EXHIBIT 2.1
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SECURITIES PURCHASE AGREEMENT
BY AND AMONG
COOKIES USA, INC.,
THE INDIVIDUALS AND ENTITIES IDENTIFIED HEREIN AS
THE SELLERS
AND
▇▇▇. ▇▇▇▇▇▇' ORIGINAL COOKIES, INC.
DATED AS OF
AUGUST 13, 1998
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TABLE OF CONTENTS
Page
ARTICLE ISALE OF STOCK AND TERMS OF PAYMENT........................................................ 2
1.1 The Sale................................................................................. 2
1.2 Consideration............................................................................ 3
1.3 The Sellers' Releases.................................................................... 5
1.4 Other Matters............................................................................ 6
1.5 Warrants................................................................................. 8
ARTICLE II
THE PRE-CLOSING AND CLOSING........................................................................ 8
2.1 Time and Place of Pre-Closing and Closing................................................ 8
2.2 Deliveries by the Sellers and the Company................................................ 10
2.3 Deliveries by Buyer...................................................................... 12
ARTICLE IIIREPRESENTATIONS AND WARRANTIES OF THE COMPANY
AND THE SELLERS.................................................................................... 12
3.1 Organization; Qualification.............................................................. 13
3.2 The Company's Capitalization............................................................. 14
3.3 Title to Stock........................................................................... 16
3.4 Authority Relative to this Agreement..................................................... 16
3.5 Subsidiaries and Equity Investments; Affiliates.......................................... 17
3.6 Consents and Approvals; No Violation..................................................... 17
3.7 Reports.................................................................................. 19
3.8 Financial Statements..................................................................... 20
3.9 Undisclosed Liabilities.................................................................. 22
3.10 Absence of Certain Changes or Events.................................................... 23
3.11 Personal Property....................................................................... 25
3.12 Real Property........................................................................... 26
3.13 Insurance............................................................................... 28
3.14 Environmental Matters................................................................... 29
3.15 Labor Matters........................................................................... 33
3.16 ERISA; Benefit Plans.................................................................... 34
3.17 Certain Contracts and Arrangements...................................................... 40
3.18 Intellectual Property................................................................... 42
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3.19 Customers, Suppliers and Competitors...................................................... 44
3.20 Legal Proceedings, etc.................................................................... 44
3.21 Tax Matters............................................................................... 45
3.22 Arrangements with Directors, Officers
and Affiliates........................................................................... 48
3.23 Compliance with Law....................................................................... 49
3.24 Fees and Commissions...................................................................... 50
3.25 Representations of the Sellers............................................................ 50
ARTICLE IVREPRESENTATIONS AND WARRANTIES OF BUYER.................................................... 53
4.1 Organization............................................................................... 53
4.2 Authority Relative to this Agreement....................................................... 53
4.3 Consents and Approvals; No Violation....................................................... 54
4.4 Acquisition of Stock for Investment........................................................ 56
4.5 Financing.................................................................................. 56
4.6 Fees and Commissions....................................................................... 56
4.7 Knowledge of Inaccuracies.................................................................. 56
ARTICLE VCOVENANTS OF THE PARTIES.................................................................... 57
5.1 HSR Act Compliance......................................................................... 57
5.2 Conduct of Business of the Company......................................................... 57
5.3 Access to Information...................................................................... 63
5.4 Insurance.................................................................................. 64
5.5 WARN Act................................................................................... 65
5.6 Expenses................................................................................... 65
5.7 Further Assurances......................................................................... 65
5.8 Public Statements.......................................................................... 66
5.9 Consents and Approvals..................................................................... 67
5.10 Sales and Transfer Taxes.................................................................. 69
5.11 Supplemental Information.................................................................. 70
5.12 Employees................................................................................. 70
ARTICLE VICLOSING CONDITIONS......................................................................... 71
6.1 Conditions to Each Party's Obligations to
Effect the Transactions Contemplated Hereby............................................... 71
6.2 Conditions to Obligations of Buyer......................................................... 72
6.3 Conditions to Obligations of the Sellers................................................... 74
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ARTICLE VIITERMINATION AND ABANDONMENT................................................................. 75
7.1 Termination.................................................................................. 75
7.2 Procedure and Effect of Termination.......................................................... 77
ARTICLE VIIIINDEMNIFICATION............................................................................ 78
8.1 Coverage..................................................................................... 78
8.2 Limitation of Liability...................................................................... 78
ARTICLE IXMISCELLANEOUS PROVISIONS..................................................................... 79
9.1 Amendment and Modification................................................................... 79
9.2 Waiver of Compliance; Consents............................................................... 79
9.3 No Survival of Representations and Warranties................................................ 79
9.4 Notices...................................................................................... 80
9.5 Assignment................................................................................... 81
9.6 Governing Law................................................................................ 82
9.7 Counterparts................................................................................. 82
9.8 Interpretation............................................................................... 82
9.9 Entire Agreement............................................................................. 84
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SECURITIES PURCHASE AGREEMENT
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SECURITIES PURCHASE AGREEMENT, dated as of July 30, 1998, by and
among Cookies USA, Inc., a Delaware corporation (the "Company"), the Sellers (as
hereinafter defined) and ▇▇▇. ▇▇▇▇▇▇' Original Cookies, Inc., a Delaware
corporation ("Buyer").
WHEREAS, the individuals and entities identified on Annex A hereto
(the "Sellers") own in the respective amounts indicated thereon (i) all of the
outstanding shares of common stock, par value $0.01 per share, of the Company
(the "Company Common Stock"), (ii) all of the outstanding shares of the Junior
Class A Preferred Stock of the Company and the Junior Class B Preferred Stock of
the Company (together, the "Junior Preferred Stock"), (iii) all of the
outstanding shares of the Senior Convertible Preferred Stock of the Company (the
"Senior Preferred Stock"), and (iv) all of the outstanding $10 million aggregate
principal amount of the Senior Subordinated Notes of the Company (the "Senior
Subordinated Notes" and, together with the Company Common Stock, the Junior
Preferred Stock and the Senior Preferred Stock, the "Company Securities");
WHEREAS, the Company owns all of the outstanding shares of common
stock (the "Subsidiary Common Stock"), no par value, of Great American Cookie
Company, Inc., a Delaware corporation (the "Subsidiary"); and
WHEREAS, Buyer desires to purchase, and the Sellers desire to sell
to Buyer, all of the Company Securities owned by them upon the terms and
conditions hereinafter set forth in this Agreement;
NOW, THEREFORE, in consideration of the mutual covenants,
representations, warranties and agreements hereinafter set forth, and intending
to be legally bound hereby, the parties hereto agree as follows:
ARTICLE I
SALE OF STOCK AND TERMS OF PAYMENT
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I.1 The Sale. Upon the terms and subject to the satisfaction of the
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conditions contained in this Agreement, at the Closing (as hereinafter defined),
each Seller will sell, assign, transfer and deliver to Buyer, and Buyer will
purchase and acquire from such Seller, free and clear of all Liens (as
hereinafter defined), all of the shares and/or principal amount of Company
Securities owned by such Seller. Notwithstanding anything in this Agreement to
the contrary, prior to the Closing Date, any Seller may transfer all or part of
the Company Securities owned by such Seller, subject to all of such Sellers'
rights and obligations under this Agreement, to any other Seller. Each Seller
agrees to give prompt written notice (which in no event shall be later than two
business days before the Closing) to Buyer of any such transfer of Company
Securities.
I.2 Consideration.
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(a) Upon the terms and subject to the satisfaction of the
conditions contained in this Agreement and subject to adjustment as set forth in
Sections 1.2(b) and 1.2(c), in consideration of the aforesaid sale, assignment,
transfer and delivery of the Company Securities, at the Closing Buyer will pay
or cause to be paid to the respective Sellers the following amounts, in each
case allocated among the holders of each class of the Company Securities on a
pro rata basis as of the Closing Date (as hereinafter defined):
(i) $10,000,000 in the aggregate for all of the
outstanding Senior Subordinated Notes, plus the aggregate amount of any
accrued but unpaid interest thereon through the Closing;
(ii) $5,150,000 in the aggregate for all shares of the
Senior Preferred Stock outstanding on the Closing Date (including all
accrued but unpaid dividends);
(iii) $3,250,000 in the aggregate for all shares of the
Junior Preferred Stock outstanding on the Closing Date (including all
accrued but unpaid dividends); and
(iv) $0 for all shares of the Company Common Stock
outstanding on the Closing Date.
(b) In the event that the aggregate amount of all Expenses (as
hereinafter defined) shall exceed $200,000, in addition to any other adjustment
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required by this Section 1.2, the consideration payable pursuant to Section
1.2(a) shall be reduced by 100% of such excess. For purposes of this Agreement,
"Expenses" shall include all professional fees and expenses paid or payable by
the Company in connection with this Agreement and the transactions contemplated
hereby, including without limitation those expenses of the Sellers contemplated
to be paid by the Company pursuant to Section 5.6, it being agreed that
"Expenses" shall not include the fees and expenses of Price Waterhouse LLP,
legal and accounting expenses incurred in the ordinary course of business,
expenses actually paid on or prior to March 29, 1998 and the Company's share of
the HSR Act fee payable pursuant to Section 5.1.
(c) By a written notice from any Seller to Buyer on or prior to
the Closing Date, such Seller may elect to reallocate the aggregate payments to
be received by such Seller pursuant to Sections 1.2(a)(ii), 1.2(a)(iii) and
1.2(a)(iv), or elect to apply such payments against any adjustments pursuant to
Section 1.2(b), among the different classes of Company Securities to be
purchased pursuant to such Sections. In the absence of any such notice, any
adjustments pursuant to Section 1.2(b) shall be applied to reduce payments under
Section 1.2(a)(iii).
I.3 The Sellers' Releases. (a) Each Seller hereby confirms and
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agrees that, effective upon such Seller's receipt of the consideration payable
to such Seller pursuant to Section 1.2, any and all claims such Seller or any of
its partners, trustees, beneficiaries, shareholders, affiliates, directors or
officers may have against the
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Company, the Subsidiary and their respective shareholders, affiliates, directors
and officers as of the Closing Date will be deemed fully discharged and
released. Without limiting the foregoing, the claims so released include without
limitation any claims under any employment or bonus agreement, any franchise
agreement, any license agreement or any other Affiliated Arrangement (as
hereinafter defined), and any claims in respect of any failure to timely pay
dividends or interest or to perform covenants, or any options or other rights to
acquire securities of the Company or the Subsidiary (the "Options"), but do not
include any of the rights of Sellers pursuant to Section 1.4 or statutory
indemnification rights or contractual indemnification rights under agreements
that are identified on Schedule 1.3.
(b) TJC Management Corp. hereby waives its right to receive any
payment under the Management Agreement, including any fee accrued on the
Company's balance sheet as of June 30, 1998.
I.4 Other Matters. Buyer hereby agrees that, in the event the
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Closing shall occur, Buyer shall (a) as of the Closing Date, cede to Messrs.
Coles and ▇▇▇▇ the Subsidiary's rights to purchase Atlanta Braves tickets
provided that Messrs. Coles and ▇▇▇▇ pay for any tickets which the Subsidiary
has committed to purchase as of such date as and when any such payments are due,
(b) permit Messrs. Coles and ▇▇▇▇ to continue at their respective expense
(including for these purposes insurance
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and administrative costs) their participation in the Subsidiary's health
insurance program, subject to Buyer's right to provide such coverage under
Buyer's health insurance program until November 30, 1998, (c) permit Messrs.
Coles and ▇▇▇▇ to each receive Great American cookies without charge in
accordance with past practice, provided that as to cookies obtained from any
store other than the GACC stores at Cumberland Mall in Atlanta, Georgia, at Town
Center at ▇▇▇▇ in Kennesaw, Georgia, at Perimeter Mall in Atlanta, Georgia and
at Sarasota Square in Sarasota, Florida, cookies must be purchased by Messrs.
