UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): October 11, 2019
ARC GROUP, INC.
(Exact name of registrant as specified in its charter)
Nevada |
000-54226 | 59-3649554 | ||
(State or other jurisdiction of incorporation) |
(Commission File Number) |
(IRS Employer Identification No.) |
1409 Kinsley Ave., Ste. 2 Orange Park, FL |
32073 | |
| (Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number, including area code: (904) 741-5500
(Former Name or Former Address, if Changed Since Last Report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
| [ ] | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) | |
| [ ] | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) | |
| [ ] | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) | |
| [ ] | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company [ ]
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ ]
Section 1 – Registrant’s Business and Operations
| Item 1.01 | Entry Into a Material Definitive Agreement. |
Acquisition of WingHouse Concept
On October 11, 2019, ARC Group, Inc. (the “Company”) and ARC WingHouse, LLC, a Florida limited liability company that is a wholly-owned subsidiary of the Company (“ARC WingHouse”), entered into an Asset Purchase Agreement (the “Asset Purchase Agreement”) with Soaring Wings, LLC, a Florida limited liability company (“Soaring Wings”), Soaring Wings HQ, LLC, a Florida limited liability company (“Soaring Wings HQ”), Soaring Wings Advertising, LLC, a Florida limited liability company (“Soaring Wings Advertising”), Soaring Wings IP, LLC, a Florida limited liability company (“Soaring Wings IP”), and the wholly-owned subsidiaries of Soaring Wings that own and operate all of the Restaurants (as defined below) (the “WH Operating Entities”). Soaring Wings, Soaring Wings HQ, Soaring Wings Advertising, Soaring Wings IP and the WH Operating Entities are sometimes collectively referred to as the “Sellers” and each a “Seller”. The Company and ARC Winghouse are sometimes collectively referred to as the “Purchasers”. The transactions contemplated by the Asset Purchase Agreement are sometimes referred to herein collectively as the “Acquisition”. The closing of the Acquisition occurred on October 11, 2019 (the “Closing Date”).
Sellers are the owners and operators of the WingHouse Bar and Grill restaurant concept (the “WingHouse Concept”), which is comprised of 24 WingHouse Bar and Grill restaurants (the “Restaurants”). Purchasers agreed to pay the Sellers a total of $18,000,000 as adjusted pursuant to a working capital adjustment (the “Purchase Price”), and to assume, satisfy and discharge certain assumed liabilities. On the Closing Date, ARC WingHouse paid $11,000,000 to the Sellers and delivered to Sellers a promissory note in the amount of $1,000,000 (the “Purchaser Note”). The Purchaser Note accrues interest at a rate of five percent (5%) per annum. The Purchaser Note is due and payable in a single payment on the earliest to occur of the following: (i) the first anniversary of the date of the Purchaser Note, (ii) the merger or sale of substantially all the membership interest or assets of ARC WingHouse, and (iii) the liquidation, dissolution or winding up of ARC WingHouse. In addition, ARC WingHouse delivered to SW WH Holdings, LLC, a Florida limited liability company (“SW WH Holdings”), an equity interest in ARC WingHouse representing a ten percent (10%) ownership interest in ARC WingHouse (the “Equity Interest”). The Company also agreed to deliver to Soaring Wings shares (the “ARC Stock”) of the Company’s common stock, par value $0.01 per share (the “Common Stock”), on each of the first three anniversaries of the Closing Date. The number of shares of Common Stock to be delivered on each anniversary shall be equal to the quotient of $1,000,000 divided by the following per share prices: (i) $1.40 per share of Common Stock on the first anniversary, (ii) 2.00 per share of Common Stock on the second anniversary, and (iii) $3.00 per share of Common Stock on the third anniversary (collectively, the “ARC Stock Consideration”). The per share price of the ARC Stock Consideration will be equitably adjusted for any stock dividend, stock split, reverse stock split or recapitalization. If the ARC Stock is not listed and quoted for trading on the NYSE, NASDAQ Global Select Market, NASDAQ Global Market or NASDAQ Capital Market on any of the first, second and third anniversaries of the Closing (the first such anniversary referred to as a “Listing Failure Anniversary”), then ARC WingHouse shall pay $1,000,000 cash to Soaring Wings on the Listing Failure Anniversary and each anniversary of the Closing after a Listing Failure Anniversary (if any), ending on the third anniversary of the Closing Date in full satisfaction of the Company’s obligation to deliver the ARC Stock Consideration to Soaring Wings on the Listing Failure Anniversary and each anniversary thereafter, ending on the 3rd anniversary (the “Contingent Cash Consideration”). Notwithstanding the existence of a Listing Failure Anniversary, Soaring Wings may, in its sole discretion, elect to receive ARC Stock on the Listing Failure Anniversary and/or any anniversary after the Listing Failure Anniversary in lieu of a $1,000,000 cash payment by providing ARC WingHouse with written notice no less than 30 days before the Listing Failure Anniversary or subsequent anniversary, as applicable. The ARC Stock Consideration is subject to the terms of a Put Agreement (as defined below), and Sellers were granted customary piggy-back registration rights with respect to the ARC Stock Consideration.
The Asset Purchase Agreement contains customary representations, warranties and covenants of each of the parties thereto. The Asset Purchase Agreement also contains customary indemnification provisions whereby each party will indemnify the other party for losses arising out of inaccuracies in, or breaches of, the representations, warranties and covenants made by such party under the Asset Purchase Agreement and certain other matters. The Sellers are responsible for all income taxes related to the operation of the Restaurants on or before the Closing Date, and the Purchasers are responsible for all income taxes related to the operation of the Restaurants after the Closing Date. All transfer, sales, use and other non-income taxes will be borne equally by the Purchasers and the Sellers.
Also on August 3, 2018, the Purchasers entered into a Put Agreement (the “Put Agreement”; together with the Asset Purchase Agreement, the “Purchase Agreements”) with Soaring Wings pursuant to which Soaring Wings was granted the right, but not the obligation, upon written notice to the Purchasers given at any time before the Put Deadline (as defined below), to require the Company to purchase, for cash, at the Put Closing (as defined below), all or any portion of the shares of ARC Stock received by Soaring Wings under Section 1.2(c) of the Asset Purchase Agreement or Section 15 of the Put Agreement. In the event Soaring Wings receives ARC Stock pursuant to Section 1.2(c) of the Asset Purchase Agreement and puts all of such ARC Stock to the Company, then the amount payable by the Company to Soaring Wings at the Put Closing shall be equal to the Put Price (as defined below). In the event Soaring Wings elects to put only a portion of such shares to the Company, either because Soaring Wings received Contingent Cash Consideration on one or more of such anniversaries, Soaring Wings sold some of the ARC Stock, Soaring Wings elected to retain some of the ARC Stock and put only a portion of the ARC Stock to the Company, and/or for any other reason, then the amount payable by the Company to Soaring Wings at the Put Closing will calculated in the following manner: (x) the Put Price, multiplied by (y) a fraction, the numerator of which is the number of shares of ARC Stock put to the Company by Soaring Wings hereunder, and the denominator of which is the number of shares of ARC Stock received by Soaring Wings under the Asset Purchase Agreement had Soaring Wings received ARC Stock on each of the first, second and third anniversaries of the Closing Date. The amount payable by the Company to Soaring Wings at the Put Closing is referred to herein as, the “Put Payment”. In the event that Soaring Wings receives the Put Price from Purchasers, then, without any action on the part of the Purchasers, SW WH Holdings or any other person, the Equity Interest will be immediately terminated and forfeited to ARC WingHouse and no longer be owned beneficially or of record by SW WH Holdings.
For the purposes hereof, “Put Price” means an amount equal to: (i) $6,000,000, less (ii) the aggregate dividends (if any) received by Soaring Wings from the Company attributable to any shares of ARC Stock received by Soaring Wings under Section 1.2(c) of the Asset Purchase Agreement and not required to be paid to City National Bank (as defined below) pursuant to that certain Subordination Agreement, dated October 11, 2019, by ARC WingHouse and Soaring Wings for the benefit of City National Bank (the “Subordination Agreement”), less (iii) the aggregate distributions (other than tax distributions) made by ARC WingHouse to Soaring Wings under its operating agreement that are not required to be paid to City National Bank pursuant to the Subordination Agreement, less (iv) the aggregate cash payments made by Purchaser to Soaring Wings following a Listing Failure Anniversary pursuant to Section 1.2(c) of the Asset Purchase Agreement that are not required to be paid to City National Bank pursuant to the Subordination Agreement (and for the avoidance of doubt, were not applied to satisfy losses pursuant to Section 7.9(b) under the Asset Purchase Agreement), less (v) the aggregate amount of losses satisfied by Sellers to Purchasers or their indemnitees pursuant to Sections 7.9(a), (b) and (c) under the Asset Purchase Agreement that are not required to be paid to City National Bank pursuant to the Subordination Agreement.
For the purposes hereof, “Put Deadline” means the later of (y) the fifth anniversary of the Closing Date and (z) 12 months following the date on which the Company provides written notice to Soaring Wings that: (i) it has indefeasibly paid and satisfied in full the Loan (as defined below), (ii) Soaring Wings is not restricted from exercising its rights under this Agreement (in whole or in part) pursuant to the Subordination Agreement, or otherwise, and (iii) the Company has legally sufficient funds to pay the Put Payment in full.
In connection with the closing of the Acquisition, Seenu G. Kasturi executed a guaranty in favor of Soaring Wings guaranteeing all of the Purchasers’ obligations under the Asset Purchase Agreement, the Put Agreement, and the Purchaser Note.
The Purchase Agreements have been included solely to provide readers with information regarding their respective terms. They are not intended to be a source of financial, business or operational information about the parties thereto or their respective subsidiaries or affiliates, if any. The representations, warranties and covenants contained in the Purchase Agreements were made solely for purposes of the agreements and as of specific dates, were made solely for the benefit of the parties thereto, and may be subject to qualifications and limitations agreed upon by the parties, including being qualified by confidential disclosures. The representations, warranties and covenants may have been made for the purpose of allocating contractual risk between the parties to the agreement instead of establishing matters as facts, and may be subject to standards of materiality applicable to the parties to the agreement that differ from those applicable to readers. Readers should not rely on the representations, warranties and covenants or any description thereof as characterizations of the actual state of facts or condition of the parties to the Purchase Agreements or their respective subsidiaries or affiliates, if any. Moreover, information concerning the subject matter of the representations, warranties and covenants may change after the date of the Purchase Agreements, which subsequent information may or may not be fully reflected in the Company’s filings with the Securities and Exchange Commission (“SEC”) or other public disclosures.
The foregoing description of the Asset Purchase Agreement and Put Agreement does not purport to be complete and is qualified in its entirety by reference to the Asset Purchase Agreement and Put Agreement, copies of which are attached hereto as Exhibits 2.1 and 10.1, respectively, and incorporated by reference herein.
Financing of WingHouse Acquisition
On October 11, 2019, ARC WingHouse entered into a Loan Agreement (the “Loan Agreement”) with City National Bank of Florida (“City National Bank”) pursuant to which the Company borrowed $12,250,000 (the “Loan”) to help fund the acquisition of the WingHouse Concept. In connection therewith, ARC WingHouse issued a promissory note in favor of City National Bank in the amount of $12,250,000 (the “CNB Note”). Interest accrues under the CNB Note at a rate of six percent (6%) per annum. The entire outstanding principal balance of the CNB Note plus all accrued interest is due and payable in full on October 11, 2024.
ARC WingHouse may make prepayments of principal under the CNB Note, provided, however, that (i) if ARC WingHouse prepays any portion of the outstanding balance of the CNB Note during the first year of the term of the CNB Note, ARC WingHouse shall pay a fee to City National Bank in an amount equal to three percent (3%) of the amount prepaid by ARC WingHouse in excess of $2,250,000, (ii) if ARC WingHouse prepays any portion of the outstanding balance of the CNB Note during the second year of the term of the CNB Note, ARC WingHouse shall pay to City National Bank a fee in an amount equal to two percent (2%) of the amount prepaid by ARC WingHouse, and (iii) if ARC WingHouse prepays any portion of the outstanding balance of the CNB Note during the third (3rd) year of the term of the CNB Note, ARC WingHouse shall pay to City National Bank a fee in an amount equal to one percent (1%) of the amount prepaid by ARC WingHouse. Thereafter, ARC WingHouse may make prepayments of principal under the CNB Note without penalty or premium.
Seenu G. Kasturi, as guarantor for the loan, deposited $1,250,000 with City National Bank in an account that is under the sole control of City National Bank. Mr. Kasturi granted a security interest to City National Bank in the account and the funds held therein as security for the loan. City National Bank will return the funds to Mr. Kasturi in the event ARC WingHouse contributes a like amount of funds to City National Bank. City National Bank will return all funds held in the account to Mr. Kasturi or ARC WingHouse, as applicable, upon repayment of the loan by ARC WingHouse.
In addition, ARC WingHouse deposited $1,000,000 with City National Bank in an account that is under the sole control of City National Bank. ARC WingHouse granted a security interest to City National Bank in the account and the funds held therein as security for the loan. After April 11, 2020, but no sooner than City National Bank receives ARC WingHouse’s audited financial statements for the year ended December 31, 2019 and ARC Winghouse’s quarterly financial statements for the quarter end March 30, 2020, so long as ARC Winghouse is in compliance with the financial covenants contained in the Loan Agreement and no event of default as occurred, City National Bank, upon the request of ARC WingHouse, will disburse certain amounts to pay down the Purchaser Note.
The Loan Agreement contains certain covenants and provisions that affect ARC WingHouse, including, without limitation, financial covenants and provisions that require that ARC WingHouse maintain certain financial ratios, restrict its ability to create or incur certain indebtedness, and restrict its ability to create or incur certain liens on its property. The Loan Agreement also contains customary representations, warranties and covenants, as well as customary events of default, including payment defaults, breaches of covenants, and a default upon the occurrence of a material adverse change affecting ARC WingHouse. Upon the occurrence of an event of default, City National Bank may declare all outstanding obligations immediately due and payable and exercise all their rights and remedies as set forth in the Loan Agreement and the CNB Note and under applicable law.
The CNB Note is secured, in part, by that that certain Security Agreement, dated October 11, 2019, executed by ARC WingHouse in favor of City National Bank (as the same may be amended or modified from time to time, the “Security Agreement”), granting City National Bank a lien and security interest in and to all assets owned by ARC WingHouse. In addition, the Company entered into a Negative Pledge Agreement, dated October 11, 2019, pursuant to which the Company agreed not to: (i) sell, transfer, assign or lease any of its assets, except for the transfer or sale of assets in the ordinary course of business for at least equal consideration, (ii) create, incur, assume or suffer to exist certain types of liens on its assets, (iii) enter into any agreement with any person other than City National Bank which prohibits or limits the ability of the Company to create, incur, assume or suffer to exist any security interest, mortgage, pledge, lien or other encumbrance upon any of its assets, and (iv) create, incur, assume or suffer to exist certain types of indebtedness.
In connection with the completion of the Loan, Seenu G. Kasturi executed a guaranty in favor of City National Bank guaranteeing all of ARC WingHouse’s obligations under the CNB Note, the Loan Agreement and the other loan documents executed in connection therewith.
The foregoing description of the Loan Agreement, CNB Note and Security Agreement does not purport to be complete and is qualified in its entirety by reference to the Asset Purchase Agreement and Put Agreement, copies of which are attached hereto as Exhibits 10.2, 10.3 and 10.4, respectively, and incorporated by reference herein.
Related-Party Information
Mr. Kasturi serves as the Chief Executive Officer and Chairman of the Board of Directors for the Company and beneficially owns approximately 29.5% of the issued and outstanding shares of Common Stock and 100% of the issued and outstanding shares of Series A Convertible Preferred Stock. Mr. Kasturi also serves as the President, Treasurer and Secretary, and sole member of, Raceland QSR, LLC (“Raceland”) and owns all of the equity interests in Raceland. Raceland is the landlord for the property on which one of the restaurants owned by the Company is located. In addition, Mr. Kasturi serves as the Chief Executive Officer, Treasurer and Secretary, and as the sole member of the board of directors, of Blue Victory Holdings, Inc., a Nevada corporation (“Blue Victory”), and owns 90% of the equity interests in Blue Victory. The Company owed $105,955 to Blue Victory under an unsecured loan with Blue Victory as of June 30, 2019. The Company also has a $50,000 revolving line of credit facility with Blue Victory.
The Company is also party to a secured convertible promissory note with Mr. Kasturi pursuant to which the Company borrowed $622,929 to help finance the acquisition of substantially all of the assets of the “Fat Patty’s” restaurant brand. Mr. Kasturi has the right, at any time during the term of the note and from time to time, to convert all of any portion of the outstanding principal of the note, together with accrued and unpaid interest payable thereon, into shares of the Company’s common stock at a conversion rate of $1.36 per share. The note is secured by all of the assets of the Company.
On October 30, 2018, the Company entered into an agreement with SDA Holdings, LLC (“SDA Holdings”) and Fred D. Alexander to purchase all of the issued and outstanding membership interests in SDA Holdings. Upon closing of this acquisition, the Company will issue 666,667 shares of common stock to Mr. Kasturi, place 718,563 shares of common stock into escrow to replace a like number of shares placed in escrow by Mr. Kasturi, and through a wholly-owned subsidiary, be the obligor under a demand promissory note in favor of Mr. Kasturi in the principal amount of up to $2,500,000.
Section 2 – Financial Information
| Item 2.01 | Completion of Acquisition or Disposition of Asset. |
The information contained in Item 1.01 above is incorporated by reference herein.
| Item 2.03 | Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of a Registrant. |
The information contained in Item 1.01 above is incorporated by reference herein.
Section 3 - Securities and Trading Markets
| Item 3.02 | Unregistered Sales of Equity Securities. |
The information contained in Item 1.01 above is incorporated by reference herein.
Section 9 – Financial Statements and Exhibits
| Item 9.01 | Financial Statements and Exhibits. |
| (a) | Financial Statements of Businesses Acquired. |
The financial statements required by Item 9.01(a) of this Current Report on Form 8-K (this “Report”) will be filed by amendment to this Report no later than 71 calendar days after the date this Report is required to be filed with the SEC.
| (b) | Pro Forma Financial Information. |
The pro forma financial information required by Item 9.01(b) of this Report will be filed by amendment to this Report no later than 71 calendar days after the date this Report is required to be filed with the SEC.
| (d) | Exhibits. |
* * * * *
Cautionary Statement Regarding Forward-Looking Statements
This Report contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, as amended, and are intended to be covered by the safe harbor created thereby. All statements other than statements of historical fact contained herein, including, without limitation, statements regarding the Company’s future financial position, business strategy, budgets, projected revenues and costs, and plans and objectives of management for future operations, are forward-looking statements. Forward-looking statements generally can be identified by the use of forward-looking terminology such as “may,” “will,” “expects,” “intends,” “plans,” “projects,” “estimates,” “anticipates,” or “believes” or the negative thereof or any variation thereon or similar terminology or expressions. Forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from results proposed in such statements. Although the Company believes that the expectations reflected in such forward-looking statements are reasonable, it can provide no assurance that such expectations will prove to have been correct. Important factors that could cause actual results to differ materially from the Company’s expectations include, but are not limited to: (i) the integration of the WingHouse Concept into the Company’s business, which will require significant time, attention and resources of the Company’s senior management and others within the Company, potentially diverting their attention from other aspects of the Company’s business, (ii) the future results of operations and performance of the WingHouse Concept, which could differ significantly from management’s expectations and estimates, (iii) the potential adverse effects on the Company’s business, properties or operations caused by the Company completing the transactions described herein (the “Transactions”), (iv) the costs, fees, expenses and charges related to or triggered by the Transactions that may in the future be incurred by the Company, (v) the initiation or outcome of any legal or regulatory proceedings related to the Transactions that may be instituted against the Company, and (vi) the effect that the Transactions will have on the price of the Company’s shares of Common Stock. Additional factors that could cause actual results to differ materially from the Company’s expectations are set forth in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018 and its other filings and submissions with the SEC, which are available on the SEC’s website at www.sec.gov. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date made. All information set forth in this Report is accurate as of October 17, 2019. Except as required by law, the Company does not intend, and assumes no obligation, to update or revise this information to reflect subsequent events or circumstances.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| ARC GROUP, INC. | |
| Dated: October 17, 2019 | /s/ Alex Andre |
| Alex Andre | |
| Chief Financial Officer |
EXHIBIT INDEX
EXECUTION VERSION
ASSET PURCHASE AGREEMENT
This ASSET PURCHASE AGREEMENT is made and entered into on October 11, 2019, by and among (i) Soaring Wings, LLC, a Florida limited liability company (“Soaring Wings”); (ii) Soaring Wings HQ, LLC, a Florida limited liability company (“Soaring Wings HQ”); (iii) Soaring Wings Advertising, LLC, a Florida limited liability company (“Soaring Wings Advertising”); (iv) Soaring Wings IP, LLC, a Florida limited liability company (“Soaring Wings IP”); (v) the WH Operating Entities; (vi) ARC Group, Inc., a Nevada corporation (“Parent”); and (vii) ARC Winghouse, LLC, a Florida limited liability company (“ARC WingHouse”). Soaring Wings, Soaring Wings HQ, Soaring Wings Advertising, Soaring Wings IP and the WH Operating Entities are collectively referred to as the “Sellers” and each a “Seller”. Parent and ARC Winghouse are collectively referred to as the “Purchasers”.
Recitals
WHEREAS, Sellers own all of the Purchased Assets and Assumed Liabilities; and
WHEREAS, ARC WingHouse desires to purchase from Sellers, and Sellers desire to sell to ARC WingHouse, all of the Purchased Assets, and ARC WingHouse desires to assume all of the Assumed Liabilities, upon the terms and subject to the conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the foregoing premises and the representations, warranties, covenants and agreements contained herein, the parties hereto hereby agree as follows:
ARTICLE I
PURCHASE AND SALE
1.1 Purchase and Sale of Assets.
(a) Purchased Assets. On the Closing Date, ARC WingHouse shall purchase from Sellers, and Sellers shall sell, transfer, assign, contribute, convey and deliver to ARC WingHouse, free and clear of all Encumbrances (other than Permitted Encumbrances), all right, title and interest of Sellers in and to all assets of Sellers that are used or held for use solely in connection with the operation or conduct of the Business (other than the Excluded Assets), including, but not limited to: (i) all accounts receivable, (ii) all Inventory, (iii) all contracts and agreements set forth on Schedule 1.1(a) (the “Assumed Contracts”), (iv) all furniture, fixtures, machinery and equipment, (v) all real estate owned or leased by any Sellers, (vi) all Intellectual Property, (vii) all advertising, marketing, market research, sales and promotional materials that are in any Sellers’ physical possession or under its control, (viii) all Governmental Authorizations (to the extent legally assignable), (ix) all financial, accounting, payroll and operating data and records, (x) all Seller Employees, (xi) any compensation and benefit plan, any assets in respect of any such plan, and any other compensation and benefit plans sponsored by Sellers, in respect of Seller Employees (other than Excluded Assets), (xii) all claims, defenses, causes of action, rights under express or implied warranties, rights of recovery, rights of set-off, rights of subrogation and all other rights of any kind against any third party with respect to any Assumed Liabilities (other than those arising under Sellers’ insurance policies, or those relating the purchase or procurement of any good, service or product for, or on behalf of, the Business at any time up until the Closing, along with any and all recoveries in connection thereto), (xiii) any rights, claims and credits of Sellers with respect to any Assumed Liabilities, including any guarantees, warranties, indemnities and similar rights in favor of Sellers with respect to the Purchased Assets, (xv) all goodwill and going concern value associated with the Purchased Assets or the Business, and (xvi) all other assets, properties or rights of Sellers that are used or held for use solely in connection with the operation or conduct of the Business (collectively, the “Purchased Assets”) upon the terms and subject to the conditions set forth in this Agreement (together with all other transactions contemplated hereunder, the “Acquisition”). Sellers shall provide an updated Schedule 1.1(a) to ARC WingHouse at least two (2) days prior to Closing.
(b) Excluded Assets. ARC WingHouse acknowledges and agrees that it is not acquiring any rights, title or interest in, to or under: (i) Sellers’ Tax Returns and other records which are not directly related to or reasonably necessary to the conduct of the Business; (ii) any tax credits, tax refunds, tax benefits, or other benefits relating to periods prior to the Closing Date; (iii) each Seller’s bank accounts, credit cards, and debit cards; (iv) all contracts and agreements other than the Assumed Contracts; (v) Sellers’ cash and cash equivalents; (vi) all claims, defenses, causes of action, rights under express or implied warranties, rights of recovery, rights of set-off, rights of subrogation and all other rights of any kind against any third party, along with any and all recoveries in connection thereto; (vii) all claims, causes of action, and rights under any of Seller’s insurance policies, along with any and all recoveries in connection thereto; (viii) all documents that were received by Sellers or its representatives from third parties in connection with the proposed acquisition of the Purchased Assets, (ix) any ownership or beneficial interest of any Seller in any life insurance policies; (x) all confidential communications between any Seller and its Affiliates, on the one hand, and Hill, Ward & Henderson, P.A., on the other hand, relating to the Business or the Purchased Assets or arising out of or relating to the negotiation, execution or delivery of this Agreement, the Transaction Documents or the Acquisition, including any attendant attorney-client privilege, attorney work product protection and expectation of client confidentiality applicable thereto, and including any information or files in any format of Hill, Ward & Henderson, P.A. in connection therewith; (xi) all rights which accrue or will accrue to any Seller under the Transaction Documents; and (xii) assets, properties and rights specifically set forth on Schedule 1.1(b) to this Agreement (collectively, the “Excluded Assets”).
