. WORKING CAPITAL PURCHASE PRICE ADJUSTMENT. Within ten (10)
days after delivery to Purchaser of the complete audited
financial statements of the Companies (on a stand-alone
basis) for the period of December 30, 2002 through the
Closing Date, including all auditors notes attached to the
financial statements (the "Closing Financial Statements"),
(a) Purchaser shall pay to AFC an amount equal to the amount
by which the Working Capital reflected on the unaudited
financial statements of the Companies provided to Purchaser
for the period ended October, 6, 2002 attached hereto as
SCHEDULE 2.C (the "October Financial Statements") is less
than the Working Capital reflected on the Closing Financial
Statements or (b) AFC shall pay to Purchaser an amount equal
to the amount by which the Working Capital reflected on the
October Financial Statements exceeds the Working Capital
reflected on the Closing Financial Statements.
d. EBITDA ADJUSTMENT. Within ten (10) days after delivery to
Purchaser of the Company Audited Financial Statements, AFC
shall pay to Purchaser an amount, if any, equal to the
product of (i) the difference between 10,650,000 and the
"EBITDA" for the Companies for the year ending December 29,
2002, multiplied by (ii) 6.76. "EBITDA" shall be determined
based upon earnings before interest, taxes, depreciation
expense, amortization expense, FAS 142 and FAS 144
write-offs, and AFC corporate overhead allocations
(consistent with past practices), as each is identified in
the Company Audited Financial Statements, and shall be
reasonably determined by Purchaser consistent with the
example set forth on SCHEDULE 2.D. Seller agrees to provide
detailed descriptions and supporting schedules reasonably
requested by Purchaser to enable Purchaser to make such
determination.
e. LEASE CONSENT ADJUSTMENT. The Purchase Price shall be reduced
by Twenty-five Thousand Dollars ($25,000) for each consent to
the transactions described herein that is not obtained by AFC
as of the Closing with respect to the Company-Owned
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Cafe Premise Leases for which landlord consents are required
as identified on SCHEDULE 6.G.V not obtained by AFC as of the
Closing.
f. DELIVERY OF SHARES. At the Closing, AFC shall deliver to
Purchaser all certificates representing the Shares, duly
endorsed to Purchaser, free and clear of any and all Liens.
3. CLOSING. Subject to the terms and conditions set forth herein, the
Closing shall take place on the later of June 30, 2003 or the Business Day
following the next date on which the Companies pay payroll in the ordinary
course (the "Closing Date") at the offices of ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ LLP, ▇▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, in Seattle, Washington, at 10:00 a.m. local
time on the Closing Date, unless the parties otherwise mutually agree as to a
different date, time or location. The Closing shall be effective at 11:59 p.m.
PDT on the Closing Date.
4. ADDITIONAL MATTERS.
a. SCHEDULES. Each of the Schedules to this Agreement shall be
deemed to apply to only to the specific section of this
Agreement referenced in such Schedule and any omission from
any Schedule that appears on another Schedule shall not be
deemed to be included in such Schedule; provided, however,
that a matter disclosed with respect to one section of this
Agreement shall be deemed to have been disclosed for the
purposes of all other sections of this Agreement for which
the relevance or applicability to such other sections is
reasonably apparent based on the content of the Schedule.
b. FURTHER ASSURANCES; POST-CLOSING COOPERATION. At any time or
from time to time after the Closing, at either party's
reasonable request (the "Requesting Party") and without
further consideration, the other party shall execute and/or
deliver to the Requesting Party such instruments, materials
and information, and take such other actions as the
Requesting Party may reasonably deem necessary in order to
consummate the transactions contemplated hereby, and
otherwise to cause the other parties to fulfill their
obligations under this Agreement and the Transaction
Documents. Without limiting the generality of the foregoing,
the parties hereby agree as follows:
i. Following the Closing and upon ten (10) Business
Days prior written notice, each party will afford
the other party, its counsel and its accountants,
during normal business hours, reasonable access to
the books, records and other data relating to the
Companies or their Businesses in its possession
solely with respect to periods prior to the Closing
and the right to make copies and extracts therefrom,
to the extent that such access may be reasonably
required by the Requesting Party in connection with
(A) the preparation of Returns, (B) compliance with
the requirements of any governmental or regulatory
authority, (C) the determination or enforcement of
the rights and obligations of any party under any of
the provisions of this Agreement, or (D) in
connection with any actual or
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threatened action or proceeding. Further each party
agrees, for a period extending six (6) years after
the Closing Date or such shorter period as required
by applicable law, not to destroy or otherwise
dispose of any such books, records and other data
unless such party shall first offer in writing to
surrender such books, records and other data to the
other party and such other party shall not agree in
writing to take possession thereof during the ten
(10) Business Day period after such offer is made.
ii. If, in order properly to prepare its Returns, other
documents or reports required to be filed with
governmental or regulatory authorities or its
financial h statements or to fulfill its obligations
hereunder, it is necessary that a party be furnished
with additional information, documents or records
relating to the Companies or their Businesses not
referred to in subparagraph (i) above, and such
information, documents or records are in the
possession or control of the other party, such other
party shall use its commercially reasonable efforts
to furnish or make available such information,
documents or records (or copies thereof) at the
Requesting Party's request, cost and expense.
c. DUE DILIGENCE. Purchaser acknowledges that it and its
employees, agents and accounting and legal representatives
have been afforded reasonable access to the books, records,
key personnel, facilities and other things reasonably related
to the Companies and the Businesses and have been given a
reasonable opportunity to ask questions relating to the
Companies and the Businesses and to receive answers thereto.
Purchaser further acknowledges that it has completed its
business, accounting and legal due diligence review of the
Companies and the Businesses; and in completing the
transactions contemplated in accordance with this Agreement,
Purchaser has not and is not relying on representations and
warranties of AFC or any other person or entity which are not
expressly stated in this Agreement; provided, however, that
notwithstanding the investigation conducted by Purchaser and
any knowledge of facts determined or determinable by
Purchaser pursuant to such investigation, Purchaser has the
right to rely upon the representations and warranties made by
AFC in this Agreement.
d. EMPLOYEE AND EMPLOYEE BENEFIT MATTERS. From and after the
Closing, the parties hereto shall comply with the provisions
set forth in APPENDIX B hereto, which APPENDIX B is
incorporated herein by this reference.
e. TAX MATTERS.
i. TAX SHARING AGREEMENTS. Any tax sharing agreement
between AFC and any of the Companies shall be
terminated as of the Closing Date and will have no
further effect for any taxable year (whether the
current year, a future year, or a past year).
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ii. TAX INDEMNIFICATION. Subject to the limitations set
forth in Paragraph 12.b and 12.c hereof relating to
the survival of and limitations on AFC's
indemnification obligations hereunder, AFC shall
indemnify the Companies and Purchaser and hold them
harmless from and against, any loss, claim,
liability, expense, or other damage attributable to
(i) all Taxes (or the non-payment thereof) of the
Companies for all Taxable periods ending on or
before the Closing Date and the portion through the
end of the Closing Date for any Taxable period that
includes (but does not end on) the Closing Date
("Pre-Closing Tax Period"), (ii) all Taxes of any
member of an affiliated, consolidated, combined or
unitary group of which any of the Companies (or any
predecessor of any of the foregoing) is or was a
member on or prior to the Closing Date, including
pursuant to Reg.ss.1.1502-6 or any analogous or
similar state, local, or foreign law or regulation,
and (iii) any and all Taxes of any person (other
than the Companies) imposed on any of the Companies
as a transferee or successor, by contract or
pursuant to any law, rule, or regulation, which
Taxes relate to an event or transaction occurring
before the Closing; provided, however, that in the
case of clauses (i), (ii), and (iii) above, AFC
shall be liable only to the extent that such Taxes
exceed the amount, if any, reserved for such Taxes
(excluding any reserve for deferred Taxes
established to reflect timing differences between
book and Tax income) on the face of the Balance
Sheet that is part of the Current Company Financial
Statements (rather than in any notes thereto.
iii. STRADDLE PERIOD. In the case of any Taxable period
that includes (but does not end on) the Closing Date
(a "Straddle Period"), the amount of any Taxes based
on or measured by income or receipts of the
Companies for the Pre-Closing Tax Period shall be
determined based on an interim closing of the books
as of the close of business on the Closing Date (and
for such purpose, the Taxable period of any
partnership or other pass-through entity in which
any of the Companies holds a beneficial interest
shall be deemed to terminate at such time) and the
amount of other Taxes of the Companies for a
Straddle Period which relate to the Pre-Closing Tax
Period shall be deemed to be the amount of such Tax
for the entire Taxable period multiplied by a
fraction the numerator of which is the number of
days in the Taxable period ending on the Closing
Date and the denominator of which is the number of
days in such Straddle Period.
iv. RESPONSIBILITY FOR FILING TAX RETURNS. For all
taxable periods ending on or before the Closing
Date, AFC shall cause the Companies to join in AFC's
consolidated federal Income Tax Return and
comparable consolidated or combined state Income Tax
Returns and, in jurisdictions requiring reporting of
the income of the Companies separate from that of
AFC, to file separate company state and local Income
Tax Returns. AFC shall include the income of the
Companies (including any deferred items triggered
into income by Reg. Sections 1.1502-13 and Reg.
Sections 1.1502-14 and any
Page 12 - STOCK PURCHASE AGREEMENT
excess loss account taken into income under Reg.
Sections 1.1502-19 or comparable provisions of state
and local Income Tax regulations) on AFC's
consolidated federal Income Tax Returns and
comparable consolidated or combined state Income Tax
Returns for all periods through the Closing Date and
pay any federal, state, and local Income Taxes
attributable to such income. All such Returns shall
be prepared and filed in a manner consistent with
prior practice, except as required by a change in
applicable law. Purchaser shall have the right to
review and comment on any such Returns prepared by
AFC. Purchaser shall cause the Companies to furnish
information to AFC as reasonably requested by AFC to
allow AFC to satisfy its obligations under this
section in accordance with past custom and practice.
The Companies and Purchaser shall consult and
cooperate with AFC as to any elections to be made on
returns of the Companies for periods ending on or
before the Closing Date. Purchaser shall cause the
Companies to file income Tax Returns or shall
include the Companies in its combined or
consolidated income tax returns, for all periods
other than periods for which AFC has responsibility
to do so pursuant to this Paragraph 4.e.iv.
v. COOPERATION ON TAX MATTERS.
(a) Purchaser, the Companies, and AFC shall
cooperate fully, as and to the extent
reasonably requested by the other Party, in
connection with the filing of Tax Returns
pursuant to Paragraph 4.e.iv. and any
audit, litigation or other proceeding with
respect to Taxes. Such cooperation shall
include the retention and (upon the other
Party's request) the provision of records
and information which are reasonably
relevant to any such audit, litigation or
other proceeding and making employees
available on a mutually convenient basis to
provide additional information and
explanation of any material provided
hereunder. The Companies and AFC agree (A)
to retain all books and records with
respect to Tax matters pertinent to the
Companies relating to any taxable period
beginning before the Closing Date until the
expiration of seven (7) years following the
Closing Date or if later, the expiration of
the statute of limitations (and, to the
extent notified by Purchaser or AFC, any
extensions thereof) of the respective
taxable periods, and to abide by all record
retention agreements entered into with any
taxing authority, and (B) to give the other
Party reasonable written notice prior to
transferring, destroying or discarding any
such books and records and, if the other
Party so requests, the Companies or AFC, as
the case may be, shall allow the other
Party to take possession of such books and
records.
(b) Purchaser and AFC further agree, upon
request, to use their best efforts to
obtain any certificate or other document
from any
Page 13 - STOCK PURCHASE AGREEMENT
governmental authority or any other Person
as may be necessary to mitigate, reduce or
eliminate any Tax that could be imposed
(including, but not limited to, with
respect to the transactions contemplated
hereby).
(c) Purchaser and AFC further agree, upon
request, to provide the other party with
all information that either party may be
required to report pursuant to Code ss.6043
and all Treasury Regulations promulgated
thereunder.
vi. AUDITS.
(a) Following the Closing, AFC will allow the
Companies and their counsel to participate,
at Purchaser's expense, in any audits of
AFC consolidated federal Income Tax Returns
to the extent that such Returns relate to
the Companies. AFC will not settle any such
audit in a manner which would adversely
affect the Companies after the Closing Date
without the prior consent of Purchaser,
which consent shall not be unreasonably
withheld.
(b) Following the Closing, Purchaser will allow
AFC and its counsel to participate, at
AFC's expense, in any audits of any federal
Income Tax Returns of any of the Companies
relating to any period prior to the
Closing. Purchaser will not settle (or
permit any of the Companies to settle) any
such audit in a manner which would result
in an indemnification obligation on the
part of AFC without the prior consent of
AFC, which consent shall not be
unreasonably withheld.
vii. CERTAIN TAXES AND FEES. All transfer, documentary,
sales, use, stamp, registration and other such
Taxes, and all conveyance fees, recording charges
and other fees and charges (including any penalties
and interest) incurred in connection with
consummation of the transactions contemplated by
this Agreement shall be paid by AFC when due, and
AFC will, at its own expense, file all necessary Tax
Returns and other documentation with respect to all
such Taxes, fees and charges, and, if required by
applicable law, Purchaser will, and will cause its
Affiliates to, join in the execution of any such
Returns and other documentation.
viii. CARRYBACKS. AFC will immediately pay to Purchaser
any Tax refund (or reduction in Tax liability)
resulting from a carryback of a post-acquisition Tax
attribute of any of the Companies into the AFC
consolidated Return, when such refund or reduction
is realized by the AFC Affiliated Group. AFC will
cooperate with the Companies in obtaining such
refunds (or reduction in Tax liability), including
through the filing of amended Returns or refund
claims. Purchaser agrees to indemnify AFC for any
Page 14 - STOCK PURCHASE AGREEMENT
Taxes resulting from the disallowance of such
post-acquisition Tax attribute on audit or
otherwise.
ix. Section 338(h)(10) ELECTION. At Purchaser's option,
AFC and Purchaser shall join in making an election
under Code Section 338(h)(10) (and any corresponding
elections under state, local, or foreign tax law)
(collectively a "Section 338(h)(10) Election") with
respect to the purchase and sale of the stock of
SCC. AFC will pay any Tax attributable to the making
of the Section 338(h)(10) Election and will indemnify
Purchaser and SCC against any Losses arising out of
any failure to pay such Tax. AFC will also pay any
state, local, or foreign Tax (and indemnify
Purchaser and SCC against any Losses arising out of
any failure to pay such Tax) attributable to an
election under state, local, or foreign law similar
to the election available under Code ss.338(g) (or
which results from the making of an election under
Code Section 338(g) with respect to the purchase and
sale of the stock of SCC hereunder.
x. ALLOCATION OF PURCHASE PRICE. The Parties agree that
the Purchase Price and the liabilities of the
Companies (plus other relevant items) will be
allocated among the Company Assets for all purposes
(including income Tax and financial accounting
purposes) as mutually agreed by the parties, in a
manner consistent with Code Sections 338 and 1060 and
the regulations thereunder. Purchaser, SCC, and AFC
shall file all Tax Returns (including amended
returns and claims for refund) and information
reports in a manner consistent with such allocation.
5. ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ COMPLIANCE. Purchaser and AFC each will as promptly
as practicable make or cause to be made all filings which are required under
the HSR Act, and any similar foreign antitrust laws, rules, regulations, orders
or decrees. Each such filing will request early termination of the waiting
period imposed by the HSR Act. AFC and Purchaser each will use its commercially
reasonable efforts to respond or cause a response to be made as promptly as
reasonably practicable to any inquiries received from the Federal Trade
Commission ("FTC") and the Antitrust Division of the Department of Justice
("Antitrust Division") for additional information or documentation and to
respond as promptly as reasonably practicable to all inquiries and requests
received from any other Governmental Entity in connection with antitrust
matters; provided however, that nothing contained herein will be deemed to
preclude either AFC or Purchaser from negotiating reasonably with any
Governmental Entity regarding the scope and content of any such requested
information and documentation. AFC and Purchaser will each use their respective
commercially reasonable efforts to overcome any objections that may be raised
by the FTC, the Antitrust Division or any other Governmental Entity having
jurisdiction over antitrust matters. Notwithstanding the foregoing or any other
provision of this Agreement, neither Purchaser, nor any of its Affiliates,
shall be required to make proposals, execute or carry out agreements or submit
to orders providing for the sale or other disposition or holding separate
(through the establishment of a trust or otherwise) of any assets, categories
of assets or lines of business of Purchaser, any of its Affiliates, or the
Companies, or the holding separate of the Shares or any ownership interests in
the Companies or imposing or seeking to impose any
Page 15 - STOCK PURCHASE AGREEMENT
limitation on the ability of Purchaser or its subsidiaries or Affiliates to
conduct their business or owns such assets or to acquire, hold or exercise full
rights of ownership of the shares or membership interests, as applicable, of
the Companies. Purchaser and AFC shall each pay one-half of the fees due under
the HSR Act.
6. REPRESENTATIONS AND WARRANTIES OF AFC. AFC hereby represents and
warrants as follows, which representations and warranties set forth herein
shall be as of the date hereof on the Closing Date, and shall survive the
Closing for a period of two (2) years following the Closing, except that the
representations and warranties set forth in Paragraph 6.h, shall survive for a
period of six (6) years.
a. ORGANIZATION AND GOOD STANDING.
i. AFC. AFC is a corporation duly organized, validly
existing and in good standing under the laws of the
State of Minnesota and has all requisite corporate
power and authority to conduct its business and own,
operate and lease its properties and to conduct its
business as now being conducted.
ii. SCC. SCC (a) is a corporation duly organized,
validly existing and in good standing under the laws
of the State of Georgia; (b) has all requisite
corporate power and authority to conduct its
business and own, operate and lease its properties
as and in the places where such business is now
conducted and such properties are now owned, leased
or operated; (c) is duly qualified as a foreign
corporation in all jurisdictions, both inside and
outside of the United States of America, in which it
transacts business and in which failure to qualify
would materially adversely effect SCC's ability to
transact its business in such jurisdiction, a list
of which foreign jurisdictions is set forth on
SCHEDULE 6.A.II. attached hereto; and (d) other than
Best and Italia, has no subsidiaries (defined as an
Affiliate organization in which SCC owns, directly
or indirectly, at least ten percent (10%) of the
outstanding stock or other equity).
iii. BEST. Best (a) is a limited liability company duly
organized, validly existing and in good standing
under the laws of the State of Washington; (b) has
all requisite power and authority to conduct its
business and own, operate and lease its properties
as and in the places where such business is now
conducted and such properties are now owned, leased
or operated; (c) is duly qualified as a foreign
limited liability company in all jurisdictions, both
inside and outside of the United States of America,
in which it transacts business and in which failure
to qualify would materially adversely effect Best's
ability to transact its business in such
jurisdiction, a list of which foreign jurisdictions
is set forth on SCHEDULE 6.A.III attached hereto;
and (d) has no subsidiaries, as defined in
subparagraph a.ii above.