Coles and ▇▇▇▇ and store receipts must be promptly provided to ▇▇▇. ▇▇▇▇▇▇ in
order for reimbursement to be received, (d) grant to Messrs. Coles and ▇▇▇▇ a
right of first refusal to purchase for cash the Subsidiary's batter facility
(exclusive of all equipment and furnishings and otherwise "as is, where is")
should the Subsidiary determine to sell such facility within the two year period
following the Closing, such right to be exercisable for 60 days following
Messrs. Coles' and ▇▇▇▇'▇ receipt of notice of a proposed sale of such facility
to a third party but only on the same terms and subject to the same conditions
as offered by such third party and subject to the further covenant by Messrs.
▇▇▇▇ and Coles that they shall not use the batter facility in connection with
any business, individual, partnership, firm, corporation or other entity which
is engaged, directly or indirectly, in a business that is in competition with
Buyer, and (e) pay to ▇▇▇▇▇ ▇▇▇▇ any and all amounts owing to him pursuant to
any and all agreements set forth on
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3.16(k) in effect immediately prior to the Closing.
I.5 Warrants. The Company and the Sellers other than Messrs. Coles
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and ▇▇▇▇ shall take such action as shall be necessary under the relevant
governing agreements to cause all of the Warrants to be cancelled on the Closing
Date. Buyer shall assist and cooperate, and shall cause its financial advisors
to assist and cooperate, with the Company and the Sellers with respect to the
foregoing matters.
ARTICLE II
THE PRE-CLOSING AND CLOSING
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II.1 Time and Place of Pre-Closing and Closing.
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(a) Upon the terms and subject to the satisfaction of the conditions
contained in this Agreement, the pre-closing of the transactions contemplated by
this Agreement (the "Pre-Closing") will take place at the offices of Skadden,
Arps, Slate, ▇▇▇▇▇▇▇ & ▇▇▇▇ LLP, ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇, at
10:00 A.M. (local time) on the date on which Buyer executes the purchase
agreements (the "Financing Agreements") pursuant to which Buyer is obtaining
financing (the "Financing"), or at such other place or time as the parties may
agree. At the Pre-Closing, the parties will deliver into an escrow (the "Pre-
Closing Escrow") the various documents to be delivered at the Closing, with
documents to be delivered by Sellers or the Company to be held ▇▇▇▇▇, ▇▇▇▇▇ &
▇▇▇▇▇ and with documents to be delivered by Buyer to be held by counsel to
Buyer. The date and time at which the
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Pre-Closing actually occurs is hereinafter referred to as the "Pre-Closing
Date."
(b) Upon the terms and subject to the satisfaction of the conditions
contained in this Agreement, the closing of the transactions contemplated by
this Agreement (the "Closing") will take place at the offices of Skadden, Arps,
Slate, ▇▇▇▇▇▇▇ & ▇▇▇▇ LLP, ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇, at 10:00
A.M. (local time) on the date on which the closing occurs under the Financing
Agreements, or at such other place or time as the parties may agree. The date
and time at which the Closing actually occurs is hereinafter referred to as the
"Closing Date." For accounting purposes only, the transactions contemplated by
this Agreement will be deemed to have occurred on June 30, 1998.
II.2 Deliveries by the Sellers and the Company. (a) In the event
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that each of the conditions to the Sellers' obligations to close hereunder are
met as of the Pre-Closing Date, each Seller hereby authorizes ▇▇▇▇▇, ▇▇▇▇▇ &
▇▇▇▇▇ to cause to be delivered into the Pre-Closing Escrow the following
documents in respect of such Seller that are being delivered as of the date
hereof to ▇▇▇▇▇, ▇▇▇▇▇ & ▇▇▇▇▇ (the "Escrowed Seller Documents"): the
certificate or certificates representing the Company Securities set forth beside
the name of such Seller on Annex A hereto, duly executed in blank or accompanied
by duly executed instruments of transfer, and any other documents (including
without limitation written releases from First National Bank of Boston) that are
necessary to transfer to Buyer good, valid and market-
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able title to such Company Securities, free and clear of any lien, charge,
security interest, pledge, mortgage, encumbrance, claim, option, limitation or
restriction of any kind (collectively, "Liens"), with all necessary transfer tax
stamps affixed or accompanied by evidence that all securities transfer taxes
have been paid.
(b) At the Pre-Closing, the Company will deliver or cause to be
delivered into the Pre-Closing Escrow the following (the "Escrowed Company
Documents"):
(i) the stock book, stock ledger, minute book and corporate
seal of each of the Company and the Subsidiary;
(ii) resignations effective as of the Closing Date from all
directors and officers of the Company and the Subsidiary;
(iii) such documents as are reasonably requested by Buyer to
implement the Financing and the Senior Note Tender Offer (as hereinafter
defined);
(iv) executed Settlement Agreement and Releases in the form of
Annex B hereto from franchisees of the Subsidiary and related investors
sufficient to satisfy the Franchisee Condition (as hereinafter defined);
and
(v) such other documents, instruments and writings as are
required to be delivered by the Company at or prior to the Closing Date
pursuant to Section 6.2 or otherwise required in connection herewith.
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(c) The Company and each Seller hereby authorizes ▇▇▇▇▇, ▇▇▇▇▇ &
▇▇▇▇▇ to cause to be delivered at the Closing the Escrowed Seller Documents and
the Escrowed Company Documents in return for the Escrowed Buyer Documents (as
hereinafter defined) and the wire transfers contemplated by Section 2.3(b).
II.3 Deliveries by Buyer.
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(a) At the Pre-Closing, Buyer will deliver into the Pre-Closing
Escrow such documents, instruments and writings as are required to be delivered
by Buyer at or prior to the Closing Date pursuant to Section 6.3 or otherwise
required in connection herewith (the "Escrowed Buyer Documents").
(b) At the Closing, Buyer shall deliver to the Sellers the Escrowed
Buyer Documents and wire transfers of immediately available funds to such
accounts of the Sellers which are designated in writing by each Seller at least
two business days prior to the Closing in an amount representing the aggregate
payments to be made pursuant to Section 1.2 in return for the Escrowed Seller
Documents and the Escrowed Company Documents.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
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AND THE SELLERS
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The Company makes to Buyer the representations and warranties set
forth in Sections 3.1 to 3.24 and the Sellers severally but not jointly make to
Buyer
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the representations and warranties set forth in Section 3.25.
III.1 Organization; Qualification. The Company and the Subsidiary
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are each corporations duly organized, validly existing and in good standing
under the laws of the State of Delaware, and have full corporate power and
authority and possess all governmental franchises, licenses, permits,
authorizations and approvals to enable them to use their corporate names and to
own, lease, or otherwise hold their properties and to operate their properties
and carry on their business as are now being conducted, other than such
franchises, licenses, permits, authorizations and approvals the lack of which,
individually or in the aggregate, would not reasonably be expected to have a
material adverse effect on the business, results of operations, or financial
condition of the Company or the Subsidiary (a "Material Adverse Effect"). The
Company and the Subsidiary are duly qualified or licensed to do business as
foreign corporations and are in good standing in each jurisdiction in which the
property owned, leased or operated by them or the nature of the business
conducted by them makes such qualification or licensing necessary, except in
each case in those jurisdictions where the failure to be so duly qualified or
licensed and in good standing would not reasonably be expected to have a
Material Adverse Effect. Schedule 3.1 sets forth, as of the date of this
Agreement, each jurisdiction in which the Company and the Subsidiary are
qualified to do business as foreign corporations. The Company
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has heretofore delivered to Buyer complete and correct copies of the Certificate
of Incorporation and By-Laws of each of the Company and the Subsidiary as
currently in effect and evidence of qualification to do business as a foreign
corporation in each jurisdiction in which the Company or the Subsidiary are so
qualified.
III.2 The Company's Capitalization.
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(a) The authorized capital stock of the Company consists of (i)
115,000 shares of Company Common Stock, of which 82,800 shares are issued and
outstanding and no shares are held in treasury, (ii) 10,500 shares of Senior
Preferred Stock, all of which are issued and outstanding, (iii) 2,500 shares of
Junior Class A Preferred Stock, all of which are issued and outstanding, and
(iv) 750 shares of Junior Class B Preferred Stock, all of which are issued and
outstanding. The Sellers own all of the issued and outstanding shares of
Company Common Stock, Junior Preferred Stock and Senior Preferred Stock. All
outstanding shares of capital stock of the Company are validly issued, fully
paid and nonassessable. Other than as set forth in (i) the Company's
Certificate of Incorporation and By-Laws as currently in effect, (ii) the
Subscription and Stockholders Agreement, dated as of December 10, 1993, among
the Company and certain of its stockholders, (iii) the Warrants, pursuant to
which 7,200 shares of Company Common Stock are issuable (collectively, the
"Capitalization Documents"), and (iv) the Options, pursuant to which 11,200
shares of Company Common Stock are issuable, there is no subscription, option,
warrant,
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call, right, agreement or commitment relating to the issuance, sale, delivery or
transfer by the Company or, to the Company's knowledge, any Seller (including
any right of conversion or exchange under any outstanding security or other
instrument) of any class of capital stock of the Company or the payment of money
based on the value of any class of capital stock of the Company. There are no
outstanding contractual obligations of the Company to repurchase, redeem or
otherwise acquire any outstanding shares of capital stock of the Company other
than as set forth in the Capitalization Documents.
(b) The authorized capital stock of the Subsidiary consists of
2,000 shares of the Subsidiary Common Stock, of which 210 are issued and
outstanding and no shares are held in treasury. The Company owns all of the
issued and outstanding shares of the Subsidiary Common Stock. All outstanding
shares of the Subsidiary Common Stock are validly issued, fully paid and
nonassessable. There is no subscription, option, warrant, call, right, agreement
or commitment relating to the issuance, sale, delivery or transfer by the
Subsidiary or the Company (including any right of conversion or exchange under
any outstanding security or other instrument) of any class of capital stock of
the Subsidiary. There are no outstanding contractual obligations of the
Subsidiary to repurchase, redeem or otherwise acquire any outstanding shares of
capital stock of the Subsidiary.
III.3 Title to Stock. The Sellers own the Company Securities, free
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and clear of any Liens. At the Closing, Buyer will acquire good, valid and
marketable title to the respective Company Securities sold by each Seller, free
and clear of any Liens. The Company owns, and at the Closing will own, the
Subsidiary Common Stock, free and clear of any Liens.
III.4 Authority Relative to this Agreement. The Company has full
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power and authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. This Agreement has been duly and validly
executed and delivered by the Company and, assuming that this Agreement
constitutes a valid and binding agreement of Buyer and each Seller, constitutes
a valid and binding agreement of the Company, enforceable against the Company in
accordance with its terms.
III.5 Subsidiaries and Equity Investments; Affiliates. Other than
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the Subsidiary or as set forth on Schedule 3.5, the Company does not own or have
any right to acquire at any time by any means, directly or indirectly, any
interest or investment in any corporation, partnership, joint venture or other
business association or entity.
III.6 Consents and Approvals; No Violation. (a) Except as set
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forth in Schedule 3.6(a), neither the execution and delivery of this Agreement
by the Company nor the sale by the Sellers of the Company Securities pursuant to
this Agreement will (i) conflict with or result in any breach of (with or
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without notice or lapse of time, or both) any provision of the Certificate of
Incorporation or By-Laws of the Company or the Certificate of Incorporation or
By-Laws of the Subsidiary, (ii) require any consent, approval, authorization or
permit of, or filing with or notification to, any governmental or regulatory
authority, except where the failure to obtain such consent, approval,
authorization or permit, or to make such filing or notification, would not
reasonably be expected to have a Material Adverse Effect, (iii) result in a
violation of or default under (with or without notice or lapse of time, or both)
or give rise to any right of termination, cancellation or acceleration or result
in the creation of any Lien under, any of the terms, conditions or provisions of
any note, bond, mortgage, indenture, license, agreement or other instrument or
obligation (other than with respect to any leases of real property or an
interest therein (the "Leases"), to which this representation shall not apply)
to which the Company or the Subsidiary is a party or by which the Company or the
Subsidiary or any of their assets may be bound, except for such defaults or
rights of termination, cancellation or acceleration or Liens as to which
requisite waivers or consents have been obtained or which, in the aggregate,
would not reasonably be expected to have a Material Adverse Effect, or (iv)
violate any order, writ, injunction, decree, statute, rule or regulation
applicable to the Company, the Subsidiary or any of their assets, which
violation would reasonably be expected to have a Material Adverse Effect.