(c) Assumed Liabilities. ARC WingHouse is assuming, and shall be deemed to have assumed, the Loyalty Program Benefits, any and all Liabilities of Sellers included in the calculation of Closing Working Capital and any and all Liabilities of Sellers solely to the extent such Liabilities relate to the operation or conduct of the Business on or after the Closing, including, but not limited to: (i) all Liabilities arising out of or relating to any Assumed Contract that are incurred on or after the Closing, (ii) all Liabilities to customers, suppliers or other third parties for products, materials and services ordered in the ordinary course of business but scheduled to be delivered or provided on or after the Closing, (iii) all Liabilities arising out of or relating to Proceedings commenced after the Closing, (iv) all Liabilities arising out of or relating to the return of any product, including all Liabilities for any credits or rebates in respect of any product, (v) all Liabilities for any recall or post-sale warning in respect of any product manufactured by or for ARC WingHouse on or after the Closing or to the extent arising from any Purchasers’ conduct on or after the Closing, (vi) all consumer products Liabilities, including those related to consumer fraud and economic loss, related to the manufacture, advertising, marketing, distribution, sale, or use of products on or after the Closing Date, (vii) all Liabilities with respect to Seller Employees of the Business arising or occurring with respect to periods of service on and after the date such employee becomes an employee of ARC WingHouse, (viii) all Liabilities for Taxes arising out of or relating to the ownership of the Purchased Assets or the Business in any taxable period, or a portion thereof, beginning on the Closing Date, and (ix) all other Liabilities arising out of or relating to the Purchased Assets or the Business, including the use, ownership, possession, operation, sale or lease of the Purchased Assets, to the extent such Liabilities relate to the period of time on or after Closing (collectively, the “Assumed Liabilities”).
| 2 |
(d) Retained Liabilities. ARC WingHouse is not assuming, and shall not be deemed to have assumed, any liabilities of Sellers other than the Assumed Liabilities. Except for the Assumed Liabilities, ARC WingHouse shall not have any obligation for or with respect to any liability or obligation of Sellers of any nature whatsoever, whether accrued or fixed, absolute or contingent, known or unknown, or determined or determinable, whether incurred prior to, on, or after the Closing Date (such liabilities not assumed by ARC WingHouse are hereinafter referred to as the “Retained Liabilities”), all of which Retained Liabilities will be paid or satisfied by Sellers subject to any defenses Sellers may have against any third party claimants.
1.2 Purchase Price.
In consideration of the sale and transfer of the Purchased Assets, Purchasers agree to pay Sellers a total of Eighteen Million Dollars ($18,000,000) plus the amount, if any, by which Closing Working Capital exceeds the sum of: (i) the Target Working Capital Amount, plus (ii) $100,000, or minus the amount, if any, by which Closing Working Capital is less than the sum of: (i) the Target Working Capital Amount, less (ii) $100,000 (the “Purchase Price”), and to assume, satisfy and discharge all Assumed Liabilities. The Purchase Price shall be paid as follows:
(a) ARC WingHouse shall pay Eleven Million Dollars ($11,000,000), plus the amount, if any, by which the Estimated Closing Working Capital is $100,000 more than the Target Working Capital Amount or minus the amount, if any, by which the Estimated Closing Working Capital is $100,000 less than the Target Working Capital Amount, to the Sellers on the Closing Date (the “Estimated Closing Payment”);
(b) ARC WingHouse shall deliver (i) the ARC WH Equity Interest to SW WH Holdings, and (ii) the Promissory Note to Soaring Wings at the Closing; and
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(c) Subject to the remainder of this Section 1.2(c), on each of the first three anniversaries of the Closing, Parent shall deliver to Soaring Wings (or its assignee) ARC Stock (which stock shall be fully paid, validly issued and non-assessable), with the number of shares of ARC Stock delivered on each anniversary to be equal to the quotient of $1,000,000 divided by the applicable per share price: (i) 1st anniversary, $1.40 per share of ARC Stock; (ii) 2nd anniversary, $2.00 per share of ARC Stock; and (iii) 3rd anniversary, $3.00 per share of ARC Stock (collectively, the “ARC Stock Consideration”). The per share price of the ARC Stock Consideration will be equitably adjusted for any stock dividend, stock split, reverse stock split or recapitalization. If the ARC Stock is not listed and quoted for trading on the NYSE, NASDAQ Global Select Market, NASDAQ Global Market or NASDAQ Capital Market on any of the 1st, 2nd or 3rd anniversaries of the Closing (the first such anniversary referred to as a “Listing Failure Anniversary”), then ARC WingHouse shall pay $1,000,000 cash to Soaring Wings (or its assignee) on the Listing Failure Anniversary and each anniversary of the Closing after a Listing Failure Anniversary (if any), ending on the 3rd anniversary of the Closing in full satisfaction of their obligation to deliver the ARC Stock Consideration to Soaring Wings (or its assignee) on the Listing Failure Anniversary and each anniversary thereafter, ending on the 3rd anniversary (the “Contingent Cash Consideration”). Notwithstanding the existence of a Listing Failure Anniversary, Soaring Wings (or its assignee) may, in its sole discretion, elect to receive ARC Stock on the Listing Failure Anniversary and/or any anniversary after the Listing Failure Anniversary in lieu of a $1,000,000 cash payment as provided in the third sentence of this Section 1.2(c) by providing ARC WingHouse with written notice no less than thirty (30) days before the Listing Failure Anniversary or subsequent anniversary, as applicable, with the amount and timing of ARC Stock to be delivered following such election in accordance with the first sentence of this Section 1.2(c). For the avoidance of doubt, (i) the maximum cash payments payable by the ARC WingHouse to Soaring Wings (or its assignee) under this Section 1.2(c) is $3,000,000, and (ii) if Soaring Wings (or its assignee) elects to receive ARC Stock in lieu of a $1,000,000 cash payment on the Listing Failure Anniversary (if any) or any anniversary thereafter, Soaring Wings (or its assignee) shall not have the right to receive cash in exchange for the return of such ARC Stock received on the Listing Failure Anniversary (if any) or any anniversary thereafter. The Purchasers and Sellers acknowledge and confirm that the fair market value of the ARC Stock delivered by Parent to Soaring Wings (or its assignee) on each of the first three anniversaries of the Closing in accordance with this Section 1.2(c) may be more or less than $1,000,000, depending on the trading price of shares of ARC Stock on the applicable anniversary. Any portion of the Contingent Cash Consideration that is not timely paid in accordance with this Section 1.2(c) will accrue interest at the lesser of ten percent (10%) per annum or the maximum rate of interest permitted under applicable law until such unpaid Contingent Cash Consideration and all accrued interest is paid in full.
(d) The ARC Stock Consideration shall be subject to the Put Option Agreement, and the Purchasers covenant and agree to make timely all payments required under the Put Option Agreement.
(e) The Estimated Closing Payment and the Contingent Cash Consideration shall be paid in immediately available funds by wire transfer in accordance with written instructions given by Soaring Wings (or its assignee) to ARC WingHouse not less than three (3) business days prior to the Closing Date (in the case of the Estimated Closing Payment) or applicable payment date (in the case of the Contingent Cash Consideration), as applicable. The Estimated Closing Payment to be paid at Closing shall be calculated using the Estimated Closing Working Capital set forth in the Estimated Closing Payment Certificate (as provided by Section 1.3(a)). The Estimated Closing Payment shall be subject to adjustment after the Closing pursuant to Section 1.3. For greater certainty, if the Estimated Closing Working Capital is within $100,000 of the Target Working Capital Amount, then the Estimated Closing Payment paid on the Closing will be $11,000,000.
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(f) The Purchase Price will be allocated among the Sellers according to Schedule 1.2(f) to this Agreement which will be delivered by Sellers to Parent prior to the Closing.
1.3 Working Capital Adjustment.
(a) At least two (2) business days prior to the Closing, Soaring Wings will furnish to Parent a certificate prepared in good faith by Soaring Wings and signed by the chief financial officer of Soaring Wings (the “Estimated Closing Payment Certificate”) setting forth an estimate of Closing Working Capital (“Estimated Closing Working Capital”) and the Estimated Closing Payment to be paid pursuant to Section 1.2(a) on the Closing Date. The Estimated Closing Payment Certificate shall be prepared by Soaring Wings in good faith from the books and records of Sellers in accordance with GAAP, consistently applied in accordance with historical practices. Prior to the Closing, Soaring Wings shall provide Buyer and its representatives access or copies of all records and work papers used in preparing the Estimated Closing Working Capital and the information and calculations contained therein and reasonable access to Soaring Wings and the employees and advisors who prepared such information and calculations
(b) Within ninety (90) days after the Closing Date, ARC WingHouse will deliver to Soaring Wings a certificate (the “Closing Payment Certificate”) containing the following: (i) a calculation of the Closing Working Capital as of the Closing Date; (ii) a calculation of the amount by which the Closing Working Capital exceeds, or is less than, the Estimated Closing Working Capital, and (iii) a calculation of the amount, if any, that is payable by ARC WingHouse or Sellers pursuant to Section 1.2(a) (the “Closing Payment”). The amounts in the foregoing clauses (i) and (ii) are referred to herein collectively as the “Closing Adjustments.”
(c) If Soaring Wings delivers written notice (the “Disputed Items Notice”) to ARC WingHouse within thirty (30) days after delivery by ARC WingHouse of the Closing Payment Certificate, stating that Soaring Wings objects to either of the Closing Adjustments (the “Disputed Items”), specifying in reasonable detail the basis for such objection and setting forth Soaring Wings’ proposed modifications to the Disputed Items, ARC WingHouse and Soaring Wings will attempt to resolve and finally determine and agree upon the Disputed Items as promptly as practicable.
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(d) If ARC WingHouse and Soaring Wings are unable to agree upon the Disputed Items within thirty (30) days after delivery of the Disputed Items Notice, ARC WingHouse and Soaring Wings will submit the Disputed Items to a reputable independent accounting firm that neither ARC WingHouse nor Soaring wings has used during the past two years that is mutually satisfactory to ARC WingHouse and Soaring Wings (as applicable, the “Arbiter”) for review and resolution. If ARC WingHouse and Soaring Wings are unable to agree upon the selection of an Arbiter, either party may petition a court to select the Arbiter. The Arbiter will: (i) resolve the Disputed Items (and only the Disputed Items) based on written presentations from ARC WingHouse and Soaring Wings, (ii) not ascribe a value to any Disputed Item higher or lower, as the case may be, than the highest or lowest value ascribed by ARC WingHouse or Soaring Wings in the Closing Payment Certificate and Disputed Items Notice, as applicable, and (iii) make a written determination of the Closing Payment using the calculations set forth in the Closing Payment Certificate, as modified by the Arbiter’s resolution of the Disputed Items. ARC WingHouse and Soaring Wings will direct, and will use reasonable best efforts to cause, the Arbiter to complete its determination within sixty (60) days after being selected, and such determination will be final and binding on the parties. The fees, costs and expenses of the Arbiter shall be borne proportionately by Purchasers, on the one hand, and Sellers, on the other hand, to the extent that ARC WingHouse’s and Soaring Wings’ respective determinations of the Disputed Items differ from the Arbiter’s final determination of the Disputed Items (such proportional responsibility to be determined conclusively by the Arbiter and included in its written determination). For example, if Soaring Wings submits a Disputed Items Notice for $1,000, and if ARC WingHouse contests only $500 of the amount claimed by Soaring Wings, and if the Arbiter ultimately resolves the dispute by awarding Soaring Wings $300 of the $500 contested, then the costs and expenses of the Arbiter will be allocated 60% (i.e. 300/500) to Purchasers and 40% (i.e. 200/500) to Sellers.
(e) If Soaring Wings does not deliver a Disputed Items Notice to ARC WingHouse within thirty (30) days after ARC WingHouse’s delivery of the Closing Payment Certificate to Soaring Wings, the amounts specified in the Closing Payment Certificate (including, without limitation, the Closing Payment) will be conclusively presumed to be true and correct in all respects and will be final and binding upon the parties.
(f) If the Closing Payment as finally determined pursuant to this Section 1.3 exceeds the Estimated Closing Payment actually paid by ARC WingHouse at Closing, then ARC WingHouse shall, within two (2) business days following such final determination of the Closing Payment, pay Soaring Wings a cash amount equal to such excess by wire transfer of immediately available funds in accordance with wire instructions provided by Soaring Wings.
(g) If the Closing Payment as finally determined pursuant to this Section 1.3 is less than the Estimated Closing Payment actually paid by ARC WingHouse at Closing, then Soaring Wings (on behalf of the Sellers) shall, within two (2) business days following such final determination of the Closing Payment, pay ARC WingHouse a cash amount equal to such excess by wire transfer of immediately available funds in accordance with wire instructions provided by ARC WingHouse.
(h) Upon reasonable notice to ARC WingHouse, Soaring Wings and its Representatives will be given full access to, and allowed to make copies of, at all reasonable times before the final determination of the Closing Adjustments, the books and records (including working papers) of the Business and to any employees of the Business reasonably requested by such persons, in each case in connection with the determination of the Closing Adjustments or any dispute relating thereto.
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(i) The parties hereto agree to treat any payment made pursuant to this Section 1.3 as an adjustment to the purchase price for Tax purposes, except as otherwise required by applicable Laws.
1.4 Tax Treatment; Allocation of Payment.
(a) The Parties agree that the transfer of the Purchased Assets pursuant to this Agreement shall be treated for income tax purposes as: (i) a contribution by the Sellers to ARC WingHouse of a 10% undivided interest in the Purchased Assets having an agreed value of $55,555 in exchange for the ARC WH Equity Interest pursuant to a transaction governed by Section 721 of the Code; and (b) a taxable sale by Sellers in exchange for the balance of the Purchase Price. The Purchase Price and Assumed Liabilities shall be allocated among the Purchased Assets in accordance with Section 1060 of the Code (and any similar provision of state or local Law, as appropriate). A statement setting forth such proposed allocations (the “Statement of Allocation”) shall be prepared in good faith by ARC WingHouse and delivered to Sellers within 90 days following Closing. ARC WingHouse shall provide Sellers with: (i) copies of all supplementary documents, working papers and other data of Purchasers relating to the Statement of Allocation; and (ii) reasonable access to the employees of Purchasers who prepared the Statement of Allocation. Purchasers shall cooperate with Sellers to provide Sellers with such other information used in preparing the Statement of Allocation reasonably requested by Soaring Wings. The Statement of Allocation shall be final and binding unless ARC WingHouse receives a written notice of objection executed and delivered by Soaring Wings on or prior to the 30th day after delivery to Soaring Wings of the Statement of Allocation (the “Allocation Dispute Notice”). The Allocation Dispute Notice shall state in reasonable detail the item or items in dispute. In the event of a dispute regarding the Statement of Allocation, ARC WingHouse and Soaring Wings shall negotiate in good faith to resolve in writing any such objections, and any such resolution agreed to in writing by ARC WingHouse and Soaring Wings shall be final and binding. If the Statement of Allocation has become final and binding under this Section 1.4(a), Purchasers and Sellers shall report, act and file all Tax Returns (including IRS Form 8594, if required) in all respects and for all purposes consistent with the allocations on the Statement of Allocation. Purchasers, on the one hand, and Sellers, on the other hand, shall notify and provide the other with reasonable assistance in the event of an examination, audit or other proceeding regarding the allocations determined pursuant to this Section 1.4(a). None of the parties shall take any action inconsistent with the Statement of Allocation that has become final and binding in accordance with this Section 1.4(a), unless otherwise required by Law.
(b) If Soaring Wings delivers an Allocation Dispute Notice and the parties are unable to resolve the objections despite good faith negotiations within thirty (30) days after the Allocation Dispute Notice was delivered, then the Sellers and Purchasers shall each be entitled to use their own allocation for Tax purposes, including in filing relevant Tax Returns (including IRS Form 8594, if required); provided, that such allocation must in all events be consistent with Section 1.2(f).
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1.5 Taxes.
All transfer taxes incurred in connection with this Agreement and the Acquisition shall be split equally between Purchasers, on the one hand, and Sellers, on the other hand. Purchasers and Sellers shall cooperate in timely preparing and filing all Tax Returns as may be required to comply with the provisions of such transfer tax laws. All personal property taxes and assessments on the Purchased Assets for any taxable period commencing prior to the Closing Date and ending after the Closing Date shall be prorated on a per diem basis between Purchasers and Sellers as of the Closing Date. The amount of all such prorations payable by the party that is not required to pay such Tax under applicable Law shall be paid to the party required to pay such Tax under applicable Law on the Closing Date and such amount shall be remitted to the applicable Tax Authority as soon as practicable thereafter; provided, however, that final payments with respect to prorations that are not able to be calculated as of the Closing Date shall be calculated and paid as soon as practicable after the Closing Date. Each party shall cooperate and otherwise take commercially reasonable efforts to obtain any exemptions for or refunds of such transfer taxes or property taxes and to minimize any such transfer taxes or property taxes, including in the case of ARC WingHouse, providing to Sellers a valid resale certificate covering all of the Inventory.
1.6 Consents.
(a) Notwithstanding anything in this Agreement to the contrary, this Agreement shall not constitute an agreement to assign or transfer any Purchased Asset that are not assignable or transferable without the consent of any Person, other than Sellers, Purchasers or any of their respective Affiliates, to the extent that such consent shall not have been given prior to the Closing; provided, however, that Sellers shall use, for a period of one year after the Closing, commercially reasonable efforts to obtain, and Purchasers shall use their commercially reasonable efforts to assist and cooperate with Sellers in connection therewith, all necessary consents to the assignment and transfer thereof; and provided further, however, that: (i) none of Sellers or Purchasers or any of their respective Affiliates shall be required to pay money to any third party, commence any litigation or offer or grant any accommodation (financial or otherwise) to any third party in connection with such efforts, and (ii) to the extent the foregoing shall require any action by Sellers that would, or would continue to, affect the Business after the Closing, such action shall require the prior written consent of the applicable Purchasers (which consent shall not be unreasonably withheld, conditioned or delayed). Purchasers agree that Sellers will not have any liability arising out of or relating to the failure to obtain any consents that may have been or may be required in connection with the Acquisition.
(b) With respect to any Purchased Asset that is not transferred, licensed or assigned to ARC WingHouse at the Closing by reason of Section 1.6(a) (the “Non-Assigned Asset”), after the Closing and until any requisite consent is obtained and the foregoing is transferred and assigned to ARC WingHouse, Sellers shall use commercially reasonable efforts to provide to ARC WingHouse substantially comparable benefits thereof and shall, at Purchasers’ expense, enforce, at the request of and for the account of ARC WingHouse, any rights of Sellers arising thereunder against any Person, including the right to elect to terminate in accordance with the terms thereof upon the advice of ARC WingHouse. To the extent that ARC WingHouse is provided with the benefits of any Non-Assigned Asset, ARC WingHouse shall perform, at the direction of Sellers, the obligations of Sellers thereunder. Notwithstanding anything to the contrary set forth herein, to the extent that any Assumed Liability relates to any Non-Assigned Asset, such Assumed Liability shall be deemed to be a Liability of the applicable Seller until such Non-Assigned Asset is transferred and assigned to ARC WingHouse, or unless ARC WingHouse obtains the benefit of such Non-Assigned Asset under this Section 1.6(b).
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(c) The Purchasers hereby ratify that certain Beverage Sales Agreement dated October 1, 2015, by and between Bottling Group, LLC and Soaring Wings, as amended, and shall provide written notice of such ratification within seven (7) days after Closing in accordance with the terms of such agreement.
1.7 Risk of Loss.
Prior to the Closing, any loss or damage to the Purchased Assets from fire, casualty or otherwise shall be the sole responsibility of Sellers. Thereafter, any such loss or damage shall be the sole responsibility of ARC WingHouse.
ARTICLE II
THE CLOSING
2.1 Closing Date.
The closing of the Acquisition (the “Closing”) shall take place at the office of Parent, 1409 Kingsley Ave., Orange Park, Florida 32073, at 10 a.m., EDT time on October 11, 2019 or such other date as may be mutually agreed upon by Parent and Soaring Wings in writing (the “Closing Date”).
2.2 Closing Transactions.
At the Closing, the following transactions shall occur, all of such transactions being deemed to occur simultaneously:
(a) Soaring Wings shall deliver or cause to be delivered to ARC WingHouse the following:
(i) a bill of sale, duly executed by Sellers, conveying all of the Purchased Assets to ARC WingHouse, free and clear of all Encumbrances (other than Permitted Encumbrances) (the “Bill of Sale”);
(ii) an assignment instrument, duly executed by Sellers, conveying all of the Assumed Contracts to ARC WingHouse (the “Contract Assignments”);
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(iii) evidence, in form and substance satisfactory to ARC WingHouse, that all Encumbrances (other than Permitted Encumbrances) against any of the Purchased Assets have been released;
(v) the certificate described in Section 9.3(d) duly executed by Sellers;
(vi) landlord consents, duly executed by the landlords under the leases for the Leased Real Property which require landlord consent for ARC WingHouse’s purchase of the Purchased Assets, consenting to the assignment of such leases to the ARC WingHouse (which may be delivered on or prior to Closing);
(vii) the Put Option Agreement and Operating Agreement duly executed by Soaring Wings;
(viii) an assignment instrument, duly executed by Sellers, conveying all of the Intellectual Property to ARC WingHouse (the “Intellectual Property Assignments”); and
(ix) such other documents and instruments as shall be necessary to effect the intent of this Agreement and consummate the Acquisition.
(b) ARC WingHouse shall deliver or cause to be delivered to Soaring Wings (or SW WH Holdings, in the case of clause (v) below) the following:
(i) an amount equal to the Estimated Closing Payment by wire transfer of immediately available funds to the account or accounts designated by Soaring Wings in writing no later than three business days prior to the Closing Date;
(ii) an assumption instrument, duly executed by ARC WingHouse, pursuant to which ARC WingHouse assumes the Assumed Contracts and the Assumed Liabilities (the “Assumption Agreement”);
(iii) the certificate described in Section 9.2(c) duly executed by an authorized officer or representative of ARC WingHouse;
(iv) the Put Option Agreement and Operating Agreement duly executed by the ARC WingHouse;
(v) the ARC WH Equity Interest;
(vi) the Kasturi Guaranty, duly executed by Seenu G. Kasturi, in favor of Soaring Wings (the “Guaranty”);
(vii) the Promissory Note duly executed by ARC WingHouse; and
(viii) such other documents and instruments as shall be necessary to effect the intent of this Agreement and consummate the Acquisition.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLERS
Except as set forth in the Disclosure Schedules, Sellers hereby jointly and severally make the following representations and warranties to Purchasers as of the date hereof and the Closing Date (unless otherwise expressly stated herein):
3.1 Organization and Qualification.
Sellers are duly organized, validly existing and in good standing under the Laws of their respective jurisdiction of organization, with the limited liability company power and authority to own and operate their respective businesses as presently conducted, except where the failure to be or have any of the foregoing would not have a Material Adverse Effect. Sellers are duly qualified as a foreign company or other entity to do business and are in good standing in each jurisdiction where the character of their respective properties owned or held under lease or the nature of their respective activities makes such qualification necessary, except for such failures to be so qualified or in good standing as would not, individually or in the aggregate, have a Material Adverse Effect.
3.2 Authorization; Validity and Effect of Agreement.
Sellers have the requisite power and authority to execute, deliver and perform their respective obligations under this Agreement and to consummate the Acquisition. The execution and delivery of this Agreement by Sellers and the performance by Sellers of their respective obligations hereunder and the consummation of the Acquisition have been duly authorized by their respective board of directors or other governing bodies and no other corporate proceedings on the part of Sellers are necessary to authorize this Agreement and the Acquisition. This Agreement has been duly and validly executed and delivered by Sellers and, assuming that this Agreement has been duly authorized, executed and delivered by Purchasers, constitutes a legal, valid and binding obligation of Sellers, enforceable against them in accordance with its terms, subject to the effects of bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and other similar Laws relating to or affecting creditors’ rights generally, general equitable principles (whether considered in a Proceeding in equity or at Law) and an implied covenant of good faith and fair dealing.
3.3 No Conflict; Required Filings and Consents.
Neither the execution and delivery of this Agreement by Sellers nor the performance by Sellers of their respective obligations hereunder, nor the consummation of the Acquisition, shall: (a) conflict with Sellers’ respective articles of organization or operating agreement, (b) violate any Law applicable to Sellers, the Purchased Assets or the Business, or (c) violate, breach, be in conflict with or constitute a default (or an event which, with notice or lapse of time or both, would constitute a default) under, or permit the termination of any provision of, or result in the termination of, the acceleration of the maturity of, or the acceleration of the performance of any obligation of any Seller under, or result in the creation or imposition of any Encumbrances upon any Seller, any of the Purchased Assets or the Business under, any Material Contract or any order, judgment or decree to which any Seller is a party or by which any Seller, any of the Purchased Assets or the Business is bound or encumbered except, in the case of clauses (b) & (c), for such violations, breaches, conflicts, defaults or other occurrences which, individually or in the aggregate, would not have a material adverse effect on the Seller, the Purchased Assets or the Business, or on such Seller’s obligation to perform its covenants under this Agreement.
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3.4 Capitalization and Subsidiaries.
(a) All of the issued and outstanding equity interests and securities of Sellers (other than Soaring Wings) are owned 100% by Soaring Wings (the “Equity Interests”). All of the Equity Interests have been duly authorized and validly issued and are fully paid and non-assessable. There are no outstanding options, warrants, agreements, conversion rights, preemptive rights, or other rights to subscribe for, purchase or otherwise acquire any of the Equity Interests. There are no outstanding obligations of any Person to repurchase, redeem or otherwise acquire the Equity Interests, and there are no restrictions on the transfer of any of the Equity Interests. Sellers have no Equity Interests reserved for issuance.
(b) There are no voting trusts or other agreements or understandings to which any Seller is a party with respect to the voting of Equity Interests, nor is there any indebtedness of any Seller having general voting rights issued and outstanding.
(c) Sellers do not own, directly or indirectly, any capital stock, membership interest, partnership interest, joint venture interest or other equity interest in any Person, and it is not subject to any obligation or requirement to provide for or make any investment in any Person. Sellers have not guaranteed, and are not responsible or liable for, any obligation of any other Person. Sellers are not the subject of any bankruptcy, dissolution, liquidation, reorganization or similar proceeding.
3.5 Governmental Authorization.
The execution and delivery of this Agreement by Sellers and the consummation of the Acquisition do not require any consent or approval of, or any notice to or other filing with, any Governmental Authority, except for consents, approvals, notices and filings the failure of which to obtain would not be material to the Purchased Assets taken as a whole or to the conduct of the Business.
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3.6 Financial Statements.
Attached hereto as Exhibit 3.6 are true and complete copies of Sellers’: (a) audited consolidated balance sheets at December 31, 2018 and December 31, 2017 and audited consolidated statements of operations, equity and cash flows for the years then ended, and (b) unaudited consolidated balance sheets at June 30, 2019 and unaudited consolidated statements of operations, equity and cash flows for the period then ended (collectively, the “Financial Statements”). Except as set forth in the Financial Statements, the Financial Statements: (i) have been prepared in accordance with GAAP consistently applied during the periods involved (except for the absence of footnotes for the June 30, 2019 financial statements); and (ii) fairly present, in all material respects, the consolidated financial position and the results of operations of Sellers as of the dates and for the periods indicated therein. There are no outstanding: (y) surety bonds, performance bonds, guarantees, letters of credit, or other credit and credit support arrangements or similar instruments that have been issued for the benefit of the Business or Sellers; or (z) liabilities of Sellers or their respective Affiliates under or in respect of any instruments described in clause (y) above (including under any indemnity or other agreements associated therewith) or under any contract entered into by Sellers. The books of account and other financial records of Sellers have been kept accurately in the ordinary course of business consistent with applicable Law, the transactions entered therein represent bona fide transactions, and the revenues, expenses, assets and liabilities of Sellers have been properly recorded therein.