Page 16 - STOCK PURCHASE AGREEMENT
iv. ITALIA. Italia (i) is a limited liability company
duly organized, validly existing and in good
standing under the laws of the State of Washington;
(ii) has all requisite power and authority to
conduct its business and own, operate and lease its
properties as and in the places where such business
is now conducted and such properties are now owned,
leased or operated; (iii) is duly qualified as a
foreign limited liability company in all
jurisdictions, both inside and outside of the United
States of America, in which it transacts business
and in which failure to qualify would materially
adversely effect Italia's ability to transact its
business in such jurisdiction, a list of which
foreign jurisdictions is set forth on SCHEDULE
6.A.IV attached hereto; and (iv) has no
subsidiaries, as defined in subparagraph a.ii above.
b. CORPORATE POWER AND AUTHORITY. The execution and delivery of
this Agreement by AFC and the consummation by AFC of the
transactions contemplated by this Agreement have been duly
authorized by all necessary corporate action on the part of
AFC, as applicable. At Closing, all corporate action on the
part of AFC and its directors, necessary for (i) the
authorization, execution, delivery and performance of the
other Transaction Documents to which it is a party; and (ii)
the performance of all of the obligations of AFC under this
Agreement and the Transaction Documents, shall have been duly
and validly taken.
c. CAPITALIZATION/STOCK OWNERSHIP.
i. SCC. The authorized capital stock of SCC consists
solely of 10,000 shares of no par value common
voting stock, of which 500 shares are issued and
outstanding and owned solely by AFC. The shares
referenced in the preceding sentence constitute all
of the Shares. Except as set forth on SCHEDULE 6.C.
(the "Existing Liens"), AFC owns the Shares, free
and clear of all Liens, and shall at Closing, have
full and unfettered right to transfer and deliver
the Shares to Purchaser. Each issued Share is duly
authorized, validly issued, fully paid and
nonassessable. There are no existing options,
warrants, calls or commitments with respect to any
of the authorized and unissued shares of SCC, and no
outstanding securities convertible into or
exchangeable for any capital stock or any options or
warrants to acquire capital stock of SCC. Since its
inception, SCC has not issued any shares of capital
stock other than the Shares. All of the Existing
Liens shall be terminated at or before the Closing.
ii. BEST. SCC is the owner of one hundred percent (100%)
of the Best Membership Interests. Except for the
Existing Liens, which shall be terminated at or
prior to Closing and the franchise tax for the
fiscal year ending December 30, 2002 assessed by the
State of Texas, which tax is not yet due (the "Texas
Taxes"), which Texas Taxes will be paid by Best in
full on May 15, 2003, SCC owns the Best Membership
Interests free and clear of all Liens. There are no
existing options, warrants, calls or
Page 17 - STOCK PURCHASE AGREEMENT
commitments with respect to the Best Membership
Interests, and no outstanding securities convertible
into or exchangeable for any Best Membership
Interests or any options or warrants to acquire Best
Membership Interests. Since its inception, Best has
not issued any Best Membership Interests other than
those owned by SCC on the date hereof.
iii. ITALIA. SCC is the owner of one hundred percent
(100%) of the Italia Membership Interests. Except
for the Existing Liens, which shall be terminated at
Closing and the Texas Taxes which will be paid by
Italia in full on May 15, 2003, SCC owns the Italia
Membership Interests free and clear of all Liens.
There are no existing options, warrants, calls or
commitments with respect to the Italia Membership
Interests, and no outstanding securities convertible
into or exchangeable for any Italia Membership
Interests or any options or warrants to acquire
Italia Membership Interests Since its inception,
Italia has not issued any Italia Membership
Interests other than those owned by SCC on the date
hereof.
d. FINANCIAL STATEMENTS. Attached hereto as SCHEDULE 6.D. (and
except as described therein) are true, correct and complete
copies of (i) AFC's audited financial statements (including
balance sheet, statement of operations and statement of cash
flows) for its fiscal year ending December 31, 2000, December
30, 2001 (collectively, the "AFC Financial Statements") and
(ii) the Companies' unaudited financial statements for the
year ending December 29, 2002 (the "Current Company Financial
Statements"). Except to the extent described on SCHEDULE 6.D,
the AFC Financial Statements and the Current Company
Financial Statements (collectively, the "Financial
Statements") are in accordance with the books and records of
AFC, are (1) complete and correct in all material respects
and fairly present in all material respects the financial
position and results of operations of the Companies as of
their respective dates and the results of operations and the
cash flows of the Companies for the periods presented
therein, (2) prepared in accordance with GAAP applied on a
consistent basis during the periods involved (except as
otherwise stated in the Financial Statements and with respect
to Current Company Financial Statements, except for the
absence of footnotes and subject to normal, recurring
adjustments), and (3) comply as to form, as of their
respective dates, in all material respects with applicable
accounting requirements of the Financial Accounting Standards
Board and other authoritative accounting or regulatory
organizations with respect thereto. Except to the extent
described on SCHEDULE 6.D, since the date of the Current
Company Financial Statements, there has not been any change
in the assets, liabilities, financial condition or operations
of any of the Companies from that reflected in the Current
Company Financial Statements which results in an increase in
liabilities or obligations of any Company in excess of
$50,000. Except to the extent reflected or reserved against
or noted in the Current Company Financial Statements or
otherwise disclosed on SCHEDULE 6.D., none of the Companies
had, as of such date, any material liabilities or obligations
of any nature, whether accrued, absolute, contingent,
determined, determinable or otherwise, and to
Page 18 - STOCK PURCHASE AGREEMENT
AFC's Knowledge, there exists no condition, situation or set
of circumstances that could reasonably be expected to result
in any liability or obligation incurred after the Acquisition
Date, including without limitation tax liabilities, whether
incurred in respect to or measured by such Company's income
for any period after the Acquisition Date and prior to the
date of such Current Company Financial Statements, or arising
out of transactions entered into, or events occurring between
the Acquisition Date and the date of such Current Company
Financial Statement. Except as described on SCHEDULE 6.d.,
there exists no basis for the assertion against SCC or any
Subsidiary, as of the date hereof or as of the date of the
Current Company Financial Statements, of any material
liability of a nature requiring financial statement
disclosure under GAAP that is not fully reflected or reserved
against or noted in the Current Company Financial Statements.
Each of the Restated Financial Statements, the Company
Audited Financial Statements, and the Closing Financial
Statements, on the date of delivery to Purchaser, will be (1)
complete and correct in all material respects, and will
fairly present in all material respects the financial
positions and results of operations of the Companies as of
their respective dates and the result of operations and the
cash flows of the Companies for the periods presented
therein, (2) prepared in accordance with GAAP applied on a
consistent basis during the periods involved, and (3) comply
as to form, as of their respective dates, in all material
respects with applicable accounting requirements of the
Financial Accounting Standards Board and other authoritative
accounting or regulatory organizations with respect thereto.
e. CAFES.
i. SCHEDULE 6.E.I attached hereto sets forth the number
of Cafes (the "Company-Owned Cafes") owned and
operated by SCC and the Subsidiaries (and, in the
case of Italia, its Affiliate, CT Restaurants, L.P.,
a Texas limited partnership ("CT")) and indicates
the number operated by Best (the "Best-Owned Cafes")
pursuant to the System (the "Best System") which
utilizes the principal service ▇▇▇▇ "Seattle's Best
Coffee" and related trademarks and service marks and
the number operated by Italia and its Affiliate (the
"Italia-Owned Cafes") pursuant to the System (the
"Italia System") which utilizes the principal
service ▇▇▇▇ "Torrefazione Italia" and related
trademarks and service marks. SCHEDULE 6.E.I also
contains an accurate and complete list showing (x)
each of the addresses of the Company-Owned Cafes
(the "Company-Owned Cafe Premises") that is
presently open for business, has been open for
business at any time within the past twenty-four
(24) months, or that is anticipated to be open for
business within six (6) months following the
Closing, and (y) an indication of whether such
location is or was owned by SCC or either of the
Subsidiaries or whether such location is or was
leased by SCC or either of the Subsidiaries. The
assets of CT, which are listed on SCHEDULE 6.E.I(A),
shall be contributed to TI prior to Closing, at no
cost to TI.
Page 19 - STOCK PURCHASE AGREEMENT
ii. Each lease and the current lawful owner of the
tenant's interest under each such lease for each
Company-Owned Cafe Premises is identified on
SCHEDULE 6.E.II. The information listed on SCHEDULE
6.E.II is true, complete and correct. Without
limiting the foregoing, the documents listed under
the headings "Lease Document Information" on
SCHEDULE 6.E.II lists all documents that constitute
the subject lease, including without limitation any
document that amends or affects the lease or tenants
rights or obligations with respect to the premises
subject thereto. To the extent the current lawful
owner of the tenant's interest under each such lease
is different from the name of the tenant identified
on the lease itself, then any such transfer to the
current lawful owner was (i) permitted under the
terms of the lease or (ii) the consent of any Person
whose consent was required for such transfer was
obtained.
iii. SCHEDULE 6.E.III contains a complete and accurate
list of each document that provides or allows
occupancy of each Company-Owned Cafe Premises, but
for which there is no lease currently in effect.
iv. SCHEDULE 6.E.IV contains a complete and accurate
list of storage agreements, common area agreements
(other than leases of common area adjacent to a
Company-Owned Cafe Premises described in the lease
for such Company-Owned Cafe Premises), leases or
other similar documents for space in or near the
same building or development in which a
Company-Owned Store is located.
f. OTHER PREMISES. None of the Companies own any interest in
real property.
i. SCHEDULE 6.F.I attached hereto contains a true,
correct and complete list of all real estate other
than the Company-Owned Cafe Premises (i) which are
presently and will be leased by SCC or either of the
Subsidiaries as of the Closing Date including
manufacturing facilities, distribution facilities
and sales offices (the "Other Premises") and (ii)
which are currently leased by a Company pursuant to
lease agreements which shall be terminated or
transferred to AFC or any other party (other than a
Company) designated by AFC prior to the Closing (the
"Excluded Premises").
ii. SCHEDULE 6.F.II contains a complete and accurate
list of all leases of interests in real property
pertaining to the Other Premises under which any
Company is the tenant (including as a successor to a
tenant or an assignee thereof), including
month-to-month tenancies, at will tenancies, other
periodic tenancies and any other short-term
tenancies. The information listed on SCHEDULE 6.F.II
is true, complete and correct. Without limiting the
foregoing, the documents listed on SCHEDULE 6.F.II
lists all documents that constitute the subject
lease, including without limitation any document
that amends or affects the lease or tenants rights
or obligations with respect to the premises subject
thereto. The current tenant under each lease
Page 20 - STOCK PURCHASE AGREEMENT
listed on SCHEDULE 6.F.II is Seattle Coffee Company
except for SBC # 53 , SBC # 52A and SBC #56 under
which the current tenant is Seattle Best Coffee LLC
and TI #809 under which Torrefazione Italia, LLC is
the current tenant. To the extent the current lawful
owner of the tenant's interest under each such lease
is different from the name of the tenant identified
on the lease itself, then any such transfer to the
current lawful owner was (i) permitted under the
terms of the lease or (ii) the consent of any Person
whose consent was required for such transfer was
obtained. Company-Owned Cafe Premises and the Other
Premises are referred to herein as the "Leased
Premises." Each Lease identified on SCHEDULES
6.E.II, 6.E.IV, or 6.F.II is referred to herein as a
"Premises Lease"; and collectively, the "Premises
Leases".
iii. A true, correct and complete copy of each written
Premises Lease, together with any document in AFC's
or any Company's possession that has the effect of
amending, supplementing or modifying such Lease
(collectively the "Lease Documents") in any way has
been provided to Purchaser and each such document is
listed on one or more of the Schedules attached.
Other than the Lease Documents, there are no
documents containing any material amendments,
modifications or supplements to the Premises Leases
that have not been disclosed to Purchaser.
iv. AFC has made available to Purchaser for review, each
lease file in its or any Company's possession with
respect to each Premises Lease.
v. The (i) minimum rent (or similar rental) payable
under each Premises Lease and the amount of all
additional rental paid thereunder during Calendar
Year 2002 and (ii) the date upon which each Premises
Lease is to expire is correctly listed on the
applicable Schedules hereto.
vi. To AFC's Knowledge, all Leased Premises comply with,
and are operating in compliance with all applicable
laws in all material respects.
vii. No written notices have been provided to any of the
Companies or AFC by any landlord (or lender for any
landlord) related to any Premises Lease, including
(without limitation) any written notice that (a )
would materially change or limit the permitted use
thereunder, change the location thereof, materially
change or limit the operations conducted therein,
(b) exercises any rights to terminate the Premises
Lease or adjust rental amounts, (c) provides notice
of any alleged breach by any party to the Premises
Lease which has not been cured as of the date of
this Agreement; or (d) provides any notice
concerning casualty or condemnation, and to AFC's
Knowledge, no basis exists for any such notice to be
provided.
Page 21 - STOCK PURCHASE AGREEMENT
viii. To AFC's Knowledge, no landlord under any Premises
Lease has failed to perform its obligations
thereunder.
ix. With respect to each Premises Lease, the person or
entity that holds the tenant's interest under the
Lease and to AFC's Knowledge, the landlord under
such Lease is accurately identified on the
applicable Schedule relating to such Premises Lease.
x. Except as described on the applicable Schedules
hereto, no other person or entity has any interest
in the tenant's interest in any Premises Lease other
than the tenant identified on the applicable
Schedules with respect to each Premises Lease.
xi. No party has provided any other party with written
notice of its repudiation of any provision of any
Premises Lease. Except as stated in SCHEDULE 6.F.XI,
there are no disputes, oral agreements or
forbearance programs in effect as to any Premises
Lease.
g. COMPANY ASSETS. The Company Assets are owned solely by the
Companies free and clear of all Liens, except for (i) the
Existing Liens, which shall be released at Closing, (ii) the
Permitted Encumbrances, and (iii) as to the Membership
Interests, the Texas Taxes. The Company Assets are in the
exclusive possession of the Companies. The tangible Company
Assets are in good working order, except as described in
SCHEDULE 6.G. The Company Assets include, but are not limited
to:
i. The furniture, fixtures, vehicles, machinery and
equipment (the "FF&E"), including without limitation
the FF&E listed on SCHEDULE 6.G.I hereto which is
located at the Companies' corporate offices,
roasting facility and distribution centers.
ii. The computer hardware, computer software (and
license agreements with respect thereto), and
electronic data and computer files and the storage
media upon which such files are located owned or
licensed by a Company, or which will be transferred
to a Company by AFC on or prior to the Closing, all
of which are listed on SCHEDULE 6.G.II hereto,
subject to additions or deletions in the ordinary
course of business prior to the Closing.
iii. The operating assets and supplies (the "Operating
Assets") used in connection with the conduct of the
Businesses, included but not limited to, menus,
uniforms, inventory, ingredients, food products,
beverages, dishes, pots, pans, napkins, and other
cooking, serving and eating utensils, paper
products, packaging supplies, cleaning supplies,
stationary, forms, labels, office supplies,
production supplies, ▇▇▇▇▇ cash and store change
funds and advertising, promotional and sales
materials. SCHEDULE 6.G.III sets forth the
Page 22 - STOCK PURCHASE AGREEMENT
minimum inventory of Operating Assets which will be
on the Premises of each Cafe (including without
limitation the Cafe contributed by CT) on the
Closing Date. All of such Operating Assets are now,
and will be at Closing, (a) clean and usable in the
normal course of business, except for reasonable
quantities of obsolete or otherwise unusable
Operating Assets in excess of the quantities of such
items set forth in SCHEDULE 6.G.III; (b) located at
the Premises; (c) owned by SCC or the Subsidiaries
free and clear of any and all Liens except for the
Existing Liens, which shall be released at Closing,
and the Permitted Encumbrances; and (d) at their
normal levels and sufficient for the normal
requirements of the Businesses and the operation of
the Company-Owned Cafes and the Systems. All items
of inventory reflected on the Financial Statements
are valued at the lower of cost or market value
determined on a first in, first out (FIFO) basis. No
inventory of SCC or the Subsidiaries is held on
consignment.
iv. (a) All unpaid franchise, license, royalty and
advertising fees or other amounts owed by
Franchisees or other parties to any of the
Companies; (b) all notes receivable, prepaid items
or expenses of whatever nature arising from or
related to the Businesses and (c) all amounts due
and owing to the Companies arising from the sale of
merchandise to customers in the ordinary course of
business (collectively, all such amounts due to the
Companies are hereinafter referred to as the
"Accounts Receivable"). A complete list of the
Accounts Receivable as of the March 14, 2003 is
attached hereto as SCHEDULE 6.G.IV. The Accounts
Receivable of each Company arose from bona fide
transactions in the ordinary course of the Business.
The materials and services involved have, in all
material respects, been provided to the account or
note obligor, and such Accounts Receivable
constitute valid and enforceable claims, subject to
applicable bankruptcy, insolvency and other similar
laws affecting the enforceability of creditors'
rights generally, general equitable principles,
discretion of the courts in granting equitable
remedies. The Accounts Receivable are collectible at
their full amounts, less any reserve for doubtful
accounts shown on the current Company Financial
Statements. There are no set-offs, counterclaims or
disputes which have been asserted by written notice
to any of the Companies or AFC with respect to the
Accounts Receivable.
v. The Premises Leases. Each of the Premises Leases
disclosed on SCHEDULES 6.E.II, 6.E.IV and 6.F.II is
in full force and effect and there are no existing
defaults or events of default on the part of any of
the Companies, real or claimed, or events which with
notice or lapse of time or both would constitute
defaults of any of the Companies. Except as
disclosed on SCHEDULE 6.G.V, neither the execution
of this Agreement nor the consummation of the
transactions contemplated herein shall constitute a
default under any of the Premises Leases. Except as
described on SCHEDULE 6.G.V, no consent of any
Landlord under the Premises Leases is required as a
result of the execution of this Agreement or the
Page 23 - STOCK PURCHASE AGREEMENT
consummation of the transactions contemplated
herein. Except as disclosed on SCHEDULE 6.G.V, there
are no material monetary obligations of any Company
to any lessor for acts or events, including without
limitation any damage to such real property or
improvements occurring prior to the date hereof,
other than accrued rent obligations disclosed on the
Current Company Financial Statements. Except as
indicated in SCHEDULE 6.G.V, to AFC's Knowledge, all
improvements on any real property leased to or used
by SCC or the Subsidiaries substantially conform to
all applicable state and local laws, use
restrictions, zoning and building ordinances and
health and safety ordinances, and the various
purposes for which the real estate and improvements
thereon are presently being used do not violate
applicable zoning laws.
vi. All leases for machinery, vehicles, equipment,
computer hardware, used or employed by any of the
Companies, (the "Equipment Leases"). SCHEDULE ▇.▇.▇▇
attached hereto sets forth a true and correct list
of each of the Equipment Leases having amounts
remaining due thereunder in excess of $5,000.00 (the
"Material Equipment Leases"). AFC has delivered to
Purchaser true, correct and complete copies of all
of the Material Equipment Leases together with all
amendments thereof. Each such Material Equipment
Lease is in full force and effect and there are no
existing defaults or events of default on the part
of any Company, real or claimed, or events which,
with notice or lapse of time or both, would
constitute material defaults by any Company.
vii. The Membership Interests.
h. TAXES.
i. Except as explained on SCHEDULE 6.H.I., the AFC
Affiliated Group has filed all Income Tax Returns
that it was required to file under applicable laws
and regulations for each taxable period during which
any of the Companies (or their predecessors) was a
member of the group. Each of the Companies has filed
all Returns that it was required to file under
applicable laws and regulations. Except as explained
on SCHEDULE 6.H.I., all such Returns were correct
and complete in all material respects and have been
prepared in substantial compliance with all
applicable laws and regulations. Except as explained
on SCHEDULE 6.H.I., all Taxes due and owing by any
of the Companies or for which any of the Companies
may be liable (whether or not shown on any Return)
have been paid. Except as explained on SCHEDULE
6.H.I., no claim has ever been made by an authority
in a jurisdiction where any of the Companies does
not file Returns that it is or may be subject to
taxation by that jurisdiction. Except as explained
on SCHEDULE 6.H.I., no member of the AFC Affiliated
Group currently is the beneficiary of any extension
of time within which to file any Return.