(b) Except for the filings by the Company and Buyer required by the
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▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Antitrust Improvements Act of 1976, as amended (the "HSR
Act"), and except as set forth in Schedule 3.6(b), no declaration, filing or
registration with, or notice to, or authorization, consent or approval of, any
governmental or regulatory body or authority is necessary for the consummation
by the Company or the Sellers of the transactions contemplated hereby, other
than such filings, registrations, authorizations consents or approvals which, if
not obtained or made, would not, in the aggregate, reasonably be expected to
have a Material Adverse Effect.
III.7 Reports. The Subsidiary has filed, pursuant to the Securities
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Act of 1933, as amended (the "Securities Act"), or the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), as the case may be, all material
forms, statements, reports and documents (including all exhibits, amendments and
supplements thereto) (the "SEC Documents") required to be filed by them with
respect to the business and operations of the Subsidiary under each of the
Securities Act and the Exchange Act, and the respective rules and regulations
thereunder, and all of the SEC Documents complied in all material respects with
all applicable requirements of the Securities Act or the Exchange Act, as the
case may be, and the appropriate act and the rules and regulations thereunder in
effect on the date each such report was filed. At the respective dates they
were filed, none of the SEC Documents contained any untrue statement of a
material fact or omitted to state any material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances
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under which they were made, not misleading. The consolidated financial
statements of the Subsidiary included in the SEC Documents complied as to form
in all material respects with the applicable accounting requirements and the
published rules and regulations of the SEC with respect thereto, have been
prepared in accordance with generally accepted accounting principles ("GAAP")
consistently applied throughout the period involved (except as may be indicated
therein or in the notes thereto) and fairly present the consolidated financial
position, results of operations and cash flows of the Subsidiary as of the dates
or for the periods indicated therein, subject, in the case of the unaudited
statements, to normal year-end adjustments and the absence of certain footnote
disclosures.
III.8 Financial Statements. The Company has previously furnished to
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Buyer audited balance sheets of the Company and the Subsidiary as of June 29,
1997, June 30, 1996 and June 29, 1995 and the related audited statements of
operations, changes in stockholders' equity and cash flows of the Company and
the Subsidiary for the fiscal periods then ended, together with the respective
reports thereon of Price Waterhouse LLP, the Company's and the Subsidiary's
independent auditors. The Company has also furnished unaudited balance sheets
of the Company and the Subsidiary for the fiscal quarters ended December 31,
1997 and March 29, 1998, together with the related unaudited operations, changes
in stockholders' equity and cash
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flows of the Company and the Subsidiary. The balance sheet of the Company as of
March 29, 1998, together with the balance sheet of the Subsidiary as of March
29, 1998 are hereinafter referred to as the "Company Balance Sheets." Each of
the balance sheets included in the financial statements referred to in this
Section 3.8 (including the related notes thereto) presents fairly the financial
position of the Company or of the Subsidiary as of their respective dates, and
the other related statements included therein (including the related notes
thereto) present fairly the results of operations, changes in financial position
and cash flows for the periods then ended, all in conformity with GAAP applied
on a consistent basis, except as otherwise noted therein or in the notes thereto
and subject, in the case of unaudited statements, to normal year-end adjustments
and the absence of certain footnote disclosures. All such financial statements
are or will be complete in all material respects and have been prepared from,
and are in accordance with, the books of account and records of the Company and
the Subsidiary. Since June 30, 1997, neither the Company nor the Subsidiary has
made any change in its accounting practices or policies applied in the
preparation of its financial statements.
III.9 Undisclosed Liabilities. Except as set forth in Schedule 3.9,
-----------------------
neither the Company nor the Subsidiary has any liability or obligation, secured
or unsecured (whether absolute, accrued, contingent or otherwise, and whether
due or to become due), of a nature required by GAAP to be reflected in a
corporate balance
18
sheet or disclosed in the notes thereto, except for those that either (i) are
accrued or reserved against in the Company Balance Sheets or disclosed in the
notes thereto in accordance with GAAP or (ii) were incurred in the ordinary
course of business consistent with past practice, whether before or after the
date of the Company Balance Sheet. Neither the Company nor the Subsidiary is
directly or indirectly liable upon or with respect to (by discount, repurchase
agreements or otherwise), or obligated in any other way to provide funds in
respect of, or to guarantee or assume, any material debt, obligation or dividend
of any person, except for those that are accrued or reserved against in the
Company Balance Sheets or disclosed in the notes thereto in accordance with
GAAP. Schedule 3.9 sets forth the amounts of any accrued but unpaid interest
and/or dividends on the Senior Notes or the Company Securities as of March 29,
1998.
III.10 Absence of Certain Changes or Events. Except (a) as set forth
------------------------------------
in Schedule 3.10, or in the SEC Documents, and (b) as otherwise contemplated by
this Agreement, since the date of the Company Balance Sheets there has not been:
(i) any Material Adverse Effect; (ii) any declaration, setting aside or payment
of any dividend or other distribution (whether in cash, stock, property or any
combination thereof) in respect of any class of capital stock of the Company or
of the Subsidiary, or any redemption or other acquisition by the Company or the
Subsidiary of any
19
shares of capital stock of the Company or the Subsidiary, or any payment by the
Company or the Subsidiary to any Seller in its capacity as a stockholder; (iii)
any damage, destruction or casualty loss, whether covered by insurance or not,
which had a Material Adverse Effect; (iv) any increase in the rate or terms of
compensation or other benefits payable or to become payable by the Company or
the Subsidiary to their directors, officers or key employees, except increases
occurring in the ordinary course of business in accordance with their customary
practices; (v) any entry into any agreement, commitment or transaction
(including without limitation any borrowing, capital expenditure or capital
financing) by the Company or the Subsidiary, which is material to the Company or
the Subsidiary, except (a) Leases and (b) agreements, commitments or
transactions in the ordinary course of business or as contemplated herein; (vi)
any change by the Company or the Subsidiary, in their respective accounting
methods, principles or practices except as required by GAAP; or (vii) any sale,
franchise, relocation or closure of any store of the Subsidiary. Since March 29,
1998, each of the Company and the Subsidiary has conducted its business in the
ordinary course, consistent with past practice, and has made all reasonable
efforts to preserve its relationships with customers, suppliers and others with
whom it deals, the absence of which would be reasonably likely to have a
Material Adverse Effect, and neither the Company nor the Subsidiary has taken
any action that, if taken after the date hereof unless otherwise consistent with
the transactions contemplated here-
20
by, would constitute or result in a material breach of any of the covenants set
forth herein.
III.11 Personal Property. Schedule 3.11 sets forth as of the date of
-----------------
this Agreement a complete and correct list of each item of machinery, equipment,
furniture, fixtures and other tangible personal property owned, leased or used
by the Company or the Subsidiary having an original purchase cost or aggregate
lease cost to the Company or the Subsidiary exceeding $25,000 (the "Machinery
and Equipment"). Except as set forth on Schedule 3.11, the Company or the
Subsidiary own outright and have good, valid and marketable title, free and
clear of all Liens (other than Permitted Exceptions (as hereinafter defined)),
to the Machinery and Equipment as owned by them and to all the machinery,
equipment, furniture, fixtures, inventory, receivables and other tangible or
intangible personal property reflected on the Company Balance Sheets and all
such property acquired since the date thereof, except for sales and dispositions
in the ordinary course of business consistent with past practice since the date
of the Company Balance Sheets, except to the extent that any such failure to
have good title would not, in the aggregate with any and all such failures,
reasonably be expected to have a Material Adverse Effect. None of the Liens
listed on Schedule 3.11 materially adversely affects the conduct of the business
of the Company or the Subsidiary. Except as set forth in Schedule 3.11, each of
the Company and the Subsidiary holds good and transferable leaseholds in all of
the
21
Machinery and Equipment as leased by it, in each case under valid and
enforceable leases. The Machinery and Equipment and other personal property now
owned, leased, or used by the Company or the Subsidiary are sufficient and
adequate to carry on their businesses as presently conducted and all items
thereof are in good operating condition and repair (normal wear and tear
excepted). Neither the Company nor the Subsidiary holds any personal property of
any other person, firm or corporation pursuant to any consignment or similar
arrangement.
III.12 Real Property.
-------------
(a) Schedule 3.12(a) sets forth a true and complete list of all real
properties owned by the Company and the Subsidiary. The Company or the
Subsidiary has good, valid and marketable title to all real properties shown in
Schedule 3.12(a). Other than as set forth on Schedule 3.12(a), none of the real
properties owned by the Company or the Subsidiary is subject to any Liens (other
than Permitted Exceptions), and none of such real properties is subject to any
easements, rights of way, licenses, grants, building or use restrictions,
exceptions, reservations, limitations or other impediments which materially
adversely affect the value thereof or which materially interfere with or impair
the present and continued use thereof in the usual and normal conduct of the
business of the Company or the Subsidiary. All buildings, structures,
improvements and fixtures owned by the Company or the Subsidiary are in good
operating condition and repair (normal wear and tear except-
22
ed).
(b) Schedule 3.12(b) lists, as of the date of this Agreement, all
Leases under which the Company or the Subsidiary is a lessee or lessor. Except
as set forth in Schedule 3.12(b) or as may result from the consummation of the
transactions contemplated hereby, all such Leases are valid, binding and
enforceable obligations of the Company or the Subsidiary in accordance with
their terms, and to the Company's and the Subsidiary's knowledge, are in full
force and effect, there are no existing defaults by the Company or the
Subsidiary thereunder, and no event has occurred which (whether with or without
notice, lapse of time or both) would constitute a default thereunder, except in
each case for defaults which individually or in the aggregate would not have a
Material Adverse Effect.
III.13 Insurance. All policies of fire, liability, workmen's
---------
compensation and other forms of insurance owned or held by and insuring the
Company or the Subsidiary are listed on Schedule 3.13. Except as set forth in
Schedule 3.13, all policies of fire, liability, workmen's compensation and other
forms of insurance owned or held by and insuring the Company and the Subsidiary
are in full force and effect, all premiums with respect thereto covering all
periods up to and including the date as of which this representation is being
made have been paid (other than retroactive premiums which may be payable with
respect to comprehen-
23
sive general liability and workmen's compensation insurance policies), and no
notice of cancellation or termination has been received with respect to any such
policy which was not replaced on substantially similar terms prior to the date
of such cancellation. Other than as set forth on Schedule 3.13, such policies
are valid, outstanding and enforceable policies and will not in any way be
affected by, or terminate or lapse by reason of, the transactions contemplated
by this Agreement. Except as described in Schedule 3.13, as of the date of this
Agreement neither the Company nor the Subsidiary has been refused any insurance
with respect to its assets or operations nor has their coverage been limited in
any material respect by any insurance carrier to which either of them has
applied for any such insurance or with which it has carried insurance during the
last three years. The Company and the Subsidiary have heretofore made available
to Buyer true and complete copies of all such policies.
III.14 Environmental Matters.
---------------------
(a) Each of the Company and the Subsidiary is in compliance with all
applicable Environmental Laws (which compliance includes, but is not limited to,
the possession by the Company and the Subsidiary of all permits and other
governmental authorizations ("Environmental Permits") required under applicable
Environmental Laws, and compliance with the terms and conditions thereof),
except where failure to be in compliance would not reasonably be expected to
have a Material Adverse Effect. Other than as set forth on Schedule 3.14, since
January 1, 1995, neither the
24
Company nor the Subsidiary has received any communication (written or oral),
whether from a governmental authority, citizens group, employee or otherwise,
alleging that the Company or the Subsidiary is not in such compliance, and there
are no past or present actions, activities, circumstances, conditions, events or
incidents that may prevent or interfere with such compliance in the future in
all material respects. All Environmental Permits and other governmental
authorizations currently held by the Company and the Subsidiary pursuant to
applicable Environmental Laws are identified in Schedule 3.14(a).