3.7 Absence of Certain Changes or Events.
Except as disclosed on Schedule 3.7, since June 30, 2019:
(a) there has not been any Material Adverse Effect;
(b) there has not been any material loss, damage or destruction to, or any material interruption in the use of, any of Sellers’ assets (whether or not covered by insurance);
(c) Sellers have not declared, accrued, set aside or paid any dividend or made any other distribution in respect of any of their respective securities (other than distributions from Sellers to Soaring Wings), and Sellers have not repurchased, redeemed or otherwise reacquired any of their respective securities;
(d) there has been no amendment to any Seller’s articles of incorporation, operating agreement, or other comparable governing document, and no Seller has effected or been a party to any acquisition, recapitalization, reclassification of shares or similar transaction;
(e) No Seller has made capital expenditures which exceed $25,000 in the aggregate;
(f) No Seller has: (i) acquired, leased or licensed any right or other asset from any other Person; (ii) sold or otherwise disposed of, or leased or licensed, any right or other asset to any other Person; or (iii) waived or relinquished any right, except for immaterial rights or other immaterial assets acquired, leased, licensed or disposed of in the ordinary course of business and consistent with Seller’s past practices;
(g) No Seller has written off as uncollectible, or established any extraordinary reserve with respect to, any account receivable or other indebtedness in excess of $25,000;
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(h) No Seller has made any pledge of any of its assets or otherwise permitted any of its assets to become subject to any Encumbrance, except for pledges of immaterial assets made in the ordinary course of business and consistent with such Seller’s past practices;
(i) No Seller has: (i) lent money to any Person (other than the extension of trade credit or pursuant to routine travel advances made to employees in the ordinary course of business); or (ii) incurred or guaranteed any indebtedness for borrowed money;
(j) No Seller has: (i) established or adopted any Benefit Plan; (ii) paid any bonus; or (iii) made any profit-sharing or similar payment to, or increased the amount of the wages, salary, commissions, fringe benefits or other compensation or remuneration payable to, any of its directors, officers or employees in excess of $5,000;
(k) No Seller has changed any of its methods of accounting or accounting practices in any respect or made any Tax election inconsistent with its past practice;
(l) No Seller has commenced or settled any Proceeding;
(m) No Seller has entered into any material transaction or taken any other material action outside the ordinary course of business or inconsistent with its past practices;
(n) No Seller has entered into any Material Contract;
(o) there has been no acceleration, termination, material modification to or cancellation of any contract that: (i) constitutes a Material Contract, or (ii) would have constituted a Material Contract prior to such event if the applicable Seller were bound thereby on the date hereof;
(p) No Seller has sold, issued or authorized the issuance of: (i) any of its equity interests or securities, (ii) any option or right to acquire any of its equity interests or securities, or (iii) any instrument convertible into or exchangeable for any of its equity interests or securities; and
(q) No Seller has agreed or committed to take any of the actions referred to in clauses (c) through (p) of this Section 3.7.
3.8 Properties and Assets.
(a) Sellers have good title to, valid leasehold interests in, or the legal right to use, all of the Purchased Assets, free and clear of all Encumbrances (other than Permitted Encumbrances). The Purchased Assets comprise all of the material rights, services, properties and assets used in or necessary for the operations of the Business as presently conducted and are adequate in all material respects to conduct the Business as presently conducted. All of the Purchased Assets are in good operating condition and repair, subject to normal wear and tear. To the Seller’s Knowledge, there are no pending or threatened condemnation proceedings relating to any of the Purchased Assets. With the exception of this Agreement, none of the Purchase Assets is subject to any commitment or other arrangement for their sale or use by any Affiliate of Sellers or any third parties, other than the sale of Inventory in the ordinary course of business. No material amount of the Purchased Assets is escheatable to any Governmental Authority under any applicable Law, including uncashed checks to vendors, customers or employees, non-refunded overpayment amounts or credits.
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(b) All inventory, whether or not reflected in the Financial Statements, consists of a quality and quantity usable and salable in the ordinary course of business consistent with past practice, except for obsolete, damaged, defective or slow-moving items that have been written off or written down to fair market value or for which adequate reserves have been established. All inventory is owned by Sellers free and clear of all Encumbrances (other than Permitted Encumbrances), and no inventory is held on a consignment basis. The quantities of each item of inventory (whether raw materials, work-in-process or finished goods) are not excessive, but are reasonable in the present circumstances of Sellers.
3.9 Real Property.
Schedule 3.9 contains a true and complete list of all real property currently leased by Sellers (collectively, the “Leased Real Property”). Sellers do not own any of the real property used in connection with the operation of the Business. Except as disclosed on Schedule 3.9, Sellers have not subleased, assigned or otherwise granted to any Person the right to use or occupy such Leased Real Property or any portion thereof. Sellers have not pledged, mortgaged or otherwise granted an Encumbrance on its leasehold interest in any Leased Real Property, other than Permitted Encumbrances. Sellers have not received any written notice of (a) material violations of building codes and/or zoning ordinances or other governmental or regulatory Laws affecting the Leased Real Property, (b) existing, pending or threatened (i) condemnation or eminent domain proceedings affecting the Leased Real Property, or (ii) zoning, building code or other moratorium proceedings, or similar matters which could reasonably be expected to materially and adversely affect the ability to operate the Leased Real Property as currently operated. Neither the whole nor any material portion of any Leased Real Property has been damaged or destroyed by fire or other casualty.
3.10 Intellectual Property. Except as disclosed on Schedule 3.10:
(a) Sellers own all of the Intellectual Property free and clear of any royalty or other payment obligation, lien or charge, or has sufficient rights to use such Intellectual Property under a valid and enforceable license agreement. There are no agreements that restrict or limit the use of the Intellectual Property by Sellers. To the extent that the Intellectual Property owned or held by Sellers is registered with the applicable authorities, record title to such Intellectual Property is registered or applied for in the name of the appropriate Seller.
(b) Sellers’ rights to the Intellectual Property are valid and enforceable, and the Intellectual Property and the products and services of Sellers do not infringe upon the Intellectual Property rights of any Person in the United States. Except where reasonable business decisions to allow rights to lapse have been made, all maintenance taxes, annuities and renewal fees have been paid and all other necessary actions to maintain the Intellectual Property rights have been taken through the date hereof. There exists no impediment that would impair Purchasers’ rights to conduct the Business after the Closing Date as it relates to the Intellectual Property.
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(c) Sellers have taken commercially reasonable steps to protect the Intellectual Property and, where applicable, preserve the confidentiality of the Intellectual Property.
(d) As of the date hereof: (i) the conduct of the Business as currently conducted does not and will not infringe, misappropriate or violate any rights of any Person, including rights in any Intellectual Property of such Person; and (ii) to the Knowledge of Sellers, no Person is infringing, misappropriating or violating any Seller’s Intellectual Property.
(e) No Seller has received any notice of claim that any of such Intellectual Property has expired, that it is not valid or enforceable in any country or that it infringes upon or conflicts with the intellectual property rights of any third party, and no such claim or infringement or conflict, whenever filed or threatened, currently exists.
(f) No Seller has given any notice of infringement to any third party with respect to any of the Intellectual Property, nor is any Seller aware of any facts or circumstances evidencing the infringement by any third party of any of the Intellectual Property, and no claim or controversy with respect to any such alleged infringement currently exists.
(g) The execution, delivery and performance of this Agreement by Sellers and the consummation by Sellers of the Acquisition will not: (i) constitute a breach by any Seller of any instrument or agreement governing any Intellectual Property owned by or licensed to that Seller; (ii) cause the modification of any terms of any such license or agreement, including but not limited to the modification of the effective rate of any royalties or other payments provided for in any such license or agreement, pursuant to the terms of any license or agreement relating to any Intellectual Property; (iii) cause the forfeiture or termination of any Intellectual Property under the terms thereof; (iv) give rise to a right of forfeiture or termination of any Intellectual Property under the terms thereof; or (v) impair the right of Sellers or Purchasers to make, have made, offer for sale, use, sell, export or license any Intellectual Property or portion thereof pursuant to the terms thereof.
3.11 No Undisclosed Liabilities.
Except as disclosed herein or in the Financial Statements, Sellers have no material liabilities, indebtedness or obligations that would be required to be included as a liability or debt on a balance sheet prepared in accordance with GAAP, whether known or unknown, absolute, accrued, contingent or otherwise, and whether due or to become due, and to the Knowledge of Sellers, there is no existing condition, situation or set of circumstances that could reasonably be expected to result in such a liability, indebtedness or obligation.
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3.12 Related Party Transactions.
Except as contemplated by this Agreement, no Related Party of Seller: (i) has any direct or indirect interest in any Purchased Assets; (ii) is indebted to any Seller; (iii) is competing, directly or indirectly, with any Seller; (iv) has any claim or right against any Seller (other than rights to receive compensation for services performed as an employee); or (v) has entered into or has had any direct or indirect financial interest in, or has been a party to any contract with any Seller that calls for the payment by or on behalf of any Seller in excess of $5,000 per annum, or the delivery by any Seller of goods or services with a fair market value in excess of $5,000 per annum, or provides for any Seller to receive any payments in excess of, or any property with a fair market value in excess of, $5,000 per annum.
3.13 Litigation.
Except for claims against Seller arising from alleged personal injuries sustained in accidents at the Restaurants, which are covered by and within limits of insurance policies, and except as disclosed on Schedule 3.13, there is no Proceeding pending, or to the Knowledge of Sellers, threatened against any Seller that: (i) involves any Seller or any of its respective assets or any Person whose liability such Seller has or may have retained or assumed, either contractually or by operation of law; (ii) involves a claim in excess of $25,000; (iii) involves a claim for an unspecified amount; or (iv) seeks injunctive relief or is reasonably likely to materially impair the ability of the Seller to perform its obligations under this Agreement or otherwise challenges or may have the effect of preventing, making illegal or otherwise interfering with the Acquisition. To the Knowledge of Sellers, no event has occurred, and no claim, dispute or other condition or circumstance exists, that will, or that could reasonably be expected to, give rise to or serve as a basis for the commencement of any such Proceeding. To the Knowledge of Sellers, there are no outstanding writs, judgments, injunctions, decrees, settlement agreements or similar orders by which any Seller or any of the Purchased Assets are bound. To the Knowledge of Sellers, no officer or other employee of any Seller is subject to any order, writ, injunction, judgment or decree that prohibits such officer or other employee from engaging in or continuing any conduct, activity or practice relating to the Seller, the Purchased Assets or the Business.
3.14 Taxes.
Sellers have timely filed (or has had timely filed on their behalf) with the appropriate Tax Authorities all material Tax Returns required to be filed by them or on behalf of them, respectively, and each such Tax Return was complete and accurate in all material respects. Sellers have timely paid (or have had paid on their behalf) all material Taxes due and owing by them, regardless of whether required to be shown or reported on a Tax Return, including Taxes required to be withheld by them. No deficiency for a material Tax has been asserted in writing or otherwise, to the Knowledge of Sellers, against Sellers with respect to Sellers, except for asserted deficiencies that either have been resolved and paid in full, or are being contested in good faith. There are no Encumbrances for Taxes upon any of the Purchased Assets or the Business, other than Permitted Encumbrances. No Seller is a party to any Tax allocation or sharing agreement. To the Knowledge of Seller, no claim has been made in writing by any Tax Authority in a jurisdiction in which Seller (or any Affiliate of Seller) does not file Tax Returns that any such Person is or may be subject to taxation by that jurisdiction with respect to the Business. Neither Sellers nor any Affiliate of any Seller has engaged in any “listed transaction” as defined in Treasury Regulations Section 1.6011-4(b)(2) with respect to the Business. The representations and warranties in this Section 3.14 are the only representations and warranties in respect of Taxes in this Agreement and the representations and warranties in this Section 3.14 refer only to past activities of the Sellers and are not intended to serve as representations or warranties regarding, or a guarantee of, nor can they be relied upon for, or with respect to, Taxes attributable to any taxable periods (or portions thereof) beginning on or after, or Tax positions taken on or after, the Closing Date.
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3.15 Insurance.
Sellers maintain insurance covering their respective assets, business, equipment, properties, operations, employees, officers, directors and managers with such coverage, in such amounts, and with such deductibles and premiums as are consistent with insurance coverage provided for other companies of comparable size and in the casual restaurant industry. All of such policies are in full force and effect and all premiums payable have been paid in full, and Sellers are in full compliance with the terms and conditions of such policies. Except as disclosed on Schedule 3.15, Sellers have not received any notice from any issuer of such policies of its intention to cancel or refusal to renew any policy issued by it or of its intention to renew any such policy based on a material increase in premium rates. None of such policies are subject to cancellation by virtue of the consummation of the Acquisition. There is no claim by Sellers pending under any of such policies as to which coverage has been questioned or denied.
3.16 Compliance With Laws.
Sellers are in compliance with all federal, state and local Laws applicable to the Business or with respect to which compliance is a condition of engaging in the Business, except to the extent that failure to comply would not, individually or in the aggregate, have a Material Adverse Effect. Sellers have not received any notice asserting a failure, or possible failure, to comply with any such Law, the subject of which notice has not been resolved as required thereby or otherwise to the satisfaction of the party sending the notice, except for such failure as would not, individually or in the aggregate, have a Material Adverse Effect. Sellers hold all permits, licenses and franchises from Governmental Authorities required to conduct the Business as it is now being conducted, except for such failures to have such permits, licenses and franchises that would not, individually or in the aggregate, have a Material Adverse Effect. Sellers have not, nor to the Knowledge of Sellers has any of their respective officers, managers, equity holders or employees directly or indirectly: (i) made any contribution, gift, bribe, rebate, payoff, influence payment, kickback, or other payment to any Person, private or public, regardless of what form, whether in money, property or services in violation of any legal requirement, including the Foreign Corrupt Practices Act; or (ii) established or maintained any fund or asset that has not been recorded in the books and records of Sellers in accordance with GAAP.
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3.17 Material Contracts.
Schedule 3.17 contains a true and complete list of all of the Material Contracts to which any Seller is a party. The Material Contracts constitute all of the agreements and instruments that are necessary and desirable to operate the Business as currently conducted by Sellers. All of the Material Contracts are valid, binding and enforceable against the respective parties thereto in accordance with their respective terms. All parties to all of the Material Contracts have performed all obligations required to be performed to date under such Material Contracts, and neither Sellers nor, to the Knowledge of Sellers, any other party is in default or in arrears under the terms thereof, and no condition exists or event has occurred that, with the giving of notice or lapse of time or both, would constitute a default thereunder. The consummation of this Agreement and the Acquisition will not result in an impairment or termination of any of the rights of Sellers under any Material Contract. To the Knowledge of Sellers, no party has given any written notice of termination or cancellation of any Material Contract or that it intends to assert a breach of, or seek to terminate or cancel, any Material Contract as a result of the Acquisition contemplated hereby. No Person is currently renegotiating any material amount paid or payable to Sellers under any Material Contract or any other material term or provision of any Material Contract.
3.18 Employee Matters.
(a) Neither the execution and delivery of this Agreement nor the consummation of the Acquisition will (either alone or in conjunction with any other event such as termination of employment): (i) result in any material payment becoming due to any employee of any Seller under any Compensatory Arrangement; (ii) materially increase any benefits to any employee of any Seller under any Compensatory Arrangement; (iii) result in any acceleration of the time of payment, funding or vesting of any such benefits to any employee of any Seller under any Compensatory Arrangement; or (iv) could reasonably be expected to result in an obligation to materially accelerate the funding of, or contribution to, any Compensatory Arrangement with any employee of any Seller pursuant to applicable Law, regulation, contractual arrangement or otherwise.
(b) With respect to the employees of Sellers: (i) to the Knowledge of Sellers, since January 1, 2018, there has been no strike, slowdown or work stoppage that is reasonably expected to have, individually or in the aggregate, a Material Adverse Effect; (ii) No Seller is a party to any collective bargaining agreement, and no labor union or similar organization currently represents the employees of any Seller; and (iii) No Seller has, in the last 90 days, effectuated a “plant closing” or “mass layoff” as those terms are defined in the Workers Adjustment and Retraining Notification Act and any similar state law (collectively, “WARN Statutes”), without complying with the notice requirements and other provisions of WARN Statutes that would cause any liability to the Seller with respect to the employees of the Seller.
(c) Schedule 3.18(c) contains a true and complete list of all salaried employees of Sellers as of the date of this Agreement, and correctly reflect, in all material respects, their salaries, any other compensation payable to them (including compensation payable pursuant to bonus, deferred compensation or commission arrangements), their dates of employment and their positions. All of Sellers’ respective employees are “at will” employees.
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(d) No Seller is delinquent in payments to any of its respective employees for any wages, salaries, commissions, bonuses or other direct compensation for any services performed for Seller as of the date hereof or amounts required to be reimbursed for such employees. Each Seller is, and since January 1, 2018 has been, in material compliance with all applicable laws and regulations respecting labor, employment, fair employment practices, terms and conditions of employment, occupational safety and health, and wages and hours. There are no charges of employment discrimination or unfair labor practices or strikes, slowdowns, stoppages of work, or any other concerted interference with normal operations existing, pending or, to the Knowledge of Sellers, threatened against or involving any Seller. No Seller is subject to any judgment, consent decree, compliance order or administrative order or private settlement contract in respect of any labor or employment matters. There is no enforceable policy, plan, program or custom or practice of paying severance pay or any form of severance compensation in connection with the termination of employees in excess of the statutory minimum provided for by applicable local law and no employee has a claim to severance, change in control or similar payment as a result of the consummation of the Acquisition contemplated herein.
3.19 Employee Benefit Matters.
(a) Schedule 3.19(a) contains a true and complete list of each material Benefit Plan sponsored, maintained, contributed to or required to be contributed to by any Seller for the benefit of any employee of such Seller, and separately identify each Benefit Plan that is a Compensatory Arrangement. Each Benefit Plan has been operated and administered in all material respects in accordance with applicable Laws. All Benefit Plans other than Compensatory Arrangements are sponsored or maintained by the applicable Seller or an Affiliate of such Seller, and such Seller will have no liability thereunder from and after the Closing.
(b) Each Benefit Plan: (i) has been established, and through the date hereof has been maintained and administered, in material compliance with its terms and applicable Laws, including applicable provisions of ERISA and the Code; and (ii) that is intended to be qualified under Section 401(a) of the Code (a “Qualified Benefit Plan”) has received a favorable determination letter from the IRS, or, if the Benefit Plan is in the form of a volume submitter or prototype plan, can rely on an opinion letter from the IRS to the volume submitter or prototype plan sponsor, to the effect that such Qualified Benefit Plan is so qualified and that the plan and the trust related thereto are exempt from federal income taxes under Sections 401(a) and 501(a), respectively, of the Code. To the Knowledge of Sellers, no event has occurred and no condition exists that would subject any Seller by reason of its affiliation with any member of its “controlled group” (defined as any organization that is a member of a controlled group of organizations within the meaning of Sections 414(b), (c), (m) or (o) of the Code), to any material tax, fine, lien, penalty or other liability imposed by ERISA, the Code or other applicable Law.
(c) Each Seller has complied in all material respects with all obligations owed to the Seller Employees under the terms of Employee Benefit Plans and applicable Law. As of the date hereof, none of the Seller Employees has received or given any notice terminating his or her employment with any Seller. No Seller has any current or projected liability in respect of post-employment or post-retirement health, medical or life insurance benefits for any of its retired, former or current employees. There is no contract, plan or arrangement, written or otherwise, covering any employee or former employee of any Seller that, individually or collectively, could give rise to the payment of any amount that would not be deductible by any Seller pursuant to the terms of Section 280G of the Code and no employee or former employee of any Seller will become entitled to any bonus, retirement, severance, job security or similar benefit or enhancement of such benefit (including acceleration of vesting or exercise of an incentive award) as a result of the Acquisition. No Seller has any express or implied commitment to: (a) create, incur liability with respect to or cause to exist any Employee Benefit Plan, program, arrangement or agreement, or (b) enter into any contract or agreement to provide compensation or benefits to any individual.
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3.20 Customer Information; Data Security.
(a) Sellers have internal policies and procedures intended to reasonably: (i) ensure the security, integrity and confidentiality of personal information of their customers and employees; (ii) protect against any anticipated threats or hazards to the security or integrity of such information; and (iii) protect against unauthorized disclosure, access to or use of such information. Since January 1, 2018: (x) Sellers have been in compliance, in all material respects, with the Payment Card Industry Data Security Standards to the extent Sellers process, store or transmit credit card or other financial information of their customers; and (y) there have not been any material breaches of such internal policies and procedures.
(b) Sellers are in compliance, in all material respects, with each of their respective data security and data use policies, if any, and any applicable privacy policies adopted by them, and they have obtained all required customer consents or provided customers with the opportunity to opt-out relating to the collection, use or disclosure of personal information in connection with the conduct of the Business, as may be required under Law or its privacy policies.
(c) Sellers are in compliance, in all material respects, with any provisions in their respective contracts with third parties that provide them with consumer data that impose conditions and restrictions on the collection, use, disclosure and security of personal information by them.
(d) Sellers are in compliance, in all material respects, with all data security and other requirements, rules and regulations of the various credit card associations applicable to them in connection with the performance of the Business.
(e) To the extent required by Law: (i) Sellers have established and maintain a procedure for the creation of legally enforceable consumer customer payment consents and authorizations for material and relevant business operations; and (ii) Sellers maintain appropriate paper, audio recording and/or electronic records of such consumer customer payment consents and authorizations which establish their legal effectiveness in all material respects, including in connection with any action or request from a Governmental Authority or any credit card or electronic funds transfer payment association.
(f) To the extent required by Law, all consumer and customer payment consents and authorizations are currently in force and legally effective and shall remain so immediately after the date hereof. There is no provision of Law, judgment, the rules of payment associations, or the terms of a payment consent or authorization, or the terms of any contract with a third party that requires notice to, or consent of, a consumer customer or any other Person in order to continue the effectiveness and validity of the consent or authorization after the date hereof.
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(g) Since January 1, 2018, Sellers have complied in all material respects with all applicable laws and internal privacy policies relating to the use, collection, storage, disclosure and transfer of any personally identifiable information collected by Sellers or by third parties on behalf of or having authorized access to the records of Sellers. No Seller has received any written complaint regarding such Seller’s collection, use or disclosure of personally identifiable information. To the Knowledge of Sellers, no Seller has experienced any breach of security or unauthorized access by third parties to personally identifiable information in any Seller’s possession, custody or control.
3.21 Environmental Matters.
Except for such matters that, individually or in the aggregate, are not reasonably likely to have a Material Adverse Effect, Sellers: (i) have obtained all applicable permits, licenses and other authorizations that are required to be obtained under all applicable Environmental Laws by Sellers in connection with the Business; (ii) are in compliance with all terms and conditions of such required permits, licenses and authorizations, and with all other limitations, restrictions, conditions, standards, prohibitions, requirements, obligations, schedules and timetables contained in or arising from applicable Environmental Laws in connection with the Business; (iii) have not received notice of any past or present violations of Environmental Laws in connection with the Business, or of any spill, release, event, incident, condition or action or failure to act in connection with the Business that is reasonably likely to prevent continued compliance with such Environmental Laws, or which would give rise to any common law environmental liability or liability under Environmental Laws, or which would otherwise form the basis of any Proceeding against any Seller based on or resulting from the manufacture, processing, use, treatment, storage, disposal, transport, or handling, or the emission, discharge or release into the environment, of any hazardous material by any Person in connection with the Business; and (iv) have taken all actions required under applicable Environmental Laws to register any products or materials required to be registered by Sellers thereunder in connection with the Business. There are no Proceedings pending or, to the Knowledge of Sellers, threatened in writing against any Seller alleging the violation of or noncompliance with any applicable Environmental Laws that could reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect.
3.22 No Other Business.
The Business constitutes and has, at all times, constituted all of the business activities of Sellers. Sellers have never owned, operated, or otherwise engaged or participated in any business activities other than the Business.
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3.23 Solvency.
Sellers are Solvent and will be Solvent following the consummation of the Acquisition.
3.24 Brokers and Finders.
Neither Sellers nor any of their respective Affiliates has employed, nor are they subject to any valid claim of liability or obligation to, any broker, finder, consultant or other intermediary in connection with the Acquisition, in each case, for which ARC WingHouse or any Seller will or could have liability following the Closing; provided, however, that Sellers have engaged Brookwood Associates to serve as a broker for the Acquisition and Sellers shall pay all compensation that is or may become due to Brookwood Associates in connection with the execution of this Agreement and the consummation of the Acquisition.
3.25 Acquisition of Securities.
Soaring Wings has such knowledge and experience in financial and business matters such that it is capable of evaluating the merits and risks of the ARC WH Equity Interest and ARC Stock. SW WH Holdings and Soaring Wings will acquire the ARC WH Equity Interest and ARC Stock Consideration, respectively, for investment only and not with a view toward or for sale in connection with any distribution thereof, or with any present intention of distributing or selling the ARC WH Equity Interest or ARC Stock Consideration, other than in accordance with the Operating Agreement and Put Option Agreement, respectively.
3.26 Disclaimer.
Except as provided in this Article III, none of the Sellers or any of their respective Affiliates or representatives is making any representation or warranty of any kind or nature whatsoever, oral or written, express or implied, or assumes any responsibility after Closing whatsoever in respect of the Business or the Purchased Assets. None of the Sellers or any of their respective Affiliates or representatives makes any warranty with respect to the accuracy or completeness of any estimates, projections, forecasts, plans or budgets provided by Sellers or any of their respective representatives to Purchasers.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PURCHASERS
The Purchasers hereby jointly and severally make the following representations and warranties to Sellers as of the date hereof and the Closing Date (unless otherwise expressly stated herein):
4.1 Organization and Qualification.
Purchasers are duly organized, validly existing and in good standing under the Laws of their respective jurisdiction of organization, with the corporate power and authority to own and operate their respective businesses as presently conducted, except where the failure to be or have any of the foregoing would not have a material adverse effect on Purchasers. Purchasers are duly qualified as a foreign corporation or other entity to do business and is in good standing in each jurisdiction where the character of their respective properties owned or held under lease or the nature of their respective activities makes such qualification necessary, except for such failures to be so qualified or in good standing as would not have a material adverse effect on Purchasers.
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4.2 Authorization; Validity and Effect of Agreement.