Page 24 - STOCK PURCHASE AGREEMENT
ii. There are no Liens for Taxes (other than Taxes not
yet due and payable) upon any of the assets of the
Companies.
iii. Each member of the AFC Affiliated Group has withheld
and paid all Taxes required to have been withheld
and paid in connection with any amounts paid or
owing to any employee, independent contractor,
creditor, stockholder, or other third party.
iv. Except as explained in SCHEDULE 6.H.I, neither AFC
nor any officer responsible for Tax matters of AFC
and its subsidiaries expects any authority to assess
any additional Income Taxes against any Affiliated
Group for any taxable period during which any of the
Companies (or their predecessors) was a member of
the group. There is no dispute or claim concerning
any material Income Tax liability of the AFC
Affiliated Group for any taxable period during which
any of the Companies (or their predecessors) was a
member of the group either (a) claimed or raised by
any authority in writing or (b) as to which AFC or
any of its officers responsible for Tax matters has
knowledge based upon personal contact with any agent
of such authority. Except as explained in SCHEDULE
6.H.I, neither AFC nor any officer responsible for
Tax matters of any of the Companies expects any
authority to assess any additional Taxes against any
of the Companies or for which any of the Companies
may be liable for any period for which Returns have
been filed. No foreign, federal, state, or local tax
audits or administrative or judicial Tax proceedings
are pending or being conducted with respect to Taxes
for which any of the Companies may have liability.
Except as explained in SCHEDULE 6.H.I, none of the
Companies has received from any foreign, federal,
state, or local taxing authority (including
jurisdictions where the Companies have not filed
Returns) any (i) written notice indicating an intent
to open an audit or other review, (ii) written
request for information related to Tax matters, or
(iii) written notice of deficiency or proposed
adjustment for any amount of Tax proposed, asserted,
or assessed by any taxing authority against any of
the Companies.
v. SCHEDULE 6.H.V lists all federal, state, local, and
foreign Returns filed with respect to any of the
Companies, or with respect to which any of the
Companies may have liability for Taxes, for taxable
periods ended on or after December 31, 1998,
indicates those Returns that have been audited, and
indicates those Returns that currently are the
subject of audit. AFC has delivered to Purchaser
correct and complete copies of all Tax Returns,
examination reports, and statements of deficiencies
assessed against or agreed to by any of the
Companies, or with respect to which any of the
Companies may have liability for Taxes, filed or
received since Acquisition Date.
Page 25 - STOCK PURCHASE AGREEMENT
vi. No member of the AFC Affiliated Group has waived any
statute of limitations in respect of any Income
Taxes or agreed to any extension of time with
respect to an Income Tax assessment or deficiency
for any taxable period during which any of the
Companies (or their predecessors) was a member of
the AFC Affiliated Group. None of the Companies has
waived any statute of limitations in respect of
Taxes or agreed to any extension of time with
respect to a Tax assessment or deficiency.
vii. SCC has not filed a consent under Code ss.341(f)
concerning collapsible corporations. None of the
Companies is a party to any agreement, contract,
arrangement or plan that has resulted or would
result, separately or in the aggregate, in the
payment of (a) any "excess parachute payment" within
the meaning of Code ss.280G (or any corresponding
provision of state, local or foreign Tax law) and
(b) any amount that will not be fully deductible as
a result of Code ss.162(m) (or any corresponding
provision of state, local or foreign Tax law). SCC
has not been a United States real property holding
corporation within the meaning of Code ss.897(c)(2)
during the applicable period specified in
Code ss.897(c)(1)(A)(ii). Each member of the AFC
Affiliated Group has disclosed on its federal Income
Tax Returns all positions taken therein that could
give rise to a substantial understatement of federal
Income Tax within the meaning of Code ss.6662. Since
the Acquisition Date, none of the Companies (or
their predecessors) (x) has been a member of an
Affiliated Group filing a consolidated federal
Income Tax Return (other than a group the common
parent of which was AFC) or (y) has any liability
for the Taxes of any Person (other than one of the
Companies) under Reg. ss.1.1502-6 (or any similar
provision of state, local, or foreign law), as a
transferee or successor, by contract, or otherwise.
viii. The unpaid Taxes of the Companies (a) did not, as of
the date of the Current Company Financial
Statements, exceed the reserve for Tax liability
(rather than any reserve for deferred Taxes
established to reflect timing differences between
book and Tax income) set forth on the face of the
Current Company Financial Statements (rather than in
any notes thereto) and (b) do not exceed that
reserve as adjusted for the passage of time through
the Closing Date in accordance with the past custom
and practice of the Companies or the AFC Affiliated
Group in filing their Returns. Since the date of the
Current Company Financial Statements, none of the
Companies incurred any liability for Taxes arising
from extraordinary gains or losses, as that term is
used in GAAP, outside the ordinary course of
business consistent with past custom and practice.
ix. SCC will not be required to include any item of
income in, or exclude any item of deduction from,
taxable income for any taxable period (or portion
thereof) ending after the Closing Date as a result
of any: (a) change in method of accounting for a
taxable period ending on or prior to the
Page 26 - STOCK PURCHASE AGREEMENT
Closing Date; (b) "closing agreement" as described
in Code ss.7121 (or any corresponding or similar
provision of state, local or foreign income Tax law)
executed on or prior to the Closing Date; (c)
intercompany transactions or any excess loss account
described in Treasury Regulations under Code ss.1502
(or any corresponding or similar provision of state,
local or foreign income Tax law); (d) installment
sale or open transaction disposition made on or
prior to the Closing Date; or (e) prepaid amount
received on or prior to the Closing Date.
i. PREMISES.
i. Except as described in SCHEDULE 6.I.I, all utilities
and major service systems (including without
limitation electrical, sanitary and sewage, HVAC,
air ventilation and filtering, refrigeration and
water supply) necessary for the operation of the
Company-Owned Cafes, the manufacturing facilities
and other Businesses conducted by the Companies are
in good working order and are adequate for the
present needs of the Company-Owned Cafes,
manufacturing facilities and other Businesses. To
AFC's Knowledge, there are no facts or circumstances
that will result in the termination of the present
access from any of the Premises to utility services
or existing streets, highways and roads adjoining
such Premises.
ii. The current use, occupancy, operation and condition
of all of the Premises comply, in all material
respects, with all applicable covenants, conditions,
restrictions and contracts and any applicable
zoning, building, health, safety, environmental and
other laws to which they are subject. All applicable
permits, licenses and other evidences of compliance
which are or were required to be obtained in
connection with the occupancy and use of the
Premises have been obtained, except those permits,
the failure of which to obtain could not reasonably
be expected to result in liabilities or obligations
in excess of $50,000 of any Company or result in the
loss or impairment of the use of such Premises.
iii. Except as set forth on SCHEDULE 6.I.III, none of the
Companies has received any Health Department or
other governmental citation with respect to any
Company-Owned Cafe, manufacturing facility or any of
the Businesses, which has not been cured.
iv. Except as set forth in the third item of SCHEDULE
6.N., neither AFC, SCC nor any Subsidiary has
received written notice that any of the
Company-Owned Cafes or the Premises are or will be
subjected to any condemnation, eminent domain or
similar proceedings, and to AFC's Knowledge, no such
eminent domain or similar proceeding is contemplated
by any governmental authority.
Page 27 - STOCK PURCHASE AGREEMENT
j. AUTHORITY; NONCONTRAVENTION. This Agreement has been duly
executed and delivered by AFC and, assuming the due
authorization, execution and delivery by the Purchaser
constitutes a legal, valid and binding obligation of AFC,
enforceable against it in accordance with its terms, subject
to applicable bankruptcy, insolvency and other similar laws
affecting the enforceability of creditors' rights generally,
general equitable principles and the discretion of courts in
granting equitable remedies. The execution and delivery of
this Agreement does not, and the consummation of the
transactions contemplated by this Agreement and compliance
with the provisions of this Agreement will not, conflict
with, or result in any violation of, or default (with or
without notice or lapse of time, or both) under, or give rise
to a right of termination, cancellation or acceleration of
any obligation or loss of a benefit under, or result in the
creation of any Lien upon any of the properties or assets of
AFC or any Company; (i) the Certificate of Incorporation or
Bylaws or equivalent charter documents of AFC or any Company;
(ii) any loan or credit agreement, note, bond, mortgage,
indenture, lease or other agreement, instrument, permit,
concession, franchise, license or similar authorization
applicable to AFC or any Company or their respective
properties or assets; or (iii) subject to the governmental
filings and other matters referred to in the following
sentence, any judgment, order, decree, statute, law,
ordinance, rule or regulation applicable to AFC or any
Company or their respective properties or assets, other than,
in the case of clauses (ii) and (iii), any such conflicts,
violations, defaults, rights, losses or Liens that
individually or in the aggregate are not (x) reasonably
likely to result in liabilities or obligations in excess of
$50,000 of any Company; (y) reasonably likely to materially
impair the ability of AFC to perform its material obligations
under this Agreement, or (z) reasonably likely to prevent or
materially delay the consummation of the transactions
contemplated by this Agreement. No consent, approval, order
or authorization of, action by, or in respect of, or
registration, declaration or filing with, any Governmental
Entity is required by or with respect to AFC or any Company
in connection with the execution and delivery of this
Agreement by AFC or the consummation by AFC of the
transactions contemplated by this Agreement, except for (1)
the filing under the HSR Act; (2) the consent of the Secured
Lender; and (3) such other consents, approvals, orders or
authorizations the failure of which to be made or obtained
individually or in the aggregate is not reasonably likely to
(x) have a Material Adverse Effect on any of the Companies,
(y) materially impair the ability of AFC to perform its
obligations under this Agreement; or (z) prevent or delay the
Closing.
k. NO BREACH. No Company is in breach of any, and each Company
has complied with and performed all obligations under, each
Company Contract or other material contract or agreement to
which it is a party except to the extent that such breach
would not give rise to grounds for termination or a claim
against any Company for damages in excess of $5,000. Except
as described in SCHEDULE 6.K. and except for any Permitted
Encumbrances and the Existing Liens, there is no basis for
the assertion against any Company, the Shares or the Company
Assets of any Liens, liabilities, debts or obligations,
whether due or to become due,
Page 28 - STOCK PURCHASE AGREEMENT
including but not limited to liabilities or obligations on
account of taxes (other than the Texas Taxes, but including
without limitation taxes arising out of this transaction) or
other governmental charges which would adversely affect or
cause a Lien upon the Company Assets, the Shares, the Best
Membership Interests, the Italia Membership Interests or
diminish the rights of the Companies in such Company Assets
or the rights of AFC in the Shares.
l. COMPLIANCE WITH LAWS. Except as described on SCHEDULE 6.L,
the Companies are, and have been at all times in the past, in
compliance, in all material respects, with all Applicable
Laws applicable to the conduct of the Businesses, including
without limitation Applicable Laws relating to (i) the offer
and sale of franchises, (ii) the servicing and operation of a
franchise system and (iii) zoning, building, public health,
plumbing, electrical, fire, public health, occupational
safety, pollution, food and drug preparation and labeling,
importation, environmental protection, and waste disposal
matters.
m. CONSENTS AND APPROVALS. Except for approvals required by the
HSR Act, consents required from landlords with respect to the
Premises Leases as set forth on SCHEDULE 6.G.V and as
identified on SCHEDULE 6.M, no consent or approval of any
other Person is required in connection with the execution,
delivery, performance, validity or enforceability of this
Agreement or the agreements contemplated by this Agreement,
other than consents or approvals which have been obtained and
delivered to Purchaser or which the failure to obtain in the
aggregate could not reasonably be expected to result in
liabilities or obligations in excess of $50,000 to any
Company or materially impair the ability of any Company to
operate its business in a manner consistent with past
practices.
n. ACTIONS AND PROCEEDINGS. Except as disclosed on SCHEDULE
6.N., there is no action, suit, proceeding or, to AFC's
Knowledge, investigation pending or, to the Knowledge of AFC,
threatened against or affecting the Companies, the Shares,
the Businesses, the Company-Owned Cafes or the Systems before
or by any Governmental Entity.
o. PROPRIETARY RIGHTS.
i. Attached hereto as SCHEDULE 6.O.I. is a true,
correct and complete list of all U.S. and Foreign
trade names, trademarks, service marks, logos,
slogans, and assumed names currently used in and
material to the conduct of the Businesses as they
are currently being conducted (collectively the
"Marks") and all U.S. and foreign trademark and
service ▇▇▇▇ registrations and applications for
registration (collectively, the "Trademark
Registration Rights") with respect thereto,
including (a) the jurisdictions, if any, by or in
which such Marks are registered or for which an
application has been filed, (b) any applicable
registration or application numbers, (c) the dates
of any such registration or application, and (d) the
Page 29 - STOCK PURCHASE AGREEMENT
dates that any affidavits of use or renewals have
been or are required to be filed.
ii. Attached hereto as SCHEDULE 6.O.II. is a true,
correct and complete list of all U.S. and foreign
copyright registrations and applications for
registration for materials currently being used for
and material to the conduct of the Businesses as
they are currently being conducted (the "Registered
Copyrights"), together with (a) any applicable
registration or application numbers, and (b) the
date of issuance of any such registration or of
filing of any such registration application.
iii. Attached hereto as SCHEDULE 6.O.III. is a true,
correct and complete list, by name or other
commonly-used description, of all U.S. and foreign
patents and patent applications currently being used
for and material to the conduct of the Businesses as
they are currently being conducted (collectively the
"Patents"), together with the number and date of
issuance of any Patent and the application number
and filing date of any application for a Patent.
iv. Attached hereto as SCHEDULE 6.O.IV. is a true,
correct and complete list of all secret recipes and
roasting profiles, currently being used for and
material to the conduct of the Businesses as they
are currently being conducted (collectively the
"Recipes"). True, correct and complete originals of
each of the Recipes will be delivered to Purchaser
at Closing.
v. Attached hereto as SCHEDULE 6.O.V. is a complete
list of the elements which the Companies claim to
constitute trade dress elements (the "Trade Dress")
of the Businesses as they are currently being
conducted and the Company-Owned Cafes and the
Systems as they are currently being operated.
vi. Pursuant to the agreements described in SCHEDULE
▇.▇.▇▇. ("Publicity Rights Agreements"), the
Companies have been granted certain rights (the
"Publicity Rights") with respect to the names and
likenesses of certain Persons. In addition, the
Companies have been granted certain rights to use
certain trademarks, service marks, logos, slogans
and other marks owned by other Persons (the
"Third-Party Licensed Marks") pursuant to the
agreements (the "Third-Party License Agreements")
described in SCHEDULE ▇.▇.▇▇. True and correct
copies of the Publicity Rights Agreements and the
Third-Party License Agreements are attached to
SCHEDULE ▇.▇.▇▇. To AFC's Knowledge, the grantors of
the Publicity Rights and the licensors of the
Third-Party Licensed Marks have the power, authority
and right to grant the rights set forth in the
Publicity Rights Agreements and the Third-Party
License Agreements. To AFC's Knowledge, such
Agreements do not conflict with any rights of any
third party, and AFC is not aware of any claims or
allegations that its use of the
Page 30 - STOCK PURCHASE AGREEMENT
Publicity Rights or the Third-Party Licensed Marks
infringes on the rights of any third party.
vii. The Marks, the Trademark Registration Rights, the
Registered Copyrights, the Patents, the Recipes and
the Trade Dress, but excluding Publicity Rights, the
Publicity Rights Agreements, the Third-Party
Licensed Marks and the Third-Party License
Agreements, shall be collectively referred to as the
"Proprietary Rights" Except for the rights granted
to Franchisees, Licensees or Developers in the
Franchise Agreements, License Agreements and in the
Development Agreements and the rights granted to any
Persons under the other agreements listed on
SCHEDULE 6.O.VII. or by one Company to another
Company, each Company has sole and exclusive rights
to use, execute, reproduce, display, perform,
modify, enhance, distribute, prepare derivative
works of, license and transfer its Proprietary
Rights, has not granted any options or licenses or
entered into any agreements of any kind relating to
the Proprietary Rights or the marketing and
distribution thereof; and the transaction
contemplated herein, will not result in the loss or
impairment, in whole or in part, of any Proprietary
Right. Except as identified on SCHEDULE 6.O.I, all
registrations and applications relating to the
Proprietary Rights are standing in the name of one
of the Companies, and the Companies collectively
hold all right, title and interest in and to all
Proprietary Rights, except for the rights granted to
Franchisees, Licensees, Developers or other Persons
pursuant to the agreements identified on SCHEDULE
6.O.VII.
viii. All registrations and applications for the items on
SCHEDULES 6.O.I, II and III are subsisting and in
good standing and to AFC's Knowledge, the
Proprietary Rights are valid and enforceable and no
act or omission has occurred which would materially
adversely affect the validity or enforceability of
any material Proprietary Rights.