(b) There is no Environmental Claim pending or threatened against the
Company or the Subsidiary, or, to the best knowledge of the Company and the
Subsidiary, against any person or entity whose liability for any Environmental
Claim the Company or the Subsidiary has or may have retained or assumed either
contractually or by operation of law, which would reasonably be expected to have
a Material Adverse Effect.
(c) There are no past or present actions, activities, circumstances,
conditions, events or incidents, including, without limitation, the Release or
presence of any Hazardous Material which could form the basis of any
Environmental Claim against the Company or the Subsidiary, or to the best
knowledge of the Company and the Subsidiary, against any person or entity whose
liability for any Environmental Claim the Company or the Subsidiary has or may
have retained or assumed either
25
contractually or by operation of law which would reasonably be expected to have
a Material Adverse Effect.
(d) The Company has delivered or otherwise made available for
inspection to Buyer true, complete and correct copies and results of all "Phase
One" reports relating to the Subsidiary's batter facility and any reports,
studies, analyses, tests or monitoring possessed or initiated by the Company or
the Subsidiary pertaining to Hazardous Materials in, on, beneath or adjacent to
any property currently or formerly owned, operated or leased by the Company or
the Subsidiary, or regarding the Company's or the Subsidiary's compliance with
applicable Environmental Laws.
(e) Definitions.
-----------
(i) "Environmental Claim" means any claim, action, cause of
action, investigation or notice (written or oral) by any person or entity
alleging potential liability (including, without limitation, potential
liability for investigatory costs, remediation costs, governmental response
costs, natural resources damages, property damages, personal injuries, or
penalties) arising out of, based on or resulting from (A) the presence, or
Release of any Hazardous Materials at any location, whether or not owned or
operated by the Company or the Subsidiary, or (B) circumstances forming the
basis of any violation, or alleged violation, of any Environmental Law.
(ii) "Environmental Laws" means all federal, state, local and
26
foreign laws and regulations relating to pollution or protection of human
health or the environment, including, without limitation, laws relating to
Releases or threatened Releases of Hazardous Materials or otherwise
relating to the manufacture, processing, distribution, use, treatment,
storage, Release, disposal, transport or handling of Hazardous Materials
and all laws and regulations with regard to recordkeeping, notification,
disclosure and reporting requirements respecting Hazardous Materials.
(iii) "Hazardous Materials" means all substances defined as
Hazardous Substances, Oils, Pollutants or Contaminants in the National Oil
and Hazardous Substances Pollution Contingency Plan, 40 C.F.R. ' 300.5, or
defined as such by, or regulated as such under, any Environmental Law.
(iv) "Release" means any release, spill, emission, discharge,
leaking, pumping, injection, deposit, disposal, dispersal, leaching or
migration into the indoor or outdoor environment or into or out of any
property, including the movement of Hazardous Materials through or in the
air, soil, surface water, groundwater or property.
III.15 Labor Matters.
-------------
(a) (i) There is no labor strike, dispute, or work stoppage or lockout
actually pending or, to the Company's or the Subsidiary's knowledge, threatened,
against or affecting the Company and the Subsidiary, and since January 1, 1995
there
27
has not been any such action; (ii) to the Company's and the Subsidiary's
Knowledge, no union organizational campaign is in progress with respect to the
employees of the Subsidiary; (iii) the Company and the Subsidiary are in
compliance in all material respects with all laws applicable to the Company and
the Subsidiary with respect to employment and employment practices, terms and
conditions of employment and wages and hours, and are not engaged in any unfair
labor practice; and (iv) there is no charge, complaint or other proceeding
involving the Company or the Subsidiary or, to the Company's or the Subsidiary's
knowledge, threatened, before the National Labor Relations Board, the Equal
Employment Opportunity Commission or any state or local agency responsible for
the prevention of unlawful employment practices.
(b) Neither the Company nor the Subsidiary is a party to any labor
union or collective bargaining agreement.
(c) Neither the Company nor the Subsidiary has any liability under
the Worker Adjustment and Retraining Act or any similar state law relating to
employment termination in connection with a mass layoff or plant closing
("WARN").
III.16 ERISA; Benefit Plans.
--------------------
(a) Schedule 3.16(a) contains a list of all "employee pension benefit
plans" (as defined in Section 3(2) of the Employee Retirement Income Security
Act of 1974, as amended ("ERISA")) (sometimes referred to herein as "Pension
Plans"),
28
"employee welfare benefit plans" (as defined in Section 3(1) of ERISA), bonus,
stock option, stock purchase and deferred compensation plans or arrangements,
and other employee fringe benefit plans (all the foregoing being herein referred
to as "Benefit Plans") maintained, or contributed to, by the Company, the
Subsidiary or any entity that is treated as under common control with the
Company or the Subsidiary under Section 414(b), (c), (m) or (o) of the Internal
Revenue Code of 1986, as amended (the "Code"), for the benefit of, or relating
to, any employees or former employees of the Company or the Subsidiary. The
Company has delivered to Buyer true, complete and correct copies of (i) each
Benefit Plan (or, in the case of any unwritten Benefit Plan, a description
thereof), (ii) the most recent determination letter received from the Internal
Revenue Service, (iii) the latest actuarial evaluations, (iv) the most recent
annual report on Form 5500 filed with the Internal Revenue Service with respect
to each Benefit Plan (if any such report was required), including Schedule A and
Schedule B thereto, (v) the most recent summary plan description for each
Benefit Plan for which such a summary plan description is required and (vi) each
trust agreement and group annuity contract relating to any Benefit Plan.
(b) Each Benefit Plan has been administered in all material respects
in accordance with its terms and the applicable provisions of ERISA and the
Code. Except as disclosed in Schedule 3.16(b)(i), all material reports, returns
and similar documents with respect to the Benefit Plans required to be filed
with any govern-
29
mental agency or distributed to any Benefit Plan participant have been duly and
timely filed or distributed. Except as disclosed in Schedule 3.16(b)(ii), there
are no investigations by any governmental agency, termination proceedings or
other claims (except for benefits payable in the normal operation of the Benefit
Plans), suits or proceedings or against or involving any Benefit Plan or
asserting any rights or claims to benefits under any Benefit Plan that could
reasonably give rise to any material liability and, to the Company's and the
Subsidiary's knowledge, there are no facts that could reasonably give rise to
any material liability in the event of any such investigation, claim, suit or
proceeding.
(c) Except as disclosed in Schedule 3.16(c), all contributions to,
and payments from, the Benefit Plans that may have been required to be made in
accordance with the Benefit Plans have been timely made.
(d) No "prohibited transaction" (as defined in Section 4975 of the
Code or Section 406 of ERISA) has occurred that involves the assets of any
Benefit Plan and that could subject the Company or the Subsidiary or any of
their employees or, to the Company's and the Subsidiary's knowledge, a trustee,
administrator or other fiduciary of any trusts created under any Benefit Plan,
to any material tax or penalty on prohibited transactions imposed by Section
4975 of ERISA or the sanctions imposed under Title I of ERISA. None of the
Company, the Subsidiary or any trustee, administrator or other fiduciary of any
Benefit Plan nor any agent of any of the
30
foregoing has engaged in any transaction or acted or failed to act in a manner
that could subject the Company or the Subsidiary to any material liability for
breach of fiduciary duty under ERISA or any other applicable law. No liability
under Title IV of ERISA has been incurred by the Company, the Subsidiary or
their affiliates within six years prior to the date hereof that has not been
satisfied in full, and no condition exists that presents a material risk of
incurring such liability.
(e) Except as disclosed in Schedule 3.16(e), at no time within the
five years preceding the Closing Date has either of the Subsidiary or the
Company been required to contribute to any "multiemployer plan" (as defined in
Section 4001(a)(3) of ERISA) or incurred any withdrawal liability, within the
meaning of Section 4201 of ERISA, which liability has not been fully paid as of
the date hereof, or announced an intention to withdraw, but not yet completed
such withdrawal, from any multiemployer plan.
(f) Neither the Company nor the Subsidiary contributes to a Pension
Plan that is subject to Section 302 of ERISA or Section 412 of the Code.
(g) With respect to any Benefit Plan that is an employee welfare
benefit plan, except as disclosed in Schedule 3.16(g), (1) no such Benefit Plan
is funded through a welfare benefits fund, as such term is defined in Section
419(e) of the Code, and (2) each such Benefit Plan that is a group health plan,
as such term is defined in Section 5000(b)(1) of the Code, complies with the
applicable requirements
31
of Section 4980B(f) of the Code.
(h) Neither the Company nor the Subsidiary has incurred any liability
under Section 4062(b) of ERISA to the Pension Benefit Guaranty Corporation in
connection with any Benefit Plan which is subject to Title IV of ERISA. Except
as set forth in Schedule 3.16(h), the Internal Revenue Service has issued a
letter for each Benefit Plan determining that such plan is exempt from United
States Federal Income Tax under Sections 401(a) and 501(a) of the Code, and
there has been no occurrence since the date of any such determination letter
which has adversely affected such qualification.
(i) Except as set forth in Schedule 3.16(i), neither the Company, the
Subsidiary nor any of their affiliates maintains or contributes to, or has any
liability (fixed, contingent or otherwise, under any current or former plan)
for, medical, health or life insurance benefits for terminated employees of the
Company or the Subsidiary or for present employees of the Company or the
Subsidiary after termination of their employment (other than any such welfare
benefits provided pursuant to Code Section 4980B or ERISA Sections 601-608).
(j) Schedule 3.16(j) contains a true and complete list, as of the
date of this Agreement, showing the names of all employees who during the last
fiscal year received, or in the current fiscal year are expected to receive,
compensation (including commissions and bonuses) in excess of $50,000. Except
as disclosed on
32
Schedule 3.16(j), neither the Company nor the Subsidiary has agreed to increase
the salary payable to any employee listed on Schedule 3.16 by more than five
percent.
(k) The Company has made available to Buyer true and complete copies
of all contracts, agreements, plans or arrangements covering any employee or
former employee of the Company or the Subsidiary with "change of control" or
similar provisions or providing for "stay on" bonuses or severance payments
(each, a "Change of Control Arrangement"). No Change of Control Arrangement
individually or collectively could give rise to the payment of any amount that
would not be deductible pursuant to the terms of Section 280G of the Code.
(l) Except as disclosed in Schedule 3.16(l) or as a result of the
transactions contemplated hereby, there has been no amendment to or announcement
by the Company, the Subsidiary or any of their affiliates relating to a change
in employee participation or coverage or benefits under any Benefit Plan that is
reasonably expected to increase materially the expense of maintaining such
Benefit Plan above the level of expense incurred in respect thereof for the
fiscal year ended June 29, 1997.
III.17 Certain Contracts and Arrangements. (a) Schedule 3.17(a)
----------------------------------
sets forth, as of the date of this Agreement, a true and complete list of all
contracts to which the Company or the Subsidiary is a party relating to the
business or assets of the Company or the Subsidiary (except, with respect to
clauses
33
(ii) and (iv) below, any of the foregoing calling for aggregate payments
of less than $50,000), including, without limitation, all written or oral,
express or implied (i) contracts not made in the ordinary course of business
consistent with past practice; (ii) purchase, supply and customer contracts;
(iii) contracts relating to the borrowing of money or for lines of credit; (iv)
contracts involving leases and subleases of real or personal property; (v)
contracts for the sale of any assets other than in the ordinary course of
business consistent with past practice or for the grant of any options or
preferential rights to purchase any assets, property or rights; (vi) contracts
granting any power of attorney with respect to the affairs of either the Company
or the Subsidiary; (vii) suretyship contracts, working capital maintenance or
other forms of guaranty contracts; (viii) contracts limiting or restraining the
Company or the Subsidiary from engaging or competing in any lines of business or
with any person, firm, or corporation; (ix) partnership and joint venture
contracts; (x) employment contracts; (xi) indentures, mortgages, notes,
installment obligations, or other instruments relating to the borrowing of money
in excess of $50,000 by the Company or the Subsidiary; (xii) contracts which
have remaining terms, as of the date of this Agreement, of over one year in
length of obligation on the part of the Company or the Subsidiary and provide
for aggregate payments in excess of $50,000; (xiii) franchise contracts; and
(xiv) all amendments, modifications, extensions or renewals of any of the
foregoing. To the knowledge of the Company and the Subsidiary, each of such
contracts is valid, binding and enforceable against the parties thereto in
34
accordance with its terms, and in full force and effect on the date hereof.