Purchasers have the requisite corporate power and authority to execute, deliver and perform its obligations under this Agreement and to consummate the Acquisition. The execution and delivery of this Agreement by Purchasers and the performance by Purchasers of their respective obligations hereunder and the consummation of the Acquisition have been duly authorized by their respective board of directors or other governing bodies and no other corporate proceedings on the part of Purchasers are necessary to authorize this Agreement and the Acquisition. This Agreement has been duly and validly executed and delivered by Purchasers and, assuming that this Agreement has been duly authorized, executed and delivered by Sellers, constitutes a legal, valid and binding obligation of Purchasers, in accordance with its terms, subject to the effects of bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and other similar Laws relating to or affecting creditors’ rights generally, general equitable principles (whether considered in a Proceeding in equity or at Law) and an implied covenant of good faith and fair dealing.
4.3 No Conflict; Required Filings and Consents.
Neither the execution and delivery of this Agreement by Purchasers nor the performance by Purchasers of their respective obligations hereunder, nor the consummation of the Acquisition, will: (i) conflict with any Purchaser’s articles of organization or operating agreement; (ii) violate any Law applicable to Purchasers or any of their respective properties or assets; or (iii) violate, breach, be in conflict with or constitute a default under (or an event which, with notice or lapse of time or both, would constitute a default under), or permit the termination of any provision of, or result in the termination of, the acceleration of the maturity of, or the acceleration of the performance of any obligation of Purchasers, or result in the creation or imposition of any Encumbrance (other than Permitted Encumbrances) upon any properties, assets or business of Purchasers under, any material contract or any order, judgment or decree to which Purchasers are a party or by which it or any of its assets or properties is bound or encumbered except, in the case of clauses (ii) or (iii), for such violations, breaches, conflicts, defaults or other occurrences which, individually or in the aggregate, would not have a material adverse effect on Purchasers or their respective obligation to perform their respective covenants under this Agreement.
4.4 Brokers and Finders.
Neither Purchasers nor any of their respective Affiliates has employed, nor are they subject to any valid claim of liability or obligation to, any broker, finder, consultant or other intermediary in connection with the Acquisition, in each case, for which any ARC WingHouse or Seller will or could have liability following the Closing.
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4.5 Solvency.
At and immediately after the consummation of the Debt Acquisition Financing (including, without limitation, after the distribution of the proceeds thereof and payment in full of the Estimated Closing Payment), Purchasers will be Solvent, except to the extent any failure of Purchasers to be Solvent results from a breach of Sellers’ representations and warranties in Article III.
4.6 No Reliance.
Purchasers are sophisticated commercial entities and have conducted an independent investigation, review and analysis of the assets, business, condition (financial or otherwise), liabilities, operations and prospects of the Sellers, the Purchased Assets and the Business. In making the determination to proceed with the Acquisition and the other agreements, instruments and documents contemplated hereby, Purchasers have relied solely on the results of such independent investigation, review and analysis and the representations and warranties set forth in Article III. None of the Sellers or any of their respective directors, officers, stockholders, Affiliates, managers, members, partners, employees, consultants, agents, counsel or advisors makes or has made any representation or warranty, express or implied, to Purchasers or any of their respective Affiliates or financing sources (except for the representations and warranties made by the Sellers expressly set forth in Article III), and without limiting the generality of the foregoing, no representation or warranty is made with respect to any financial projections, the confidential information memorandum delivered to any of the Purchasers or any of their respective Affiliates or financing sources, any “management presentations” or accompanying materials, or any “data room” or “virtual data room”.
ARTICLE V
CERTAIN COVENANTS
5.1 Conduct of Business Prior to Closing.
(a) During the period commencing on the date hereof and ending on the earlier of the Closing Date or the date this Agreement is terminated in accordance with its terms, except: (i) with the written consent of ARC WingHouse (which consent may not unreasonably withheld, delayed or conditioned); (ii) as otherwise expressly permitted by the terms of this Agreement; or (iii) as required by Law, each Seller shall: (A) conduct its business in the ordinary course in substantially the same manner as currently conducted and in material compliance with all Laws; and (B) use commercially reasonable efforts to preserve intact its present operations, organization and goodwill.
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(b) Without limiting the generality of Section 5.1(a), during the period commencing on the date hereof and ending on the earlier of the Closing Date or the date this Agreement is terminated in accordance with its terms, except: (x) with the written consent of ARC WingHouse (which consent may not unreasonably withheld, delayed or conditioned); (y) as otherwise expressly permitted by the terms of this Agreement; or (z) as required by Law or necessary to continue the Sellers operations as a going concern, Sellers shall not:
(i) transfer, issue, sell or dispose of any equity interests or other securities of any Seller or grant options, warrants, calls or other rights to purchase or otherwise acquire equity interests or other securities of any Seller;
(ii) (A) incur any indebtedness for borrowed money or guarantee any such indebtedness of another Person (other than a Seller), issue or sell any debt securities or warrants or other rights to acquire any debt securities of any Seller (other than equipment financing or trade credit in the ordinary course of business), guarantee any debt securities of another Person (other than another Seller) or enter into any arrangement having the economic effect of any of the foregoing; or (B) make any loans, advances or capital contributions to any other Person (other than the extension of trade credit or advances to employees in the ordinary course of business);
(iii) amend the articles of organization, operating agreement or other comparable governing documents of any Seller;
(iv) mortgage, pledge, create or otherwise grant any Encumbrance on any property or assets, whether tangible or intangible, of any Seller having a fair market value in excess of $50,000, other than Permitted Encumbrances and other than Encumbrances that will be released at the Closing;
(v) (A) adopt, enter into, terminate or amend any Benefit Plan, other than, in the case of non-executive officer employees of any Seller, in the ordinary course of business; (B) increase the compensation or fringe benefits of, or pay any bonus to (other than those bonuses in the amounts and pursuant to the bonus or incentive plans set forth on Schedule 5.1(b)(v)), any director, executive officer, employee or independent contractor of any Seller; (C) pay any benefit to any employee or independent contractor of any Seller not provided for under any Benefit Plan; or (D) except as required pursuant to any Benefit Plan, fund or secure the payment of material compensation or benefits under any Benefit Plan;
(vii) terminate the employment of any executive officer of any Seller other than for cause, or hire any new executive officer;
(viii) except as may be required by applicable Law or any such agreement as in effect as of the date hereof, enter into, amend or modify any collective agreement, works council agreement or any other agreement with representatives of any employees of any Seller;
(ix) change the methods, principles or practices of accounting of any Seller in any manner that would have a Material Adverse Effect, except as required by Law, any Governmental Authority or changes in GAAP;
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(x) make, change or rescind any material Tax election inconsistent with its past practice, amend any material Tax Return or file any material claim for refund, settle or compromise any material Tax liability of any Seller, enter into any closing or similar agreement with respect to Taxes, or consent to any extension or waiver of the statute of limitations on the assessment or collection of any Tax;
(xi) transfer, sell or otherwise dispose of, or lease or exclusively license, any property or assets of any Seller outside of the ordinary course of business for which the aggregate consideration paid or payable: (A) in any individual transaction is in excess of $25,000; or (B) in the aggregate is in excess of $50,000;
(xii) purchase or otherwise acquire (whether by merger or otherwise), or lease or license, any property or assets outside of the ordinary course of business for which the aggregate consideration paid or payable: (A) in any individual transaction is in excess of $25,000; or (B) in the aggregate is in excess of $50,000;
(xiii) enter into or materially amend or modify or terminate any Material Contract or any contract that, if it was in effect on the date hereof, would have been a Material Contract, or waive any material default under, or release, settle, or compromise any material claim against any Seller or any material liability owing to any Seller under any Material Contract or such other contract;
(xiv) except in the ordinary course of business consistent with past practice: (A) make any capital expenditures in excess of $25,000 individually or $50,000 in the aggregate; or (B) authorize any capital expenditure in excess of $25,000 individually or $50,000 in the aggregate, regardless of whether such expenditure is expected to be actually incurred before or after the Closing;
(xv) settle, release, waive or compromise any pending or threatened Proceeding;
(xvi) enter into, renew, modify or revise any contract with any officer, director or employee of any Seller, other than in the ordinary course of business; or
(xvii) authorize any of, or commit or agree to take any of, the foregoing actions.
5.2 Efforts to Consummate.
(a) Subject to the terms and conditions of this Agreement, each party shall use its reasonable best efforts to cause the Closing to occur and to cause the conditions set forth in Article IX to be satisfied, including: (i) defending against any Proceeding challenging this Agreement or the consummation of the Purchaser’s purchase of the Purchased Assets and assumption of the Assumed Liabilities; and (ii) seeking to have any preliminary injunction, temporary restraining order, stay or other legal restraint or prohibition entered or imposed by any court or other Governmental Authority that is not yet final and non-appealable vacated or reversed; provided, however, that: (A) no party shall be required to waive any of the conditions set forth in Article IX, and (B) none of Purchasers or Sellers nor any of their respective Affiliates shall be required to make any monetary expenditure, commence or participate in any litigation or offer or grant any accommodation (including financial, by divestiture of assets or otherwise) to any third Person expect as specifically provided Article IX.
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(b) During the period commencing on the date hereof and ending on the earlier of the Closing Date or the date this Agreement is terminated in accordance with its terms, Sellers will use their respective reasonable best efforts, and Purchasers will cooperate with Sellers, to obtain all third-party consents to the consummation of Acquisition.
5.3 Books and Records.
At the Closing, Sellers shall deliver to Purchasers all books and records of Sellers relating to the Business. Upon prior written request from Sellers’ Representatives, Purchasers shall provide Sellers’ Representatives with reasonable access to such books and records, provided that such access may not unreasonably interfere with the business of Purchasers. Sellers and Sellers’ Representatives shall treat all information obtained pursuant to this Section 5.3 as confidential.
5.4 Confidentiality.
During the period commencing on the date hereof and ending on the fifth anniversary of the date hereof, Sellers shall, and shall cause their respective Affiliates to, treat and hold as confidential all of the Confidential Information and refrain from disclosing any of such Confidential Information, except that Sellers may disclose such documents and information: (i) if required or requested to be disclosed under Law, order or regulation of a court or tribunal or Governmental Authority, including in any Tax Returns; and (ii) if required in connection with the enforcement or defense of any right, remedy or claim relating to this Agreement or claims for indemnification made hereunder (including Third Party Claims). In the event that any such Person is requested or required (by oral question or request for information or documents in any Proceeding) to disclose any Confidential Information, such Person shall notify Purchasers promptly of the request or requirement so that Purchasers may seek an appropriate protective order or waive compliance with the provisions of this Section 5.4. If, in the absence of a protective order or the receipt of a waiver hereunder, any such Person is required under applicable law to disclose any Confidential Information to any Governmental Authority, such Person may disclose such Confidential Information to such Governmental Authority; provided, however, that such Person shall use commercially reasonable efforts to obtain, at the reasonable request of Purchasers and at Purchasers’ expense, an order or other assurance that confidential treatment will be accorded to such portion of the Confidential Information required to be disclosed as Purchasers shall designate.
5.5 Publicity.
No Purchasers or Sellers or any of their respective Affiliates, nor any Representatives of Purchasers, Sellers or their respective Affiliates, shall issue any press releases or otherwise make any public statements or announcements with respect to this Agreement or the Acquisition without the prior written consent of ARC WingHouse and Soaring Wings.
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5.6 Litigation Support.
In the event and for so long as any ARC WingHouse or Seller is actively contesting or defending against any Proceeding in connection with: (i) the Acquisition; or (ii) any fact, situation, circumstance, status, condition, activity, practice, plan, occurrence, event, incident, action, failure to act, or transaction on or prior to the Closing Date involving the Business, the other parties will reasonably cooperate with such party and its counsel in the contest or defense, make available its personnel, and provide such testimony and access to their books and records as shall reasonably be necessary in connection with the contest or defense, all at the sole cost and expense of the contesting or defending party (unless the contesting or defending party is entitled to indemnification therefor pursuant to this Agreement).
5.7 Seller Employees.
(a) Sellers will not have any discussions with any Seller Employees without the prior approval of Purchasers and any approved discussions shall be conducted in accordance with instructions provided by Purchasers.
(b) At Closing, Sellers will terminate the employment of all Seller Employees and will perform all obligations in connection therewith or contemplated by this Agreement, including paying all compensation due through the day prior to the Closing Date that was not included as a liability in the calculation of Closing Working Capital.
(c) Subject to Purchasers’ customary employment qualifications, requirements and standards, ARC WingHouse will select Seller Employees to whom ARC WingHouse will offer employment after the Closing. Notwithstanding any provisions in this Agreement to the contrary, ARC WingHouse agrees to offer employment to such number of employees so as not to trigger any obligation of Sellers of any nature under any WARN Statutes. ARC WingHouse acknowledges that Sellers will not send any notices that may be required under any WARN Statutes in reliance upon ARC WingHouse’s agreement to hire sufficient number of employees to ensure that no liability will arise under any WARN Statutes. Purchasers shall be liable for any claims of any Seller Employees terminated by Seller at Closing arising out of ARC WingHouse’s failure to hire such employees, providing such hiring would not have violated any other applicable Law (such as immigration Laws).
(d) Sellers shall be responsible for all accrued wages, salary, bonuses and other employee benefits payable to or with respect to former employees of Sellers who are not Seller Employees accruing prior to the Closing Date and not included in the calculation of Closing Working Capital. Without limiting the foregoing, Sellers will be responsible for complying with the requirements of HIPAA and applicable provisions of state law (if any) relating to their former employees. Purchasers acknowledge that Sellers will not maintain an Employee Benefit Plan for its prior employees post-closing and that ARC WingHouse will assume Sellers’ COBRA obligations with respect to all existing COBRA beneficiaries as of the Closing Date and any qualified beneficiaries under Sellers’ group health plan who become entitled to elect COBRA continuation coverage as a result of the Acquisition contemplated by this Agreement.
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5.8 Casualty Loss.
Sellers shall retain all risks and liability for damage to any of the Leased Real Property by fire, storm, accident, or any other casualty or cause (a “Casualty Loss”) until the Closing Date. If, prior to the Closing, any of the Leased Real Property suffers a Casualty Loss which the applicable Seller and ARC WingHouse do not reasonably expect to be repaired or replaced prior to the Closing Date, then ARC WingHouse shall have the option of either: (a) proceeding with the purchase of the affected Restaurant and obtaining from Seller all insurance proceeds with respect to such Casualty Loss (other than amounts arising from lost earnings or cash) and there shall be an equitable reduction in the Purchase Price to the extent that such insurance proceeds are insufficient to repair or replace the damage caused by the Casualty Loss, or (b) terminating this Agreement.
5.9 Bulk Sales Laws.
The parties hereby waive compliance with the provisions of any bulk sales, bulk transfer or similar Laws of any jurisdiction that may otherwise be applicable with respect to the sale of any or all of the Purchased Assets to ARC WingHouse. This Section 5.9 shall not affect any party’s rights to indemnification under Article VII.
5.10 Further Assurances.
Sellers and Purchasers shall cooperate reasonably with each other in connection with any steps required to be taken as part of their respective obligations under this Agreement, and shall: (i) furnish upon request to each other such further information; (ii) execute and deliver to each other such other documents; and (iii) do such other acts and things, all as the other party may reasonably request for the purpose of carrying out the intent of this Agreement and the consummation of the Acquisition.
5.11 Debt Financing.
ARC WingHouse has secured a binding, written commitment letter (the “Debt Financing Commitment”) from an institutional lender (the “Lender”) pursuant to which the Lender will agree to lend the amount necessary for ARC WingHouse to pay the Estimated Closing Payment and Purchaser’s fees and expenses in connection with the Acquisition (“Debt Financing”). Purchasers shall use commercially reasonable efforts to take, or cause to be taken, all actions and do, or cause to be done, all things necessary, proper or advisable to (i) maintain in effect the Debt Financing Commitment, (ii) enter into definitive financing agreements with respect to the Debt Financing as contemplated by the Debt Financing Commitment (the “Financing Agreements”), so that the Financing Agreements are in effect as promptly as practicable but in any event no later than the Closing Date, and (iii) consummate the Debt Financing at or prior to Closing. Purchasers shall keep Soaring Wings reasonably informed of material developments in respect of the financing process relating thereto.
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5.12 Supplements to Disclosure Schedules.
The Sellers may, at any time and from time to time prior to the Closing amend or supplement any one or more parts of the Disclosure Schedules, including, without limitation, one or more amendments or supplements to correct any matter which would otherwise constitute a breach or inaccuracy of any representation or warranty set forth in Article III; provided that the Sellers may not amend or supplement the Disclosure Schedule to correct such a breach or inaccuracy if Soaring Wings had Knowledge of the breach at the time of the execution of this Agreement. Upon receipt of notice of an amendment or supplement to any one or more parts of the Disclosure Schedules, Parent shall be entitled to take up to five business days to review such amendment or supplement (the “Review Period”) (and any Closing previously scheduled to occur within such Review Period shall be suspended during such Review Period) and terminate this Agreement pursuant to Section 10.1(b) citing such amendment or supplement as the basis for the termination. Notwithstanding any other provision of this Agreement, if the Purchasers does not terminate this Agreement pursuant to the immediately preceding sentence, each such amendment and supplement will be effective to cure and correct for all purposes (including, but not limited to, Section 7.3(a)) any breach of any representation or warranty relating to such part or parts of the Disclosure Schedule not having read as so amended or supplement at all times, and thereafter such part or parts shall be treated as having read as so amended or supplemented as of the date of this Agreement and the Closing.
5.13 Registration Rights.
(a) If at any time after the date hereof, the Parent shall propose to file any registration statement (other than any registration statement on Form S-4, S-8 or any other similarly appropriate form, or any successor forms thereto) under the Securities Act in connection with any underwritten public offering of the Parent’s common stock under the Securities Act whether for its own account or for the account of one or more holders of such securities (the “Registration Statement”), then the Parent shall give written notice of such proposed filing to Soaring Wings as soon as practicable but not less than 20 days before the anticipated filing date of such Registration Statement, which notice shall (i) describe the amount of securities to be included in such offering, the intended method(s) of distribution, and the name of the proposed managing underwriter or underwriters, if any, in such offering, and (ii) offer to Soaring Wings the opportunity to register the sale of such number of Registrable Securities as Soaring Wings may request in writing within ten days after receipt of such written notice (such registration, a “Registration”). The Parent shall, in good faith, use its reasonable best efforts to cause the managing underwriter or underwriters of the proposed underwritten offering to permit the Registrable Securities requested by Soaring Wings pursuant to this Section 5.13(a) to be included in the Piggyback Registration on the same terms and conditions as any similar securities of the Parent included in such Registration and to permit the sale or other disposition of such Registrable Securities in accordance with the intended method(s) of distribution thereof. Should Soaring Wings propose to participate in the underwritten offering, then Soaring Wings shall enter into an underwriting agreement in customary form with the underwriter(s) selected for such underwritten offering by the Parent. Notwithstanding the foregoing, if a greater number of Parent securities is offered for participation in the proposed offering by the Company and selling equity holders than in the reasonable opinion of the managing underwriter of the proposed offering can be accommodated without adversely affecting the proposed offering, then the amount of Registrable Securities proposed to be included by Soaring Wings in the Registration Statement shall be proportionately reduced to a number deemed satisfactory by the managing underwriter. The Company shall bear all expenses and fees incurred in connection with the preparation, filing, and amendment of the Registration Statement with the Commission, except that Soaring Wings shall pay all fees, disbursements and expenses of any counsel or expert retained by Soaring Wings and all underwriting discounts and commissions, filing fees and any transfer or other taxes relating to the Registrable Securities included in the Registration Statement. Soaring Wings agrees to cooperate with the Parent in the preparation and filing of any Registration Statement, and in the furnishing of information concerning Soaring Wings for inclusion therein. To the extent permitted by law, the Parent will indemnify and hold harmless Soaring Wings, and the partners, members, managers, officers, directors, and affiliates of Soaring Wings, legal counsel and accountants for Soaring Wings, any underwriter (as defined in the Securities Act) for Soaring Wings, and each person or entity, if any, who controls Soaring Wings within the meaning of the Securities Act or the Exchange Act against any Damages (as defined below), and Parent will pay to Soaring Wings and each such underwriter, controlling party, or other aforementioned person or entity any legal or other expenses reasonably incurred by them in connection with investigating or defending any claim or proceeding from which Damages may result, as such expenses are incurred.
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(b) Termination of Rights. Subject to the indemnification rights in the immediately preceding paragraph, all rights of Soaring Wings under this Section 5.13 shall terminate with respect to the shares of ARC Stock issued to Soaring Wings pursuant to Section 1.2(c) upon the earlier of (i) the date that Soaring Wings is permitted to sell such shares under Rule 144 (or any similar provision) under the Securities Act without limitation on the amount of securities sold or the manner of sale, (ii) the date as of which such shares have been sold pursuant to a Registration Statement (but in no event prior to the applicable period referred to in Section 4(3) of the Securities Act and Rule 174 thereunder) or to one of the Purchasers pursuant to the Put Option Agreement, or (iii) the one-year anniversary of the delivery to Soaring Wings of all such shares in accordance with Section 1.2(c).
(c) Furnishing of Information. In order to enable Soaring Wings to sell the ARC Stock Consideration under Rule 144 of the Securities Act, until such time as all of the ARC Stock Consideration has been sold, the Parent shall use its commercially reasonable efforts to timely file (or obtain extensions in respect thereof and file within the applicable grace period) all reports required to be filed by the Parent after the date hereof pursuant to the Exchange Act. During such period, if the Parent is not required to file reports pursuant to such laws, it will prepare and furnish to Soaring Wings and make publicly available in accordance with Rule 144(c) such information as is required for Soaring Wings to sell the ARC Stock Consideration under Rule 144. The Parent further covenants that it will take such further action as Soaring Wings may reasonably request, all to the extent required from time to time to enable Soaring Wings to sell the ARC Stock Consideration without registration under the Securities Act within the limitation of the exemptions provided by Rule 144.
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(d) Reporting Status. Before the one-year anniversary of the Company’s issuance of all of the ARC Stock Consideration in accordance with Section 1.2(c), the Company shall not terminate its status as an issuer required to file reports under the Exchange Act even if the Exchange Act would otherwise permit such termination
(e) Pledge. The Parent acknowledges and agrees that Soaring Wings may from time to time pledge, and/or grant a security interest in, some or all of the ARC Stock Consideration represented by stock certificates contained a restrictive legend that it has received hereunder in connection with applicable securities laws, pursuant to a bona fide margin agreement in compliance with a bona fide margin loan. Such a pledge would not be subject to approval or consent of the Parent and no legal opinion of legal counsel to the pledgee, secured party or pledgor shall be required in connection with the pledge. No notice shall be required of such pledge, but Soaring Wings’ transferee shall promptly notify the Parent of any subsequent transfer or foreclosure. Soaring Wings acknowledges that Parent shall not be responsible for any pledges relating to, or the grant of any security interest in, any of the ARC Stock Consideration or for any agreement, understanding or arrangement between Soaring Wings and its pledgee or secured party. At Soaring Wings’ expense, the Parent will execute and deliver such reasonable documentation as a pledgee or secured party of all or any of the ARC Stock Consideration may reasonably request in connection with a pledge or transfer of all or any portion of the ARC Stock Consideration, including the preparation and filing of any required prospectus supplement under Rule 424(b)(3) of the Securities Act or other applicable provision of the Securities Act.
(f) Removal of Legends. Any legend set forth on any of the ARC Stock Consideration shall be removed and the Parent shall issue a certificate without such legend to the holder of the ARC Stock Consideration upon which it is stamped or issue such ARC Stock Consideration to such holder by electronic delivery at the applicable balance account at The Depository Trust Company (“DTC”), if (i) such securities are registered for resale under the Securities Act, (ii) such securities are sold or transferred pursuant to Rule 144 (assuming the transferor is not an Affiliate of the Parent) or Rule 144A, or (iii) such securities are eligible for sale under Rule 144 without application of the requirements of paragraph (c) thereof. Any fees (with respect to the Parent’s transfer agent, counsel to the Parent or otherwise) associated with the removal of such legend shall be borne by the Parent. Following the effective date of the Registration Statement, or at such earlier time as a legend is no longer required for the applicable shares of ARC Stock then held by Soaring Wings, the Parent will no later than five (5) trading days following the delivery by Soaring Wings to the Parent or the Parent’s transfer agent (with notice to the Parent) of a stock certificate containing a restrictive legend representing such shares (endorsed or with stock powers attached, signatures guaranteed, and a legal opinion reasonably acceptable to Parent issued by reputable securities counsel, and otherwise in form necessary to affect the reissuance and/or transfer), deliver or cause to be delivered to Soaring Wings a certificate representing such ARC Stock Consideration that is free from all restrictive and other legends. Notwithstanding anything in this Agreement to the contrary, Soaring Wings shall be responsible for all costs and expenses associated with obtaining any legal opinion reasonably requested by the Company or its transfer agent in connection with the removal of any legend.
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ARTICLE VI
TAX MATTERS
6.1 Tax Returns.
Sellers shall, or shall cause their respective Affiliates to, timely prepare and file, or cause to be timely prepared and filed, with the appropriate Tax Authorities all income Tax Returns required to be filed by Sellers or any of their respective Affiliates with respect to, or that include, the Purchased Assets or the Business, with respect to any taxable period ending on or prior to the Closing Date (such Tax Returns, “Seller Tax Returns”), and shall pay all Taxes shown as due on such Tax Returns. Purchasers shall timely prepare and file or cause to be timely prepared and filed with the appropriate Tax Authorities all Tax Returns required to be filed with respect to the Purchased Assets or the Business (excluding for the avoidance of doubt any Seller Tax Returns), as applicable, for all taxable periods ending after the Closing Date and any Straddle Period.
6.2 Transaction Taxes.
Notwithstanding any other provision of this Agreement to the contrary, all transfer, documentary, sales, use, value added, excise, stamp, registration and other such Taxes imposed by or payable to any jurisdiction or any Governmental Authority arising from the consummation of the Acquisition (collectively, “Transaction Taxes”), and any related costs for preparation of the relevant Tax Returns, shall be borne equally by the Purchasers, on the one hand, and the Sellers, on the other hand. All necessary Tax Returns with respect to all such Transaction Taxes shall be prepared and filed by Purchasers. Sellers shall render all reasonable requested assistance so that Purchasers can report and remit such Transaction Taxes. For the avoidance of doubt, Transaction Taxes do not include income Taxes. Purchasers and Sellers further agree, upon request, to use their commercially reasonable efforts to obtain any certificate or other document from any Tax Authority as may be necessary to mitigate, reduce or eliminate any Transaction Tax that could be imposed including delivery of the resale certificate contemplated by Section 1.5.
6.3 Cooperation; Records Retention.
(a) Sellers and Purchasers, and their respective Affiliates, shall reasonably cooperate, and shall cause their respective Representatives to reasonably cooperate, in preparing and filing all Tax Returns with respect to the Purchased Assets and the Business, including by provision of any required power-of-attorney (or other form of authorization) and maintaining and making available to each other all records necessary in connection with Taxes, including in relation to audits of, or inquiries directed to, customers relating to transactional Taxes such as sales or use Taxes, and in resolving all disputes and audits with respect to all taxable periods relating to Taxes.