ix. To AFC's Knowledge, neither the conduct of the
Businesses nor the operation of the Cafes or the
Systems, nor the use of any of the Proprietary
Rights, infringes upon, dilutes or constitutes an
unauthorized use of any proprietary rights owned or
controlled by any third party. Except as set forth
in SCHEDULE 6.O.IX attached hereto, there is no
claim, suit, action or proceeding (a "Proprietary
Right Claim") pending or, to AFC's Knowledge,
threatened against the Company or to AFC's
Knowledge, any Franchisee or Licensee alleging that
use of the Proprietary Rights by the Companies or
the Franchisees or Licensees infringes upon, dilutes
or constitutes an unauthorized use of the
proprietary rights of any third person, or alleging
that any Company does not have the valid right to
use any Proprietary Right. SCHEDULE 6.O.IX lists
each Proprietary Right Claim pending or, to AFC's
Knowledge, threatened in writing against any Company
or to AFC's Knowledge, any Franchisee or Licensee,
together with (a) the identity of the Proprietary
Right alleged to be infringing; (b)
Page 31 - STOCK PURCHASE AGREEMENT
the basis for such claim, including the right
alleged to be infringed; (c) the name of the party
by whom such Proprietary Right Claim has been made;
(d) if applicable, the jurisdiction, court or agency
before which the Proprietary Right Claim has been
commenced and the number assigned to such
proceeding; and (e) the attorneys representing all
parties involved in such Proprietary Rights Claim.
x. Except as set forth in SCHEDULE 6.O.X, to AFC's
Knowledge, there are no existing infringements,
dilutions or unauthorized uses by any third party of
any of the Proprietary Rights, and neither AFC nor
any Company has any claim outstanding with respect
to prior infringements, dilutions or unauthorized
uses. SCHEDULE 6.O.X lists each Proprietary Right
Claim pending or to AFC's Knowledge, threatened by
any Company, together with (a) the identity of the
Proprietary Right alleged to be infringed; (b) the
basis for such claim, including the right alleged to
be infringed; (c) the name of the party against whom
such Proprietary Right Claim has been made; (d) if
applicable, the jurisdiction, court or agency before
which the Proprietary Right Claim has been commenced
and the number assigned to such proceeding; and (e)
the attorneys representing all parties involved in
such Proprietary Right Claim.
xi. Except as described on SCHEDULE 6.O.XI, the
Companies currently license or own, and, in either
case have the legal right to use, all computer
software that is material to the conduct of the
Businesses and the operation of the Company-Owned
Cafes and the Systems, and all such computer
software is being so used in compliance with any
applicable licenses. All of the items described on
SCHEDULE 6.O.XI which are not currently licensed or
owned by the Companies shall be transferred by AFC
to a Company on or prior to the Closing.
xii. Except as described on SCHEDULE 6.O.XII, to AFC's
Knowledge, no former or current officer, employee or
agent of AFC or any Company has any claim against
any Company in connection with such person's
involvement in the conception and development of any
Proprietary Rights and no such claim has been
threatened or asserted in writing. To AFC's
Knowledge, none of the current officers or employees
of AFC or the Companies have any patents issued or
applications pending for any device, process, design
or invention of any kind now used or needed by the
Companies in connection with the conduct of the
Businesses or the operation of the Company-Owned
Cafe and the Systems, which patents or applications
have not been assigned to the applicable Company.
xiii. Except as described on SCHEDULE 6.O.XIII, none of
the Companies has, as of and since the date upon
which it acquired the Proprietary Rights, (i) filed
or authorized the filing with the Assignment
Division of the United States Patent and Trademark
Office ("PTO"), United States Copyright
Page 32 - STOCK PURCHASE AGREEMENT
Office or similar foreign office of any lien,
security interest or encumbrance against any
registration, patent or application identified in
SCHEDULES 6.O.I, II or III; (ii) authorized or filed
any lien relating to Proprietary Rights under the
UCC or any similar foreign statute; (iii) entered
into any license, franchise or other agreement with
respect to any of the Proprietary Rights with any
third person (except for the Franchise Agreements
listed on SCHEDULE 6.P.I.(A), the License Agreements
listed on SCHEDULE 6.P.II.(A), the Development
Agreements listed in SCHEDULE 6.Q.I, the Publicity
Rights Agreement and the Third-Party License
Agreements both listed in SCHEDULE ▇.▇.▇▇, and such
other agreements listed on SCHEDULE 6.O.VII); (iv)
otherwise transferred, conveyed, sold, assigned,
pledged, mortgaged, granted a security interest in
or encumbered any of the Proprietary Rights, or (v)
entered into any settlement, consent, covenant not
to ▇▇▇ or similar agreement with respect to any
Proprietary Right.
xiv. The Companies have obtained confidentiality and
nondisclosure agreements to protect the secrecy of
all recipes which are considered by the Companies to
be confidential information or trade secrets only
from those of its employees identified in SCHEDULE
6.O.XIV.
xv. All License and Franchise Agreements constitute
valid and binding obligations of the parties
thereto, enforceable in accordance with their
respective terms, subject to each of the following
(collectively, the "Enforceability Exceptions"): (A)
applicable bankruptcy, insolvency and other similar
laws affecting the enforceability of creditors'
rights generally; (B) general equitable principles,
the discretion of courts in granting equitable
remedies; (C) the validity or effect of contractual
provisions providing for choice of governing law;
(D) the possible unenforceability of provisions
purporting to waive certain rights of guarantors;
(E) the possible unenforceability of provisions
requiring indemnification for, or providing
exculpation, release, or exemption from liability
for, action or inaction, to the extent such action
or inaction involves negligence or willful
misconduct or to the extent otherwise contrary to
public policy; provisions purporting to require
arbitration of disputes; provisions prohibiting
competition, the solicitation or acceptance of
customers, of business relationships, or of
employees, the use or disclosure of information, or
other activities in restraint of trade; provisions
imposing increased interest rates or late payment
charges upon delinquency in payment or default or
providing for liquidated damages; waivers or advance
consents that have the effect of waiving statutes of
limitation, marshalling of assets or similar
requirements, or as to the jurisdiction of courts,
the venue of actions, the right to jury trial or, in
certain cases, notices; provisions that waivers or
consents by a party may not be given effect unless
in writing or in compliance with particular
requirements or that a person's course of dealing,
course of performance,
Page 33 - STOCK PURCHASE AGREEMENT
or the like or the failure or delay in taking action
may not constitute a waiver of related rights or
provisions or that one or more waivers may not under
certain circumstances constitute a waiver of other
matters of the same kind; provisions that enumerated
remedies are not exclusive or that a party has the
right to pursue multiple remedies without regard to
other remedies elected or that all remedies are
cumulative; provisions permitting the exercise,
under certain circumstances, of rights without
notice or without providing opportunity to cure
failures to perform; and provisions that a party or
a party's designee are conclusive; provisions
permitting modification of an agreement only in
writing; provisions that the provisions of an
agreement are severable. Except as described on
SCHEDULE 6.O.XV, the consummation of the
transactions contemplated by this Agreement will not
constitute a breach or default or event which, with
notice, lapse of time, or both, would constitute a
default or an event of default under any agreement
included within or relating to any of the
Proprietary Rights.
p. FRANCHISE AGREEMENTS AND LICENSE AGREEMENTS.
i. FRANCHISE AGREEMENTS.
(a) SCHEDULE 6.P.I.(A) includes a true, correct
and complete list of the franchise
agreements in effect as of the date of this
Agreement pursuant to which AFC or the
Companies have granted to third parties (
"Franchisees") the right to operate Cafes
(the "Franchised Cafes") under either of
the Systems (hereinafter collectively
referred to as the "Franchise Agreements").
SCHEDULE 6.P.I.(A) shall include all such
Franchise Agreements (including master
Franchise Agreements, if any) and
amendments or modifications thereto in
effect as of the date of this Agreement,
indicating with respect to each such
Franchise Agreement (a) the name of the
Franchisee and the franchisor
("Franchisor"); (b) the System under which
the Cafe is operated, (c) the Cafe address,
(d) the commencement and termination dates
of the term of the Franchise Agreement; (e)
the monthly royalty fee percentage payable
under the Franchise Agreement; (f) the
monthly royalty fees actually paid by the
Franchisee for the fiscal year ending
December 29, 2002; (g) all amounts payable
by the Franchisee, pursuant to the
Franchise Agreement, to the Advertising
Fund, to a regional cooperative and
otherwise for local, regional, or national
advertising; (h) the amounts actually paid
by the Franchisee to the Advertising Fund,
to a regional cooperative and otherwise for
local, regional, or national advertising
for the fiscal year ending December 29,
2002; (i) the initial license fee paid by
the Franchisee pursuant to the Franchise
Agreement; and (j) the territorial rights
or protections, if any, conferred upon such
Page 34 - STOCK PURCHASE AGREEMENT
Franchisee by Franchisor. True, correct and
complete copies of all Franchise Agreements
and amendments thereto or modifications
thereof referred to in SCHEDULE 6.P.I.(A)
have been delivered to Purchaser. Except as
described in SCHEDULE 6.P.I.(A), there are
no oral Franchise Agreements or oral
modifications or amendments to any
Franchise Agreements.
(b) SCHEDULE 6.P.I.(B) specifies each
Franchisee that is a party to any Franchise
Agreement that (a) is in default with
respect to the payment of any financial
obligation required under such Franchise
Agreement; (b) to the Knowledge of AFC, is
the subject of a case under the Bankruptcy
Code or any other bankruptcy, insolvency,
receivership or similar case or proceeding
under state, federal or foreign law, of
which the Franchisor has been notified; (c)
to the Knowledge of AFC, is maintaining its
Cafe in a condition or operating such Cafe
in a manner that is materially inconsistent
with the requirements of the applicable
System; or (d) to AFC's Knowledge, is
otherwise in material violation of or
default under any of the terms of its
Franchise Agreement. SCHEDULE 6.P.I.(B)
further specifies, with respect to each
Franchisee that is in default under a
Franchise Agreement, the date and contents
of each default and/or termination notice
sent to such Franchisee since January 1,
2002, and the status of such default or
termination notice as of April 4, 2003.
(c) Franchisors have and had, at all relevant
times and in all material respects, the
corporate power and authority and legal
right to (i) enter into and carry out the
terms of each Franchise Agreement; and (ii)
consummate the transactions contemplated
hereby without the consent of Franchisees.
(d) Except as hereinafter provided in this
paragraph, each Franchise Agreement, and
all agreements, instruments and documents
furnished pursuant to a Franchise
Agreement, comply in all material respects
with all applicable federal, state and
foreign laws (and rules and regulations
thereunder) and all applicable orders,
consents or decrees from any federal, state
or foreign administrative or regulatory
agency. Certain states have statutes that
limit the franchisor's rights with respect
to the termination or non-renewal of
franchise agreements, disapproval of a
franchisee's application to transfer the
franchise, and limiting the franchisee's
rights of association, in each case without
compliance with such statute's provisions;
to the extent that the terms of the
Franchise Agreements do not comply with the
provisions of these statutes, the
applicable Franchisor may avoid any
liability or exposure as a
Page 35 - STOCK PURCHASE AGREEMENT
result of such noncompliance by following
the applicable provisions of state law.
(e) No Franchise Agreement listed on SCHEDULE
6.P.I.(A) has been subordinated, assigned,
rescinded, or terminated prior to its
stated expiration date without being
reinstated within ninety (90) days of such
subordination, assignment, rescission or
termination; no provision regarding the
calculation and payment of royalty fees or
other payments owed to the Franchisor in
any Franchise Agreement has been waived,
altered or modified in any respect adverse
to the Franchisor thereunder, except as
disclosed on SCHEDULE 6.P.I.(A); to AFC's
Knowledge, no right of rescission, set-off,
counterclaim or defense exists or has been
asserted or threatened with respect to any
Franchise Agreement; no Franchisor is in
violation of or in default under any term
of any Franchise Agreement, the violation
or breach of which would give any
Franchisee a material claim against any
Franchisor, and each Franchisor has
performed each and every material
obligation to be performed by the
Franchisor under each Franchise Agreement
to which it is a party in accordance with
its terms; and no Franchisor has waived any
default by a Franchisee which would
materially adversely affect any Franchise
Agreement.
(f) Prior to the Closing Date all filings
(including, without limitation, UFOC
filings) and notices to any Person or
Governmental Entity that must be made by
AFC or any Company prior to the Closing in
connection with the transactions
contemplated hereby will have been timely
made. However, upon execution and delivery
of this Agreement, the Franchisors shall
not continue to offer for sale or sell
franchises prior to Closing, provided,
however, that nothing herein shall be
construed to prohibit any Company from
entering into a Franchise Agreement with
any Franchisee in accordance with the terms
of any Development Agreement in effect as
of the date of this Agreement.
(g) Each Franchise Agreement granting any
Franchisee the right to operate a
Franchised Cafe currently requires such
Franchisee to maintain insurance polices
(the "Required Policies") with the coverage
described on SCHEDULE 6.P.I.(G). Except for
those Franchisees listed in SCHEDULE
6.P.I.(G), the Companies have evidence of
such insurance coverage for all
Franchisees.
(h) SCHEDULE 6.P.I.(H) (and to be updated and
supplemented as of the Closing) sets forth
a complete list of (i) all rebates,
marketing and advertising allowances
received by each Franchisor from suppliers,
vendors or other persons (collectively
"Suppliers") since the
Page 36 - STOCK PURCHASE AGREEMENT
Acquisition Date with respect to the
Franchised Cafes; and (ii) all rebates,
marketing and advertising allowances which
have accrued with respect to the Franchised
Cafes, but not been paid as of the date
hereof. Except as set forth in SCHEDULE
6.P.I.(H), all rebates received by each
Franchisor with respect to the Franchised
Cafes since the Acquisition Date from
Suppliers have been contributed by the
Franchisor to the appropriate Advertising
Fund or distributed to or for the benefit
of the Franchisees. No claim of any nature
has been made by any Franchisee with
respect to the application of such funds by
any Franchisor.
(i) There are no contractual limitations or
prohibitions affecting any Franchisor's
right to operate Cafes or sell franchises
in any geographic area or location except
as expressly set forth in the Franchise
Agreements, License Agreements or
Development Agreements specifically
described in the attachments hereto or in
SCHEDULE 6.P.I.(I).
ii. LICENSE AGREEMENTS.
(a) SCHEDULE 6.P.II.(A) includes a true,
correct and complete list of any written
license agreements in effect as of the date
of this Agreement, other than Franchise
Agreements, pursuant to which AFC or the
Companies have granted to third parties
("Licensees") the right to use any of the
Marks or any component of either of the
Systems (hereinafter collectively referred
to as the "License Agreements"). SCHEDULE
6.P.II.(A) shall include all such License
Agreements and written amendments or
modifications thereto in effect as of the
date of this Agreement. True, correct and
complete copies of all License Agreements
and written amendments thereto or
modifications thereof referred to in
SCHEDULE 6.P.II.(A) have been delivered to
Purchaser (excluding those portions of such
License Agreements that were redacted by
AFC which will be provided to Purchaser
within five (5) days of the date of this
Agreement). Except as described in SCHEDULE
6.P.II.(A), there are no oral license
agreements or oral modifications or
amendments to any License Agreements.
(b) SCHEDULE 6.P.II.(B) specifies each Licensee
that is a party to a License Agreement that
(a) is in default with respect to the
payment of any financial obligation
required under such License Agreement; (b)
to the Knowledge of AFC, is the subject of
a case under the Bankruptcy Code or any
other bankruptcy, insolvency, receivership
or similar case or proceeding under state,
federal or foreign law, of which the
Licensor has been notified; or (c) to AFC's
Knowledge, is otherwise in material
violation of or default
Page 37 - STOCK PURCHASE AGREEMENT
under any of the terms of its License
Agreement. SCHEDULE 6.P.II.(B) further
specifies, with respect to each Licensee
that is in default under a License
Agreement, the date and contents of each
default and/or termination notice sent to
such Licensee since January 1, 2002 and the
status of such default or termination
notice as of April 4, 2003 .
(c) Licensors have and had, at all relevant
times and in all material respects, the
corporate power and authority and legal
right to (i) enter into and carry out the
terms of each License Agreement; (ii)
consummate the transactions contemplated
hereby without the consent of the
Licensees.
(d) No License Agreement listed on SCHEDULE
6.P.II.(A) has been subordinated, assigned,
rescinded, or terminated prior to its
stated expiration date without being
reinstated within ninety (90) days of such
subordination, assignment, rescission or
termination; no provision regarding the
calculation and payment of royalty fees or
other payments owed to the Licensor in any
License Agreement has been waived, altered
or modified in any respect adverse to the
Licensor thereunder; to AFC's Knowledge, no
right of rescission, set-off, counterclaim
or defense exists or has been asserted or
threatened with respect to any License
Agreement; no Licensor is in violation of
or in default under any term of any License
Agreement, the violation or breach of which
would give any Licensee a material claim
against any Licensor, and each Licensor has
performed each and every material
obligation to be performed by the Licensor
under each License Agreement to which it is
a party in accordance with its terms; and
no Licensor has waived any default by a
Licensee which would materially adversely
affect any License Agreement.
q. DEVELOPMENT AGREEMENTS.
i. SCHEDULE 6.Q.I contains a true and complete list of
the development agreements in effect as of the date
hereof pursuant to which SCC or either of the
Subsidiaries has granted other parties
("Developers") the right to develop one or more
Cafes or any other business using any component of
either of the Systems (including any option or right
of refusal held with respect to such matters by any
third party) (hereinafter collectively referred to
as the "Development Agreements") together with any
amendments thereto in effect as of the date of this
Agreement, indicating with respect to each
Development Agreement (a) the name of the Developer
and the Franchisor; (b) the territory in which the
Developer is granted development rights and whether
that territory is exclusive; (c) the number of Cafes
required to be developed pursuant to the Development
Page 38 - STOCK PURCHASE AGREEMENT
Agreement with respect to each System; (d) the Cafes
developed pursuant thereto which were open and
operating as of April 4, 2003; (e) the Cafes for
which Franchise Agreements had been signed, license
fees paid and locations designated, but which were
not open and operating as of April 4, 2003; and (f)
the number of Cafes for which Franchise Agreements
had been signed and license fees paid, but no
location had been selected as of April 4, 2003.
True, correct and complete copies of all Development
Agreements and amendments thereto or modifications
thereof have been delivered to Purchaser. There are
no oral Development Agreements or oral modifications
or amendments to any Development Agreements.
ii. SCHEDULE 6.Q.II specifies each Developer that is a
party to any Development Agreement that (i) is not
in compliance with the development schedule set
forth in such Developer's Development Agreement;
(ii) to AFC's Knowledge, is otherwise in material
violation or default of any of the terms of such
Development Agreement; or (iii) to the Knowledge of
AFC, is the subject of a case under the Bankruptcy
Code or any other bankruptcy, insolvency,
receivership or similar case or proceeding under
state, federal or foreign law, of which the
Franchisor has received written notice. SCHEDULE
6.Q.II further specifies, with respect to each
Developer that is in default under a Development
Agreement, the date and contents of each default
and/or termination notice sent to such Developer
since January 1, 2002 and the status of such default
or termination notice as of April 4, 2003.
iii. Each Franchisor has and had, at all relevant times
and in all material respects, the corporate power
and authority and legal right to enter into and
carry out the terms of each Development Agreement to
which it is a party.
iv. Except as hereinafter provided in this paragraph,
each Development Agreement, and all agreements,
instruments and documents furnished pursuant to a
Development Agreement, comply in all material
respects with all applicable federal, state and
foreign laws (and rules and regulations thereunder)
and all applicable orders, consents or decrees from
any federal, state or foreign administrative or
regulatory agency. Certain states have statutes that
limit the franchisor's rights with respect to the
termination or non-renewal of development
agreements, disapproval of a developer's application
to transfer the development rights, and limiting the
developer's rights of association, in each case
without compliance with such statute's provisions;
to the extent that the terms of the Development
Agreements do not comply with the provisions of
these statutes, the applicable Franchisor may avoid
any liability or exposure as a result of such
noncompliance by following the applicable provisions
of state law.