(b) Except as set forth on Schedule 3.17(b), the Company and the
Subsidiary have performed all obligations required to be performed by them to
date under, and are not in default in respect of, any of such contracts, and no
event has occurred which, with due notice or lapse of time or both, would
constitute such a default other than defaults which would not, individually or
in the aggregate, have a Material Adverse Effect. Except as set forth on
Schedule 3.17(b), no other party to any such contract is in default in respect
thereof, and no event has occurred which, with due notice or lapse of time or
both, would constitute such a default other than defaults which would not,
individually or in the aggregate, have a Material Adverse Effect. The Company
has made available to Buyer or its representatives true and complete originals,
copies or accurate summaries of all such contracts.
III.18 Intellectual Property. Schedule 3.18 sets forth a true and
---------------------
complete list of all material patents, trademarks (registered or unregistered),
trade names (registered or unregistered), service marks (registered or
unregistered), registered copyrights and computer software applications
(excluding noncritical, uncustomized shrink-wrap or off-the-shelf software)
owned or used by or licensed to the Company or the Subsidiary, and all license
agreements related thereto to which the Company or the Subsidiary is a party
(collectively, the "Intellectual Property"), and, with respect to trademarks,
contains a list of all jurisdictions in which such trademarks are registered or
applied for by the Company or the Subsidiary and all
35
corresponding registration and application numbers. Except as disclosed on
Schedule 3.18 or as provided in any agreement listed on Schedule 3.18, each of
the Company and the Subsidiary owns or has the right to use, without payment to
any other party, the Intellectual Property used in or necessary for the conduct
of its business and the consummation of the transactions contemplated hereby
will not, by itself, materially alter or impair any such rights. Except as
disclosed on Schedule 3.18, all Intellectual Property owned or used by the
Company and the Subsidiary is free and clear of all Liens arising through
actions of the Company or the Subsidiary. Except as disclosed on Schedule 3.18,
to the knowledge of the Company and the Subsidiary, no material claims or other
proceedings are pending or threatened against the Company or the Subsidiary by
any third party person or entity with respect to the ownership, validity,
enforceability or the right to use any Intellectual Property.
III.19 Customers, Suppliers and Competitors. Schedule 3.19 sets
------------------------------------
forth a complete and correct list of (a) the ten largest suppliers of the
Subsidiary by dollar volume for the latest fiscal year, (b) the ten largest
franchisees of the Subsidiary by dollar volume of royalties paid to the
Subsidiary for the latest fiscal year and (c) all suppliers or franchisees who
since June 29, 1997 have terminated any agreement, contract or other arrangement
with the Subsidiary or with whom the Subsidiary has terminated any agreement,
contract or other arrangement resulting in aggregate payments in any fiscal year
in excess of $50,000, in each case with or with-
36
out cause, prior to the stated expiration thereof. Except as disclosed in
Schedule 3.19, since January 1, 1998, the Subsidiary has not at any time
delivered to, or received from, any supplier or franchisee any formal notice or
written allegation of a default or breach with respect to any agreement,
contract or other arrangement, and none of such suppliers or franchisees has
delivered any formal notice stating its intention to terminate or change
significantly its relationship with the Subsidiary.
III.20 Legal Proceedings, etc. Except as set forth in Schedule 3.20,
-----------------------
there are no claims, actions, or proceedings pending, or investigations pending
or, to the knowledge of the Company and the Subsidiary, threatened, against or
relating to the Company or the Subsidiary before any court, governmental or
regulatory authority or body acting in an adjudicative capacity, which (a)
relate to or involve more than $50,000, (b) seek any injunctive relief, or (c)
relate to the transactions contemplated by this Agreement. Except as disclosed
on Schedule 3.20, neither the Company nor the Subsidiary is in default under any
material judgment, order or decree of any court, administrative agency or
commission or other governmental authority or instrumentality, domestic or
foreign, applicable to the Company or the Subsidiary.
III.21 Tax Matters. All material tax and information returns,
-----------
reports and other documents required to have been filed by the Company and the
Subsidiary
37
(either separately or as part of a consolidated, unitary, combined or similar
group) with the United States, any state and local governmental authority and
any foreign jurisdiction ("Returns") have been duly and timely filed, and each
such Return is accurate and complete in all material respects. Copies of Returns
for the fiscal years ended June 29, 1997, June 30, 1996 and June 29, 1995 which
relate to the income of the Company and the Subsidiary have been made available
to Buyer or its representatives, and such copies are accurate and complete in
all material respects as of the date hereof. The Company has also made available
to Buyer correct and complete copies of all material notices and correspondence
sent or received since January 1, 1995 by the Company or the Subsidiary to or
from any federal, state, local or foreign tax authorities. Except as set forth
in Schedule 3.21, each of the Company and the Subsidiary has paid in full all
income, franchise, business, property, sales, use, value-added, withholding,
payroll, excise, capital and other taxes shown to be due and payable on said
Returns, and all penalties, assessments or deficiencies of every nature and
description incurred with respect to such taxes, except to the extent that the
Company or the Subsidiary, as the case may be, has established on its books
appropriate reserves for such amounts in accordance with GAAP. The United States
federal and state income tax Returns of the Company and the Subsidiary (or such
Returns for the consolidated group of which the Company and the Subsidiary is a
member) have been audited, and the audits thereof completed or the statute of
limitations has
38
run, for all years through 1993. Except as set forth on Schedule 3.21, neither
the Company nor the Subsidiary has received any notice of deficiency or
assessment from any taxing authority with respect to liabilities for taxes of
the Company or the Subsidiary which have not been fully paid or finally settled,
and any such deficiencies have been paid or are being contested in good faith
and have been adequately reserved. Except as set forth in Schedule 3.21, neither
the Company nor the Subsidiary is a party to any agreement with respect to the
sharing or allocation of taxes or tax costs. There are no liens for any material
amount of federal, state, local or foreign taxes upon the property or assets of
the Company or the Subsidiary, except liens for taxes not yet due or delinquent
or the validity of which is being contested in good faith by appropriate
proceedings. Except as set forth on Schedule 3.21, there are no outstanding
waivers or comparable consents given by the Company or the Subsidiary regarding
the application of the statute of limitations with respect to any federal,
state, local or foreign taxes or Returns. Except as set forth on Schedule 3.21,
no power of attorney has been granted by the Company or the Subsidiary with
respect to any matter relating to federal, state, local or foreign taxes that is
currently in force. Except as set forth on Schedule 3.21, neither the Company
nor the Subsidiary has been a member of any other consolidated, unitary,
combined or similar group for federal, state, local or foreign tax purposes for
any taxable period for which the statute of limitations has not yet expired.
39
III.22 Arrangements with Directors, Officers and Affiliates. Except
----------------------------------------------------
for the agreements and other arrangements disclosed in Schedule 3.22 (the
"Affiliate Arrangements"), as of the date hereof, there are no agreements or
other arrangements between the Company or the Subsidiary, on the one hand, and
any director, officer, employee, stockholder or other affiliate, as defined in
Rule 405 under the Securities Act (an "Affiliate," or, collectively,
"Affiliates"), of the Company or the Subsidiary, on the other hand, including,
without limitation, management agreements and loans to or by the Company or the
Subsidiary from or to any of such persons. Except as disclosed in Schedule 3.22,
since January 1, 1995, none of the officers or directors of the Company or the
Subsidiary, or any spouse or immediate relative of any of such persons, has been
a director or officer of, or has had any direct interest in, any firm,
corporation, association or business enterprise which during such period has
been a supplier, customer or sales agent of the Company or the Subsidiary or has
competed with or been engaged in any business of the kind being conducted by the
Company or the Subsidiary. Except as disclosed in Schedule 3.22, no Affiliate of
the Company or the Subsidiary owns or has any rights in or to any of the assets,
properties or rights used by the Company or the Subsidiary in its ordinary
course of business.
III.23 Compliance with Law. Except as set forth in Schedule 3.23 and
-------------------
except with respect to environmental matters which are covered exclusively by
Section 3.14, the operations of the Company and the Subsidiary are being
conducted
40
in accordance with all franchising and other applicable laws, regulations,
orders and other requirements of all courts and other governmental or regulatory
authorities having jurisdiction over the Company and the Subsidiary and their
assets, properties and operations, except where non-compliance with such laws,
regulations, orders and other requirements would not reasonably be expected to
have a Material Adverse Effect. Except as set forth in Schedule 3.23 and except
with respect to environmental matters which are covered exclusively by Section
3.14, neither the Company nor the Subsidiary has received notice within the past
year of any violation of any such law, regulation, order or other legal
requirement, or is in default with respect to any order, writ, judgment, award,
injunction or decree of any federal, state or local court or governmental or
regulatory authority or arbitrator, domestic or foreign, applicable to the
Company or the Subsidiary or any of their assets, properties or operations,
except for such violations or defaults that do not have a Material Adverse
Effect.
III.24 Fees and Commissions. No broker, finder or other person is
--------------------
entitled to any brokerage fees, commissions or finder's fees in connection with
the transaction contemplated hereby by reason of any action taken by the Company
or the Subsidiary. Schedule 3.24 sets forth a complete and accurate list of all
transaction expenses (including management or other fees payable to the Sellers
or their respective Affiliates pursuant to any Affiliate Arrangement) previously
or to be paid
41
or reimbursed by the Company or the Subsidiary on their own behalf or on the
behalf of the Sellers in connection with the transactions contemplated by this
Agreement (the "Company Transaction Expenses").
III.25 Representations of the Sellers. Each Seller represents
------------------------------
severally and not jointly that:
(a) Such Seller has all requisite power and authority to own and to
dispose of the Company Securities owned by such Seller.
(b) The number of shares and/or principal amount of the Company
Securities owned by such Seller as of the date of this Agreement is set forth
beside the name of such Seller on Annex A hereto. Except as set forth on
Schedule 3.25(b), such Seller owns his respective Company Securities, free and
clear of any Liens, and at the Closing, Buyer will acquire good, valid and
marketable title to the Company Securities owned by such Seller, free and clear
of any Liens.
(c) Such Seller has full power and authority to execute and deliver
this Agreement and to consummate the transactions contemplated hereby and to
sell to Buyer such Seller's Company Securities. This Agreement has been duly
and validly executed and delivered by such Seller and, assuming that this
Agreement constitutes a valid and binding agreement of Buyer, the Company and
each other Seller, constitutes a valid and binding agreement of such Seller,
enforceable against such Seller in accordance with its terms, except (i) as such
enforceability may be limited
42
by bankruptcy, insolvency, moratorium and other similar laws affecting or
relating to enforcement of creditors' rights generally and (ii) as such
enforceability may be limited by general principles of equity, regardless of
whether asserted in a proceeding in equity or at law.