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(b) Sellers and Purchasers shall, and shall cause their respective Affiliates to, retain all Tax Returns, schedules, and work papers and all material records and other documents relating thereto of Sellers and with respect to the Business until the expiration of the later of: (i) the seventh (7th) anniversary of the Closing Date; or (ii) the date on which Taxes may no longer be assessed under the applicable statutes of limitation, including any waivers or extensions thereof. Thereafter, the party in possession of such items shall not destroy or dispose of any such Tax Returns, schedules, work papers or any other material records or other documents relating thereto without giving written notice to the other party of such pending destruction or disposal and offering such other party the right to copy such documents and information. The party in possession of such items shall be entitled to destroy or dispose of any such Tax Returns, schedules, work papers and all material records and other documents relating thereto described in such notice if the other party fails to request copies thereof within 90 days after receipt of the notice described in this Section 6.3(b).
6.4 Conduct After Closing.
Purchasers shall not file any amended return or other Tax Return, or take any action relating to a Tax Return (including the provision of an extension of the period of limitations for assessment of any Tax), with respect to any period ending on or prior to the Closing Date.
6.5 Tax Disputes.
After the Closing, Purchasers shall have the authority to control any audit or examination relating to the Purchased Assets or the Business for taxable periods ending after the Closing Date by any Tax Authority and any Proceeding related to any issue raised in any such audit or examination; provided, however, that: (a) Purchasers shall allow Sellers to participate at Sellers’ expense in any audits, examinations or administrative or judicial proceedings to the extent that such audits, examinations or proceedings could require Sellers to make a payment under this Agreement; and (b) Purchasers shall not settle any such audit, examination or administrative or judicial proceeding in a manner which would adversely affect Sellers without the prior written consent of Sellers, which consent shall not be unreasonably withheld or delayed.
6.6 Withheld Taxes.
If, as of the Closing Date, Sellers have not yet paid or deposited with the appropriate Governmental Authority all Taxes or other amounts that the Sellers withheld or were required to withhold from Seller Employees or with respect to amounts paid or owing to any independent contractor, creditor, partner or other third party, Sellers shall timely pay or deposit such amounts with the appropriate Governmental Authority on or before the date on which such payments or deposits are due. In the case of any such payment or deposit, Sellers shall provide Purchasers with a record or receipt from the appropriate Governmental Authority indicating the amount that Sellers have paid or deposited.
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ARTICLE VII
INDEMNIFICATION
7.1 Survival.
The representations and warranties set forth in this Agreement, and the right to assert a claim for indemnification with respect thereto pursuant to Sections 7.2 or 7.3, shall survive the Closing solely for purposes of this Article VII and shall terminate as of 5:00 p.m. Eastern Standard Time on the first anniversary of the Closing Date (the “Survival Date”) and shall thereafter be of no further force or effect; provided, however, that the representations and warranties set forth in Section 3.1 (Organization and Qualification), Section 3.2 (Authorization; Validity and Effect of Agreement), Section 3.4 (Capitalization and Subsidiaries), the first sentence of Section 3.8 (Properties and Assets), and Section 3.24 (Brokers and Finders) (collectively, the “Fundamental Representations”), Section 4.1 (Organization and Qualification), Section 4.2 (Authorization; Validity and Effect of Agreement), and Section 4.4 (Brokers and Finders) and the right to assert a claim for indemnification with respect thereto pursuant to Sections 7.2 or 7.3 shall survive until the sixth anniversary of the Closing Date. Notwithstanding anything to the contrary, the representations and warranties in Sections 3.26 (Disclaimer) and 4.7 (No Reliance) shall survive indefinitely. The covenants and agreements of the parties set forth in this Agreement shall not survive the Closing except with respect to those covenants and agreements that by their terms contemplate performance in whole or in part after the Closing, which shall remain in full force and effect until the date by which such covenant or agreement is required to be performed. The obligations in this Article VII to indemnify and hold harmless any Indemnified Party: (a) shall terminate and be of no further force or effect: (i) in respect of a breach of any representation or warranty other than a Fundamental Representation, on the Survival Date; (ii) in respect of a breach of any Fundamental Representation on the sixth anniversary of the Closing Date; (iii) in respect of a breach of any covenant, when such covenant terminates or expires pursuant to the terms hereof; provided, however, that such obligations to indemnify and hold harmless shall not terminate with respect to any item as to which the Indemnified Party shall have made, before the expiration of the applicable period, a bona fide claim by delivering a notice of such claim (stating in reasonable detail the basis of such claim) pursuant to Section 7.6 to the Indemnifying Party (as hereinafter defined).
7.2 Indemnification by Purchasers.
If the Closing occurs, subject to the other terms, conditions and limitations of this Agreement (including the provisions of Sections 7.4, 7.5 and 7.6), from and after the Closing, Purchasers, jointly and severally, shall indemnify Sellers, their respective Affiliates, and the respective officers, directors, managers, employees, agents, successors and assigns of Sellers and Sellers’ respective Affiliates (collectively, the “Seller Indemnified Parties”), against, and hold the Seller Indemnified Parties harmless from, all Losses actually incurred by any of the Seller Indemnified Parties to the extent arising out of:
(a) any inaccuracy or breach by Purchasers of any representation or warranty made by Purchasers in Article IV of this Agreement;
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(b) any failure by Purchasers (or any one of them) or any of their respective Affiliates to perform or comply with any covenant or agreement in this Agreement or under the Promissory Note; and
(c) ARC WingHouse’s failure to perform any of the obligations of tenant under the leases for the Leased Real Property on or after the Closing Date.
7.3 Indemnification by Sellers.
If the Closing occurs, subject to the other terms, conditions and limitations of this Agreement (including the provisions of Sections 7.4, 7.5 and 7.6), from and after the Closing, Sellers shall jointly and severally indemnify Purchasers and their respective Affiliates, and the respective officers, directors, managers, employees, agents, successors and assigns of Purchasers and their respective Affiliates (collectively, the “ARC WingHouse Indemnified Parties”), against, and hold ARC WingHouse Indemnified Parties harmless from, all Losses actually incurred by any of ARC WingHouse Indemnified Parties to the extent arising out of:
(a) any inaccuracy of or breach by any Seller of any representation or warranty made by Sellers in Article III of this Agreement;
(b) any failure by any Seller or any of their respective Affiliates to perform or comply with any covenant or agreement in this Agreement;
(c) (i) any Taxes imposed on the Business for any period prior to Closing; (ii) any Taxes imposed on Sellers or their respective Affiliates for any period; and (iii) any Taxes for any taxable period or portion thereof ending on or prior to the Closing Date that are imposed on any Seller by reason of Treasury Regulations Section 1.1502-6 (or any similar provision of state or local law);
(d) Any Liabilities of Sellers or any of their respective Affiliates (other than the Assumed Liabilities), regardless of whether prior to or after the Closing; and
(e) any Liability incurred after the Closing Date and prior to the effective date of the transfer, if any, of employees of any Seller because of or resulting from the delay of such transfer past the Closing Date.
7.4 Limitations on Indemnification.
(a) Notwithstanding anything to the contrary set forth in this Agreement, except in the case of knowing, intentional fraud:
(i) no Indemnified Party shall be entitled to recover any amount relating to any matter arising under one provision of this Agreement to the extent such Indemnified Party (or other ARC WingHouse Indemnified Parties in the event of a ARC WingHouse Indemnified Party, or other Seller Indemnified Parties in the event of a Seller Indemnified Party) has already recovered such amount with respect to such matter pursuant to that or other provisions of this Agreement (including, without limitation, any liability included in the calculation of Closing Working Capital); and
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(ii) notwithstanding any provision to the contrary herein, an Indemnified Party will not be entitled to recover, and no party shall be liable for, any incidental, consequential, exemplary, special, punitive or treble damages (except such items as an Indemnified Party may be required to pay to a third party as a result of any Third Party Claims subject to indemnification hereunder), and, except as expressly provided herein, in no event shall any Indemnified Party be entitled to any recovery under a “multiple of profits,” “multiple of cash flow”, “multiple of EBITDA” or similar valuation methodology in calculating the amount of any indemnifiable Losses.
(iii) for any Losses under Section 7.3(a), the ARC WingHouse Indemnified Parties have no right to be indemnified and no claim for Losses may be made unless and until the aggregate amount of all Losses incurred by the ARC WingHouse Indemnified Parties in respect of claims under Section 7.3(a) exceeds $120,000 (“Deductible”), after which the Purchasers are entitled to make claims for all such Losses in excess of the Deductible.
(iv) in no event shall the aggregate amount of Losses for which the Sellers are obligated to indemnify the ARC WingHouse Indemnified Parties made pursuant to Section 7.3(a) exceed $1,200,000 (the “Initial Cap”); provided, however that the Initial Cap is subject to increase in the amount of $100,000 on each of the first three anniversaries after the Closing Date if Parent timely delivers the full amount of the ARC Stock Consideration or Contingent Cash Consideration (as determined in accordance with Section 1.2(c)) in accordance with Section 1.2(c) (the “Cap”). For greater certainty, under no circumstances will the Cap exceed $1,500,000.
(v) in no event shall the aggregate amount of Losses for which the Sellers are obligated to indemnify the ARC WingHouse Indemnified Parties exceed the Estimated Closing Payment.
(vi) for any Losses under Section 7.3(a), no right to be indemnified shall exist and no claim may be made unless the aggregate amount of Losses incurred by the ARC WingHouse Indemnified Parties with respect to a particular fact, event or occurrence and all other facts, events or occurrences arising from the same or similar circumstances, events or facts exceeds $25,000.
Neither the Cap nor the Deductible will apply to a claim for Losses directly related to a breach of a Fundamental Representation.
(b) Except as set forth in the proviso to Section 7.5(a), each party shall take, and shall cause its Affiliates to take, all commercially reasonable steps to mitigate any of its Losses (including incurring costs to the extent necessary to remedy the breach which gives rise to the Losses) upon becoming aware of any event that would reasonably be expected to, or does, give rise thereto.
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7.5 Computation of Indemnity Payments.
(a) The amount payable under this Article VII in respect of any Loss shall be calculated: (i) net of any insurance proceeds or other amounts under indemnification agreements with third parties actually received by the Indemnified Party on account thereof; and (ii) net of any Tax benefits actually realized by the Indemnified Party on account thereof.
(b) In the event that an insurance or a third-party indemnification recovery is made or Tax benefits actually realized at any time after an indemnification payment by the Indemnifying Party has been made with respect to any indemnified Loss or indemnified Tax, then, to the extent of the amount of such indemnification payment, a refund equal to the aggregate net amount of the recovery or realized Tax benefit (less the costs of recovery to the Indemnified Party) shall be made promptly to the applicable Indemnifying Party. The party making any indemnification payment hereunder shall be subrogated to all rights of the Indemnified Party in respect of any Losses or Taxes indemnified by such party.
7.6 Procedures for Indemnification.
(a) Any Person making a claim for indemnification under Sections 7.2 or 7.3 (an “Indemnified Party”) shall notify the party against whom indemnification is sought (an “Indemnifying Party”) of the claim in writing (such written notice, an “Indemnification Notice”) promptly after receiving notice of any action, lawsuit, proceeding, investigation, demand or other claim against the Indemnified Party by a third party (a “Third Party Claim”). Each such Indemnification Notice shall describe, in reasonable detail to the extent practicable, the applicable Third Party Claim, including the facts giving rise to such claim for indemnification hereunder, the amount or method of computation of the amount of such claim (if known) and such other information with respect thereto as the Indemnifying Party may reasonably request; provided, however, that the failure to so notify an Indemnifying Party shall not relieve the Indemnifying Party of its obligations hereunder except to the extent that, and only to the extent that, the Indemnifying Party is materially prejudiced by such failure.
(b) Any Indemnifying Party shall be entitled to participate in the defense of such Third Party Claim at such Indemnifying Party’s expense, and, at its option if exercised within 10 business days after receiving an Indemnification Notice, shall be entitled to assume the defense thereof by appointing a reputable counsel to be the lead counsel in connection with such defense; provided, however, that the Indemnified Party shall be entitled to participate in the defense of such Third Party Claim and to employ counsel of its choice for such purpose (provided, however, that the fees and expenses of such separate counsel shall be borne by the Indemnified Party and shall not be recoverable from such Indemnifying Party). Notwithstanding the foregoing, if the Indemnified Party shall have determined in good faith and upon advice of counsel that an actual or likely conflict of interest makes representation of the Indemnifying Party and the Indemnified Party by the same counsel inappropriate, or if the Indemnifying Party, in the reasonable judgment of the Indemnified Party, has failed to diligently pursue the relevant claims or defense, then the Indemnified Party may, upon notice to the Indemnifying Party, engage separate counsel, and the reasonable fees and expenses of such separate counsel shall be borne by the Indemnifying Party to the extent the Third Party Claim is indemnifiable hereunder. Notwithstanding anything to the contrary in this Section 7.6(b), the Indemnified Party will have the absolute right to conduct and control, through counsel of its choosing (the reasonable fees and expenses of which shall be paid by the Indemnifying Party, subject to the limitations set forth in this Article VII), the defense, compromise and settlement of any Third Party Claim if: (i) such Third Party Claim seeks an injunction or other equitable relief as the sole remedies against the Indemnified Party; (ii) the Third Party Claim relates to or arises in connection with any criminal or quasi criminal Proceeding; or (iii) the Indemnifying Party does not elect to assume control of the defense within 10 business days after receiving an Indemnification Notice.
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(c) Upon assumption of the defense of any such Third Party Claim by the Indemnifying Party, the Indemnified Party will not pay, or permit to be paid, any part of the Third Party Claim, unless the Indemnifying Party consents in writing to such payment. Notwithstanding anything to the contrary herein, the Indemnifying Party shall not compromise or settle, or admit any liability with respect to, any Third Party Claim without the prior written consent of the Indemnified Party (which consent shall not be unreasonably withheld, conditioned or delayed), unless the relief consists solely of: (i) money damages (all of which the Indemnifying Party shall pay); and (ii) includes a provision whereby the plaintiff or claimant in the matter releases the Indemnified Party from all liability with respect thereto.
(d) In all cases, the Indemnified Party shall provide its reasonable cooperation to the Indemnifying Party in defense of claims or litigation relating to Third Party Claims, including by making employees, information and documentation reasonably available. If the Indemnifying Party does not assume the defense of any such Third Party Claim in accordance with the terms hereof, or fails to prosecute or withdraws from the defense of any such Third Party Claim, the Indemnified Party may defend against such matter in a manner consistent with the above provisions regarding conduct of the defense by the Indemnified Party; provided, however, that the Indemnified Party may not settle any such matter without the written consent of the Indemnifying Party (which consent shall not be unreasonably withheld, conditioned or delayed).
(e) Any Indemnified Party making a claim against any Indemnifying Party hereunder that does not involve a Third Party Claim shall deliver notice of such claim promptly to the Indemnifying Party, describing in reasonable detail the facts giving rise to any claim for indemnification hereunder, the amount or method of computation of the amount of such claim (if known) and such other information with respect thereto as the Indemnifying Party may reasonably request; provided, however, the failure to so notify an Indemnifying Party shall not relieve the Indemnifying Party of its obligations hereunder except to the extent that, and only to the extent that, the Indemnifying Party is materially prejudiced by such failure or notice is delivered after the applicable survival period set forth in this Agreement.
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7.7 Timing and Method of Payments.
Subject to the terms of this Article VII, after any final decision, judgment or award shall have been rendered by a Governmental Authority with competent jurisdiction (and a resolution of any appeal therefrom and the expiration of the time in which to appeal therefrom), or a settlement shall have been consummated, or the Indemnified Party and the Indemnifying Party shall have arrived at a mutually binding agreement, in each case, with respect to an indemnification claim hereunder: (i) if the Indemnified Party is a ARC WingHouse Indemnified Party, Sellers shall promptly pay, or cause to be paid, all sums due and owing to the ARC WingHouse Indemnified Party in immediately available funds to an account specified by the ARC WingHouse Indemnified Party; and (ii) if the Indemnified Party is a Seller Indemnified Party, Purchasers shall pay, or cause to be paid, all sums due and owing to the Seller Indemnified Party in immediately available funds to an account specified by the Seller Indemnified Party (subject in all instances to clauses (i) and (ii) above, and to the limitations described in Section 7.4), in each case, within five business days of such final decision, judgment or award, or other settlement or agreement.
7.8 Characterization of Indemnification Payments; Withholding.
(a) Unless otherwise required by Law, all payments made pursuant to this Article VII shall be treated for all Tax purposes as adjustments to the Purchase Price.
(b) Each party shall be entitled to deduct and withhold from any amounts payable pursuant to this Article VII such amounts as may be required to be deducted and withheld with respect to the making of such payment under the Code, or any applicable provision of state, local or foreign Law relating to any Tax. To the extent that amounts are so deducted or withheld and paid over to the appropriate Tax Authority by Purchasers or Sellers, as applicable, such amounts shall be treated for all purposes of this Agreement as having been paid to the Person to whom such amounts would otherwise have been paid.
7.9 Payment of Losses; Ordering.
Following the final determination of the amount of any Losses payable by Sellers (or any one or more of them) to ARC WingHouse Indemnified Parties under this Article VII (subject to the limitations and conditions set forth in this Article VII), the ARC WingHouse Indemnified Parties sole recourse for such Losses shall be satisfied and paid in the following order and priority:
(a) first, repurchase by ARC WingHouse of the portion of the ARC WH Equity Interest with a value equal to the amount of such Losses, with the value of each membership unit represented by the ARC WH Equity Interest being equal to the Closing Unit Price;
(b) second, after all of the ARC WH Equity Interest has been repurchased pursuant to clause (a) above, Purchasers shall reduce the amount of Contingent Cash Consideration deliverable pursuant to this Agreement (in the event of a Listing Failure Anniversary for which Soaring Wings has not elected to receive ARC Stock Consideration in lieu of Contingent Cash Consideration) by the amount of such unpaid Losses, in the order of the Purchasers’ obligation to deliver the Contingent Cash Consideration (e.g., first satisfied against the Contingent Cash Consideration to be delivered on the 1st anniversary of the Closing, second satisfied against the Contingent Cash Consideration to be delivered on the 2nd anniversary of the Closing, and third satisfied against the Contingent Cash Consideration to be delivered on the 3rd anniversary of the Closing);
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(c) third, in the event ARC Stock Consideration will be deliverable pursuant to this Agreement (i.e., the ARC Stock has been listed on the NYSE, NASDAQ Global Select Market, NASDAQ Global Market or NASDAQ Capital Market prior to the 1st, 2nd or 3rd anniversaries of the Closing Date or the ARC Stock has not been listed and quoted for trading on the NYSE, NASDAQ Global Select Market, NASDAQ Global Market or NASDAQ Capital Market prior to the 1st, 2nd or 3rd anniversaries of the Closing Date and Soaring Wings has elected to receive ARC Stock Consideration in lieu of Contingent Cash Consideration), Purchasers will reduce the amount of ARC Stock Consideration deliverable pursuant to this Agreement by the amount of such unpaid Losses, in the order of Parent’s obligation to deliver the ARC Stock Consideration (i.e., first satisfied against the ARC Stock Consideration to be delivered on the 1st anniversary of the Closing, second satisfied against the ARC Stock Consideration to be delivered on the 2nd anniversary of the Closing and, third satisfied against the ARC Stock Consideration to be delivered on the 3rd anniversary of the Closing), with the value of the ARC Stock to be determined based on the price per share for the applicable anniversary set forth in Section 1.2(c); provided, however, that in the event ARC Stock Consideration has been delivered by Parent to Soaring Wings but has not yet been sold or transferred by Soaring Wings or any of its Affiliates, then Soaring Wings or the applicable Affiliates shall return that amount of ARC Stock Consideration to Parent equal to the amount by which the ARC Stock Consideration would have been reduced had it not yet been delivered to Soaring Wings hereunder;
(d) fourth, after application of clauses (a)-(c) above, by reduction of the then outstanding principal amount and accrued but unpaid interest under the Promissory Note; and
(e) thereafter, all remaining Losses shall be satisfied and paid by Sellers.
7.10 Exclusive Remedies.
EXCEPT AS PROVIDED IN SECTIONS 1.3, 8.3 AND 11.7, THE REMEDIES PROVIDED IN THIS ARTICLE VII SHALL BE THE EXCLUSIVE REMEDIES OF THE PARTIES HERETO AND THEIR HEIRS, SUCCESSORS AND ASSIGNS AFTER THE CLOSING WITH RESPECT TO THIS AGREEMENT AND THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT, INCLUDING, WITHOUT LIMITATION, ANY INACCURACY, BREACH OR NON-PERFORMANCE OF ANY REPRESENTATION, WARRANTY, COVENANT OR AGREEMENT CONTAINED HEREIN. EXCEPT AS PROVIDED IN SECTIONS 1.3, 8.3 AND 11.7, NO PARTY MAY BRING OR COMMENCE ANY CLAIM, SUIT, ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY, WHETHER IN CONTRACT, TORT OR OTHERWISE, EXCEPT TO BRING A CLAIM FOR INDEMNIFICATION IN ACCORDANCE WITH THIS ARTICLE VII.
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ARTICLE VIII
RESTRICTIVE COVENANTS
8.1 Non-Competition.
(a) Sellers agrees that for a period of five years from the Closing Date, none of the Sellers or any Affiliates of Sellers (collectively, the “Seller Restricted Parties”) will engage in a Competing Business anywhere in the United States.
(b) Notwithstanding the terms of Section 8.1(a), nothing in this Section 8.1 shall in any way prohibit or restrict:
(i) Any Seller Restricted Party from performing any of its respective obligations under this Agreement; or
(ii) Any Seller Restricted Party from owning up to an aggregate of 5% of the outstanding shares of any class of capital stock of any publicly-traded Person that engages in a Competing Business (a “Business Competing Person”) so long as no Seller Restricted Party has any participation in the management of such Business Competing Person or serves on the board of directors or similar governing body of such Business Competing Person.
8.2 Solicitation
(a) Sellers agree that, during the period commencing on the date hereof and ending on the earlier of: (i) the date this Agreement terminates in accordance with its terms, or (ii) the third anniversary of the Closing Date, Sellers shall not, and shall cause the other Seller Restricted Parties and any of their respective Representatives to not, directly or indirectly, solicit for employment or induce any employee of any Seller or ARC WingHouse, or any of their respective Subsidiaries, to terminate his or her employment with any Seller or ARC WingHouse, or any of their respective Subsidiaries; provided, however, that the foregoing shall not in any way prohibit or restrict: (w) solicitations made by advertisements (including through one or more bona fide search firms) directed to the general public rather than specifically targeting any employees of any Seller or ARC WingHouse, or any of their respective Subsidiaries; (x) the solicitation of any employee who has been terminated by any Seller or ARC WingHouse, or any of their respective Subsidiaries, more than three months prior to such solicitation; (y) the solicitation of any employee who has voluntarily left his or her employment with any Seller or ARC WingHouse, or any of their respective Subsidiaries, more than six months prior to such solicitation; or (z) the hiring of any employee who was not solicited in violation of this Section 8.2(a).
(b) Sellers agree that, during the period commencing on the date hereof and ending on the earlier of: (i) the date this Agreement terminates in accordance with its terms; or (ii) the third anniversary of the Closing Date, Sellers shall not, and shall cause the other Seller Restricted Parties to not, directly or indirectly, endeavor to entice or divert any Person’s business away from the Business to a Competing Business, or through a Competing Business otherwise interfere with any Purchaser’s relationship with any Person.
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8.3 Specific Performance; Severability.
(a) Sellers acknowledge and agree that the covenants set forth in Sections 8.1 and 8.2 are essential elements of this Agreement and that, in the event of breach by Sellers or the other Seller Restricted Parties of any of the applicable provisions of Sections 8.1 or 8.2, monetary damages may not be adequate. Therefore, Sellers agree that Purchasers shall have the right, in addition to the other remedies as may be provided by applicable Law, to seek specific performance, injunctive relief and other equitable relief, without posting a bond, to prevent or restrain a breach of, or to enforce Sellers’ obligations under, Sections 8.1 and 8.2, which right to equitable relief will not be exclusive of, but will be in addition to, all other remedies to which such party may be entitled under this Agreement, at law or in equity (including the right to recover monetary damages).
(b) If any of the restrictions set forth in Sections 8.1 or 8.2 is adjudicated by any court of competent jurisdiction to be invalid, prohibited or unenforceable for any reason, then such restriction shall nevertheless remain effective but, as to such jurisdiction only, shall be considered amended to have the broadest terms which such court of competent jurisdiction may find enforceable.
ARTICLE IX
CONDITIONS TO CLOSING
9.1 Conditions to Each Party’s Obligations.
The respective obligations of Purchasers and Sellers to consummate the Acquisition are subject to the satisfaction or written waiver by Purchasers and Sellers (to the extent such conditions can be waived), at or prior to the Closing, of the condition that no applicable Law or injunction enacted, entered, promulgated, enforced or issued by any Governmental Authority or other legal restraint or prohibition preventing the consummation of the Acquisition shall be in effect.
9.2 Conditions to Obligations of Sellers.
The obligations of Sellers to consummate the Acquisition are subject to the satisfaction or written waiver, in whole or in part, by Soaring Wings (to the extent such conditions can be waived), at or prior to the Closing, of each of the following conditions:
(a) (i) The representations and warranties of Purchasers set forth in Section 4.1 (Organization and Qualification), Section 4.2 (Authorization; Validity and Effect of Agreement), and Section 4.4 (Brokers and Finders) of this Agreement shall be true and correct in all respects at and as of the Closing Date, as though made as of the Closing Date (other than any representation or warranty that expressly relates to a specific date, which representation and warranty shall be true and correct on the date so specified); and (ii) all other representations and warranties of Purchasers set forth in Article IV of this Agreement shall be true and correct at and as of the Closing Date, as though made as of the Closing Date (other than any representation or warranty that expressly relates to a specific date, which representation and warranty shall be true and correct on the date so specified), except, in the case of this clause (ii), where the failure of such representations and warranties to be so true and correct would not reasonably be expected to prevent or materially impair the ability of Purchasers to perform their respective obligations under this Agreement or consummate the Acquisition.
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(b) Purchasers shall have performed or complied, in all material respects, with all obligations and covenants required by this Agreement to be performed or complied with by Purchasers at or prior to the Closing.
(c) ARC WingHouse shall have delivered to Soaring Wings a certificate dated as of the Closing Date, signed by a duly authorized officer of ARC WingHouse, certifying that the conditions set forth in Sections 9.2(a) and (b) have been satisfied.