Page 39 - STOCK PURCHASE AGREEMENT
v. Except as set forth in SCHEDULE 6.q.v, no development
schedule in any Development Agreement listed on
SCHEDULE 6.q.i has been waived, altered or modified
in any respect; and no Franchisor is in violation of
or in default under any material term of a
Development Agreement.
vi. No Development Agreement was originated in, or is
subject to, the laws of any jurisdiction which would
make the transactions contemplated hereby unlawful.
Prior to the Closing Date all filings (including,
without limitation, UFOC filings) and notices that
must be made by AFC prior to the Closing relative to
the Development Agreements in any relevant
jurisdiction prior to the Closing in connection with
the transactions contemplated hereby will have been
made. However, upon execution and delivery of this
Agreement, the Franchisors shall not continue to
offer for sale or sell franchise development rights
prior to Closing without modifications to their UFOCs
to reflect the transaction contemplated herein.
vii. SCHEDULE 6.q.vii sets forth a complete list of all
Development Agreements that have terminated since the
Acquisition Date by reason of the expiration of the
term or otherwise. Except as set forth in SCHEDULE
6.q.vii, all activities by Franchisees relating to
the development of Franchised Cafes have been
undertaken pursuant to valid, binding and enforceable
written Development Agreements and Franchise
Agreements, subject to the Enforceability Exceptions.
r. ADVERTISING FUNDS.
i. SCHEDULE 6.r.i contains a correct and complete list
of all assets and all liabilities and accounts
payable of the Advertising Funds as of April 4, 2003.
Monies contributed to the Advertising Funds are
deposited in one or more bank accounts maintained by
the Companies for general operating purposes and are
not deposited in segregated accounts maintained
solely for the Advertising Funds. All contributions
to the Advertising Funds are, and shall be at
Closing, reflected in the Financial Statements of the
applicable Company as a liability of such Company to
the applicable Advertising Fund (an "Advertising Fund
Liability"). No monies, other than Franchisees'
contributions to the Advertising Funds and
contributions by the Companies are treated as
Advertising Fund Liabilities.
ii. All contributions to the Advertising Funds made by
Franchisees and the Companies are used solely for
purposes of marketing and advertising Cafes and
creative development on behalf, and for the benefit,
of all of the appropriate Franchisees.
iii. Each Franchisor has operated and administered the
Advertising Funds in compliance with laws, rules and
regulations applicable thereto and in
Page 40 - STOCK PURCHASE AGREEMENT
accordance with its fiduciary and legal
responsibilities, if any, established in any
governing documents of the Advertising Funds and in
any other agreements or understandings entered into
with franchisees, suppliers, vendors or others in
connection therewith. As of the date hereof, the
Advertising Funds have no material liabilities or
obligations of any nature, whether accrued, absolute,
contingent or otherwise, including without limitation
tax liabilities, other than liabilities incurred in
the ordinary course of business. There exists no
basis for the assertion against the Advertising
Funds, as of the date hereof or as of the Closing
Date, of any material liability of any nature or in
any amount other than liabilities incurred in the
ordinary course of business.
iv. There are no regional advertising cooperatives
currently in existence in connection with the System
or the Businesses.
s. FRANCHISE MATTERS/UFOC.
i. SCHEDULE 6.s.i sets forth a true and complete list of
(a) all jurisdictions, including without limitation,
all states in the United States, provinces in Canada
or other countries, in which each Subsidiary is
currently, and upon Closing will be, registered to
sell franchises; and (b) all jurisdictions, including
without limitation, all states in the United States
and provinces in Canada, in which each Subsidiary is
exempt from the registration provisions of such
jurisdiction's franchise registration law. The
jurisdictions in which each Subsidiary is and will be
registered immediately prior to Closing are the only
jurisdictions in which the Subsidiaries are required
to be registered in light of the development rights
of the Franchisees set forth in the Development
Agreements, but excluding the Development Agreements
to be transferred to AFC pursuant to Paragraph 9.h
hereof. Upon consummation of the transactions
contemplated hereby, such registrations and
exemptions for which any application, filing or
notice was required to be made or given may be of no
further force or effect and the Subsidiaries may be
required to take such action as may be required by
applicable state laws and regulations to reregister
or obtain exemptions from registration or modify
existing registration statements for future sales or
offers to sell franchises in such jurisdictions.
ii. AFC has delivered to Purchaser true and correct
copies of each Subsidiary's Uniform Franchise
Offering Circulars ("UFOCs"), which are currently
being used in connection with offers to sell and
sales of their respective Franchises. SCC has neither
offered nor sold any franchise or license except
through such subsidiaries since the Acquisition Date
and has not prepared, used, filed or registered a
UFOC for purposes of franchise or license sales. Such
UFOCs, and all UFOCs used by the Subsidiaries since
the Acquisition Date: (a) comply in all material
respects
Page 41 - STOCK PURCHASE AGREEMENT
with all applicable federal and state laws and
regulations pertaining to offers to sell and sales of
franchises, including, without limitation the Federal
Trade Commission's Disclosure Rule entitled
"Disclosure Requirements and Prohibitions Concerning
Franchising and Business Opportunity Ventures", 16
C.F.R.ss.436; and (b) do not contain any untrue
statement of a material fact or omit to state a
material fact required to be stated therein or
necessary in order to make the statements therein, in
light of the circumstances under which they were
made, not misleading. The representations and
warranties set forth in this Paragraph 6.s, as well
as Paragraphs 6.p, 6.q and 6.r, are qualified by the
disclosures set forth on SCHEDULE 6.s.ii.
iii. Since the Acquisition Date, all offers to sell and
all sales of the Subsidiaries' franchises and
development rights (if any, in the case of Italia),
whether made by the Subsidiaries or their respective
officers, employees, agents or brokers, have been
made, in all material respects, in compliance with
all applicable federal, state or foreign laws and
regulations.
t. OTHER AGREEMENTS. Except for the agreements, contracts,
commitments and leases disclosed in SCHEDULE 6.t.i attached
hereto and any of the other Schedules to this Agreement
(collectively, the "Company Contracts"), none of the Companies
is a party to (in its own name or as successor in interest),
or bound by, any written or oral (i) contract or commitment
involving any profit sharing, pension, bonus, percentage
compensation, stock option or warrant, sick pay, vacation pay,
severance pay, health care or other "fringe benefit"
arrangement; (ii) contract or commitment involving a right or
obligation of any Company in excess of $30,000; (iii) contract
or commitment under which any Company has assumed, guaranteed,
endorsed or otherwise become liable in connection with the
obligation of any person, firm or corporation (other than the
Existing Liens); (iv) contract or commitment involving any
loan or financing arrangement; (v) barter or other trade or
exchange arrangement; (vi) contract with any labor union; or
(vii) any agreement restricting any Company's ability to
conduct any existing or future business that such Company may
engage in, or restricting any Company's ability to transact
business with any existing or potential customer or supplier.
A true, correct and complete copy of each such Company
Contract, together with any amendments thereto, (a) has been
delivered to Purchaser (excluding those portions of certain of
the Company Contracts that were redacted by AFC which will be
provided to Purchaser within five (5) days following the date
of this Agreement) or (b) a detailed description of any oral
Company Contract, is attached to the Schedule in which it is
listed as a part thereof. Except as described on SCHEDULE
6.t.i or any other applicable Schedule, all obligations to or
on the part of the applicable Company under each Company
Contract have been duly and timely performed, except failures
to perform which could not reasonably be expected to result in
liabilities or obligations of any Company in excess of
$50,000. Except for defaults which could not reasonably be
expected to result in
Page 42 - STOCK PURCHASE AGREEMENT
liabilities or obligations of any Company in excess of
$50,000, no Company is currently in default under any Company
Contract, nor has any event occurred (or will occur as a
result of the transactions contemplated hereby) which with the
passage of time or giving of notice could cause a default to
exist or cause the acceleration of any obligation of the
applicable Company or the creation of any lien or encumbrance
on the Shares or any Company Asset.
u. LICENSES; COMPLIANCE WITH LAWS. SCHEDULE 6.u. attached hereto
and made a part hereof contains a complete listing of all
governmental or regulatory licenses, permits and
authorizations held by the Companies which are material to the
conduct of the Businesses, other than those described in
Paragraph 6.s. above with respect to state franchise
registrations and exemption (collectively, the "Licenses").
Except for licenses described in Paragraph 6.s., the Licenses
are all in full force and effect and constitute all of the
material Licenses necessary to conduct the Businesses as they
are now being conducted, and none of such Licenses will be
materially impaired as a result of the transactions
contemplated by this Agreement. Each Company is in compliance
with the terms of the Licenses and all applicable statutes,
laws, ordinances, rules and regulations of any Governmental
Entities, including but not limited to compliance with all
foreign laws, except where the failure to so comply
individually or in the aggregate is not reasonably likely to
have a impair such Company's ability to operate its business
in the ordinary course of business consistent with past
practices. No suit, action, demand or proceeding by any
Governmental Entity or any other Person, in each case with
respect to the Company or any of its properties, is pending
or, to AFC's Knowledge, threatened, other than, in each case,
those the outcome of which individually or in the aggregate is
not reasonably likely (i) to result in liabilities or
obligations of any Company in an amount greater than $50,000;
or (ii) to materially impair the ability of AFC to perform its
material obligations under this Agreement or prevent or
materially delay the consummation of any of the transactions
contemplated by this Agreement
v. EMPLOYEES AND LABOR MATTERS. SCHEDULE 6.v. attached hereto is
a list of (i) all employees (part-time and full-time) of the
Companies (but excluding any employees of AFC or any of its
other Affiliates who provide services to the Companies); (ii)
the rate of base and bonus compensation payable to each such
employee; and (iii) the accrued vacation pay and other
benefits (including, without limitation, severance benefits)
payable by the Companies to each employee listed on SCHEDULE
6.v. Except as otherwise described in the SCHEDULE 6.v, no
Company has made any promise or commitment, whether oral or in
writing, to increase any employee's compensation or grant any
bonus to any employee. Except as otherwise described in the
SCHEDULE 6.v, no Company is a party to or has any obligations
under any agreement, collective bargaining or otherwise, with
any party regarding the rates of pay or working conditions of
any of its employees. No Company is obligated under any
agreement to recognize or bargain with any labor organization
or union on behalf of its employees. To AFC's Knowledge, there
is not now any formal organization activity among any
Page 43 - STOCK PURCHASE AGREEMENT
of the employees of any Company, nor has any Company been
charged with, or received written notice of any threatened
action with respect to, any unfair labor practice. The
Companies have complied with all applicable federal, state and
foreign laws and regulations concerning the employer/employee
relationship and with all of their respective agreements,
policies and employee handbooks relating to the employment of
their employees, including without limitation provisions
thereof relating to wages, classification of employees for
purposes of entitlement to overtime under the Fair Labor
Standards Act and comparable state laws, bonuses, hours of
work, payment of Social Security and other withholding taxes,
civil rights, compliance with Family and Medical Leave Act and
any comparable state statutes, compliance with Americans with
Disabilities Act and any comparable state statute and
compliance with federal, state and company policies
prohibiting harassment in the work place, except where failure
to comply could not reasonably be expected to result in
liabilities or obligations of any Company in an amount greater
than $50,000 individually or in the aggregate. There are no
controversies pending or, to the Knowledge of AFC, threatened,
between the Company and any of its employees. There are no
unfair labor practice complaints or other employment claims
pending against the Company before the National Labor
Relations Board or any other Governmental Entity or
arbitrator. Except as disclosed on SCHEDULE 6.v, no Company is
liable for any unpaid wages, bonuses or commissions, or any
tax, penalty, assessment or forfeiture, for failure to comply
with any of the foregoing, except for such liabilities which
could not, individually or in the aggregate, be reasonably
expected to result in liabilities or obligations of any
Company in an amount greater than $50,000.
w. BENEFIT PLANS. The Benefit Plans described on SCHEDULE 6.w
attached hereto are the only Benefit Plans that any of the
Companies maintain or participate in. For purposes of this
Agreement, the term "Benefit Plans" means the plans, programs,
practices, and policies, including without limitation any
individual or group arrangements or agreements, any unwritten
compensation arrangements or fringe benefit programs, payroll
or employment practices, procedures or policies of any kind or
description, which provide the Companies' employees and agents
with (i) current or deferred compensation, pension, profit
sharing, severance, vacation, stock purchase, stock option,
bonus or incentive compensation benefits, (ii) medical,
hospital, life, health, accident, disability, death or other
fringe or welfare benefits, or (iii) any other benefit, the
provision of which would constitute an "employee benefit plan"
(as defined in Title I, Subtitle A, Section 3(3) of the
Employee Retirement Income Security Act of 1974 ("ERISA")).
Except as disclosed on SCHEDULE 6.w., there are no
contributions or payments due with respect to any of the
Benefit Plans other than contributions and payments due in the
normal course. Except as disclosed on SCHEDULE 6.w., each
Company; and each Benefit Plan are in compliance with the
provisions of ERISA and the Code applicable to it, except
where failure to comply could not reasonably be expected to
result in liabilities or obligations of any Company in an
amount greater than $50,000. No Benefit Plan is subject to the
minimum funding standards of ERISA or the Code, nor is any
Benefit Plan subject to Title IV of ERISA. No Company
Page 44 - STOCK PURCHASE AGREEMENT
has failed at any time since the Acquisition Date, to provide,
to the extent required by law, continuation coverage with
respect to group health coverage to any former employee or
qualified beneficiary under the Consolidated Omnibus Budget
Reconciliation Act of 1985, or any laws of any state to which
the Companies are subject, except such failures which could
not reasonably be expected to result in liabilities or
obligations of any Company in an amount greater than $50,000.
x. ENVIRONMENTAL COMPLIANCE.
i. Except as set forth in SCHEDULE 6.x.i hereto, to
AFC's Knowledge, no Company is in violation of any
judgment, decree, order, law, license, rule or
regulation pertaining to environmental matters,
foreign or domestic, arising under the Resource
Conservation and Recovery Act ("RCRA"), the
Comprehensive Environmental Response, Compensation
and Liability Act of 1980 as amended ("CERCLA"), the
Superfund Amendments and Reauthorization Act of 1986
("▇▇▇▇"), the Federal Water Pollution Control Act
("WPCA"), the Toxic Substances Control Act ("TSCA"),
the Clean Air Act ("CAA"), and the Model Toxics
Control Act ("MTCA") or any other state or local
statute, regulation, ordinance, order or decree
relating to health, safety or the environment and the
regulation of pollutants, hazardous or toxic
substances under RCRA, CERCLA, WPCA, TSCA, CAA or
MTCA (hereinafter "Environmental Laws").
ii. Except as set forth in SCHEDULE 6.x.ii hereto, no
Company has received written notice at any time since
the Acquisition Date that it has been identified by
the United States Environmental Protection Agency as
a potentially responsible party under CERCLA with
respect to a site listed on the National Priorities
List, 40 C.F.R. Part ▇▇▇ ▇▇▇▇▇▇▇▇ ▇ (1986); nor has
any Company received any notification since the
Acquisition Date that any hazardous waste, as defined
by 42 U.S.C. ss.9601(14), any "pollutant or
contaminant" as defined by 42 U.S.C. ss.9601(33) and
any toxic substance, hazardous materials, oil, or
other chemicals or substances regulated by any
Environmental Laws ("Hazardous Substances") which it
has disposed of has been found at any site at which a
federal or state agency is conducting a remedial
investigation or other action pursuant to any
Environmental Law.
iii. Except as set forth in SCHEDULE 6.x.iii hereto, since
the Acquisition Date: (i) no portion of any Company's
properties has been used for the handling,
processing, storage or disposal of Hazardous
Substances; and (ii) in the course of its activities,
no Company has generated, nor is it generating, any
Hazardous Substance on any of its properties, except
to the extent that exhaust from roasting facilities
is deemed to be a Hazardous Substance and household
quantities (as defined by CERCLA) of Hazardous
Substances used in the ordinary course of business.
To AFC's
Page 45 - STOCK PURCHASE AGREEMENT
Knowledge, there have been no releases (i.e., any
past or present releasing, spilling, leaking,
pumping, pouring, emitting, emptying, discharging,
injecting, escaping, leaching, disposing or dumping)
of Hazardous Substances by any Company on, upon, or
into its properties, which would reasonably likely to
have a material diminution in the value of such
properties or result in liabilities or obligations of
any Company in excess of $50,000. The decommission
and/or removal by any of the Companies of any storage
tanks located on the premises used or leased by the
Companies and the remediation of any contamination
caused by any such decommission or removal have been
performed in accordance with all applicable
Environmental Laws.
y. INSURANCE. SCHEDULE 6.y. contains a list of all policies of
insurance, surety bonds and letters of credit maintained by
each Company, which list is true, complete and accurate in all
material respects as of the date hereof. None of the Companies
is in default with respect to its obligations under any such
policies. All of such policies are sufficient for compliance
with all requirements of law and all contracts, leases and
other agreements to which SCC or any Subsidiary is a party.