(d) Neither the execution and delivery of this Agreement by such
Seller nor the sale by such Seller of the Company Securities owned by such
Seller pursuant to this Agreement at the Closing will (i) conflict with or
result in any breach of (with or without notice or lapse of time, or both) any
provision of the Certificate of Incorporation, By-Laws or similar governing
documents of such Seller which is not a natural person, (ii) except for filings
required under the HSR Act, require any consent, approval, authorization or
permit of, or filing with or notification to, any governmental or regulatory
authority by such Seller, except where the failure to obtain such consent,
approval, authorization or permit, or to make such filing or notification, would
not reasonably be expected to have a Material Adverse Effect, (iii) result in a
violation of or default under (with or without notice or lapse of time, or both)
or give rise to any right of termination, cancellation or acceleration or result
in the creation of any Lien under, any of the terms, conditions or provisions of
any note, bond, mortgage, indenture, license, agreement or other instrument or
obligation to which such Seller is a party or by which such Seller or any of its
assets may be bound, except for such defaults or rights of termination,
cancellation or acceleration
43
or Liens as to which requisite waivers or consents have been obtained or which,
in the aggregate, would not reasonably be expected to have a Material Adverse
Effect, or (iv) violate any order, writ, injunction, decree, statute, rule or
regulation applicable to such Seller or any of its assets, which violation would
reasonably be expected to have a Material Adverse Effect.
(e) No broker, finder or other person is entitled to any brokerage
fees, commissions or finder's fees in connection with the transaction
contemplated hereby by reason of any action taken by such Seller.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUYER
---------------------------------------
Buyer represents and warrants to the Sellers as follows:
IV.1 Organization. Buyer is a corporation duly organized, validly
------------
existing and in good standing under the laws of the State of Delaware. Buyer
has heretofore delivered to the Company complete and correct copies of the
Certificate of Incorporation and By-Laws of Buyer as currently in effect.
IV.2 Authority Relative to this Agreement. Buyer has full corporate
------------------------------------
power and authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby have been duly and
44
validly authorized by the Board of Directors of Buyer, and no other corporate
proceedings on the part of Buyer are necessary to authorize this Agreement or to
consummate the transactions contemplated hereby. This Agreement has been duly
and validly executed and delivered by Buyer and, assuming that this Agreement
constitutes a valid and binding agreement of the Sellers, constitutes a valid
and binding agreement of Buyer, enforceable against Buyer in accordance with its
terms, except (i) as such enforceability may be limited by bankruptcy,
insolvency, moratorium and other similar laws affecting or relating to
enforcement of creditors' rights generally and (ii) as such enforceability may
be limited by general principles of equity, regardless of whether asserted in a
proceeding in equity or at law.
IV.3 Consents and Approvals; No Violation. (a) Except as set
------------------------------------
forth in Schedule 4.3, neither the execution and delivery of this Agreement by
Buyer nor the purchase by Buyer of the Company Securities pursuant to this
Agreement will (i) conflict with or result in any breach of (with or without
notice or lapse of time, or both) any provision of the Articles of Incorporation
or By-Laws of Buyer, (ii) require any consent, approval, authorization or permit
of, or filing with or notification to, any governmental or regulatory authority,
(iii) result in a violation of or default under (with or without notice or lapse
of time, or both), or give rise to any right of termination, cancellation or
acceleration under, any of the terms, conditions or provisions of any note,
bond, mortgage, indenture, license, agreement or other
45
instrument or obligation to which Buyer is a party or by which Buyer or any of
its assets may be bound, except for such defaults or rights of termination,
cancellation or acceleration as to which requisite waivers or consents have been
obtained, or (iv) violate any order, writ, injunction, decree, statute, rule or
regulation applicable to Buyer.
(b) Except as set forth in Schedule 4.3, and except for the filings
by the Sellers and Buyer required by the HSR Act, no declaration, filing or
registration with, or notice to, or authorization, consent or approval of, any
governmental or regulatory body or authority is necessary for the consummation
by Buyer of the transactions contemplated hereby.
IV.4 Acquisition of Stock for Investment. Buyer is acquiring the
-----------------------------------
Company Securities for investment and not with a view toward, or for sale in
connection with, any distribution thereof, nor with any present intention of
distributing or selling such Company Securities. Buyer agrees that the Company
Securities may not be sold, transferred, offered for sale, pledged, hypothecated
or otherwise disposed of without registration under the Securities Act, except
pursuant to an exemption from such registration available under the Securities
Act.
IV.5 Financing. Buyer has provided to the Company and the Sellers
---------
accurate information as to its plans to obtain the Financing.
IV.6 Fees and Commissions. Buyer represents and warrants that no
--------------------
46
broker, finder or other person is entitled to any brokerage fees, commissions or
finder's fees in connection with the transaction contemplated hereby by reason
of any action taken by Buyer.
IV.7 Knowledge of Inaccuracies. Buyer represents and warrants that
-------------------------
as of the date of this Agreement it has no actual knowledge that any of the
representations or warranties of the Company, the Subsidiary or any of the
Sellers in this Agreement are inaccurate or that any of such parties are in
breach of any agreement or covenant contained in this Agreement.
ARTICLE V
COVENANTS OF THE PARTIES
------------------------
V.1 HSR Act Compliance. The parties shall resist vigorously
------------------
(including, without limitation, the institution or defense of legal proceedings)
any assertion that the transactions contemplated herein constitute a violation
of the antitrust laws, all to the end of expediting consummation of the
transactions contemplated herein. The costs and expenses of compliance with
this Section 5.1 shall be borne by the Company, in the case of costs and
expenses of the Company or the Sellers, or by Buyer, in the case of costs and
expenses of Buyer, except that 50% of the fees previously paid in connection
with the notifications required to be filed in connection with the HSR Act shall
be reimbursed by the Company.
47
V.2 Conduct of Business of the Company. Except as described in
----------------------------------
Schedule 5.2, during the period from the date of this Agreement to the Closing
Date, the Company will conduct its business and operations according to its
ordinary course of business consistent with past practice and will cause the
Subsidiary to conduct its business and operations according to its ordinary
course of business consistent with past practice and to keep its retail
operations substantially intact. The Company will cause the Subsidiary to
maintain in inventory, at all times prior to the Closing Date, quantities of raw
materials and other supplies and materials sufficient to allow Buyer to continue
and operate the business of the Subsidiary, after the Closing Date, free from
any shortage of such items (assuming Buyer continues to purchase such items
after the Closing Date in the ordinary course of business consistent with past
practice). The Company will use commercially reasonable efforts to preserve
intact the business organization of the Subsidiary and its goodwill, and keep
available the services of its present officers and key employees, and preserve
intact the business relationships with suppliers, customers and others having a
business relationship with the Subsidiary or the Company, and will also maintain
its present relationship in all material respects with the Subsidiary and the
Company. Without limiting the generality of the foregoing, and, except as
contemplated in this Agreement or as described in Schedule 5.2, prior to the
Closing Date, without the prior written consent of Buyer, the Company will not,
and will not permit the Subsidiary
48
to:
(a) make any change in its Certificate of Incorporation or By-
Laws, issue any additional shares of capital stock or equity security or
grant any option, warrant, or right to acquire any capital stock or equity
securities, or issue any security convertible into or exchangeable for its
capital stock, or alter any material term of any of its outstanding
securities or make any change in its outstanding shares of capital stock or
other ownership interests in its capitalization, whether by reason of a
reclassification, recapitalization, stock split or combination, exchange or
readjustment of shares, stock dividend or otherwise, or declare, set aside
or pay any dividend or other distribution (whether in cash, stock or
property or any combination thereof) in respect of its capital stock, or
redeem or otherwise acquire any shares of its capital stock;
(b) (i) create, incur or assume any indebtedness for money
borrowed, including obligations in respect of capital leases; or (ii)
assume, guarantee, endorse or otherwise become liable or responsible
(whether directly, contingently or otherwise) for the obligations of any
other person; provided, that the Subsidiary and the Company may endorse
--------
negotiable instruments in the ordinary course of business consistent with
past practice;
(c) sell, franchise, move or close any of its stores or make any
49
other sale, assignment, transfer, abandonment or other conveyance of any of
its assets having a fair market value in excess of $50,000 or any material
part thereof, except transactions pursuant to existing contracts set forth
in the Schedules and dispositions of inventory or of worn-out or obsolete
equipment for fair or reasonable value in the ordinary course of business
consistent with past practice;
(d) subject any of its assets, or any part thereof, to any Lien,
or suffer such to be imposed, except for Permitted Exceptions and such
Liens as may arise in the ordinary course of business consistent with past
practice which will not, individually or in the aggregate, have a Material
Adverse Effect;
(e) acquire any assets, raw materials or properties, or enter
into any other transaction in an amount in excess of $10,000 individually
or $25,000 in the aggregate, other than in the ordinary course of business
consistent with past practice;
(f) (i) increase the rate or terms of compensation payable or to
become payable by the Subsidiary or the Company to its directors, officers
or key employees, except increases occurring in the ordinary course of
business in accordance with its customary practices (which shall include
normal periodic performance reviews and related compensation and benefit
in-
50
creases); or (ii) increase the rate or terms of any bonus, insurance,
pension or other employee benefit plan, payment or arrangement made to, for
or with any such directors, officers or key employees;
(g) enter into any agreement, commitment or transaction
(including without limitation any borrowing, capital expenditure or capital
financing) relating to the business, operations or financial condition of
the Subsidiary or the Company other than in the ordinary course of business
consistent with past practice;
(h) pay, loan or advance any amount to, or sell, transfer or
lease any properties or assets to, or enter into any agreement or
arrangement with, any of its Affiliates;
(i) make any change in any method of accounting or accounting
principle, method, estimate or practice, except for any such change
required by reason of a concurrent change in GAAP, or write-down the value
of any inventory or write-off as uncollectible any accounts receivable,
except in the ordinary course of business consistent with past practice;
(j) settle, release or forgive any claim or litigation or waive
any right involving an amount greater than $50,000;
(k) amend in any material respect or terminate any of the
51
agreements identified in Schedule 3.17 other than in the ordinary course of
business consistent with past practice;
(l) commence actual construction of any new facilities other
than those identified on Schedule 5.2;
(m) engage in any activity which would cause a material change
in the regulatory status of the Subsidiary or the Company which would be
reasonably expected to have a Material Adverse Effect; or
(n) commit itself to do any of the foregoing in any manner.
V.3 Access to Information.
---------------------
(a) Between the date of this Agreement and the Closing Date, the
Company will and will cause the Subsidiary to, during ordinary business hours
and upon reasonable notice, (i) give Buyer and its accountants, counsel,
environmental consultants, financial advisors and other authorized
representatives (the "Buyer Representatives") reasonable access to all books,
records, plants, offices and other facilities and properties of the Company to
which Buyer is permitted access by law, (ii) permit Buyer to make such
reasonable inspections thereof as Buyer may reasonably request, (iii) cause its
officers and advisors to furnish Buyer with such financial and operating data
and other information with respect to the business and properties of the
Subsidiary and the Company as Buyer may from time to time reasonably request,
(iv) cause its officers and advisors to furnish Buyer a copy of each report,
52
schedule or other document filed with or received by them from the SEC with
respect to the Subsidiary and the Company; provided, however, that (A) any such
-------- -------
investigation shall be conducted in such a manner as not to interfere
unreasonably with the operation of the business of the Subsidiary and the
Company, (B) the Subsidiary and the Company shall not be required to take any
action which would constitute a waiver of the attorney-client privilege, and (C)
the Subsidiary and the Company need not supply Buyer with any information which
the Subsidiary or the Company, as the case may be, is under a legal obligation
not to supply.
(b) All information furnished to or obtained by Buyer and the Buyer
Representatives pursuant to this Section 5.3 shall be subject to the provisions
of the Confidentiality Agreement, dated May 10, 1997, between the Company and
Buyer (the "Confidentiality Agreement") and shall be treated as "Information"
(as defined in the Confidentiality Agreement). In the event that this Agreement
shall be terminated without the Closing having occurred, Buyer agrees that for a
period of one year from the date of this Agreement it will not use "Information"
(as defined in the Confidentiality Agreement) to compete with the Company's
franchisees to obtain lease renewals in the malls where the Company's franchised
stores are presently located as of the date of this Agreement.