9.3 Conditions to Obligations of Purchasers.
The obligations of Purchasers to consummate the Acquisition are subject to the satisfaction or written waiver, in whole or in part, by ARC WingHouse (to the extent such conditions can be waived), at or prior to the Closing, of each of the following conditions:
(a) (i) The representations and warranties of Sellers set forth in Section 3.1 (Organization and Qualification), Section 3.2 (Authorization; Validity and Effect of Agreement), Section 3.4 (Capitalization and Subsidiaries), Section 3.5 (Ownership of Partnership Interests), Section 3.15 (Properties and Assets) and Section 3.25 (Brokers and Finders) of this Agreement shall be true and correct in all respects at and as of the Closing Date, as though made as of the Closing Date (other than any representation or warranty that expressly relates to a specific date, which representation and warranty shall be true and correct on the date so specified); and (ii) all other representations and warranties of Sellers set forth in Article III of this Agreement shall be true and correct at and as of the Closing Date, as though made as of the Closing Date (other than any representation or warranty that expressly relates to a specific date, which representation and warranty shall be true and correct on the date so specified), except, in the case of this clause (ii), where the failure of such representations and warranties to be so true and correct has not had, and would not reasonably be expected to have, a Material Adverse Effect.
(b) Sellers shall have performed or complied, in all material respects, with all obligations and covenants required by this Agreement to be performed or complied with by Sellers or Seller, as applicable, at or prior to the Closing.
(c) Since the date of this Agreement, no event, effect, circumstance, change, occurrence, fact or development shall have occurred, come into existence or become known that, individually or in the aggregate, has had or would reasonably be expected to have a Material Adverse Effect.
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(d) Soaring Wings shall have delivered to ARC WingHouse a certificate dated as of the Closing Date, signed by a duly authorized officer of Sellers, certifying that the conditions set forth in Sections 9.3(a), (b) and (c) have been satisfied.
(e) Purchasers shall have obtained such financing as Purchasers deem, in their sole and absolute discretion, is necessary or appropriate, and on such terms as Purchasers deem, in its sole and absolute discretion, are satisfactory to enable Purchasers to consummate the Acquisition.
(f) All other material consents and approvals from third parties necessary to complete the consummation of the Acquisition shall have been obtained on terms satisfactory to Purchasers in their sole and absolute discretion and shall continue in full force and effect without any restriction, condition or limitation.
9.4 Frustration of Closing Conditions.
Neither Sellers nor Purchasers may rely, either as a basis for not consummating the Acquisition or for terminating this Agreement and abandoning the Acquisition, on the failure of any condition set forth in Sections 9.1, 9.2 or 9.3, as the case may be, to be satisfied if such failure was caused by such party’s breach, in any material respect, of any provision of this Agreement or failure to use all the requisite efforts required to consummate the Acquisition, as required by and subject to Section 5.2 and any other applicable provisions of this Agreement.
ARTICLE X
TERMINATION
10.1 Termination.
This Agreement may be terminated, and the Acquisition abandoned, at any time prior to the Closing:
(a) by the mutual written consent of Soaring Wings and ARC WingHouse;
(b) by ARC WingHouse, upon written notice to Soaring Wings, if any Seller breaches or fails to perform, in any respect, any of its respective representations, warranties, covenants or agreements set forth in this Agreement and such breach or failure to perform: (i) would give rise to the failure of a condition set forth in Section 9.1 or 9.3; (ii) cannot be, or has not been, cured within 10 days following delivery by ARC WingHouse to Soaring Wings of written notice of such breach or failure to perform; and (iii) has not been waived by ARC WingHouse;
(c) by Soaring Wings, upon written notice to ARC WingHouse, if Purchasers breach or fail to perform, in any respect, any of its representations, warranties, covenants or agreements set forth in this Agreement and such breach or failure to perform: (i) would give rise to the failure of a condition set forth in Sections 9.1 or 9.2, (ii) cannot be, or has not been, cured within 10 days following delivery by Soaring Wings to ARC WingHouse of written notice of such breach or failure to perform; and (iii) has not been waived by Soaring Wings; and
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(d) by ARC WingHouse or Soaring Wings, upon written notice to the other party, if the Closing has not occurred on or prior to October 31, 2019; provided, however, that the right to terminate this Agreement under this Section 10.1(d) shall not be available to a party if the failure of Purchasers, in the case of ARC WingHouse, or Sellers, in the case of Soaring Wings, to fulfill any of their respective obligations under this Agreement is the primary cause of the failure of the Closing to occur on or before such date. Notwithstanding anything to the contrary in this Agreement, nothing contained herein shall relieve any party from liability for any willful or intentional breach of this Agreement that occurred prior to the termination of this Agreement pursuant to this Section 10.1.
10.2 Effect of Termination
In the event of termination in accordance with Section 10.1, this Agreement will forthwith become void and there will be no liability on the part of any party hereto, except for the provisions of this Section 10.2 and Sections 3.24, 4.4, 5.4, 5.5, Article XI (other than Section 11.7) and any corresponding definitions set forth in Article XII, each of which shall survive termination.
ARTICLE XI
MISCELLANEOUS
11.1 Entire Agreement.
This Agreement and any schedules and exhibits hereto contain the entire agreement between the parties and supersede all prior agreements and understandings, both written and oral, between the parties with respect to the subject matter hereof. Neither party relied upon any representation or warranty, whether written or oral, made by the other party or any of its officers, directors, managers, employees, agents or representatives, in making its decision to enter into this Agreement.
11.2 Amendments and Modifications.
This Agreement may not be amended, modified or supplemented except by an instrument or instruments in writing signed by the party against whom enforcement of any such amendment, modification or supplement is sought.
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11.3 Extensions and Waivers.
The parties hereto entitled to the benefit of a term or provision hereof may: (a) extend the time for the performance of any of the obligations or other acts of the parties hereto; (b) waive any inaccuracies in the representations and warranties contained herein or in any document, certificate or writing delivered pursuant hereto; or (c) waive compliance with any obligation, covenant, agreement or condition contained herein. Any agreement on the part of a party to any such extension or waiver will be valid only if set forth in an instrument or instruments in writing signed by the party against whom enforcement of any such extension or waiver is sought. No failure or delay on the part of any party hereto in the exercise of any right hereunder will impair such right or be construed to be a waiver of, or acquiescence in, any breach of any representation, warranty, covenant or agreement. No waiver by either party hereto of any breach or default of any of the covenants or agreements herein set forth will be deemed a waiver as to any subsequent or similar breach or default.
11.4 Successors and Assigns.
This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. No party hereto may assign its rights or delegate its obligations under this Agreement without the express prior written consent of the other party hereto; provided, however, Soaring Wings may assign its right under Section 1.2(c) to receive the ARC Stock Consideration or Contingent Cash Consideration, as applicable, at any time to an Affiliate of Soaring Wings without consent. Any attempted assignment in violation of this Section 11.4 shall be null and void.
11.5 Interpretation.
The headings set forth in this Agreement, in any Exhibit or Schedule hereto and in the table of contents to this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. Except when the context requires otherwise, any reference in this Agreement to any Article, Section, clause, Schedule or Exhibit shall be to the Articles, Sections and clauses of, and Schedules and Exhibits to, this Agreement. The words “include,” “includes” and “including” are deemed to be followed by the phrase “without limitation” and the term “dollar” or “$” means lawful currency of the United States. Reference to any Person includes such Person’s successors and assigns to the extent such successors and assigns are permitted by the terms of any applicable agreement, and reference to a Person in a particular capacity excludes such Person in any other capacity or individually. Reference to any agreement (including this Agreement), document or instrument means such agreement, document or instrument as amended or modified and in effect from time to time in accordance with the terms thereof and, if applicable, the terms hereof. Reference to any Law means such Law as amended, modified, codified, replaced or re-enacted, in whole or in part, including rules, regulations, enforcement procedures and any interpretations promulgated thereunder, all as in effect on the date hereof. Any reference to the masculine, feminine or neuter gender shall include such other genders and any reference to the singular or plural shall include the other, in each case unless the context otherwise requires. All Exhibits and Schedules annexed hereto or referred to herein are hereby incorporated in and made a part of this Agreement as if set forth in full herein. When a reference is made in this Agreement to a Section, Exhibit or Schedule, such reference shall be to a Section of, or an Exhibit or Schedule to, this Agreement unless otherwise indicated.
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11.6 Severability.
If any provision of this Agreement or the application thereof to any Person or circumstance is held to be invalid or unenforceable to any extent, the remainder of this Agreement shall remain in full force and effect and shall be reformed to render the Agreement valid and enforceable while reflecting to the greatest extent permissible the intent of the parties.
11.7 Enforcement.
The parties agree that irreparable damage would occur in the event that any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached. Accordingly, each of the parties shall be entitled to specific performance of the terms hereof, including an injunction or injunctions to prevent breaches of this Agreement and to enforce specifically the terms and provisions of this Agreement in any State or federal court sitting in Jacksonville, Florida, this being in addition to any other remedy to which such party is entitled at law or in equity. Each of the parties hereby further waives: (i) any defense in any action for specific performance that a remedy at law would be adequate; and (ii) any requirement under any Law to post security as a prerequisite to obtaining equitable relief.
11.8 Expenses.
Except as otherwise expressly set forth herein, all legal and other costs and expenses incurred in connection with the Acquisition, including any legal and other costs and expenses incurred in compliance with the terms of this Agreement, shall be paid by the party incurring such expenses. Notwithstanding the foregoing, all legal fees and other costs and expenses due to Cindy Sarsen or Sarsen Law arising out of the joint representation of any Sellers and any of the Purchasers in connection with the transfer of liquor licenses will be paid by the Purchasers. For the avoidance of doubt, the Purchasers are solely responsible for all costs for the transfer of liquor licenses to the Purchasers (or any one or more of the Purchasers) and securing other licenses and permits needed by ARC WingHouse to operate the Business after the Closing.
11.9 Notices.
Any notice, consent, demand, offer, acceptance or other communication required or permitted under this Agreement will be made in writing and will be deemed to have been duly given if: (i) sent by personal delivery, which will be deemed given upon confirmation of receipt; (ii) mailed by first class registered or certified mail, return receipt requested, postage prepaid, which will be deemed delivered three days after the date received for delivery by the United States Postal Service, whether or not accepted by the addressee; (iii) sent by nationally recognized next-day delivery courier that guarantees delivery within 24 hours, charges prepaid, which will be deemed delivered one day after delivery to said courier; or (iv) by facsimile transmission, electronic mail or other electronic delivery medium, which will be deemed delivered on the date of transmission, addressed to the receiving party at the address set forth below:
If to Purchasers to:
ARC Group, Inc.
1409 Kingsley Ave., Ste. 2
Jacksonville, FL 32073
Attention: Seenu G. Kasturi, Chief Executive Officer
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If to Sellers to:
Soaring Wings, LLC
1600 E. 8th Avenue
Suite A-208
Tampa, Florida 33605
Attention: Kenneth P. Jones
With copy to:
Hill Ward & Henderson, P.A.
3700 Bank of America Plaza
101 E. Kennedy Boulevard
Tampa, Florida 33602
Attention: John C. Connery, Jr.
11.10 Governing Law.
This Agreement shall be governed by and construed in accordance with the Laws of the State of Florida, without regard to the Laws that might otherwise govern under applicable principles of conflicts of Laws thereof.
11.11 Waiver of Jury Trial.
EACH OF THE PARTIES TO THIS AGREEMENT HEREBY IRREVOCABLY WAIVES ALL RIGHTS TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE ACQUISITION.
11.12 Third-Party Beneficiaries.
Except for SW WH Holdings with respect to its right to receive the ARC WH Equity Interest and except as expressly provided in Article VII or elsewhere in this Agreement: (i) nothing in this Agreement, express or implied, is intended or will be construed to confer upon any Person other than the parties hereto (or their respective successors and permitted assigns) any rights, remedies, obligations or liabilities under or by reason of this Agreement; and (ii) there are no intended third-party beneficiaries under or by reason of this Agreement.
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11.13 No Presumption Against Drafting Party.
Purchasers and Sellers each acknowledge that they have been represented by counsel in connection with this Agreement and the Acquisition. Accordingly, any rule of Law or any legal decision that would require interpretation of any claimed ambiguities in this Agreement against the drafting party has no application and is expressly waived by the parties hereto.
11.14 Counterparts.
This Agreement may be executed in two or more counterparts and delivered via facsimile or other electronic transmission, each of which will be deemed to be an original, but all of which together will constitute one and the same agreement.
ARTICLE XII
CERTAIN DEFINITIONS
12.1 Certain Definitions.
As used herein:
“Acquisition” has the meaning ascribed to such term in Section 1.1(a).
“Affiliate” means, with respect to any Person, any other Person directly or indirectly controlling, controlled by, or under common control with, such Person.
“Agreement” has the meaning ascribed to such term in the Preamble.
“Allocation Dispute Notice” has the meaning ascribed to such term in Section 1.4(a).
“Arbiter” has the meaning ascribed to such term in Section 1.3(d).
“ARC WingHouse” has the meaning ascribed to such term in the Preamble.
“ARC WingHouse Indemnified Party” has the meaning ascribed to such term in Section 7.3.
“ARC WH Equity Interest” means a membership interest of ARC WingHouse at all times representing 10% of the aggregate outstanding membership interests of ARC WingHouse, on a fully diluted basis.
“ARC Stock” means shares of Class A Common Stock, $0.01 par value per share, of Parent.
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“ARC Stock Consideration” has the meaning ascribed to such term in Section 1.2(c).
“Assumed Contracts” has the meaning ascribed to such term in Section 1.1(a).
“Assumed Liabilities” means the Liabilities and obligations described in Section 1.1(c).
“Assumption Agreement” has the meaning ascribed to such term in Section 2.2(b)(ii).
“Benefit Plan” means any benefit plan, program, arrangement, policy or agreement, whether written or unwritten, including any such plan, program, arrangement, policy or agreement that is an employee welfare benefit plan within the meaning of Section 3(1) of ERISA, whether or not such employee welfare benefit plan is subject to ERISA, an employee pension benefit plan within the meaning of Section 3(2) of ERISA, whether or not such pension plan is subject to ERISA, or health, medical, dental, disability, accident or life insurance or a bonus, incentive, deferred compensation, vacation, stock purchase, stock option, restricted stock or other equity-based award, severance, termination, retention, retirement, savings, employment, change of control, vacation or fringe benefit plan, program, arrangement or agreement, which benefits the current or former employees, independent contractors, consultants or directors of Sellers or any of Sellers’ Subsidiaries, or which Sellers (to the extent related to the Business) or any of their respective ERISA Affiliates sponsors, maintains or contributes to or in respect of which has any liability, whether contingent or otherwise.
“Bill of Sale” has the meaning ascribed to such term in Section 2.2(a)(i).
“Business” means the business of owning and operating the Restaurants.
“Business Competing Person” has the meaning ascribed to such term in Section 8.1(b)(ii).
“Cap” has the meaning ascribed to such term in Section 7.4(a)(iv).
“Casualty Loss” has the meaning ascribed to such term in Section 5.8.
“Closing” has the meaning ascribed to such term in Section 2.1.
“Closing Adjustments” has the meaning ascribed to such term in Section 1.3(b).
“Closing Date” has the meaning ascribed to such term in Section 2.1.
“Closing Payment” has the meaning ascribed to such term in Section 1.3(b).
“Closing Payment Certificate” has the meaning ascribed to such term in Section 1.3(b).
“Closing Unit Price” means $180,000 per common membership unit of ARC WingHouse.
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“Closing Working Capital” means, as of the Closing Date, the working capital of the Company determined in accordance with the classifications, judgments, valuations and estimation methodologies used on the attached Exhibit D. Closing Working Capital will be determined in accordance with GAAP to the extent consistent with Exhibit D.
“COBRA” means the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended.
“Code” means the U.S. Internal Revenue Code of 1986, as amended.
“Commission” means the United States Securities and Exchange Commission.
“Compensatory Arrangement” means any employment, severance, change in control, or similar agreement or bonus, commission or incentive plan between a Seller and any current or former employee of a Seller or other current or former service provider of a Seller.
“Competing Business” means a business that engages in the Business or engages in the business of owning, operating or franchising restaurants that generate more than 25% of annual gross sales from the sale of chicken wings and are similar in size, food offering, customer base, and sales to that of the Business.
“Condemnation” has the meaning ascribed to such term in Section 5.9.
“Confidential Information” means any confidential information concerning a Seller, the Purchased Assets or the Business.
“Consulting Agreement” has the meaning ascribed to such term in Section 1.8.
“Contingent Cash Consideration” means the cash payments required to be paid pursuant to Section 1.2(c).
“Contract Assignments” has the meaning ascribed to such term in Section 2.2(a)(ii).
“Damages” means any loss, damage, claim or liability (joint or several) to which a party hereto may become subject under the Securities Act, the Exchange Act, or other federal or state law, insofar as such loss, damage, claim or liability (or any action in respect thereof) arises out of or is based upon: (i) any untrue statement or alleged untrue statement of a material fact contained in a Registration Statement that includes Registrable Securities, including any preliminary prospectus or final prospectus contained therein or any amendments or supplements thereto; (ii) an omission or alleged omission to state therein a material fact required to be stated therein, or necessary to make the statements therein not misleading; or (iii) any violation or alleged violation by the indemnifying party (or any of its agents or affiliates) of the Securities Act, the Exchange Act, any state securities law, or any rule or regulation promulgated under the Securities Act, the Exchange Act, or any state securities law.
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“Debt Financing” has the meaning ascribed to such term in Section 5.11.
“Debt Financing Commitment” has the meaning ascribed to such term in Section 5.11.
“Deductible” has the meaning ascribed to such term in 7.4(a)(iii).
“Disclosure Schedules” means the disclosure schedules which by this reference are incorporated into and made integral parts of this Agreement, delivered by the Sellers concurrently with the execution of this Agreement (or updated following execution of this Agreement in accordance with the terms of this Agreement), and referenced in this Agreement.
“Disputed Items” has the meaning ascribed to such term in Section 1.3(c).
“Disputed Items Notice” has the meaning ascribed to such term in Section 1.3(c).
“Earnest Money” has the meaning ascribed to such term in Section 1.3.
“Employee Incentive Bonuses” means all incentive bonuses payable to any Seller’s employees pursuant to the
“Encumbrance” means any lien, pledge, hypothecation, charge, mortgage, security interest, encumbrance, equity, trust, equitable interest, claim, preference, right of possession, lease, tenancy, license, encroachment, covenant, infringement, interference, order, proxy, option, right of first refusal, preemptive right, community property interest, legend, defect, impediment, exception, reservation, limitation, impairment, imperfection of title, condition or restriction of any nature (including any restriction on the voting of any security, any restriction on the transfer of any security or other asset, any restriction on the receipt of any income derived from any asset, any restriction on the use of any asset and any restriction on the possession, exercise or transfer of any other attribute of ownership of any asset).
“Environmental Law” means any Law relating to: (i) pollution or protection of human health or safety (as such matters relate to exposure to hazardous materials) or the environment (including air, water vapor, surface water, groundwater, drinking water, supply, surface or subsurface land or strata and natural resources), including Laws relating to releases or threatened releases of hazardous materials or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, release, transport or handling of hazardous materials; (ii) the protection of wildlife and other natural resources such as endangered species, wetlands, and coastal areas; (iii) conservation and the control of greenhouse gases; and (iv) recordkeeping, notification, disclosure and reporting requirements respecting hazardous materials or permits in respect of any of the foregoing.
“Equity Interest” has the meaning ascribed to such term in Section 3.4(a).
“ERISA” means the Employee Retirement Income Security Act of 1974, as amended.
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“Estimated Closing Payment Certificate” has the meaning ascribed to such term in Section 1.3(a).
“Estimated Closing Payment” has the meaning ascribed to such term in Section 1.2(a).
“Estimated Closing Working Capital” has the meaning ascribed to such term in Section 1.3(a).
“Exchange Act” means the Securities Exchange Act of 1934, as amended, or any successor statute, and the rules and regulations promulgated thereunder.
“Excluded Assets” has the meaning ascribed to such term in Section 1.1(b).
“Financial Statements” has the meaning ascribed to such term in Section 5.8.
“Financing Agreements” has the meaning ascribed to such term in Section 5.11.
“Fundamental Representation” has the meaning ascribed to such term in Section 7.1.
“GAAP” means generally accepted accounting principles in the United States.
“Governmental Authority” means any United States federal, state or local, or any non-United States, governmental, regulatory or administrative authority, agency or commission or any court, tribunal, or judicial or arbitral body.
“Governmental Authorizations” means all licenses, permits, clearances, variances, exemptions, governmental orders, registrations, certificates and other authorizations, consents and approvals required to own the Purchased Assets and carry on the Business under the applicable Laws of any Governmental Authority.
“Guaranty” has the meaning ascribed to such term in Section 2.2(b)(vi).
“HIPAA” means the Health Insurance Portability and Accountability Act of 1996.
“Incentive Bonuses” means the accrued but not yet due and payable management incentive bonuses pursuant to any Seller’s management bonus or incentive program or plan.
“Indemnification Notice” has the meaning ascribed to such term in Section 7.6(a).
“Indemnified Party” has the meaning ascribed to such term in Section 7.6(a).
“Indemnifying Party” has the meaning ascribed to such term in Section 7.6(a).
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“Intellectual Property” means any and all intellectual property used by or in connection with the Business, whether arising under the Laws of the United States or any foreign jurisdiction, including all of the following: (i) patents and patent applications (including utility, utility model, design patents and certificates of invention), including all reissues, reexaminations, divisionals, extensions, provisionals, continuations and continuations-in-part thereof; (ii) trademarks, service marks, trade dress rights, trade names, logos, slogans, fictitious and other business names, brand names (including without limitation the brand name “WingHouse Bar & Grill”) and other indicia of origin, (whether registered or unregistered or common law), including all applications and registrations for the foregoing and all goodwill associated with the foregoing; (iii) works of authorship, copyrights (whether registered or unregistered), and rights in copyrightable subject matter in published and unpublished works of authorship, including copyrights in software and all applications and registrations for all of the foregoing; (iv) (A) trade secret rights in confidential and proprietary information (including trade secret rights in confidential and proprietary inventions, processes, designs, formulae, models, tools, algorithms, Software architectures, know-how, ideas, research and development), and (B) any other materials falling within the definition of “trade secrets” as set forth in 18 U.S. Code Section 1890; (v) Internet domain names; (vi) rights with respect to databases and other compilations and collections of data or information; (vii) any rights equivalent or similar to any of the foregoing; and (viii) registrations, applications, extensions, reversions and renewals for any of the foregoing.
“Intellectual Property Assignments” has the meaning ascribed to such term in Section 2.2(a)(viii).
“Inventory” means all food products, non-alcoholic beverages, alcoholic beverages, and other food and beverage products sold in the ordinary course of business, but excluding any obsolete, unusable or other out-of-date or non-current items, as determined consistent with Sellers’ past practice.
“Invoices” has the meaning ascribed to such term in Section 1.9.
“IRS” means the Internal Revenue Service.
“Kasturi Guaranty” means the Absolute Guarantee of Payment and Performance substantially in the form attached as Exhibit A dated as of the Closing Date, executed by Seenu G. Kasturi for the benefit of Soaring Wings.
“Knowledge” means: (i) with respect to an individual, knowledge of a particular fact or other matter, if such individual is aware of such fact or other matter; and (ii) with respect to a Person that is not an individual, knowledge of a particular fact or other matter if any individual who is serving as a director, officer, partner, executor, or trustee of such Person (or in any similar capacity) on the date of this Agreement or the Closing has knowledge of such fact or other matter.
“Law” means any federal, national, state or local, whether foreign, multi-national, or domestic law (including common law), statute, treaty, regulation, ordinance, rule, judgment, governmental order, decree, approval, permit, requirement or other governmental restriction, in each case having the force and effect of law, or any similar form of decision or approval of, or determination by, or any binding interpretation or administration of any of the foregoing by, any Governmental Authority that is issued, enacted, adopted, promulgated, implemented or otherwise put in effect by or under the authority of, any Governmental Authority.
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“Leased Real Property” has the meaning ascribed to such term in Section 3.9.
“Lender” has the meaning ascribed to such term in Section 5.11.
“Liabilities” means any and all debts, liabilities, costs, assessments, expenses, claims, losses, damages, deficiencies and obligations, whether accrued or fixed, known or unknown, liquidated or unliquidated, asserted or unasserted, absolute or contingent, matured or unmatured, determined or determinable, due or to become due, whenever or however arising (including whether arising out of any contract, common law or tort based on negligence or strict liability) and whether or not the same would be reflected in the Financial Statements.
“Loss” means and includes any and all liabilities, losses, damages, expenses (including reasonable attorney’s fees), costs, fines, fees, penalties and obligations.
“Loyalty Program Benefits” means all obligations, rewards, discounts and other benefits to which WingHouse rewards members are entitled to under the WingHouse rewards club.
“Material Adverse Effect” means a material adverse effect on the Purchased Assets, the Business, or the financial condition or results of operations of Sellers, taken as a whole; provided, however, that, any event, change, effect, circumstance or condition described in clauses (a) – (g) shall not be considered in determining whether a Material Adverse Effect has occurred: (a) changes in the condition in the restaurant industry in general, or in the general economic or political conditions in the United States or in the State of Florida, (b) changes in Law or interpretations thereof, (c) the negotiation, announcement, execution, pendency or performance of the Transaction Documents or the Acquisition, (d) acts of war, sabotage, terrorism, or military actions, (e) natural disasters or acts of God, (f) failure by Sellers to meet internal projections or forecasts, (g) any matter disclosed to Purchasers in the Disclosure Schedules or Financial Statements; provided that, in the case of each of clauses (a), (b), (d), and (e), such event, change, effect, circumstance or conditions does not have a disproportionate effect on the Business or the condition of the WH Operating Entities relative to other companies in the industry and geographic area in which Sellers operate the Restaurants.
“Material Contract” means any oral, written or implied contracts, agreements, leases, powers of attorney, guaranties, surety arrangements or other commitments, excluding equipment and furniture leases entered into in the ordinary course of business, the liabilities or commitments associated therewith exceed $25,000 individually or $100,000 in the aggregate.
“Non-Assigned Asset” has the meaning ascribed to such term in Section 1.6(b).
“Operating Agreement” means the Amended and Restated Operating Agreement of ARC WingHouse, LLC dated October 11, 2019, by and among ARC WingHouse, SW WH Holdings and Parent, as from time to time amended in accordance with its terms.