None of the Companies has failed to give any notice or to
present any material claim under any such policy or binder in
a due and timely fashion. Such policies and binders are in
full force and effect on the date hereof and will continue to
be kept in full force and effect on substantially equivalent
terms through the consummation of the transactions
contemplated hereby except to the extent policies expire and
are replaced in the ordinary course of business with policies
and binders on substantially equivalent terms.
z. BROKERS AND FINDERS. Except as set forth in SCHEDULE 6.z.,
neither AFC nor any Company has employed any investment
banker, broker, agent or finder or incurred any liability for
any investment banking fees, brokerage fees, agent's
commissions or finder's fees concerning the transactions
contemplated hereby.
aa. NO MATERIAL CHANGES. Except as described on SCHEDULE 6.aa,
since the date of the Current Company Financial Statement,
there has not been (i) any transaction or transactions by any
Company which, either individually or in the aggregate, that
constitute a Material Adverse Change; (ii) any event which has
caused a change in the financial condition, operations,
properties or assets of the Companies, except changes in the
ordinary course of business, none of which have been,
individually or in the aggregate, would have a Materially
Adverse Effect; (iii) any damage or destruction to, or loss
of, any material assets of any Company; (iv) any capital
commitments by any Company for any one item or group of
related items in excess of $30,000; (v) any declaration,
setting aside or payment of any dividend or distribution
(whether in cash, stock or property) with respect to the
Shares or Membership Interests; (vi) any Recapitalization
Event with regard to any of a Company's capital stock or
membership interests, or any issuance or the authorization of
any issuance of any other securities or interests in respect
of, in lieu of or in substitution for shares or interests;
(vii) (a) any granting
Page 46 - STOCK PURCHASE AGREEMENT
by the Companies or AFC to any current or former director,
executive officer or other employee who is paid by the
Companies or AFC in connection with the Business in excess of
$100,000 per year in compensation, of any increase in
compensation, bonus or other benefits, except for normal
increases in cash compensation in the ordinary course of
business consistent with past practice or as was required
under any employment agreements in effect as of the date of
the Current Company Financial Statements; (b) any granting by
the Companies or AFC to any such current or former director,
executive officer or employee who is paid by the Companies or
AFC in connection with the Businesses in excess of $100,000
per year in compensation, of any increase in severance or
termination pay, except as was required under any employment,
severance or termination agreements in effect as of the date
of the most recent unaudited financial statements; or (c) any
entry by the Company into, or any amendments of, any
employment, deferred compensation, consulting, severance,
termination or indemnification agreement with any such current
or former director, executive officer or employee who is paid
by the Companies or AFC in connection with the Businesses in
excess of $100,000 per year in compensation; (viii) any
damage, destruction or loss, whether or not covered by
insurance, that individually or in the aggregate is reasonably
likely to result in liabilities or obligations to any Company
in excess of $50,000; (ix) any material changes in any
Company's policies regarding the extension of discounts or
credits to its customers; (x) any charitable contributions or
any commitments therefore; (xi) any redemption or repurchase
of any Shares or Membership Interests; (xii) any write-offs as
uncollectible any accounts receivable or notes receivable of
any Company or any portion thereof in excess, in the
aggregate, of the greater of (i) the allowance for
uncollectible accounts less charges against the allowance, in
both cases, as shown in the Current Company Financial
Statements and (ii) $30,000; (xiii) except insofar as may have
been required by a change in GAAP, any change in accounting
methods, principles or practices by any Company materially
affecting its reported financial condition or results of
operation; or (xiv) except as set forth on SCHEDULE 6.h.i.,
any tax election that individually or in the aggregate is
reasonably likely to result in liabilities or obligations to
any Company in excess of $50,000 on the tax liability or
affect the tax attributes of any Company or any settlement or
compromise of any material tax liability in an amount greater
than $50,000.
bb. PRODUCTS LIABILITY AND WARRANTIES. There are no product
liability or warranty claims existing or, to AFC's Knowledge,
threatened against any Company which relate to the products of
any of the Companies sold or distributed by the Companies or
any Franchisee or Licensee except for (i) claims for which
adequate reserves have been made and shown in the Financial
Statements, (ii) claims for which AFC's insurer's have
undertaken defense, and (iii) claims which could not,
individually or in the aggregate, reasonably be expected to
result in liabilities or obligations to any Company in excess
of $50,000.
Page 47 - STOCK PURCHASE AGREEMENT
cc. SUPPLIERS. SCHEDULE ▇.▇▇ hereto sets forth a true, correct and
complete list of each supplier who has furnished inventory or
other merchandise to any Company for an aggregate purchase
price in excess of $100,000 during the period commencing
January 1, 2002 and ending December 29, 2002, or whom the
Companies anticipate will furnish inventory or merchandise in
excess of such amounts in 2003 (a "Material Supplier").
Attached to SCHEDULE ▇.▇▇. is a true and correct copy of each
written agreement, and a description of the terms of any oral
agreement, with any Material Supplier relating to any of the
Businesses.
dd. NO OTHER REPRESENTATIONS OR WARRANTIES. AFC shall not have
deemed to have made to Purchaser any representation or
warranty other than as expressly set forth in this Paragraph
6. In particular AFC makes no representation or warranty with
respect to (a) any projections, estimates or budgets
heretofore delivered or made available to Purchaser concerning
future revenues, expenses or results from operations or (b)
any other information or documents made available to Purchaser
with respect to the Companies, except as set forth in this
Paragraph 6.
ee. DISCLOSURE. To AFC's Knowledge, no representation or warranty
of AFC contained in this Agreement, nor any statement,
certificate, schedule or exhibit hereto furnished or to be
furnished by or on behalf of AFC pursuant to this Agreement,
nor any document or certificate delivered to Purchaser
pursuant to this Agreement or in connection with the
transactions contemplated hereby, contains or shall contain
any untrue statement of material fact or omits or shall omit a
material fact necessary to make the statement contained
therein not misleading.
ff. ACCOUNTS PAYABLE. Except as described on SCHEDULE 6.ff, the
Accounts Payable of each Company do not include any accounts
accrued or payable for legal, accounting or other fees or
expenses incurred by AFC or the Companies in connection with
this Agreement or the transactions contemplated hereby, nor
have any such fees or expenses been paid by the Companies
prior to the date of this Agreement.
gg. BANK ACCOUNTS. SCHEDULE ▇.▇▇ sets forth (a) the names and
locations of each bank or the financial institution at which
any Company has an account (giving the account numbers) or
safe deposit box and the names of all Persons authorized to
draw thereon or have access thereto, and (b) the names of all
Persons, if any, now holding powers of attorney or comparable
delegation of authority from any Company and a summary
statement thereof.
hh. BOOKS AND RECORDS. The corporate or organizational books and
records of each Company are located at the offices of AFC in
Atlanta, Georgia. Subject to the adjustments to the books of
account and financial records which are incorporated into the
Restated Financial Statements, the books of account and other
financial and corporate records of each Company are in all
material respects complete and correct, are maintained in
accordance with good business practices, and are
Page 48 - STOCK PURCHASE AGREEMENT
accurately reflected in the Financial Statements and in
accordance with GAAP. The minute books of the Companies as
previously made available to Purchaser, contain accurate
records of all meetings and accurately reflect all material
actions of each Company and their respective owners since the
Acquisition Date.
ii. TRANSACTIONS WITH AFFILIATES. Except as disclosed on SCHEDULE
6.ii, no Company has any outstanding contract, agreement or
other arrangement with AFC or any of its Affiliates. Except as
disclosed on SCHEDULE 6.ii, as of the Closing, no Company
shall have any indebtedness, liability or other obligation to
or on behalf of AFC or any of its Affiliates except as
provided in the Master License Agreement.
jj. FOREIGN CORRUPT PRACTICES ACT. The Companies have complied in
all material respects with the Foreign Corrupt Practices Act
of the United States of America (15 U.S.C. Section 78dd)
("Foreign Corrupt Practices Act"). The Companies are not aware
of any action or conduct that could, to AFC's Knowledge, be
deemed to be a violation of the Foreign Corrupt Practices Act
in respect of the Businesses. Neither the Companies, nor, to
the Knowledge of AFC, any of their officers, directors,
employees, managers, shareholders, members, agents or
representatives none offered, given, paid, authorized the
payment of, or promised, directly or indirectly, any money,
gift, promise or other thing of value to a Foreign Official
(or to any other Person while knowing it will be offered,
given or promised to a Foreign Official) for the purpose of
influencing any act or decision of any such Person acting in
his or her official capacity or inducing the Person to do or
omit to do any action in violation of his or her lawful duty,
inducing such Person to use his or her influence with any
government to affect or influence any act or decision of such
government or instrumentality (other than lawful facilitating
payments to secure routine governmental action), in order to
assist the Companies to obtain or retain business for or with,
or in directing business to, any Person, that would, in such
case, create a material risk of any Company incurring
penalties or damages under the Foreign Corrupt Practices Act.
For the purposes of this Agreement, a "Foreign Official" shall
be any officer or employee of any Governmental Entity, a
member or official of a foreign political party or a candidate
for political office in a foreign country.
kk. INTEREST IN FRANCHISEES, DEVELOPERS, SUPPLIERS, RESTAURANTS
AND COMPETITORS. Except as set forth on SCHEDULE 6.kk and
except for ownership of the Company-Owned Cafes, neither AFC
nor any Company nor any of their respective Affiliates nor to
AFC's Knowledge, their respective officers or directors, has
any direct or indirect interest in any franchisee, developer,
supplier, restaurant or competitor of SCC nor any Subsidiary
or in any Cafe or any Person from whom or to whom SCC or any
Subsidiary leases any real or personal property, or in any
other Person with whom SCC or any Subsidiary is doing
business, except as a wholesale and retail vendee of coffee in
the ordinary course of business, whether in existence as of
the date hereof or proposed, other than the ownership of stock
Page 49 - STOCK PURCHASE AGREEMENT
of publicly traded corporations which does not exceed one
percent (1%) of the issued and outstanding stock of any such
corporation.
ll. ENTERPRISE SYSTEMS. Except as described on SCHEDULE 6.ll., as
of the Closing, the Company Assets will include all software,
equipment and other technology systems necessary for the
Companies to perform all point of sale, back office, inventory
control and all other accounts and recordkeeping functions
consistent with past practices during the preceding twelve
(12) months. Additionally, except as described on SCHEDULE
6.ll, the Companies shall have the right, but not the
obligation, to make use of all enterprise system services
currently provided to the Companies by third party vendors,
all of which are described on SCHEDULE 6.ll, for a period of
not less than eighteen (18) months following Closing.
7. REPRESENTATIONS AND WARRANTIES OF PURCHASER. Purchaser hereby
represents and warrants as follows, which representations and warranties set
forth herein shall be true and correct as of the date hereof and on the Closing
Date and shall survive the Closing for a period of three (3) years.
a. ORGANIZATION AND GOOD STANDING. Purchaser is a corporation
duly organized, validly existing and in good standing under
the laws of the State of Washington and has all requisite
corporate power and authority to conduct its business and own,
operate and lease its properties and to conduct its business
as now being conducted.
b. CORPORATE POWER, AUTHORITY AND ENFORCEABILITY. Purchaser has
full right, title and authority to enter into this Agreement
and to consummate the transactions contemplated hereby. All
corporate action on the part of Purchaser and its directors,
necessary for (i) the authorization, execution, delivery and
performance of the Transaction Documents to which it is a
party; and (ii) the performance of all of the obligations of
Purchaser under the Transaction Documents, has been duly and
validly taken. This Agreement and each of the other
Transaction Documents to which Purchaser is a party when
executed and delivered on behalf of Purchaser shall constitute
a valid and binding obligation of Purchaser, enforceable
against it in accordance with their respective terms, subject
to applicable bankruptcy, insolvency and other similar laws
affecting the enforceability of creditors' rights generally,
general equitable principles and the discretion of courts in
granting equitable remedies.
c. CONSENTS AND APPROVALS. Except for approvals required by the
HSR Act, no consent or approval of any other party, including,
but not limited to, any lending institution or any
governmental authority, bureau or agency, is required in
connection with the execution, delivery, performance, validity
and enforceability of this Agreement which has not been
obtained.
d. NO VIOLATION. The execution, delivery, and performance of the
Transaction Documents will not violate the provisions of (i)
Purchaser's Articles of
Page 50 - STOCK PURCHASE AGREEMENT
Incorporation or by-laws or other governing documents; (ii)
any mortgage, indenture, security agreement, contract,
undertaking or other agreement to which Purchaser is a party
or which is binding upon Purchaser or any of its properties or
assets; or (iii) any law, regulation, judgment or order which
is binding upon Purchaser or any of its property or assets.
e. DISCLOSURE. To Purchaser's Knowledge, no representation or
warranty by Purchaser contained in this Agreement, nor any
statement, certificate, schedule or exhibit hereto furnished
or to be furnished by or on behalf of Purchaser pursuant to
this Agreement, nor any document or certificate delivered to
AFC pursuant to this Agreement or in connection with the
transactions contemplated hereby, contains or shall contain
any untrue statement of material fact or omits or shall omit a
material fact necessary to make the statement contained
therein not misleading.
f. INVESTMENT INTENT. Purchaser is acquiring the Shares for its
own account and not with a view to their distribution within
the meaning of Section 2(11) of the Securities Act of 1933, as
amended.
g. BROKERS AND FINDERS. Purchaser has not employed any investment
banker, broker, agent or finder or incurred any liability for
any investment banking fees, brokerage fees, agent's
commissions or finder's fees concerning the transactions
contemplated hereby.
8. PRE-CLOSING COVENANTS REGARDING THE COMPANIES. AFC covenants that prior
to Closing:
a. CONDUCT OF BUSINESSES. The Companies shall carry on their
respective Businesses and operate the Company-Owned Cafes and
the Systems in the ordinary course in substantially the same
manner as they were carried on and operated prior to the
execution of this Agreement. The Companies shall use all
commercially reasonable efforts to preserve intact their
current business organizations, keep available the services of
their current officers and employees, and preserve their
relationships with customers, suppliers, liaisons, licensees,
distributors, wholesalers, franchisees and others having
business dealings with the Companies, except as expressly set
forth herein.
b. OBLIGATIONS. The Companies shall perform their obligations, in
all material respects, under all agreements, contracts and
instruments relating to or affecting the Company Assets and
the Businesses.
c. COMPLIANCE. The Companies shall comply in all material
respects with all Applicable Laws.
d. AGREEMENTS. The Companies shall not enter into or assume any
agreement, contract or commitment disposing of or altering any
of the Company Assets outside the ordinary course of business;
and neither AFC nor the Companies shall
Page 51 - STOCK PURCHASE AGREEMENT
enter into any agreement, contract or commitment disposing of,
or impairing its ability to convey, all or any portion of the
Shares or Membership Interests.
e. MAINTAIN PROPERTY. The Companies shall maintain, at their sole
expense, all of their property in customary repair, order and
condition, reasonable wear and use and damage by fire or
unavoidable casualty and obsolete or redundant property
excepted.
f. MAINTAIN BOOKS. The Companies shall continue to maintain their
books of account and records in the usual, regular and
ordinary manner.
g. ISSUANCE OF SHARES/MEMBERSHIP INTERESTS. No Company shall
issue or grant any rights to acquire any of its shares of
capital stock or membership interests. In addition, neither
AFC nor any Company shall enter into any agreement, contract
or commitment disposing of or affecting the Shares or
Membership Interests.
h. NO CONTRACTS OR COMMITMENTS. None of the Companies shall enter
into any contract, commitment or obligation relating to the
Businesses, the Company-Owned Cafes or the Systems with a
value in excess of $30,000, other than contracts, commitments
and obligations entered into in the ordinary course of
business consistent with past practices.
i. COMPENSATION AND BONUSES. None of the Companies shall increase
the formula in the compensation payable or to become payable
to any officers, or make any bonus payment or arrangement to
or with any officer, except for the formula as existed during
SCC and each Subsidiary's last fiscal or calendar year, adopt
or amend any Benefit Plan, or enter into any employment
contract or collective bargaining agreement (other than offer
letters and letter agreements entered into in the ordinary
course of business consistent with past practice with
employees who are terminable "at will"), pay any special bonus
or special remuneration to any officer, director or employee,
or increase the salaries or wage rates or fringe benefits
(including rights to severance or indemnification) of its
directors, officers, employees or consultants other than in
the ordinary course of business, consistent with past
practice. Nothing herein shall be construed to prohibit AFC
from paying retention bonuses to any employees of the
Companies as AFC shall, in its sole discretion, deem
appropriate.
j. MAINTAIN INSURANCE. The Companies shall maintain insurance
upon all of their respective Company Assets and with respect
to the conduct of their respective Businesses in at least such
amounts and of such kinds as are listed on SCHEDULE 6.y.
k. NO MODIFICATION OF CONTRACTS. Except as required by Paragraph
9.k and except for modifications, amendments, cancellations
and terminations entered into in the ordinary course of
business consistent with past practices, none of the Companies
shall modify, amend, cancel or terminate any Company Contract,
if such
Page 52 - STOCK PURCHASE AGREEMENT
modification, amendment, cancellation or termination will
increase the obligations of the applicable Company under such
Company Contract by more than $30,000
l. ADDITIONAL RESTRICTIONS. In addition to the obligations and
restrictions set forth above, and without limiting any of the
foregoing, each Company shall not:
i. declare, set aside or pay any dividends on, or make
any other distributions in respect of, any of its
capital stock or membership interest, undertake any
Recapitalization Event, or purchase, redeem or
otherwise acquire any Shares or Membership Interests;
ii. issue, deliver, sell, grant, pledge or otherwise
encumber or subject to any Lien any shares of its
capital stock or membership interests, any other
voting securities or interests or any securities or
interests convertible into, or any rights, warrants
or options to acquire, any such shares, voting
securities or interests or convertible securities or
interests;
iii. amend or otherwise modify the Company's Certificate
of Incorporation, Bylaws, limited liability company
agreement or other comparable organizational
documents;
iv. acquire or agree to acquire by merging or
consolidating with, or by purchasing a substantial
portion of the assets of, or by any other manner, any
business or any Person;
v. sell, lease, license, mortgage or otherwise encumber
or subject to any Lien or otherwise dispose of any of
its properties or assets (including securitizations
but excluding any assets subject to the Company
Contracts required to be terminated by Paragraph 9.k
hereof and the Assigned Agreements and related assets
contemplated by Paragraph 9.h. hereof) in a single
transaction or series of transactions, other than in
the ordinary course of business consistent with past
practice;
vi. incur any indebtedness for borrowed money or
guarantee any such indebtedness of another Person,
issue or sell any debt securities or warrants or
other rights to acquire any debt securities of the
Company, guarantee any debt securities of another
Person, enter into any agreement to maintain any
financial statement condition of another Person or
enter into any arrangement having the economic effect
of any of the foregoing, except for short-term
borrowings incurred in the ordinary course of
business (or to refund existing or maturing
indebtedness) consistent with past practice; or make
any loans, advances or capital contributions to, or
investments in, any other Person;
vii. cancel, compromise, release or discharge any claim of
any Company upon or against any Person or waive any
right of any Company, or institute,
Page 53 - STOCK PURCHASE AGREEMENT
settle or agree to settle any material action or
proceeding between the Company and any Person without
the prior written consent of Purchaser, except in the
ordinary course of business and except for claims or
actions involving less than $100,000;
viii. pay, loan or advance (other than compensation paid in
the ordinary course) any amount to, or sell, transfer
or lease any properties or assets (real, personal or
mixed, tangible or intangible) to or enter into any
material contract with, any of its officers,
directors, employees or any Affiliate; or
ix. solicit, advertise, offer, market or negotiate for
the sale of franchises associated with the Systems,
and the Companies shall immediately terminate all
such existing activities.
m. ADVICE OF CHANGES. AFC shall promptly advise the Purchaser
orally and in writing of (i) any representation or warranty
made by it contained in this Agreement becoming untrue or
inaccurate; or (ii) the failure of it to comply with or
satisfy any covenant, condition or agreement to be complied
with or satisfied by it under this Agreement; and (iii) any
change or event having, or which is reasonably likely to have
(x) a Material Adverse Effect on any Company or (y) an impact
on the truth of its representations and warranties or the
ability of the conditions set forth in Paragraph 9 to be
satisfied; provided, however, that no such notification shall
affect the representations, warranties, covenants or
agreements of AFC (or remedies with respect thereto) or the
conditions to the obligations of Purchaser under this
Agreement.