---------
V.4 Insurance. The Company shall keep, and shall cause the
---------
Subsidiary to keep, all insurance policies set forth on Schedule 3.13, or
replacements
53
therefor with reputable firms and providing no lesser coverage (in amount or
scope), in full force and effect through the close of business on the Closing
Date.
V.5 WARN Act. To the extent required by law, the Company shall cause
--------
the Subsidiary to timely give any required notices under the WARN Act relating
to any "plant closing" or "mass layoff" (as those terms are defined in WARN)
arising prior to the Closing.
V.6 Expenses. Except as specifically provided in this Agreement,
--------
whether or not the transactions contemplated hereby are consummated, all costs
and expenses incurred in connection with this Agreement and the transactions
contemplated hereby shall be borne by the party incurring such costs and
expenses. The Company shall be liable for the legal, accounting and
professional fees of the Sellers specified on Schedule 5.6 hereto.
V.7 Further Assurances. Subject to the terms and conditions of this
------------------
Agreement, each of the parties hereto will use all commercially reasonable
efforts to take, or cause to be taken, all action, and to do, or cause to be
done, all things necessary, proper or advisable under applicable laws and
regulations to consummate and make effective the sale of Company Common Stock
pursuant to this Agreement. From time to time after the date hereof, without
further consideration, the Sellers will, at Buyer's expense, execute and deliver
such documents to Buyer as Buyer may reasonably request in order more
effectively to vest in Buyer good title to the
54
Company Securities. From time to time after the date hereof, without further
consideration, Buyer will, at its own expense, execute and deliver such
documents to the Sellers as the Sellers may reasonably request in order more
effectively to consummate the sale of the Company Securities pursuant to this
Agreement.
V.8 Public Statements. The parties shall consult with each other
-----------------
prior to issuing any public announcement, statement or other disclosure with
respect to this Agreement or the transactions contemplated hereby and shall not
issue any such public announcement, statement or other disclosure prior to such
consultation, except as may be required by law and except that the parties may
make public announcements, statements or other disclosures with respect to this
Agreement and the transactions contemplated hereby to the extent and under the
circumstances in which the parties are expressly permitted by the
Confidentiality Agreement to make disclosures of "Information" (as defined in
the Confidentiality Agreement).
V.9 Consents and Approvals.
----------------------
(a) The Company and Buyer shall cooperate with each other and (i)
promptly prepare and file all necessary documentation, (ii) effect all necessary
applications, notices, petitions and filings and execute all agreements and
documents, (iii) use all commercially reasonable efforts to obtain all necessary
permits, consents, approvals and authorizations of all governmental bodies and
(iv) use all commercially reasonable efforts to obtain all necessary
Environmental Permits, Permits, consents,
55
approvals and authorizations of all other parties, in the case of each of the
foregoing clauses (i), (ii), (iii) and (iv), necessary or advisable to
consummate the transactions contemplated by this Agreement or required by the
terms of any note, bond, mortgage, indenture, deed of trust, license, franchise,
permit, concession, contract, lease or other instrument to which the Company or
Buyer or any of its subsidiaries is a party or by which any of them is bound.
Without limiting the foregoing, the Company shall cooperate with Buyer in
connection with Buyer's efforts to obtain the Financing and to successfully
complete the Senior Note Tender Offer (as hereinafter defined), such cooperation
to include without limitation (i) facilitating due diligence investigations by
potential financing sources, (ii) assuring cooperation by the Company's and the
Subsidiary's independent accountants in any audit of the Company's and the
Subsidiary's, financial statements by ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ LLP and providing
customary consents, comfort letters and access to work papers, and (iii)
executing and delivering any required supplemental indenture and other documents
in connection with the Financing and the Senior Note Tender Offer.
(b) The Sellers shall have the right but not the obligation to review
and approve in advance all characterizations of the information relating to the
Subsidiary and the Company, and each of the Sellers and Buyer shall have the
right but not the obligation to review and approve in advance all
characterizations of the information relating to the transactions contemplated
by this Agreement, which
56
appear in any filing made in connection with the transactions contemplated
hereby or in the Offering Memorandum relating to the Financing. The Sellers and
Buyer agree that they will consult with each other with respect to the obtaining
of all such necessary Environmental Permits, consents, approvals and
authorizations of all third parties and governmental bodies. The Sellers and
Buyer shall designate separate counsel with respect to all applications,
notices, petitions and filings (joint or otherwise), relating to this Agreement
and the transactions contemplated hereby, on behalf of the Sellers, the
Subsidiary or the Company, on the one hand, and Buyer, on the other hand, with
all governmental bodies.
(c) The parties hereto shall consult with each other prior to
proposing or entering into any stipulation or agreement with any Federal, State
or local governmental authority or agency or any third party in connection with
any Federal, State, or local governmental consents and approvals legally
required for the consummation of the transactions contemplated hereby and shall
not propose or enter into any such stipulation or agreement without the other
party's prior written consent, which consent shall not be unreasonably withheld.
V.10 Sales and Transfer Taxes. All securities and other transfer
------------------------
taxes incurred in connection with this Agreement and the transactions
contemplated hereby shall be borne by the Company. Buyer will file all
necessary tax returns and other documentation with respect to all such transfer
taxes, and, if required by applicable
57
law, the Sellers will join in the execution of any such tax returns or other
documentation, subject to their reasonable prior review thereof and opportunity
to comment thereon.
V.11 Supplemental Information. From time to time prior to the
------------------------
Closing Date and upon becoming aware of any such matter, condition or
occurrence, the Company and the Subsidiary will promptly disclose to Buyer, and
Buyer will promptly disclose to the Company, (i) any material development
affecting the ability of such party to consummate the transactions contemplated
by this Agreement, (ii) any matter, condition, occurrence or knowledge which, if
existing or occurring at the date of this Agreement, would have been required to
be excepted from any representation and warranty contained herein in order for
such representation or warranty to be true and correct on the date hereof or
otherwise set forth or described in the respective Schedule or (iii) any breach
of any covenant or agreement contained in this Agreement of which such party has
knowledge.
V.12 Employees. Buyer agrees that it will cause the Subsidiary to
---------
honor the agreements and arrangements with its employees that are identified in
Schedule 3.16. Notwithstanding the foregoing, it is understood that nothing in
this Agreement shall prohibit or restrict Buyer from terminating the employment
of any of the Subsidiary's employees, changing compensation levels or other
terms and conditions of employment (other than service credit for past
employment with the
58
Subsidiary) subsequent to the Closing Date, subject to the obligations of Buyer
and the Subsidiary with respect to the items identified on Schedule 3.16.
Nothing in this Section 5.12, express or implied, is intended to confer or shall
confer upon any of the Subsidiary's employees or former employees any rights or
remedies of any nature or kind whatsoever under or by reason of this Agreement,
including, without limitation, any rights of employment.
ARTICLE VI
CLOSING CONDITIONS
------------------
VI.1 Conditions to Each Party's Obligations to Effect the
----------------------------------------------------
Transactions Contemplated Hereby. The respective obligations of each party to
--------------------------------
effect the transactions contemplated hereby shall be subject to no preliminary
or permanent injunction or other order or decree by any federal or state court
which prevents the consummation of the transactions contemplated hereby having
been issued and remaining in effect (each party agreeing to use its reasonable
best efforts to have any such injunction, order or decree lifted), and no
statute, rule or regulation having been enacted by any Federal, State, or local
governmental agency in the United States which prohibits the consummation of the
transactions contemplated hereby.
VI.2 Conditions to Obligations of Buyer.
----------------------------------
59
(a) The obligation of Buyer to effect the transactions contemplated
by this Agreement shall be subject to the fulfillment at or prior to the Pre-
Closing Date of the following additional conditions:
(i) Buyer shall have entered into the Financing Agreements;
(ii) Buyer shall have received binding and irrevocable tenders
and consents from the holders of not less than 75% of the Subsidiary's
outstanding 10f% Senior Secured Notes due 2001 (the "Senior Notes") to sell
their Senior Notes to Buyer and to consent to such amendments to or waivers
under the Indenture under which the Senior Notes were issued as Buyer
determines are necessary to facilitate the Financing (such tender offer and
consent solicitation, collectively, the "Senior Note Tender Offer");
(iii) Buyer shall received executed Settlement Agreement and
Releases in the form of Annex B hereto from franchisees of the Subsidiary
and related investors accounting for at least 80% of the Subsidiary's
franchisees, excluding for such purposes the franchisees owned or
controlled by any of the Sellers or other significant franchisees that have
already been received;
(iv) the Company shall have provided to Buyer the information
necessary to permit the calculation of any adjustments pursuant to Section
1.2(b);
60
(v) the Company shall have provided evidence reasonably
satisfactory to Buyer that all of the Warrants have been cancelled
consistent with Section 1.5 and that the Affiliate Arrangements identified
on Schedule 6.2(a)(v) other than the Franchise Agreements for franchisees
in which ▇▇. ▇▇▇▇ is an investor, as amended in accordance with Annex B
hereto, have been terminated effective not later than the Closing Date with
no additional amounts payable thereunder by the Company or the Subsidiary;
and
(vi) the Company and the Sellers shall have performed and
complied with in all material respects the covenants and agreements
contained in this Agreement required to be performed and complied with by
it or them at or prior to the Closing Date, the representations and
warranties of the Company and the Sellers set forth in this Agreement shall
be true and correct in all material respects as of the date of this
Agreement and as of the Pre-Closing Date as though made at and as of the
Pre-Closing Date, there shall not have occurred and be continuing a
Material Adverse Effect, and Buyer shall have received a certificate to the
foregoing effect signed by an authorized officer of the Company.
(b) The obligation of Buyer to effect the transactions contemplated
by this Agreement shall be subject to the fulfillment at or prior to the Closing
Date of the following additional conditions:
61
(i) the delivery to it of the Escrowed Seller Documents and the
Escrowed Company Documents; and
(ii) the Company and the Sellers shall have performed and complied
with in all material respects the covenants and agreements contained in this
Agreement required to be performed and complied with by it or them at or prior
to the Closing Date.
VI.3 Conditions to Obligations of the Sellers.
----------------------------------------
The obligation of the Sellers to effect the transactions contemplated by this
Agreement shall be subject to the fulfillment at or prior to the Pre-Closing
Date of the following additional conditions:
(a) Buyer shall have performed in all material respects its
covenants and agreements contained in this Agreement required to be performed at
or prior to the Pre-Closing Date; and
(b) the representations and warranties of Buyer set forth in this
Agreement shall be true and correct in all material respects as of the date of
this Agreement and as of the Closing Date as though made at and as of the
Closing Date, and the Company and the Sellers the Sellers shall have received a
certificate to that effect signed by an authorized officer of Buyer.
ARTICLE VII
62
TERMINATION AND ABANDONMENT
---------------------------
VII.1 Termination.
-----------
(a This Agreement may be terminated at any time prior to the Closing
Date, by mutual written consent of Buyer, the Company and the Sellers.
(b This Agreement may be terminated by the Company, Buyer or the
Sellers if the transactions contemplated hereby shall not have been consummated
on or before August 24, 1998; provided that the right to terminate this
--------
Agreement under this Section 7.1(b) shall not be available to any party whose
failure to fulfill any obligation under this Agreement has been the cause of, or
resulted in, the failure of the Closing Date to occur on or before such date.
(c This Agreement may be terminated by either the Company or Buyer
if any court of competent jurisdiction in the United States or any State shall
have issued an order, judgment or decree permanently restraining, enjoining or
otherwise prohibiting the transactions contemplated hereby and such order,
judgment or decree shall have become final and nonappealable.
(d This Agreement may be terminated by Buyer if there has been a
material violation or breach by the Company or the Sellers of any agreement,
representation or warranty contained in this Agreement which has rendered the
satisfaction of any condition to the obligations of Buyer impossible and such
violation or breach has not been waived by Buyer.
63
(e This Agreement may be terminated by the Company or the Sellers if
there has been a material violation or breach by Buyer of any agreement,
representation or warranty contained in this Agreement which has rendered the
satisfaction of any condition to the obligations of the Sellers impossible and
such violation or breach has not been waived by the Sellers.