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“Permitted Encumbrances” means: (i) those Encumbrances reflected in, reserved against or otherwise disclosed on the Financial Statements; (ii) mechanics’, carriers’, workmen’s, repairmen’s or other similar Encumbrances arising or incurred in the ordinary course of business; (iii) Encumbrances arising under original purchase price conditional sales contracts and equipment leases with third parties entered into in the ordinary course of business; (iv) statutory liens for Taxes that are not due and payable or that may thereafter be paid without penalty or that are being contested in good faith by appropriate proceedings; (v) Encumbrances created by, arising under, or existing as a result of, any Law; (vi) all rights reserved to or vested in any Governmental Authority to control or regulate any asset or property in any manner and all Laws applicable to assets or properties; (vii) easements, covenants, rights-of-way and other similar restrictions of record; and (viii) (A) zoning, building and other similar restrictions; (B) Encumbrances that have been placed by any developer, landlord or other third party on property over which a Seller has easement rights; and (C) unrecorded easements, covenants, rights-of-way and other similar restrictions, none of which items set forth in this clause (viii), individually or in the aggregate, materially impairs the continued use and operation of any Real Property in the conduct of the Business as presently conducted.
“Person” means an individual or a corporation, partnership, limited partnership, joint venture, limited liability company, trust, unincorporated organization, Governmental Authority or any other entity.
“Proceeding” means any claim, action, suit, investigation, arbitration or proceeding (including any civil, criminal, administrative, investigative or appellate proceeding), audit, examination or investigation commenced, brought, conducted or heard by or before, or otherwise involving, any court or other Governmental Authority or any arbitrator or arbitration panel.
“Promissory Note” means that certain promissory note in the principal amount of $1,000,000, dated as of the date hereof, executed by ARC WingHouse in favor of Soaring Wings.
“Purchase Price” has the meaning ascribed to such term in Section 1.2.
“Purchased Assets” means has the meaning ascribed to such term in Section 1.1(a).
“Purchaser” has the meaning ascribed to such term in the Preamble.
“Purchasers” has the meaning ascribed to such term in the Preamble.
“Put Option Agreement” means that certain Put Agreement in the form attached as Exhibit B hereto dated as of the Closing Date, by and among Soaring Wings and the Purchasers.
“Qualified Benefit Plan” has the meaning ascribed to such term in Section 3.19(b).
“Registrable Security” means (i) any shares of ARC Stock held or beneficially owned by Soaring Wings that were issued to Soaring Wings pursuant to Section 1.2(c), and (ii) any shares of common stock of Parent issued or issuable to Soaring Wings with respect to such ARC Stock by way of a dividend or split or in exchange for or upon conversion of such shares or otherwise in connection with a combination of shares, shares subdivision, distribution, recapitalization, merger, consolidation, other reorganization or other similar event.
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“Related Party” means: (i) each individual who is an officer of Seller; (ii) each member of the immediate family of such officer; (iii) any Affiliate of Seller; and (iv) any trust or other Person (other than Seller) in which any one of the individuals referred to in clauses (i) and (ii) above holds (or in which more than one of such individuals collectively hold), beneficially or otherwise, a material voting, proprietary or equity interest.
“Representatives” means, with respect to any Person, such Person’s directors, managers, officers, employees, agents and advisors (including accountants, consultants, investment bankers, legal counsel and other experts) and other representatives.
“Restaurants” means the WingHouse Bar & Grill restaurants located at the locations identified on Exhibit C.
“Retained Liabilities” has the meaning ascribed to such term in Section 1.1(d).
“Securities Act” means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.
“Seller” has the meaning ascribed to such term in the Preamble.
“Seller Employees” means all individuals employed immediately prior to the Closing by Sellers (or any one or more of them) solely in connection with the operation or conduct of the Business.
“Seller Indemnified Party” has the meaning ascribed to such term in Section 7.2.
“Seller Restricted Party” has the meaning ascribed to such term in Section 8.1(a).
“Seller Tax Return” has the meaning ascribed to such term in Section 6.1.
“Soaring Wings” has the meaning ascribed to such term in the Preamble.
“Soaring Wings Advertising” has the meaning ascribed to such term in the Preamble.
“Soaring Wings HQ” has the meaning ascribed to such term in the Preamble.
“Soaring Wings IP” has the meaning ascribed to such term in the Preamble.
“Solvent” means, with respect to any Person, that such Person is “solvent” within the meaning given that term and similar terms under applicable Laws relating to fraudulent transfers.
“Statement of Allocation” has the meaning ascribed to such term in Section 1.4(a).
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“Straddle Period” means any Tax period that begins before but ends after the Closing Date.
“Subsidiary” means, when used with respect to any Person, any other Person that such Person directly or indirectly owns or has the power to vote or control more than either: (i) 50% of the voting stock or other interests the holders of which are generally entitled to vote for the election of the board of directors or other applicable governing body of such Person; or (ii) 50% of the economic interests.
“Survival Date” has the meaning ascribed to such term in Section 7.1.
“SW WH Holdings” means SW WH Holdings, LLC, a Delaware limited liability company.
“Target Working Capital Amount” means a negative $3,400,000.
“Tax” means: (i) any tax of any kind whatsoever, including any federal, state, local or foreign income, estimated, sales, use, ad valorem, receipts, value added, goods and services, profits, license, withholding, payroll, employment, unemployment, excise, premium, property, net worth, escheat, capital gains, transfer, stamp, documentary, social security, environmental, alternative or add-on minimum and occupation tax, imposts, duties, withholdings, charges, fees, levies or other assessments, in each case in the nature of a tax, imposed by any Governmental Authority, whether domestic or foreign, together with all interest, fines, penalties and additions attributable to or imposed with respect to such amounts; and (ii) any liability for payment of amounts described in clause (i) as a result of transferee or successor liability, a contract or being a member of an affiliated, consolidated, combined, aggregate or unitary group for any period, or otherwise through operation of Law.
“Tax Authority” means any Governmental Authority or any quasi-governmental or private body having jurisdiction over the assessment, determination, collection or imposition of any Tax.
“Tax Return” means any return, report, certificate, form or similar statement or document (including any related or supporting information or schedule attached thereto and any information return, amended Tax return, claim for refund or declaration of estimated Tax) required or permitted to be supplied to, or filed with, a Tax Authority in connection with the determination, assessment or collection of any Tax or the administration of any Laws relating to any Tax.
“Third Party Claim” has the meaning ascribed to such term in Section 7.6(a).
“Transaction Documents” means this Agreement, the Bill of Sale, the Contract Assignment, the Intellectual Property Assignment, the Assumption Agreement, the Kasturi Guaranty, the Put Option Agreement, the Promissory Note, the Operating Agreement and the other agreements, instruments and documents required to be delivered at the Closing.
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“Transaction Taxes” has the meaning ascribed to such term in Section 6.2.
“Treasury Regulations” means the Federal income tax regulations, including any temporary or proposed regulations, promulgated under the Code, in effect as of the date hereof.
“Warn Statutes” has the meaning ascribed to such term in Section 3.18(b).
“WH Advertising” has the meaning ascribed to such term in the Preamble.
“WH IP” has the meaning ascribed to such term in the Preamble.
“WH Operating Entities” means Soaring Wings St. Pete Ulmerton, LLC, Soaring Wings Pinellas Park, LLC, Soaring Wings Tampa Hillsborough, LLC, Soaring Wings New Port Richey, LLC, Soaring Wings Ocala, LLC, Soaring Wings Orlando, LLC, Soaring Wings Kissimmee, LLC, Soaring Wings Palm Harbor, LLC, Soaring Wings Altamonte Springs, LLC, Soaring Wings Sanford, LLC, Soaring Wings Daytona Beach Speedway, LLC, Soaring Wings Brandon 301, LLC, Soaring Wings Orlando Kirkman Road, LLC, Soaring Wings Lakeland, LLC, Soaring Wings Bradenton, LLC, Soaring Wings Daytona Beach Atlantic Ave., LLC, Soaring Wings Clearwater, LLC, Soaring Wings Brandon 60, LLC, Soaring Wings Gainesville, LLC, Soaring Wings Wesley Chapel, LLC, Soaring Wings Ellenton, LLC, Soaring Wings Doral, LLC, Soaring Wings TB Center, LLC, and Soaring Wings Davie, LLC, each a Florida limited liability company and wholly owned subsidiary of Soaring Wings.
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IN WITNESS WHEREOF, Purchasers and Sellers have caused this Agreement to be duly executed as of the date first written above.
| SELLERS: | |
| SOARING WINGS, LLC | |
| SOARING WINGS HQ, LLC | |
| SOARING WINGS ADVERTISING, LLC | |
| SOARING WINGS IP, LLC | |
| SOARING WINGS ST. PETE ULMERTON, LLC | |
| SOARING WINGS PINELLAS PARK, LLC | |
| SOARING WINGS TAMPA HILLSBOROUGH, LLC | |
| SOARING WINGS NEW PORT RICHEY, LLC | |
| SOARING WINGS OCALA, LLC | |
| SOARING WINGS ORLANDO, LLC | |
| SOARING WINGS KISSIMMEE, LLC | |
| SOARING WINGS PALM HARBOR, LLC | |
| SOARING WINGS ALTAMONTE SPRINGS, LLC | |
| SOARING WINGS SANFORD, LLC | |
| SOARING WINGS DAYTONA BEACH SPEEDWAY, LLC | |
| SOARING WINGS BRANDON 301, LLC | |
| SOARING WINGS ORLANDO KIRKMAN ROAD, LLC | |
| SOARING WINGS LAKELAND, LLC | |
| SOARING WINGS BRADENTON, LLC | |
| SOARING WINGS DAYTONA BEACH ATLANTIC AVE., LLC | |
| SOARING WINGS CLEARWATER, LLC | |
| SOARING WINGS BRANDON 60, LLC | |
| SOARING WINGS GAINESVILLE, LLC | |
| SOARING WINGS WESLEY CHAPEL, LLC | |
| SOARING WINGS ELLENTON, LLC | |
| SOARING WINGS DORAL, LLC | |
| SOARING WINGS TB CENTER, LLC | |
| SOARING WINGS DAVIE, LLC |
| By: | SOARING WINGS MANAGER, LLC, | |
| their Manager |
| By: | /s/ Kenneth P. Jones | |
| Name: | Kenneth P. Jones | |
| Title: | Manager |
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| PURCHASERS: | ||
| ARC GROUP, INC., | ||
| a Nevada corporation | ||
| By: | /s/ Seenu G. Kasturi | |
| Seenu G. Kasturi | ||
| Chief Executive Officer | ||
| ARC WINGHOUSE, LLC, | ||
| a Florida limited liability company | ||
| By: | /s/ Seenu G. Kasturi | |
| Seenu G. Kasturi | ||
| Manager | ||
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EXECUTION VERSION
PUT AGREEMENT
This PUT AGREEMENT (this “Agreement”) dated as of October 11, 2019 (the “Effective Date”), is entered into by and among ARC Group, Inc., a Nevada corporation (the “Parent”), ARC WingHouse, LLC, a Florida limited liability company (“Purchaser” and, together with Parent, “Company”) and Soaring Wings, LLC, a Florida limited liability company (“Soaring Wings”). All capitalized terms used but not defined in this Agreement have the meanings assigned to them in the Asset Purchase Agreement (as defined below).
Background
On the Effective Date, Purchaser, a subsidiary of Parent, purchased the WingHouse Bar & Grill casual restaurant chain from Soaring Wings and its subsidiaries pursuant to that certain Asset Purchase Agreement, dated as of October 11, 2019, by and among the Purchaser, Parent, Soaring Wings, and the other parties listed therein (the “Asset Purchase Agreement”).
As partial consideration for the Purchased Assets, Parent is required to deliver ARC Stock to Soaring Wings on each of the first three anniversaries of the Effective Date, with the number of shares of ARC Stock delivered on each anniversary to be equal to the quotient of $1,000,000 divided by the applicable per share price: (i) 1st anniversary, $1.40 per share; (ii) 2nd anniversary, $2.00 per share; and (iii) 3rd anniversary, $3.00 per share (the “ARC Stock Consideration”), subject to the terms and conditions in Section 1.2(c) of the Asset Purchase Agreement.
If the ARC Stock is not listed on the NYSE, NASDAQ Global Select Market, NASDAQ Global Market and NASDAQ Capital Market on any of the 1st, 2nd or 3rd anniversaries of the Closing (the first such anniversary referred to as a “Listing Failure Anniversary”), then, unless Soaring Wings elects otherwise in accordance with Section 1.2(c) of the Asset Purchase Agreement, Purchaser shall pay $1,000,000 cash to Soaring Wings on the Listing Failure Anniversary and each anniversary of the Closing after a Listing Failure Anniversary (if any), ending on the 3rd anniversary of the Closing in full satisfaction of Parent’s obligation to deliver ARC Stock to Soaring Wings on the Listing Failure Anniversary and each anniversary thereafter, ending on the 3rd anniversary.
Notwithstanding the existence of a Listing Failure Anniversary, Soaring Wings may, in its sole discretion, elect to receive ARC Stock on the Listing Failure Anniversary and/or any anniversary after the Listing Failure Anniversary in lieu of a $1,000,000 cash payment as provided in Section 1.2(c) of the Asset Purchase Agreement by providing Purchaser with written notice no less than thirty (30) days before the Listing Failure Anniversary or subsequent anniversary, as applicable, with the amount and timing of ARC Stock to be delivered following such election in accordance with the first sentence of such section.
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It is expressly agreed and understood by the Company that Soaring Wings and its subsidiaries willingness to sell the WingHouse Bar & Grill restaurant chain to Purchaser are conditioned on the Company’s execution and delivery of this Agreement and that Soaring Wings and its subsidiaries would not have entered into the Asset Purchase Agreement or sell the WingHouse Bar & Grill restaurant chain to Purchaser without this Agreement.
Operative Terms
The Company and Soaring Wings agree as follows:
1. Soaring Wings’ Put Right.
(a) Put Right. Subject to the terms and conditions of this Agreement, Soaring Wings shall have the right (but not the obligation), upon written notice to Parent (the “Put Notice”) given at any time before the Put Deadline (as defined below), to force Parent to purchase, for cash, at the Put Closing (as defined below), all or any portion of the shares of ARC Stock received by Soaring Wings under Section 1.2(c) of the Asset Purchase Agreement or Section 15 of this Agreement. In the event Soaring Wings receives ARC Stock pursuant to Section 1.2(c) of the Asset Purchase Agreement and puts all of such ARC Stock to Parent, then the amount payable by Parent to Soaring Wings at the Put Closing shall be equal to the Put Price (as defined below). In the event Soaring Wings elects to put only a portion of such shares to Purchaser, either because Soaring Wings received Contingent Cash Consideration on one or more of such anniversaries, Soaring Wings sold some of the ARC Stock, Soaring Wings elected to retain some of the ARC Stock and put only a portion of the ARC Stock to Parent, and/or for any other reason, then the amount payable by Parent to Soaring Wings at the Put Closing will calculated in the following manner: (x) the Put Price, multiplied by (y) a fraction, the numerator of which is the number of shares of ARC Stock put to Parent by Soaring Wings hereunder, and the denominator of which is the number of shares of ARC Stock received by Soaring Wings under the Asset Purchase Agreement had Soaring Wings received ARC Stock on each of the 1st, 2nd and 3rd anniversaries of the Closing Date. Upon the mutual written agreement of Parent and Soaring Wings, the deadline for Soaring Wings delivering the Put Notice may be extended beyond the Put Deadline, in which case the Put Closing will be a day selected by the Parent and Soaring Wings (but in no event later than 14 days after the end of new Put Deadline). The amount payable by Parent to Soaring Wings at the Put Closing shall be referred to herein as, the “Put Payment”.
(b) Certain Definitions. For the purposes of this Agreement, “Put Price” shall mean an amount equal to: (i) $6,000,000.00, less (ii) the aggregate dividends (if any) received by Soaring Wings from the Parent attributable to any shares of ARC Stock received by Soaring Wings under Section 1.2(c) of the Asset Purchase Agreement and not required to be paid to Lender pursuant to the Subordination Agreement, less (iii) the aggregate Distributions (other than Tax Distributions) made by Purchaser to Soaring Wings under that certain Amended and Restated Operating Agreement of Purchaser dated October 11, 2019 (the “Operating Agreement”) that are not required to be paid to Lender pursuant to the Subordination Agreement, less (iv) the aggregate cash payments made by Purchaser to Soaring Wings following a Listing Failure Anniversary pursuant to Section 1.2(c) of the Asset Purchase Agreement that are not required to be paid to Lender pursuant to the Subordination Agreement (and for the avoidance of doubt, were not applied to satisfy Losses pursuant to Section 7.9(b) under the Asset Purchase Agreement), less (v) the aggregate amount of Losses satisfied by Sellers to any ARC WingHouse Indemnified Party pursuant to Sections 7.9(a), (b) and (c) under the Asset Purchase Agreement that are not required to be paid to Lender pursuant to the Subordination Agreement. For the purposes of this Section 1(b), “Distributions”, “Tax Distributions” and “Losses” shall have the meaning ascribed to such terms in the Operating Agreement.
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(c) Put Deadline. For purposes hereof, “Put Deadline” shall mean the later of (y) the fifth anniversary of the Effective Date and (z) twelve months (12) months following the date on which Company provides written notice to Soaring Wings that: (i) it has indefeasibly paid and satisfied in full the Debt (as defined below), (ii) Soaring Wings is not restricted from exercising its rights under this Agreement (in whole or in part) pursuant to that certain Subordination Agreement dated on or around the Effective Date (the “Subordination Agreement”) by and among Soaring Wings, Purchaser, and City National Bank of Florida (the “Lender”), or otherwise, and (iii) the Company has legally sufficient funds to pay the Put Payment in full. Purchaser hereby agrees to provide prompt notice to Soaring Wings of any event of default or default under and as defined in the loan documents governing the Debt (as defined below).
(d) Put Closing.
(i) The closing of the purchase and sale of the ARC Stock that may be put to Parent pursuant to Section 1(a) (the “Put Closing”) shall take place at the offices of Parent such other location as may be mutually agreed upon by the Parent and Soaring Wings on the date specified by Soaring Wings in the Put Notice; provided, however, the Put Closing shall not occur at any time prior to the 5th anniversary of the Effective Date.
(ii) Parent will pay Soaring Wings the Put Payment at the Put Closing by wire transfer of immediately available funds to a bank account designated by Soaring Wings in the Put Notice. If for any reason Parent fails to pay the Put Payment at the Put Closing (or Soaring Wings is prevented from sending a Put Notice or receiving the Put Payment pursuant to the Subordination Agreement (“Lender Blockage”)), interest will accrue on a daily basis on the unpaid Put Payment (with such Put Payment being calculated as of the 5th anniversary of the Effective Date, in the case of a Lender Blockage) beginning on the day of the Put Closing (or, in the case of a Lender Blockage, the 5th anniversary of the Effective Date) at the lesser of: (1) 18% per annum or (2) the maximum rate of interest permitted by applicable law, until such time as the Put Payment plus all accrued interest thereon has been paid to Soaring Wings (as applicable, “Default Interest”). Notwithstanding anything to the contrary, such Default Interest shall be payable in addition to the Put Payment as consideration for the ARC Stock that is the subject of the Put Notice.
(iii) At such time as Soaring Wings receives the Put Payment plus all additional amounts due to Soaring Wings under this Agreement, Soaring Wings will assign and deliver to Parent the ARC Stock that was put to the Parent pursuant to Section 1(a), free and clear of any lien or encumbrance, by executing and delivering a stock transfer power or other instrument of transfer in a customary form.
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2. Specific Performance. Soaring Wings, in addition to being entitled to exercise all rights and pursue all remedies granted by law and equity, including recovery of damages and collection of the Put Payment and Default Interest thereon, shall be entitled to specific performance of its rights provided under this Agreement, without the requirement of posting of any bond. The Company agrees that monetary damages may not be adequate compensation for any loss incurred by reason of a breach by the Company of the provisions of this Agreement and hereby agrees, in an action for specific performance, to waive the defense that a remedy at law would be adequate.
3. Guaranty. Purchaser unconditionally and irrevocably guarantees to Soaring Wings the full and prompt performance and payment by Parent of all obligations of Parent to Soaring Wings under this Agreement. Soaring Wings may enforce the foregoing guaranty against Purchaser without the necessity of any action or proceedings against Parent or any other party or against any collateral held by Soaring Wings (if any). Purchaser’s guaranty is an absolute, unconditional and continuing guaranty without regard to the validity or enforceability of any obligation of Parent to Soaring Wings under this Agreement. Further, Purchaser expressly agrees that its obligations hereunder shall not in any way be terminated, affected or impaired by reason of (a) the granting by Soaring Wings of any indulgences to Parent, (b) the assertion against Soaring Wings or any of its subsidiaries of any of the rights and remedies reserved to Company (or either one of them) pursuant to the Asset Purchase Agreement or its limited liability company agreement or (c) the release of Parent from any of Parent’s obligations, whether by operation of law or otherwise, Purchaser hereby waiving all suretyship defenses and all other defenses other than strict payment and performance of all of Parent’s obligations under this Agreement.
4. Subordination. Soaring Wings acknowledges and agrees that Purchaser has obtained debt financing (the “Debt”) from the Lender for the purpose of enabling Purchaser to complete the transactions contemplated by the Asset Purchase Agreement. Soaring Wings hereby subordinates to Lender all consideration to which Soaring Wings may in the future be entitled under this Put Agreement from Purchaser to the extent and in the manner set forth in the Subordination Agreement. Purchaser shall deliver to Soaring Wings copies of any and all modifications, amendments, extensions, alterations, changes or revisions to the loan documents evidencing the Debt and will provide Soaring Wings notice of any default thereunder and of the payment in full of the Debt. Notwithstanding anything to the contrary in this Agreement or the Subordination Agreement, neither Purchaser nor Parent will extend the term of the Debt or increase the principal amount of the Debt.
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5. Notices. All notices or other communications required or permitted under this Agreement shall be in writing and shall be deemed given or delivered (a) when delivered personally, (b) if sent by registered or certified mail, return receipt requested, or by private courier when received; and shall be addressed as follows:
If to the Purchaser or Parent, to:
ARC Group, Inc.
1409 Kingsley Ave., Ste. 2
Orange Park, Florida 32073
Attention: Seenu G. Kasturi, Chief Executive Officer
If to Soaring Wings, to:
Soaring Wings, LLC
1600 E. 8th Avenue
Suite A-208
Tampa, Florida 33605
Attention: Kenneth P. Jones
With copy to:
Hill Ward Henderson
3700 Bank of America Plaza
101 E. Kennedy Boulevard
Tampa, Florida 33602
Attention: John C. Connery, Jr.
6. Delays, Omissions, Etc. No delay or omission to exercise any right, power or remedy accruing to Soaring Wings upon any breach or default by the Company under this Agreement shall be deemed a further or continuing waiver or a waiver of any other breach or default theretofore or thereafter occurring. Any waiver, permit, consent, or approval of any kind or character on the part of Soaring Wings of any breach or default by the Company under this Agreement, or any waiver on the part of Soaring Wings of any provision, term or condition of this Agreement must be in writing and shall be effective only to the extent specifically set forth in such writing.
7. Merger; Amendments. This Agreement represents the exclusive understanding of the parties with respect to the subject matter hereof and supersedes any prior agreements and understandings with respect thereto. This Agreement may not be amended, modified, supplemented or restated except pursuant to a written instruments signed by all of the parties hereto.
8. Severability. If any provision contained in this Agreement shall for any reason be held invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provision of this Agreement, but this Agreement shall be construed as if such invalid, illegal or unenforceable provision had never been contained herein. Upon such determination that any provision is invalid, illegal or unenforceable, the parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in a mutually acceptable manner in order that the transactions contemplated hereby be consummated as originally contemplated to the greatest extent possible.
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9. Headings. The descriptive headings of the several sections of this Agreement are inserted for convenience only and do not constitute a part of this Agreement.
10. Assignment; Heirs and Legal Representatives. This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective heirs, legal representatives, successors and permitted assigns. However, neither this Agreement nor any of the rights or obligations hereunder are assignable by Parent or Purchaser unless such assignment is consented to in writing by Soaring Wings. Soaring Wings may assign its rights and obligations hereunder to any Person who acquires any of the ARC Stock Consideration.
11. Governing Law; Jurisdiction and Venue. This Agreement and all actions arising out of or in connection with this Agreement shall be governed by and construed in accordance with the laws of the State of Florida, without regard to the conflicts of law provisions of the State of Florida or of any other state. The parties (a) consent to the personal jurisdiction of the state and federal courts having jurisdiction in Jacksonville, Florida, (b) stipulate that the exclusive jurisdiction and venue for any legal proceeding arising out of this Agreement is the state and federal courts having jurisdiction in Jacksonville, Florida, and (c) waive any defense, whether asserted by motion or pleading, that any such venue is an improper or inconvenient venue.
12. Counterparts; Signature by Facsimile and E-mail Transmission. This Agreement and any amendment, restatement, or termination of any provision of this Agreement, may be executed by the parties hereto in separate counterparts, each of which when so executed and delivered shall be an original, but all such counterparts shall together constitute one and the same instrument. Each counterpart may consist of a number of copies hereof each signed by less than all, but together signed by all of the parties hereto. A party’s transmission by facsimile or by e-mail transmission Portable Document Format (also known as a PDF file) of a copy of this Agreement duly executed by that party shall constitute effective delivery by that party of an executed copy of this Agreement to the party receiving the transmission.
13. Waiver of Jury Trial. EACH PARTY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY SUIT, ACTION OR PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT.
14. ARC Stock Consideration. All references to ARC Stock Consideration are deemed to mean: (a) all shares of ARC Stock held or beneficially owned by Soaring Wings that were issued to Soaring Wings pursuant to Section 1.2(c) of the Asset Purchase Agreement, and (b) any shares of common stock of Parent issued or issuable to Soaring Wings with respect to such ARC Stock by way of a dividend or split or in exchange for or upon conversion of such shares or otherwise in connection with a combination of shares, shares subdivision, distribution, recapitalization, merger, consolidation, other reorganization or other similar event.
15. Re-Issuance. If Soaring Wings is required to remit any amount received under this Agreement to Lender pursuant to the Subordination Agreement, Purchaser and Parent shall cause the number of shares of ARC Stock purchased by Parent pursuant hereto for which such payment to Lender was made to be immediately transferred back or re-issued to Soaring Wings without any cost or expense to Soaring Wings, which shares of ARC Stock shall be validly issued, fully paid and non-assessable.