n. NO SOLICITATION BY AFC. From and after the date of this
Agreement until the Closing or termination of this Agreement
pursuant to Paragraph 16, AFC will not, nor will it authorize
or permit the Companies or any of their officers, directors,
Affiliates, employees or any investment banker, attorney or
other advisor or representative to, directly or indirectly:
i. take any action to initiate, solicit, facilitate,
encourage or induce the making, submission or
announcement of any Alternative Transaction;
ii. participate in any discussions or negotiations
regarding, furnish to any Person any nonpublic
information with respect to, or take any other action
to facilitate any inquiries or the making of any
proposal that constitutes, or may reasonably be
expected to lead to, any Alternative Transaction;
iii. engage in discussions or negotiations with any Person
with respect to any Alternative Transaction; or
iv. approve, endorse or recommend any Alternative
Transaction.
o. COMMERCIALLY REASONABLE EFFORTS. Upon the terms and subject to
the conditions set forth in this Agreement, each party hereto
agrees to use
Page 54 - STOCK PURCHASE AGREEMENT
commercially reasonable efforts to take, or cause to be
taken, all actions, and to do, or cause to be done, and to
assist and cooperate with the other party in doing, all
things necessary, proper or advisable to consummate and make
effective, in the most expeditious manner practicable, the
transactions contemplated by this Agreement including using
commercially reasonable efforts to accomplish the following:
(i) the taking of all reasonable acts necessary to cause the
conditions to Closing to be satisfied; (ii) the obtaining of
all necessary actions or nonactions, waivers, consents and
approvals from Governmental Entities and the making of all
necessary registrations and filings (including filings with
Governmental Entities, if any) and the taking of all
reasonable steps as may be necessary to obtain an approval or
waiver from, or to avoid an action or proceeding by any
Governmental Entity; (iii) the obtaining of all necessary
consents, approvals or waivers identified on Paragraph 6.m;
(iv) the defending of any lawsuits or other legal
proceedings, whether judicial or administrative, challenging
this Agreement or the consummation of the transactions
contemplated hereby, including seeking to have any stay or
temporary restraining order entered by any court or other
Governmental Entity vacated or reversed; and (v) the
execution and delivery of any additional instruments
necessary to consummate the transactions contemplated by, and
to fully carry out the purposes of, this Agreement.
p. TAX MATTERS. Except as provided in SCHEDULE 6.h.i. hereto,
without the prior written consent of Purchaser, AFC shall
not, nor shall it permit any of the Companies to, make or
change any election, change an annual accounting period,
adopt or change any accounting method, file any amended
Return, enter into any closing agreement, settle any Tax
claim or assessment, surrender any right to claim a refund of
Taxes, consent to any extension or waiver of the limitation
period applicable to any Tax claim or assessment, or take any
other similar action relating to the filing of any Return or
the payment of any Tax, if such election, adoption, change,
amendment, agreement settlement, surrender, consent or other
action would have the effect of increasing the liability for
Taxes of any of the Companies for any period ending after the
Closing Date or decreasing any Tax attribute of any of the
Companies existing on the Closing Date.
q. COMPANY AUDITED FINANCIAL STATEMENTS. AFC shall use its best
efforts to deliver to Purchaser (i) complete audited and
restated financial statements (including balance sheet,
statement of operations and statement of cash flows) of AFC,
together with all auditor's notes thereto, for the fiscal
years ending December 30, 2001 and any other prior years
which AFC determines will need to be restated ("Restated
Financial Statements"), (ii) complete audited financial
statements (including balance sheet, statement of operations
and statement of cash flows), together with all auditor's
notes thereto, of the Companies (on a stand-alone basis) for
the fiscal year ending December 29, 2002 consistent with the
information contained in the Restated Financial Statements
("Company Audited Financial Statements"), and (iii) the
Closing Financial Statements, as soon as such statements are
available. This obligation shall survive the Closing if not
satisfied in full prior to the Closing. Delivery of the
Company Audited Financial
Page 55 - STOCK PURCHASE AGREEMENT
Statements and the Restated Financial Statements shall not be
a condition of the Closing.
r. SUPPLY MANAGEMENT SERVICES. INC. AFC shall use commercially
reasonable efforts to cause Supply Management Services, Inc.
("SMS") to continue to purchase from International Paper and
offer for sale to the Companies and the Franchisees at no
▇▇▇▇-up above SMS' actual cost, paper products of the type
historically provided by International Paper for a period not
to exceed twelve (12) months.
s. TRADEMARKS. AFC shall cause to be filed with the Patent and
Trademark Office evidence of the ownership by the appropriate
Company of the Trademark Registration Rights and Registered
Copyrights listed on SCHEDULE 6.o.i AND 6.o.ii.
t. FRANCHISE DISCLOSURES. From and after the date of this
Agreement until the Closing Date, AFC shall use its best
efforts to revalidate and/or amend the Best franchise
disclosure circular and provide the franchisees and
prospective franchisees with the revalidated or amended
franchise disclosure circular as required by all Applicable
Laws.
u. LEASE CONSENTS. AFC shall use commercially reasonable efforts
to obtain all of the consents and approvals of the Leased
Premises as required by the Premises Leases as set forth on
SCHEDULE 6.g.v.
v. ROFR NOTICE. If, with regard to any Development Agreement or
Franchise Agreement under which grants AFC or any Company a
right of first refusal, AFC or any Company receives notice
from a Franchisee with a proposed assignment or transfer of
its rights under its Development Agreement and/or Franchise
Agreement(s), AFC will forward such notice to Purchaser, and
AFC may, in its sole discretion, after consultation with
Purchaser exercise such right of first refusal (and in the
event AFC obtains the prior written consent of Purchaser to
any such acquisition, such acquisition shall be at the
expense of Purchaser if the Closing occurs).
w. AAFES TERMINATION. On or prior to the Closing, AFC shall have
delivered to AAFES written notice terminating all rights of
AAFES to develop any additional Cafes in connection with the
Retail Business under that certain Solicitation Award dated
September 14, 1989, as amended from time to time (the "AAFES
Agreement") which notice shall be effective no later than the
ninetieth (90th) day following delivery of such notice (the
"Effective Date"). In no event shall this provision be
construed to prohibit the development of additional Cafes for
which AAFES has exercised any of its development rights under
the AAFES Agreement prior to such Effective Date.
Page 56 - STOCK PURCHASE AGREEMENT
x. ESTOPPEL CERTIFICATES. AFC shall use commercially reasonable
efforts to obtain an estoppel letter (the "Landlord Estoppel
Letters") in the form attached hereto as Exhibit D from all
of the landlords under the Premises Leases.
9. CONDITIONS PRECEDENT TO OBLIGATIONS OF PURCHASER. The following shall
constitute conditions precedent to Purchaser's obligations to consummate the
transactions contemplated herein, and the failure of any such condition shall
give Purchaser the option of terminating this Agreement whereupon neither party
hereto shall have any further obligation to consummate the transactions
contemplated by this Agreement:
a. REPRESENTATIONS AND WARRANTIES. The representations and
warranties of AFC contained herein shall be true and correct
as of Closing in all respects (except for representations and
warranties which have not been qualified by a materiality
threshold in which case such representations and warranties
shall be true and correct in all material respects); AFC
shall have complied with, performed or satisfied all
agreements, covenants and conditions required by this
Agreement to be complied with, performed or satisfied by it,
in each case, in all respects; and AFC shall have delivered
to Purchaser a certificate to such effect.
b. ABSENCE OF CHANGES. Since the date of the Current Company
Financial Statements, there shall not have occurred any
Material Adverse Change in the financial condition of the
Companies taken as a whole. The Company Audited Financial
Statements shall not reflect any Material Adverse Change from
the Current Company Financial Statements.
c. ACTIONS. No action, suit or proceeding shall have been
instituted before a court or governmental body, or instituted
or threatened by any governmental agency or body, to restrain
or prevent the carrying out of the transactions contemplated
hereby, which shall not have been disposed of to the
reasonable satisfaction of Purchaser.
d. HSR ACT. The waiting period (and any extension thereof)
applicable to the Transaction under the HSR Act shall have
been terminated or shall have expired and all material
foreign antitrust approvals required to be obtained prior to
the Closing in connection with the transactions contemplated
hereby shall have been obtained.
e. RELEASE OF LIENS. The Existing Liens shall have been
released, and AFC shall have provided evidence satisfactory
to Purchaser of such release, including delivery to Purchaser
at Closing, releases by the Secured Lender of all guarantees
of the Companies and completed applications necessary to
terminate all UCC-1 financing statements and all trademark
recordation forms filed with the Patent and Trademark Office
relating to the Companies or the Company Assets.
Page 57 - STOCK PURCHASE AGREEMENT
f. LANDLORD CONSENTS. Purchaser shall have received the consent
to the consummation of the transactions contemplated herein
as set forth on SCHEDULE 9.f.
g. [INTENTIONALLY OMITTED]
h. ASSIGNMENT OF CERTAIN AGREEMENTS. The Companies shall have
assigned to AFC or a subsidiary of AFC the international and
Hawaii development, franchise and management agreements and
the other agreements identified on SCHEDULE 9.h (the
"Assigned Agreements") along with all purchase orders, ad
fund deposits, and deposits on purchase orders associated
with the Assigned Agreements. In addition, the Companies and
AFC shall have entered into a Master License Agreement, in
the form attached hereto as EXHIBIT A.
i. EMPLOYEES. The current employees of AFC and the Companies
identified on SCHEDULE 9.i shall be employed by AFC and/or
the Companies on the Closing Date and shall not have given
any notice of termination.
j. TERMINATION OF COMPANY CONTRACTS. The Company Contracts set
forth on SCHEDULE 9.j shall have been terminated without
liability or further obligation of any Company.
k. ADDITIONAL CONSENTS. Purchaser shall have obtained, from the
Persons identified in SCHEDULE 9.k a written waiver and
consent, in a form reasonably acceptable to Purchaser, to
execution of the Master License Agreement by Purchaser and
the satisfaction by Purchaser of its obligations thereunder,
including but not limited to the maintenance and support of
the relationship between AFC and the international
Franchisees to the extent provided in the Master License
Agreement.
10. CONDITIONS PRECEDENT TO OBLIGATIONS OF AFC. The following shall
constitute conditions precedent to AFC's obligations to consummate the
transactions contemplated herein, and the failure of any such condition shall
give AFC the option of terminating this Agreement whereupon neither party
hereto shall have any further obligations hereunder:
a. REPRESENTATIONS AND WARRANTIES. The representations and
warranties of Purchaser contained herein shall be true and
correct as of Closing; Purchaser shall have complied with,
performed or satisfied all agreements, covenants and
conditions required by this Agreement to be complied with,
performed or satisfied by it; and, Purchaser shall have
delivered to AFC a certificate to such effect.
b. ACTIONS. No action, suit or proceeding shall have been
instituted before a court or governmental body, or instituted
or threatened by any governmental agency or body, to restrain
or prevent the carrying out of the transactions contemplated
hereby, which shall not have been disposed of to the
reasonable satisfaction of AFC.
Page 58 - STOCK PURCHASE AGREEMENT
c. HSR ACT. The waiting period (and any extension thereof)
applicable to the Transaction under the HSR Act shall have
been terminated or shall have expired and all material
foreign antitrust approvals required to be obtained prior to
the Closing in connection with the transactions contemplated
hereby shall have been obtained.
d. RELEASE OF LIENS. The Secured Lender shall have given written
notice that it will release its security interest in the
Shares and the Company Assets concurrently with the Closing.
11. CLOSING OBLIGATIONS.
a. OBLIGATIONS OF AFC AT CLOSING. At Closing, AFC shall deliver
to Purchaser the following:
i. the Stock Certificates evidencing the Shares,
together with an assignment thereof, duly endorsed
for transfer to Purchaser;
ii. the minute books for each of the Companies;
iii. the Recipes;
iv. a certificate of good standing of AFC issued by the
Secretary of State of Minnesota and dated within
thirty (30) days of the Closing Date;
v. a certificate, dated the Closing Date, of an officer
of AFC certifying the resolutions adopted by the
Board of Directors of AFC approving the execution
and delivery of this Agreement and the consummation
of the transactions contemplated under this
Agreement;
vi. an opinion of counsel for AFC dated the Closing
Date, in the form annexed hereto as EXHIBIT B;
vii. the "bring down" certificate required by Paragraph
9.a.;
viii. a non-foreign affidavit dated as of the Closing
Date, sworn under penalty of perjury and in form and
substance required under the Treasury Regulations
issued pursuant to Code ss.1445 stating that such
AFC is not a "foreign person" as defined in Code
ss.1445 (the "FIRPTA Affidavit");
ix. the releases and termination statements of Secured
Lender as required by Paragraph 9.f.; and
x. any and all such other documents, agreements,
certificates and instruments required to be executed
and/or delivered by AFC to Purchaser.
Page 59 - STOCK PURCHASE AGREEMENT
b. OBLIGATIONS OF PURCHASER AT CLOSING. At Closing, Purchaser
shall deliver to AFC the following:
i. The full Purchase Price by wire transfer to AFC;
ii. a certificate of good standing of Purchaser issued
by the Secretary of State of Washington and dated
within thirty (30) days of the Closing Date;
iii. a certificate, dated the Closing Date, of an officer
of Purchaser certifying the resolutions adopted by
the Board of Directors of Purchaser approving the
execution and delivery of this Agreement and the
consummation of the transactions contemplated under
this Agreement;
iv. an opinion of counsel for Purchaser dated the
Closing Date, in the form annexed hereto as EXHIBIT
C;
v. the "bring down" certificate required by Paragraph
10.a hereof; and
vi. any and all such other documents, agreements,
certificates and instruments required to be executed
and/or delivered by Purchaser to AFC, and all
payments (if any) required to be made, pursuant to
the terms and provisions of this Agreement.
c. POST CLOSING OBLIGATIONS OF AFC.
i. COBRA BENEFITS. AFC agrees to provide any required
COBRA continuation coverage after the Closing to any
employee or former employee of the Companies (as
well as any spouse or dependent of any employee or
former employee) who on or prior to the Closing Date
experiences a "qualifying event" (as defined in Code
Section 4980B(f) and ERISA Section 603) with respect
to AFC and the Companies health plan.
ii. AAFES AGREEMENT. From and after the Closing, AFC
shall, for no additional consideration, use its
commercially reasonable efforts to assign or
transfer the franchisor rights relating to the Cafes
developed and/or operated by AAFES under the AAFES
Agreement to Purchaser, the Companies or their
designee upon Purchaser's written request and to
obtain AAFES consent to any such assignment or
transfer.
12. INDEMNIFICATION BY AFC.
a. GENERAL. AFC, hereby agrees to indemnify, defend and hold
harmless Purchaser from and against any and all and all
Losses actually incurred by Purchaser or any Company and
arising out of or due to:
i. a breach of, or inaccuracy in, any representation or
warranty made by AFC, and contained in this
Agreement or any other Transaction
Page 60 - STOCK PURCHASE AGREEMENT
Document, or any nonfulfillment of any covenant made
by AFC contained herein or in any other Transaction
Document; and
ii. any of the Company Contracts identified on SCHEDULE
9.j, including, without limitation, the termination
of such Company Contracts in accordance with this
Agreement; and
iii. any and all actions, suits, proceedings, claims,
demands, assessments, judgments, costs and expenses
(including, without limitation, legal fees and
expenses) arising from any product liability or
personal injury claim arising from the conduct of
the Businesses prior to Closing, including, without
limitation, those items listed on SCHEDULE 6.n; and
iv. any and all of items which are listed in SCHEDULE
6.n hereto; and
v. any and all actions, suits, proceedings, claims,
demands, assessments, judgments, costs and expenses
(including, without limitation, legal fees and
expenses, and travel costs and expenses) incident to
or arising from any misrepresentation of or omission
from any of the items set forth on any document
filed by AFC with the Securities Exchange Commission
(including without limitation, any misrepresentation
or omission contained in the AFC Financial
Statements, which are restated, modified, or
otherwise corrected by the Restated Financial
Statements); and
vi. any and all actions, suits, proceedings, claims,
demands, fines, penalties and expenses (including,
without limitation, legal fees and expenses and
travel costs and expenses) incident to or arising
from the actions, inactions, facts or circumstances
disclosed on SCHEDULE 6.s.ii, including, without
limitation, any Losses resulting from any Company's
future breach of any of its obligations as a result
of such actions, inactions, facts or circumstances;
and
vii. any and all actions, suits, proceedings, claims,
demands, assessments, judgments, costs and expenses
(including, without limitation, legal fees and
expenses, and travel costs and expenses) relating to
sales, marketing or promotional activities
associated with the negotiation and/or execution of
agreements granting development of franchise rights
that took place during the one (1) year period prior
to the date of this Agreement; and
viii. any and all actions, suits, proceedings, claims,
demands, assessments, judgments, costs and expenses
(including, without limitation, legal fees and
expenses, and travel costs and expenses) incident to
any of the foregoing or incurred in investigating or
attempting to avoid the same or to oppose the
imposition thereof, or in enforcing this indemnity.
b. SURVIVAL. The obligation of AFC to indemnify Purchaser (i)
pursuant to Paragraph 12.a.i (other than its obligation to
indemnify Purchaser for non-fulfillment
Page 61 - STOCK PURCHASE AGREEMENT
of any covenant made by AFC to be performed after the
Closing), Paragraph 4.e. (Tax Matters) herein and Paragraph
12.a.v (to the extent applicable to any indemnification
obligations with respect to the matters identified in this
clause (i)) shall survive the Closing until the expiration of
AFC's representations and warranties as set forth in
Paragraph 6, (ii) pursuant to Paragraph 12.a.i with regard to
AFC's obligation to indemnify Purchaser for non-fulfillment
of any covenant by AFC to be performed after the Closing and
Paragraphs 12.a.ii, 12.a.iii, 12.a.iv, 12.a.v. and ▇▇.▇.▇▇
(to the extent applicable to any indemnification obligations
with respect to the matters identified in this clause (i))
shall survive Closing until the expiration of the applicable
statute of limitations, and (iii) pursuant to Paragraph 12.d,
shall survive the Closing for a period of two (2) years (each
a "Survival Limitation Date"); provided, however, such
indemnification obligations shall survive the Survival
Limitation Date if asserted in a Claim Notice delivered to
AFC on or before the Survival Limitation Date in accordance
with the provisions of Paragraph 14 hereof; and provided,
further that any Loss arising from fraud or any intentional
misrepresentations of AFC shall survive the maximum period
allowable pursuant to any applicable statute of limitations.
c. LIMITATIONS ON AMOUNT. AFC shall have no liability to
Purchaser for indemnification pursuant to this Paragraph 12
until the total Losses with respect to indemnifiable claims
exceed $250,000, and then only for the amount by which such
Losses exceed $250,000. In no event shall the aggregate
liability of AFC with respect to claims by Purchaser
hereunder exceed the Purchase Price.
d. LEASE REIMBURSEMENT. Notwithstanding the provisions set forth
in Paragraph 12.c., AFC shall reimburse Purchaser for fifty
percent (50%) of all Losses arising out of or resulting from
any provision in any Premises Lease set forth on SCHEDULE
12.d which prohibits or precludes the tenant under such
Premises Lease from, directly or indirectly, engaging in any
identical, similar or competing business from such location
within a specified area or radius from the location of the
Company-Owned Cafe which is the subject of such Premises
Leases or from taking any action which would divert business
from the location of the subject Premises Lease ("Radius
Restriction Clause"); provided that AFC shall not be required
to reimburse Purchaser for Losses that result from the
opening of a new retail cafe by Purchaser after the date
hereof. Purchaser agrees that it will not, and following the
Closing, will not cause the Companies to, initiate
communications with those landlords of the Premises Leases
identified on SCHEDULE 12.d concerning the provisions of such
Premises Leases which may give rise to the reimbursement
obligation set forth in this Paragraph 12.d; provided, that
nothing herein shall preclude Purchaser or the Companies from
responding to inquiries, claims or demands relating to such
provisions. In the event Purchaser is required to make
payments to a landlord under a Premises Lease containing a
Radius Restriction Clause in connection with the early
termination of such Premises Lease, Purchaser will reasonably
allocate such
Page 62 - STOCK PURCHASE AGREEMENT
payments as between Losses for which it is entitled to
reimbursement pursuant to this Paragraph 12.d and those
Losses for which it is not entitled to reimbursement.