VII.2 Procedure and Effect of Termination. In the event of
-----------------------------------
termination of this Agreement and abandonment of the transactions contemplated
hereby by either or both of the parties pursuant to Section 7.1, written notice
thereof shall forthwith be given by the terminating party to the other party and
this Agreement shall terminate and the transactions contemplated hereby shall be
abandoned, without further action by any of the parties hereto. If this
Agreement is terminated as provided herein:
(a none of the parties hereto nor any of their respective
directors, officers or affiliates, as the case may be, shall have any
liability or further obligation to the other party or any of their
respective directors, officers or affiliates, as the case may be, pursuant
to this Agreement, except for liability for any breach of this Agreement
and except in each case as stated in this Section 7.2 and in Sections
5.3(b), 5.6 and 5.8; provided, that the sole recourse of Buyer with respect
--------
to any such liability arising out of this Section 7.2(a) shall be to assert
a claim against the Company (which shall be
64
responsible for any breaches by the Company or by the Sellers) and not the
Sellers; and
(b all filings, applications and other submissions made
pursuant to this Agreement, to the extent practicable, shall be withdrawn
from the agency or other person to which they were made.
ARTICLE VIII
INDEMNIFICATION
---------------
VIII.1 Coverage. Each of the Sellers, severally, but not jointly,
--------
shall indemnify, defend and hold harmless Buyer from all damages, liabilities,
losses, costs, expenses (including all reasonable fees), claim or cause of
action ("Losses") arising out of or resulting from, or shall pay or become
obligated to pay any sum on account of, any breach of representation and
warranty as to such Seller in Section 3.25.
VIII.2 Limitation of Liability. Any Seller's liability with respect
-----------------------
to indemnification in Section 8.1 shall be limited to that portion of the cash
purchase price received for Company Securities sold by such Seller.
ARTICLE IX
MISCELLANEOUS PROVISIONS
------------------------
IX.1 Amendment and Modification. Subject to applicable law, this
--------------------------
65
Agreement may be amended, modified or supplemented only by written agreement of
the Company, the Sellers and Buyer.
IX.2 Waiver of Compliance; Consents. Except as otherwise provided in
------------------------------
this Agreement, any failure of any of the parties to comply with any obligation,
covenant, agreement or condition herein may be waived by the party entitled to
the benefits thereof only by a written instrument signed by the party granting
such waiver, but such waiver or failure to insist upon strict compliance with
such obligation, covenant, agreement or condition shall not operate as a waiver
of, or estoppel with respect to, any subsequent or other failure.
IX.3 No Survival of Representations and Warranties. Each and every
---------------------------------------------
representation and warranty contained in this Agreement and each and every
covenant contained in this Agreement (other than the covenants in Section
5.3(b), 5.6, 5.8 and 5.12 and the representations and warranties in Section
3.25) shall expire with, and be terminated and extinguished by, (i) the
consummation of the sale of the Company Securities pursuant to this Agreement
and shall not survive the Closing Date, or (ii) the termination of this
Agreement pursuant to Section 7.1 or otherwise.
IX.4 Notices. All notices and other communications hereunder shall
-------
be in writing and shall be deemed given if delivered personally or by facsimile
transmission or mailed by registered or certified mail (return receipt
requested), postage prepaid, to the parties at the following addresses or
facsimile numbers (or at
66
such other address or facsimile number for a party as shall be specified by like
notice; provided that notices of a change of address shall be effective only
--------
upon receipt thereof):
(a If to Buyer, to:
▇▇▇. ▇▇▇▇▇▇' Original Cookies, Inc.
▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇ ▇▇▇▇ ▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
facsimile no.: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇. ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
with copies to:
▇▇▇. ▇▇▇▇▇▇' Original Cookies, Inc.
▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇ ▇▇▇▇ ▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
facsimile no.: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: Legal Department
Capricorn Management, G.P.
▇▇ ▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
facsimile no.: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇. ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, ▇▇.
and
Skadden, Arps, Slate, ▇▇▇▇▇▇▇
& ▇▇▇▇ LLP
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
facsimile no.: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇, Esq.
67
(b if to the Company or the Sellers, to:
Cookies USA, Inc.
c/o The Jordan Company
▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
facsimile no.: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: Mr. Adam Max
with copies to:
▇▇▇▇▇ ▇▇▇▇▇ & ▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
facsimile no.: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Esq., and
▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇ ▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇, and
▇▇▇▇▇▇ ▇. ▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
IX.5 Assignment. This Agreement and all of the provisions hereof
----------
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and permitted assigns, but, except to the extent
specifically provided in Section 1.1, neither this Agreement nor any of the
rights, interests or obligations hereunder shall be assigned by any party
hereto, including by operation of law, without the prior written consent of the
other party, nor is this Agreement
68
intended to confer upon any other person except the parties hereto any rights or
remedies hereunder.
IX.6 Governing Law. This Agreement shall be governed by and
-------------
construed in accordance with the laws of the State of New York (regardless of
the laws that might otherwise govern under applicable New York principles of
conflicts of law) as to all matters, including but not limited to matters of
validity, construction, effect, performance and remedies.
IX.7 Counterparts. This Agreement may be executed in two
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
IX.8 Interpretation. The article and section headings contained in
--------------
this Agreement are solely for the purpose of reference, are not part of the
agreement of the parties and shall not in any way affect the meaning or
interpretation of this Agreement. All references to Schedules are to the
Disclosure Schedule delivered by the Company to Buyer as of the date of this
Agreement, as they may be amended pursuant to Section 5.11 subject to Buyer's
rights under Section 7.1(d). As used in this Agreement, the term "person" shall
mean and include an individual, a partnership, a joint venture, a corporation, a
trust, an unincorporated organization and a governmental entity or any
department or agency thereof. As used in this Agree-
69
ment, the term "Permitted Exceptions" shall mean and include (i) those
exceptions to title to the properties and assets of the Company listed in
Schedule 3.11; (ii) all exceptions, restrictions, easements, rights of way and
encumbrances set forth in title reports or title insurance binders which have
been made available to Buyer; (iii) mortgages, liens, pledges, charges,
encumbrances and restrictions which secure debt that is reflected as a liability
on the Company Balance Sheet or which are otherwise reflected in the Company
Balance Sheet or disclosed in the notes thereto; (iv) mortgages, liens, pledges,
charges, encumbrances and restrictions incurred in connection with the Company's
purchase of properties and assets after the date of the Company Balance Sheet
securing all or a portion of the purchase price therefor; (v) statutory liens
for current taxes or assessments not yet due or delinquent or the validity of
which is being contested in good faith by appropriate proceedings; (vi)
mechanics', carriers', workers', repairers' and other similar liens arising or
incurred in the ordinary course of business relating to obligations as to which
there is no default on the part of the Company; (vii) zoning, entitlement and
other land use and environmental regulations by governmental authorities and
(viii) such other liens, imperfections in title, charges, easements,
restrictions and encumbrances which do not materially detract from the value of
or materially interfere with the present use of any property subject thereto or
affected thereby that is material to the business, operations or financial
condition of the Company or which relate to properties that are not mate-
70
rial to the Company and do not, in the aggregate have a Material Adverse Effect.
As used in this Agreement, the term "subsidiary" when used in reference to any
other person shall mean any corporation of which outstanding securities having
ordinary voting power to elect a majority of the Board of Directors of such
corporation are owned directly or indirectly by such other person.
IX.9 Entire Agreement. This Agreement, including the documents,
----------------
Schedules, certificates and instruments referred to herein, and the
Confidentiality Agreement embody the entire agreement and understanding of the
parties hereto in respect of the transactions contemplated by this Agreement.
There are no restrictions, promises, representations, warranties, covenants or
undertakings, other than those expressly set forth or referred to herein or
therein. This Agreement supersedes all prior agreements and understandings
between the parties with respect to such transactions other than the
Confidentiality Agreement.
71
IN WITNESS WHEREOF, the Company, the Sellers and Buyer have caused
this agreement to be signed by their respective duly authorized officers as of
the date first above written.
▇▇▇. ▇▇▇▇▇▇' ORIGINAL COOKIES,
INC.
By /s/▇▇▇▇▇ ▇. ▇▇▇▇▇▇
-------------------
Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Title: CEO
COOKIES USA, INC.
By /s/▇▇▇▇ ▇. Max
Name: ▇▇▇▇ ▇. Max
Title: VP
THE SELLERS:
LEUCADIA INVESTORS, INC.
By /s/▇▇▇▇▇▇ ▇. Orlardo
Name: ▇▇▇▇▇▇ ▇. Orlardo
Title: Vice President
▇▇▇▇ ▇. ▇▇▇▇▇▇, ▇▇ REVOCABLE TRUST
By /s/▇▇▇▇ ▇. ▇▇▇▇▇▇
Name: ▇▇▇▇ ▇. ▇▇▇▇▇▇
Title:
72
UNIVERSITY OF NOTRE DAME/THE ▇▇▇▇
▇. ▇▇▇▇▇▇ ▇▇ FUND
By: /s/▇. ▇▇▇▇▇▇▇ Beauchamze
Name: ▇. ▇▇▇▇▇▇▇ Beauchamze
Title: EVP
/s/▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
---------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
/s/▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
-----------------------
▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
/s/▇▇▇▇ ▇. ▇▇▇▇▇▇
-----------------
▇▇▇▇ ▇. ▇▇▇▇▇▇
DELEWARE CHARTER GUARANTEE & TRUST
CO. F/B/O ▇▇▇▇ ▇. ▇▇▇▇▇▇
By:/s/▇▇▇▇ ▇. ▇▇▇▇▇▇
Name: ▇▇▇▇ ▇. ▇▇▇▇▇▇
Title: Trustee
/s/▇▇▇▇ ▇. Max
--------------
▇▇▇▇ ▇. Max
/s/▇▇▇▇ ▇. ▇▇▇▇
---------------
▇▇▇▇ ▇. ▇▇▇▇
▇▇▇▇ ▇. ▇▇▇▇ III, PROFIT SHARING PLAN, 1/1/88,
▇▇▇▇ ▇. ▇▇▇▇ III, TRUSTEE
By /s/▇▇▇▇ ▇. ▇▇▇▇
Name: ▇▇▇▇ ▇. ▇▇▇▇
Title: Trustee
/s/A. ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇.
------------------------
A. ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇.
73
▇▇▇▇▇ ▇. ▇▇▇▇▇▇, ▇▇. PROFIT SHARING PLAN & TRUST
By /s/▇▇▇▇▇ ▇. ▇▇▇▇▇▇, ▇▇.
Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇, ▇▇.
Title: Trustee
▇▇▇▇ ▇▇▇▇▇▇▇▇ PROFIT SHARING PLAN & TRUST
By /s/▇▇▇▇ ▇▇▇▇▇▇▇▇
Name: ▇▇▇▇ Rodzedvik
Title: Trustee
/s/▇▇▇▇▇▇ ▇. ▇▇▇▇▇
------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇
JII PARTNERS
By /s/▇▇▇▇▇▇ ▇. ▇▇▇▇▇
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇
Title:
MCIT (EXISTING POOL) LIMITED
By /s/▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Title: Director
74
COOKIES USA PARTNERS, L.P.
By Jefferies & Company, Inc. Its General Partner
By /s/▇▇▇▇▇ ▇. ▇▇▇▇▇
Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇
Title: Executive Vice President
/s/▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
-------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
/s/▇▇▇▇▇▇ ▇. ▇▇▇▇
-----------------
▇▇▇▇▇▇ ▇. ▇▇▇▇
GEORGIA COOKIES, INC.
By /s/▇▇▇▇▇▇ ▇. ▇▇▇▇
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇
Title: President
THE ▇▇▇▇▇▇ ▇. ▇▇▇▇ FAMILY FOUNDATION, INC.
By /s/▇▇▇▇▇▇ ▇. ▇▇▇▇
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇
Title: Chair
75