13. INDEMNIFICATION BY PURCHASER.
a. GENERAL. Purchaser hereby agrees to indemnify, defend and
hold harmless the AFC from and against any and all Losses
arising out of or due to:
i. A breach of, or inaccuracy in, any representation or
warranty made by Purchaser and contained in this
Agreement or any other Transaction Document, or any
nonfulfillment of any covenant made by Purchaser
contained herein or in any other Transaction
Document; and
ii. Any and all actions, suits, proceedings, claims,
demands, assessments, judgments, costs and expenses
including, without limitation, legal fees and
expenses, incident to any of the foregoing or
incurred in investigating or attempting to avoid the
same or to oppose the imposition thereof, or in
enforcing this indemnity.
b. SURVIVAL. The obligation of Purchaser to indemnify AFC
contained herein shall survive the Closing until the Survival
Limitation Date; provided, however, such indemnification
obligations shall survive the Survival Limitation Date if
asserted in a Claim Notice delivered to Purchaser on or
before the Survival Limitation Date in accordance with the
provisions of Paragraph 14 hereof; and provided, further that
any Loss arising from fraud or any intentional
misrepresentations of Purchaser shall survive the maximum
period allowable pursuant to any applicable statute of
limitations.
c. LIMITATIONS. Purchaser shall have no liability to AFC (for
indemnification or otherwise) until the total Losses with
respect to indemnifiable claims exceeds $250,000, and then
only for the amount by which such Losses exceeds $250,000. In
no event shall the aggregate liability of Purchaser with
respect to claims by AFC hereunder exceed $5,000,000.
14. INDEMNIFICATION MATTERS.
a. NOTICE OF CLAIM. If any party shall seek indemnification
pursuant to Paragraph 12 or 13 above, such party seeking
indemnification (the "Indemnified Party") shall give written
notice (a "Claim Notice") to the party from whom such
indemnification is sought (the "Indemnifying Party") within
five (5) business days after the Indemnified Party becomes
aware of the facts giving rise to such claim for
indemnification (an "Indemnified Claim") specifying in
reasonable detail the factual basis of the Indemnified Claim,
stating the amount of the Indemnified Claim, if known, the
method of computation thereof, and containing a reference to
the provision of the Transaction Documents in respect of
which such Indemnified Claim arises. The failure of an
Indemnified Party to provide notice pursuant to this
Paragraph 14.a. shall not constitute a waiver of that party's
claims
Page 63 - STOCK PURCHASE AGREEMENT
to indemnification pursuant to Paragraph 12 or 13 as the case
may be in the absence of material prejudice to the
Indemnifying Party. If the Indemnified Claim arises from the
assertion of any claim, or the commencement of any suit,
action or proceeding brought by a person that is not a party
hereto (a "Third Party Claim") any such notice to the
Indemnifying Party shall be accompanied by a copy of any
papers theretofore served on the Indemnified Party in
connection with such Third Party Claim.
b. THIRD PARTY CLAIMS. Upon receipt of notice of a Third Party
Claim from an Indemnified Party pursuant to Paragraph 14.a.,
the Indemnifying Party may assume the defense and control of
such Third Party Claim (provided the Indemnifying Party
assumes liability therefrom and can demonstrate sufficient
financial resources to satisfy such claim) but shall allow
the Indemnified Party a reasonable opportunity to participate
in the defense thereof with its own counsel and at its own
expense. The Indemnifying Party shall select counsel,
contractors and consultants of recognized standing and
competence after consultation with the Indemnified Party;
shall take all steps necessary in the defense or settlement
thereof; and shall at all times diligently and promptly
pursue the resolution thereof. In conducting the defense
thereof, the Indemnifying Party shall at all times act as if
all damages relating to such Third Party Claim were for its
own account and shall act in good faith and with reasonable
prudence to minimize damages therefrom. The Indemnified Party
shall, and shall cause each of its Affiliates, directors,
officers, employees, and agents to, cooperate reasonably with
the Indemnifying Party in the defense of any Third Party
Claim defended by the Indemnifying Party.
c. INSURANCE. The liability of an Indemnifying Party under
Paragraph 12 or 13 above shall be reduced by any insurance
proceeds received by the Indemnified Party (or in the case of
Purchaser, any of the Companies) as a result of any Losses
upon which such indemnification claim is based.
15. DISPUTE RESOLUTION.
a. ARBITRATION. Except for action seeking a temporary
restraining order or injunction, or suit to compel compliance
with this dispute resolution process, the Parties agree to
use the dispute resolution procedures set forth in this
Article with respect to any controversy or claim arising out
of or relating to this Agreement or its breach. For a period
of thirty (30) days after notice from either Party, the
Parties shall attempt in good faith to resolve the dispute by
direct negotiation of nonlawyer representatives of the
Parties. If the Parties do not resolve the dispute within
such thirty (30) day period, either Party may submit the
matter to binding arbitration with a professional arbitration
service selected by the Parties. If the Parties do not
otherwise agree on a mediation or arbitration service, such
services, shall be provided pursuant to the
J.A.M.S./ENDISPUTE Arbitration Rules and Procedures. The
costs of mediation and arbitration, including the fees and
expenses of the mediator and arbitrator, shall be paid
equally by the Parties unless
Page 64 - STOCK PURCHASE AGREEMENT
the arbitration award provides otherwise. Each Party shall
bear the cost of preparing and presenting its case. The
Parties agree that Seattle, Washington shall be the location
for the arbitration hearing. The Parties agree that this
Section and the arbitrator's authority to grant relief shall
be subject to the United States Arbitration Act, 9 U.S.C.
Sections 1-6, et seq. ("USAA"), the provisions of this
Agreement, and the ABA-AAA Code of Ethics for Arbitration in
Commercial Disputes. The Parties agree that the arbitrator
shall have no power or authority to make any award that
provides for punitive or exemplary damages, or any other
damages waived by the parties under this Agreement. The
arbitrator's decision shall be final and binding. The award
may be confirmed and enforced in any court of competent
jurisdiction. All post-award proceedings shall be governed by
the USAA.
b. COSTS AND ATTORNEYS FEES. If any party fails to proceed with
arbitration as provided herein or unsuccessfully seeks to
stay such arbitration, or fails to comply with any
arbitration award, or is unsuccessful in vacating or
modifying the award pursuant to a petition or application for
judicial review, the other party shall be entitled to be
awarded costs, including reasonable attorneys' fees, paid or
incurred by such other party in successfully compelling such
arbitration or defending against the attempt to stay, vacate
or modify such arbitration award and/or successfully
defending or enforcing the award.
c. EQUITABLE RELIEF. Notwithstanding anything in this Paragraph
15 or any other provision of this Agreement to the contrary,
neither party shall be obligated to go through the procedures
set forth in Paragraph 15.a. above if such party is seeking
specific performance or injunctive relief to force the other
party to consummate the transactions contemplated hereby or
otherwise comply with the terms hereof.
16. TERMINATION. In addition to the other rights to terminate this
Agreement set forth above, this Agreement may be terminated prior to the Closing
as hereinafter provided:
a. This Agreement may be terminated upon the written consent of
all of the parties hereto.
b. Either party may terminate this Agreement by written notice
to the other party if the Closing shall not have occurred on
or before the Closing Date through no fault of such party,
provided however, that notwithstanding the foregoing, either
party may, upon delivery of written notice, unilaterally
extend the Closing Date for a period of up to ninety (90)
days if the failure of the Closing to occur on the original
Closing Date is the result of the failure to obtain HSR
approval; provided that in the event of such extension,
either party may terminate this Agreement if the Closing does
not occur through no fault of such party on or before the
fifth (5th) Business Day on which the conditions set forth in
paragraphs 9.d and 10.c are satisfied.
Page 65 - STOCK PURCHASE AGREEMENT
c. In the event of the termination of this Agreement pursuant to
this Paragraph 16 or as otherwise expressly provided herein,
this Agreement shall immediately upon termination become void
and have no effect and there shall be no obligation or
liability on the part of any party hereto or its officers,
directors, shareholders, heirs, legal representatives,
successor or assigns; provided, however, that nothing herein
shall relieve any party from liability for any breach hereof.
17. PUBLICITY. There shall be no public announcement or comments with
respect to this Agreement or the transactions contemplated hereby, except as
mutually agreed by AFC and Purchaser; provided, however, that such
announcements as are required by law or governmental regulation may be made
without mutual agreement, and if time or circumstance makes prior consultation
between the parties impractical, unnecessary or otherwise not feasible, in such
event, the party making such announcement shall notify the other party as soon
as practicable thereafter.
18. PROFESSIONAL FEES/BROKERS. Each party shall be solely responsible for
all brokers fees, attorneys' fees, other professional fees and expenses
incurred by it in connection with the transactions contemplated by this
Agreement.
19. NOTICES. Notice to be given to any party under this Agreement shall not
be effective unless in writing and hand delivered or mailed by certified or
registered mail to the relevant party at the address stated below, or sent by
telex or telecopy to the party to be notified at the telex or facsimile number
stated below (with a copy mailed to the address stated below):
In the case of the Purchaser:
Starbucks Corporation
▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇ ▇.
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
Attn: General Counsel
Fax No. ▇▇▇-▇▇▇-▇▇▇▇
with copy to:
▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ LLP
▇▇▇▇ ▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
Fax No.: ▇▇▇-▇▇▇-▇▇▇▇
or in the case of AFC:
AFC Enterprises, Inc.
▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
Page 66 - STOCK PURCHASE AGREEMENT
Attn: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, Esq.
Fax No. ▇▇▇-▇▇▇-▇▇▇▇
with a copy to:
▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ & Small, P.C.
▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: H. ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, Esq.
Fax No. ▇▇▇-▇▇▇-▇▇▇▇
Notice by certified mail shall be deemed to be received three business
days after mailing of the same. All other notices shall be deemed to have been
given on the date of receipt thereof. Any party may change its address, or its
telex or telecopy number by giving notice of such change in the manner provided
herein.
20. CONFIDENTIALITY. From and after the Closing, except as permitted by the
Master License Agreement, neither AFC nor any of its Affiliates, employees,
representatives or agents shall use or disclose to any third party any
confidential or proprietary information of the Companies except as may be
required by Applicable Law, including without limitation any rules or
regulations of the Securities and Exchange Commission, but only with prior
written notice to the other party.
21. MISCELLANEOUS.
a. BENEFIT. This Agreement shall be binding upon and inure to
the benefit of the parties hereto and their respective heirs,
administrators, executors, assigns and successors.
b. GOVERNING LAW. THIS AGREEMENT AND ALL RIGHTS, OBLIGATIONS AND
LIABILITIES ARISING HEREUNDER SHALL BE CONSTRUED AND GOVERNED
BY THE SUBSTANTIVE LAW OF THE STATE OF WASHINGTON, WITHOUT
GIVING EFFECT TO THE PRINCIPLES OF CONFLICTS OF LAW THEREOF.
c. SEVERABILITY. In the event any parts of this Agreement are
found to be void, the remaining provisions of this Agreement
shall nevertheless be binding with the same effect as though
the void parts were deleted.
d. EXECUTION OF AGREEMENT. This Agreement may be executed in two
or more counterparts, each of which is an original and all of
which together shall be deemed to be one and the same
instrument. This Agreement shall become binding when one or
more counterparts taken together shall have been executed and
delivered by all of the parties. It shall not be necessary in
making proof of this Agreement or any counterpart hereof to
produce or account for any of the
Page 67 - STOCK PURCHASE AGREEMENT
other counterparts. Facsimile signatures shall constitute
originals for all purposes hereof.
e. ENTIRE AGREEMENT. This Agreement, together with the written
agreements executed contemporaneously herewith, contain the
entire Agreement of the parties hereto, and no
representations, warranties, covenants or agreements, not
embodied or incorporated herein, oral or otherwise, shall be
of any force of effect.
f. AMENDMENT. No amendments, modifications or additions to this
Agreement shall be binding unless in writing and signed by
all parties hereto.
g. WAIVER. A waiver of any breach hereunder by any party hereto
shall not constitute a waiver by such party of any other
breach or a waiver by such party of the same breach on any
other occasion; and, to be effective, any waiver hereunder
must be in writing.
h. INTERPRETATION. This Agreement was negotiated with the
benefit of legal representation for all parties, and any rule
of construction or interpretation otherwise requiring this
Agreement to be construed or interpreted against any party
shall not apply to any construction or interpretation hereof.
"Herein", "hereof" and "hereunder" refer to this Agreement as
a whole and not to any particular part. Headings or captions
are for convenience only and shall not affect the
construction or interpretation of this Agreement. Words
importing the singular number only shall include the plural
and vice versa and words importing the masculine gender shall
include the feminine and neuter genders and vice versa.
Accounting terms not otherwise defined herein, shall have the
meanings assigned to them under GAAP. The word "including"
means including without limiting the scope or generality of
any description preceding such word, and the word "or" means,
and is used in the inclusive sense of, "and/or". References
to documents, instruments or agreements shall be deemed to
refer as well to all addenda, exhibits, schedules or
amendments thereto
Page 68 - STOCK PURCHASE AGREEMENT
IN WITNESS WHEREOF, the parties hereto have executed or caused this
Agreement to be executed and delivered their duly authorized officers, as of the
day and year first above written.
ATTEST: AFC ENTERPRISES, INC.
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇ By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
------------------------------------ -----------------------------------
Its Assistant Secretary Its Chief Executive Officer
ATTEST: STARBUCKS CORPORATION
By: By: /s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇
------------------------------------ -----------------------------------
Its Secretary Its Executive Vice President
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Page 69 - STOCK PURCHASE AGREEMENT
APPENDIX LIST
A AFC Knowledge
B Employee and Employee Benefit Matters
EXHIBIT LIST
A Master License Agreement
B Opinion of Counsel for AFC
C Opinion of Counsel for Purchaser
D Landlord Estoppel Letters
SCHEDULE LIST
2.b. AFC Wire Transfer Instructions
2.c. October Financials
2.d EBITDA Methodology
6.a.ii. SCC Foreign Jurisdictions
6.a.iii. Best Foreign Jurisdictions
6.a.iv. Italia Foreign Jurisdictions
6.c. Existing Liens
6.d. AFC Financial Statements and Current Company Financial
Statements
6.e.i(a) Cafe Owned and Operated by CT Restaurants, L.P.
6.e.i. Company-Owned Cafes
6.e.ii. Company-Owned Cafe Premises Leases
6.e.iii Occupancy Records for Company-Owned Cafe Premises
6.e.iv Storage and Common Area Agreements
6.f.i Other Premises
6.f.ii Other Premises Leases
6.f.xi Disputes as to Premises Leases
6.g. Condition of Company Assets
6.g.i. FF&E
6.g.ii. Computer Hardware, Computer Software, Etc.
6.g.iii. Minimum Inventory of Operating Assets
6.g.iv. Accounts Receivable
6.g.v. Premises Leases Defaults, Consents, Obligations and
Improvements
▇.▇.▇▇. Material Equipment Leases
6.h.i Affiliated Group Tax Matters
6.h.v Tax Returns
6.i.i Condition of Major Service Systems
6.i.iii. Health Department Citations
6.k. No Breach
6.l. Compliance with Laws
6.m. Consents and Approvals
6.n. Actions and Proceedings
6.o.i. Marks, Trademark Registration Rights
6.o.ii. Registered Copyrights
6.o.iii. Patents
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6.o.iv Recipes
6.o.v. Trade Dress
▇.▇.▇▇. Publicity Rights Agreements and Third-Party License
Agreements
6.o.vii. List of Encumbered Proprietary Rights
6.o.ix. Proprietary Right Claim
6.o.x. Existing Infringements of Proprietary Right Claim
6.o.xi.. Computer Software
6.o.xii. Proprietary Right Claim by Former or Current Officers,
Employees, Etc.
6.o.xiii. Proprietary Rights Filing
6.o.xiv Employee Confidentiality and Nondisclosure Agreements
6.o.xv. Proprietary Right Enforceability Exceptions
6.p.i.(a) Franchise Agreements and Amendments
6.p.i(b) Franchisee Defaults
6.p.i(g) Required Policies
6.p.i(h) Suppliers
6.p.i(i) Contractual Limitations or Prohibitions
6.p.ii.(a) License Agreements and Amendments
6.p.ii.(b) Licensee Defaults
6.q.i. Development Agreements and Amendments
6.q.ii Developer Defaults
6.q.v Modifications to Development Schedules
6.q.vii Terminated Development Agreements
6.r.i. Advertising Funds
6.s.i. Subsidiary Franchise Registration Jurisdictions
6.s.ii UFOC Disclosures
6.t.i Company Contracts
6.u. Licenses
6.v. Employee and Labor Matters
6.w. Benefit Plans
6.x.i. Environmental Violations
6.x.ii. Environmental Notices
6.x.iii. Notice of Hazardous Substances
6.y. Insurance
6.z. Brokers and Finders
6.aa. Material Adverse Changes
▇.▇▇. Suppliers
6.ff. Accounts Payable
▇.▇▇. Bank Accounts
6.ii. Transactions with Affiliates
6.kk. Interest in Franchisees, Developers, Suppliers and
Competitors
6.ll. Enterprise Systems
9.f Landlord Consents
9.h Assigned Agreements
9.i. Employees
9.j. Termination of Certain Company Contracts
9.k. Additional Consents
12.d Premise Lease Reimbursements
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