[Signatures appear on next page]
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SIGNATURE
PAGE TO
PUT AGREEMENT
IN WITNESS WHEREOF, the undersigned has caused this Put Agreement to be duly executed and delivered as of the date first written above.
| PARENT: | ||
| ARC Group, Inc., a Nevada corporation | ||
| By: | /s/ Seenu Kasturi | |
| Name: | Seenu Kasturi | |
| Title: | CEO | |
| PURCHASER: | ||
| ARC Winghouse, llc, a Florida limited liability company | ||
| By: | /s/ Seenu Kasturi | |
| Name: | Seenu Kasturi | |
| Title: | Manager | |
| SOARING WINGS: | ||
| Soaring Wings, LLC, a Florida limited liability company | ||
| By: | Soaring Wings Manger, LLC, | |
| a Florida limited liability company, | ||
| its Manager | ||
| By: | /s/ Kenneth P. Jones | |
| Name: | Kenneth P. Jones | |
| Title: | Manager | |
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LOAN AGREEMENT
THIS LOAN AGREEMENT (this “Agreement”), dated as of this 11th day of October, 2019, by and between ARC WINGHOUSE LLC, a Florida limited liability company (the “Borrower”), whose address is 1409 Kingsley Avenue, Suite 2, Orange Park, Florida 32073, and CITY NATIONAL BANK OF FLORIDA, its successors and/or assigns (the “Lender”), whose address is 25 West Flagler Street, Miami, Florida 33130.
RECITALS
A. Borrower has requested and Lender has agreed to make a term credit facility to Borrower in the maximum principal amount of TWELVE MILLION TWO HUNDRED FIFTY THOUSAND AND 00/100 DOLLARS ($12,250,000.00) (the “Loan”) to be used by Borrower to finance the acquisition of twenty-four (24) “WingHouse Bar & Grill Restaurants” (the “Restaurants”) from Soaring Wings, LLC, and its subsidiaries, subject to the terms and conditions contained in this Agreement.
B. Borrower and Lender have negotiated the terms and conditions of, and wish to enter into, this Agreement in order to set forth the terms and conditions of the Loan.
NOW, THEREFORE, in consideration of the mutual covenants and agreements set forth below, Borrower and Lender agree as follows:
1. DEFINITIONS. As used in this Agreement the terms listed below shall have the following meanings unless otherwise required by the context:
(a) Account: Has the meaning set forth in the Code.
(b) Affiliate: An Affiliate of the Borrower shall mean any entity which, directly or indirectly, controls or is controlled by or is under common control with the Borrower. An entity shall be deemed to be “controlled by” another entity if such other entity possesses, directly or indirectly, power to direct or cause the direction of the management and policies of such entity whether by contract, ownership of voting securities, membership interests or otherwise.
(c) Code: The Uniform Commercial Code (or any successor statute), as adopted and in force in Florida or, when the laws of any other state govern the method or manner of the perfection or enforcement of any security interest in any of the Collateral, the Uniform Commercial Code (or any successor statute) of such state. Any term used in this Agreement and in any financing statement filed in connection herewith which is defined in the Code and not otherwise defined in this Agreement or in any other Loan Document has the meaning given to the term in the Code.
(d) Collateral: The property encumbered by the Leasehold Mortgage, the Security Agreement and all other property and assets granted as collateral security for the Loan, whether real or personal property, whether granted directly or indirectly, whether granted now or in the future, and whether granted in the form of a security interest, mortgage, collateral mortgage, deed of trust, assignment, pledge, chattel mortgage, collateral chattel mortgage, chattel trust, factors’ lien, equipment trust, conditional sale, trust receipt, lien or title retention contract, lease or consignment intended as a security device, or any other security or lien interest whatsoever, whether created by law, contract or otherwise.
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(e) EBITDA: As applies to any Person, the sum of earnings before interest, taxes, depreciation and amortization.
(f) Fiscal Year: The fiscal year of the Borrower, which period shall be a 12-month period ending on December 31 of each year. References to a Fiscal Year with a number corresponding to any calendar year (e.g. “Fiscal Year 2019”) refer to the Fiscal Year ending on December 31 of such calendar year.
(g) GAAP: Generally accepted accounting principles consistently applied, as adopted in the United States, and as amended from time to time.
(h) Governmental Authority: Any governmental or quasi-governmental authority, agency, authority, board, commission, or governing body authorized by federal, state or local laws or regulations as having jurisdiction over the Lender, the Borrower, the Guarantor or the Parent.
(i) Governmental Requirements: The standards for real property appraisals established under applicable regulations governing national or state chartered banks promulgated by the Board of Governors of the Federal Reserve System or the United States Comptroller of the Currency, and any other regulations promulgated by any Governmental Authority which apply to Lender.
(j) Guarantor: Seenu G. Kasturi.
(k) Guaranty: That certain Guaranty of Payment and Performance dated as of even date herewith from Guarantor in favor of Lender, as the same may be amended, restated, modified or replaced from time to time.
(l) Lender: City National Bank of Florida, its successors and/or assigns.
(m) Leases: Those lease agreements pursuant to which Borrower occupies the Restaurants.
(n) Leasehold Mortgage: That certain Leasehold Mortgage and Assignment of Leases and Rents dated as of even date herewith from Borrower in favor of Lender, as the same may be amended, restated, modified or replaced from time to time.
(o) Liquor Licenses: The liquor licenses pursuant to which Borrower operates the Restaurants.
(p) Loan: That certain loan in the amount of TWELVE MILLION TWO HUNDRED FIFTY THOUSAND AND 00/100 DOLLARS ($12,250,000.00), as evidenced by the Note and secured by the Leasehold Mortgage, the Security Agreement and the other Loan Documents as provided herein.
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(q) Loan Documents: Any and all documents evidencing, securing, or executed in connection with the Loan, including, without limitation, the Note, the Leasehold Mortgage, the Security Agreement, the Guaranty, the Negative Pledge Agreement and this Agreement.
(r) Negative Pledge Agreement. That certain Negative Pledge Agreement dated of even date herewith from Parent in favor of Lender.
(s) Note: That certain Promissory Note dated as of even date herewith from Borrower in favor of Lender in the principal amount of $12,250,000.00, as the same may be amended, restated, modified or replaced from time to time.
(t) Parent: ARC Group, Inc., a Nevada corporation
(u) Person: A natural person, a partnership, a joint venture, an unincorporated association, a limited liability company, a corporation, a trust, any other legal entity, or any Governmental Authority.
(v) Put Agreement: That certain Put Agreement dated as of October 11, 2019, among Borrower, Parent and Soaring Wings, LLC.
(w) Security Agreement: That certain Security Agreement dated as of even date herewith from Borrower in favor of Lender, as the same may be amended, restated, modified or replaced from time to time.
(x) Seller Note: That certain promissory note of even date herewith from Borrower in favor of Soaring Wings, LLC, in the amount of $1,000,000.00
(y) Trademark Assignment Agreement: That certain Trademark Collateral Assignment and Security Agreement dated as of even date herewith between Borrower and Lender, as the same may be amended, restated, modified or replaced from time to time.
(z) Unmatured Event of Default: Any event that, if it continues uncured, will, with lapse of time or notice, or both, constitute an Event of Default hereunder and under the other Loan Documents.
2. LOAN; ADVANCES. At the closing of the Loan, Lender is funding the Loan in full.
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3. ACCOUNTS.
(a) Guarantor Blocked Account. Prior to Closing, Guarantor shall establish with Lender a non-interest bearing account into which Guarantor shall deposit the amount of $1,250,000.00 (the “Guarantor Blocked Account”). The Guarantor Blocked Account shall be under the sole control of Lender and Guarantor shall have no right to withdraw any funds from the Guarantor Blocked Account. Guarantor hereby grants to Lender a security interest in the Guarantor Blocked Account and the funds held therein as security for the Loan. Upon the occurrence of an Event of Default, Lender shall have the right to apply the funds in the Guarantor Blocked Account against the indebtedness owing under the Loan in such manner as Lender elects in Lender’s sole discretion. So long as no uncured Unmatured Event of Default or Event of Default has occurred, at any time after the first annual anniversary of the closing of the Loan, Lender, at the written request of Guarantor, shall release the funds in the Guarantor Blocked Account to Guarantor upon Borrower establishing with Lender a substitute non-interest bearing “blocked account” (the “Substitute Blocked Account”) into which Borrower has deposited the amount of $1,250,000.00 and which shall serve as additional security for the Loan. Upon the occurrence of an Event of Default, Lender shall have the right to apply the funds in the Substitute Blocked Account against the indebtedness owing under the Loan in such manner as Lender elects in Lender’s sole discretion. Lender shall release all funds held in the Blocked Account or Substitute Account, as the case may be, to Guarantor or Borrower, as applicable, upon repayment of the Loan by Borrower.
(b) Borrower Blocked Account. At Closing, Borrower shall establish with Lender a non-interest bearing account into which Borrower shall deposit the amount of $1,000,000.00 (the “Borrower Blocked Account”). The Borrower Blocked Account shall be under the sole control of Lender and Borrower shall have no right to withdraw any funds from the Borrower Blocked Account. Borrower hereby grants to Lender a security interest in the Borrower Blocked Account and the funds held therein as security for the Loan. Upon the occurrence of an Event of Default, Lender shall have the right to apply the funds in the Borrower Blocked Account against the indebtedness owing under the Loan in such manner as Lender elects in Lender’s sole discretion. After April 11, 2020, but no sooner than Lender receiving Borrower’s audited financial statements for calendar year 2019, and Borrower’s quarterly financial statements for the quarter end March 30, 2020, so long as Borrower is in compliance with the financial covenants set forth in Section 8 for the immediately preceding testing period and no uncured Unmatured Event of Default or Event of Default has otherwise occurred, Lender, upon the request of Borrower, not more frequently than once during any semi-annual period), shall disburse to Borrower funds from the Borrower Blocked Account is an amount such that the outstanding principal balance of the Loan, less (i) the amount of funds then in the Guarantor Blocked Account and (ii) the remaining funds in the Borrower Blocked Account, does not then exceed $10,000,000. All disbursements shall be used by Borrower to pay-down the Seller’s Note, and, at Borrower’s direction, will be paid directly to the holder of the Seller’s Note.
(c) Payment Account. Prior to Closing, Borrower shall establish with Lender an account which shall be subject to auto-debiting by Lender to make the monthly installments due under the Note. Borrower shall execute any documents required by Lender to effectuate auto-debiting of this account.
4. EXPENSES. Borrower shall pay all fees and charges incurred in the procuring and making of the Loan and all other expenses incurred by Lender during the term of the Loan, including, without limitation, documentary stamp taxes, recording expenses, and the fees of the attorneys for Lender. Borrower shall also pay any and all insurance premiums, taxes, assessments, and other charges, liens and encumbrances upon the Collateral. Such amounts, unless sooner paid, shall be paid from time to time as Lender shall request either to the Person to whom such payments are due or to Lender if Lender has paid the same.
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5. WARRANTIES AND REPRESENTATIONS. Borrower and/or Guarantor, as applicable, represent and warrant (which representations and warranties shall be deemed continuing) as follows:
(a) Organization Status. Borrower (i) is duly organized under the laws of the State of Florida, (ii) is in good standing under the laws of the State of Florida, (iii) is qualified to do business in the State of Florida, and (iv) has membership interests which have been duly and validly issued.
(b) Compliance with Laws. Borrower is in compliance with all laws, regulations, ordinances and orders of all Governmental Authorities.
(c) Accurate Information. All information now and hereafter furnished to Lender is and will be true, correct and complete in all material respects. Any such information relating to Borrower’s or Guarantor’s financial condition has and will accurately reflect such financial condition as of the date(s) thereof, (including all contingent liabilities of every type), and each of Borrower and Guarantor further represent that its financial condition has not changed materially or adversely since the date(s) of such documents.
(d) Authority to Enter into Loan Documents. The Borrower and the Guarantor have full power and authority to enter into the Loan Documents and consummate the transactions contemplated hereby, and the facts and matters expressed or implied in the opinions of its legal counsel are true and correct.
(e) Validity of Loan Documents. The Loan Documents have been approved by those Persons having proper authority, and are in all respects legal, valid and binding according to their terms.
(f) Priority of Lien on Personalty. No chattel mortgage, bill of sale, security agreement, financing statement or other title retention agreement (except those executed in favor of Lender) has been or will be executed with respect to any of the Collateral or otherwise approved by Lender in accordance with the Leasehold Mortgage or the Security Agreement.
(g) Conflicting Transactions of Borrower. The consummation of the transaction hereby contemplated and the performance of the obligations of Borrower and Guarantor under and by virtue of the Loan Documents will not result in any breach of, or constitute a default under, any lease, loan or credit agreement, or other instrument to which Borrower or Guarantor is a party or by which they may be bound or affected.
(h) Pending Litigation. There are no actions, suits or proceedings pending against Borrower, Guarantor or the Collateral, or circumstances which could lead to such action, suits or proceedings against or affecting Borrower, Guarantor, the Collateral, or involving the validity or enforceability of any of the Loan Documents, before or by any Governmental Authority, except actions, suits and proceedings which have been specifically disclosed to and approved by Lender in writing; and Borrower is not in default with respect to any order, writ, injunction, decree or demand of any court or any Governmental Authority.
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(i) Condition of Collateral. The Collateral is not now damaged or injured as a result of any fire, explosion, accident, flood or other casualty.
(j) Discharge of Liens and Taxes. Borrower and Guarantor have duly filed, paid and/or discharged all taxes or other claims that may become a lien on any of its property or assets, except to the extent that such items are being appropriately contested in good faith and an adequate reserve for the payment thereof is being maintained.
(k) Sufficiency of Capital. Neither Borrower nor Guarantor is, and after consummation of this Agreement and after giving effect to all indebtedness incurred and liens created by Borrower in connection with the Note and any other Loan Documents, will be, insolvent within the meaning of 11 U.S.C. § 101, as in effect from time to time.
(l) ERISA. Each employee pension benefit plan, as defined in Employee Retirement Income Security Act of 1974, as amended (“ERISA”), maintained by any of the Borrower and/or Guarantor meets, as of the date hereof, the minimum funding standards of ERISA and all applicable regulations thereto and requirements thereof, and of the Internal Revenue Code of 1986, as amended. No “Prohibited Transaction” or “Reportable Event” (as both terms are defined by ERISA) has occurred with respect to any such plan.
(m) Indemnity. Borrower and Guarantor will indemnify Lender and its affiliates from and against any losses, liabilities, claims, damages, penalties or fines imposed upon, asserted or assessed against or incurred by Lender arising out of the inaccuracy or breach of any of the representations contained in this Agreement or any other Loan Documents.
(n) No Default. There is no Event of Default or default on the part of Borrower or Guarantor under this Agreement, the Note, the Guaranty, the Leasehold Mortgage, the Security Agreement or any other Loan Document, and no event has occurred and is continuing which with notice, or the passage of time, or either, would constitute a default under any provision thereof. Borrower is not and, to Borrower’s knowledge, Guarantor is not, in default in any material respect under any agreement or instrument to which it is a party or by which it may be bound which would individually or in the aggregate have a material adverse effect on the financial condition or business of Borrower or Guarantor.
(o) Ownership of Properties/Liens. Borrower owns good and, in the case of real property, marketable title to all of its properties, real and personal, tangible and intangible, of any nature whatsoever (including patents, trademarks, trade names, service marks and copyrights), free and clear of all liens, charges and claims (including infringement claims with respect to patents, trademarks, service marks, copyrights and the like).
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(p) Leases. (i) Borrower has provided to Lender true, correct and complete copies of the Leases (including all amendments and assignments), (ii) Borrower is the owner and holder of the tenants’ interest in the Leases, free and clear of all liens and encumbrances, (iii) all consents from the landlords under the Leases necessary for the Leases to be assigned to Borrower have been obtained, and (iv) each of the Leases has been validly assigned to Borrower, is in full force and effect, and is free of any default.
(q) Trademarks. Borrower has provided to Lender true, correct and complete copies of the Trademarks (as defined in the Trademark Assignment Agreement). The Trademarks which have been collaterally assigned to Lender pursuant to the Trademark Assignment Agreement constitute all of the Trademarks under which Borrower operates the Restaurants. Borrower is the owner and holder of the Trademarks, free and clear of all liens and encumbrances.
(r) Liquor Licenses. Borrower has provided to Lender true, correct and complete copies of the Liquor Licenses, all of which are in full force and effect. The Liquor Licenses provided to Lender constitute all of the Liquor Licenses under which Borrower operates the Restaurants. Borrower is the owner and holder of the Liquor Licenses, free and clear of all liens and encumbrances.
6. COVENANTS. Borrower and Guarantor, as applicable, covenant and agree with Lender as follows:
(a) Taxes. Borrower certifies that it has filed or caused to be filed all federal, state and other tax returns which are required to be filed, and have paid or caused to be paid all taxes as shown on said returns or in any manner due to be paid (including, but not limited to, ad valorem and personal property taxes) or on any assessment received by Borrower and not being contested in good faith, to the extent that such taxes have become due. Borrower further certifies that it has paid all other taxes, levies and charges of any nature, including any governmental charges.
(b) Notice of Litigation. Borrower shall promptly give Lender written notice of (a) a judgment entered against any Borrower, or (b) the commencement of any action, suit, claim, counterclaim or proceeding against or investigation of Borrower which, if adversely determined, would materially adversely affect the business of Borrower, or which questions the validity of this Agreement, the Note, the Leasehold Mortgage or the Security Agreement, or any other actions or agreements taken or to be made pursuant to any of the foregoing.
(c) Notice of Default. Borrower shall promptly give Lender written notice of any act of default under any agreement with Lender or under any other contract to which Borrower is a party and of any acceleration of indebtedness caused thereby which would have a materially adverse effect to the business of Borrower.
(d) Reports. Borrower shall promptly furnish Lender with copies of all governmental agency, and other special reports pertaining to or affecting Borrower, which would materially adversely affect the business of Borrower.
(e) Change in Ownership, Control or Management of Borrower. Borrower shall not change its ownership (whether direct or indirect), control or management structure during the term of the Loan, without the prior written consent of Lender, in Lender’s sole discretion.
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(f) Change in Fiscal Year. Borrower shall not change its Fiscal Year without the prior written consent of Lender. Borrower’s Fiscal Year ends on December 31.
(g) Title to Collateral. Borrower will deliver to Lender, on demand, any contracts, bills of sale, statements, receipted vouchers or agreements under which Borrower claims title to any of the Collateral.
(h) Payment of Debts. Borrower shall pay and discharge when due, and before subject to penalty or further charge, and otherwise satisfy before maturity or delinquency, all obligations, debts, taxes, and liabilities of whatever nature or amount, except those which Borrower in good faith disputes.
(i) Collection of Insurance Proceeds. Borrower will cooperate with Lender in obtaining for Lender the benefits of any insurance or other proceeds lawfully or equitably payable to it in connection with the transaction contemplated hereby and the collection of any indebtedness or obligation of Borrower to Lender incurred hereunder.
(j) Indebtedness. Borrower shall not incur, create, assume or permit to exist any indebtedness or liability on account of advances or deposits, any indebtedness or liability for borrowed money, any indebtedness constituting the deferred purchase price of any property or assets, any indebtedness owed under any conditional sale or title retention agreement, contingent obligations pursuant to guaranties, endorsements, letters of credit and other secondary liabilities, or any other indebtedness or liability evidenced by notes, bonds, debentures or similar obligations without the prior written approval of Lender, except for (i) the Loan, (ii) the endorsement of checks for collection in the ordinary course of business, (iii) debt payable to suppliers and other trade creditors in the ordinary course of business on ordinary and customary trade terms and which is not past due, (iv) debt owing to Affiliates that is subordinated to the Loan, (v) Seller’s Note, and (vi) debt payable to sellers incurred by Borrower in connection with the purchase of furniture, fixtures and equipment and leasehold improvements for the Restaurants, provided that no more than $250,000.00 of such indebtedness may be incurred in any Fiscal Year (in the case of the first and last Fiscal Years during the term of the Loan, such amount shall be adjusted based upon the number of days of the Loan term during such Fiscal Year).
(k) Guaranties. Borrower shall not guarantee or otherwise in any way become or be responsible for obligations of any other Person, whether by agreement to purchase the indebtedness of any other Person, or agreement for the furnishing of funds to any other Person through the purchase of goods, supplies or services (or by way of stock purchase, capital contribution, advance or loan) for the purpose of paying or discharging indebtedness of any other Person, or otherwise, without first obtaining Lender’s consent in Lender’s sole discretion.
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(l) Advances. Borrower shall not make any advances, dividends, loans, or distributions to Guarantor or any of its subsidiaries, affiliates, shareholders, officers or directors (“Distributions”), without the prior written consent of Lender. Notwithstanding the foregoing, so long as no Event of Default exists, Borrower shall be permitted to make Distributions in the ordinary course of Borrower’s business, without first obtaining Lender’s prior written consent.
(m) Further Assurances and Preservation of Security. Borrower will do all acts and execute all documents for the better and more effective carrying out of the intent and purposes of this Agreement, as Lender shall reasonably require from time to time, and will do such other acts necessary or desirable to preserve and protect the collateral at any time securing or intending to secure the Note, as Lender may require.
(n) No Assignment. Borrower shall not assign this Agreement or any interest therein and any such assignment is void and of no effect. Lender may assign this Agreement and any other Agreements contemplated hereby, and all of its rights hereunder and thereunder, and all provisions of this Agreement shall continue to apply to the Loan. Lender agrees to notify Borrower of any such assignment. Lender also shall have the right to participate the Loan with any other lending institution.
(o) No Sale of Assets. Borrower and Guarantor shall not, during the term of the Loan, transfer any material portion of their respective assets unless such transfer is in the ordinary course of Borrower’s or Guarantor’s business, for fair market value and such fair market value is given to Borrower or Guarantor, in its sole name, and such transfer will not have a material adverse effect on the financial condition of Borrower or Guarantor and/or its ability to perform the obligations hereunder, as determined by Lender in its sole and absolute discretion.
(p) Access to Books and Records. Borrower shall allow Lender, or its agents, after reasonable prior notice and during reasonable normal business hours, to access Borrower’s books, records and such other documents, and allow Lender, at Borrower’s expense (other than the annual field exam referenced below), to inspect, audit and examine the same and to make extracts therefrom and to make copies thereof.
(q) Business Continuity. Borrower shall conduct its business in substantially the same manner and locations as such business is now and has previously been conducted during the term of the Loan.
(r) Insurance.
I. Borrower shall obtain, maintain and keep in full force and effect during the term of the Loan adequate insurance coverage, with all premiums paid thereon and without notice or demand, with respect to its properties and business against loss or damage of the kinds and in the amounts customarily insured against by companies of established reputation engaged in the same or similar businesses including, without limitation:
(i) Public liability insurance insuring against all claims for personal or bodily injury, death, or property damage in an amount of not less than $1,000,000.00 single limit coverage, and $5,000,000.00 in the aggregate. Such policy shall include an additional insured endorsement naming the Lender as loss payee;
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(ii) Insurance in such amounts and against such other casualties and contingencies as may from time to time be required by Lender, including, without limitation, insurance on all Collateral and all insurance required under the Leases;
II. All policies of insurance required hereunder shall: (i) be written by carriers which are licensed or authorized to transact business in the State of Florida, and are rated “A” or higher, Class XII or higher, according to the latest published Best’s Key Rating Guide and which shall be otherwise acceptable to Lender in all other respects, (ii) provide that the Lender shall receive thirty (30) days’ prior written notice from the insurer before a cancellation, modification, material change or non-renewal of the policy becomes effective, and (iii) be otherwise satisfactory to Lender.
III. Borrower shall not, without the prior written consent of Lender, take out separate insurance concurrent in form or contributing with regard to any insurance coverage required by Lender.
IV. At all times during the term of the Loan, Borrower shall have delivered to Lender the original (or a certified copy) of all policies of insurance required hereby, together with receipts or other evidence that the premiums therefor have been paid.
V. Not less than thirty (30) days prior to the expiration date of any insurance policy, Borrower shall deliver to Lender the original (or certified copy), or the original certificate, as applicable, of each renewal policy, together with receipts or other evidence that the premiums therefor have been paid.
VI. The delivery of any insurance policy and any renewals thereof, shall constitute an assignment thereof to Lender, and Borrower hereby grants to Lender a security interest in all such policies, in all proceeds thereof and in all unearned premiums therefor.
(s) Subordination of Debt. Borrower will fully subordinate all of the Borrower’s debts owed to third parties, including, without limitation, officers, employees, stockholders, and affiliates, upon terms and conditions acceptable to Lender. Notwithstanding the foregoing, so long as the Borrower is in compliance with the financial covenants contained herein and there is no Event of Default or Unmatured Event of Default, the Borrower shall be permitted to make regular scheduled payments of principal and interest on such subordinated debt.
(t) Indemnification. Borrower and Guarantor hereby indemnify and hold Lender, its directors, officers, agents, employees and attorneys harmless from and against any liability, loss, expenses, damage of any nature, and claims, including, without limitation, brokers’ claims, arising in connection with the Loan.
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(u) Estoppel Certificate. At any time during the term of the Loan, within ten (10) Business Days after written demand of Borrower by the Lender therefor, the Borrower shall deliver to the Lender a certificate, duly executed and in form satisfactory to the Lender, stating and acknowledging, to the best of Borrower’s knowledge, the then unpaid principal balance of, and interest due and unpaid, under the Loan, and the fact that there are no defenses, off sets, counterclaims or recoupments thereto (or, if such should not be the fact, then the facts and circumstances relating to such defenses, off sets, counterclaims or recoupments).
(v) Release of Information for Marketing Purposes. The Borrower hereby irrevocably consents to the Lender releasing details of the Loan to the media, radio, television, trade publications, magazines, web sites or other forms of media (collectively, the “Media”) and hereby releases and holds Lender harmless from any liability arising out of the use or publication of such information.
(w) Commitment Fee. Upon the execution of this Agreement, Borrower shall pay to Lender a commitment fee in the amount of $61,250.00 in connection with the Loan.
7. FINANCIAL COVENANTS AND REPORTING REQUIREMENTS.
(a) Fixed Charge Coverage Ratio. At all times during the term of the Loan, Borrower, shall maintain a minimum Fixed Charge Coverage Ratio of not less than 1.20 to 1.00. For purposes hereof, “Fixed Charge Coverage Ratio” shall mean the ratio of (a) EBITDA, plus lease expenses, less Distributions, less payments made by Borrower under the Put Agreement (including, without limitation, any payments due as a result of the occurrence of a Listing Failure Anniversary), less increases in amounts due from shareholders (members) of Affiliates, to (b) to total debt service, inclusive of the Loan and all contractual repayments of loans from shareholders (members), if applicable, plus lease expenses. This covenant shall be measured for compliance quarterly commencing as of March 31, 2020, on a trailing 12-month period, upon Lender’s receipt of the financial statements and other supporting documentation of Borrower required herein.
(b) Operating Leverage. At all times during the term of the Loan, Borrower shall maintain a maximum Operating Leverage of not more than 3.50 to 1.00. For purposes hereof, “Operating Leverage” shall mean total funded bank debt to EBITDA for the trailing 12-month period. This covenant shall be measured quarterly upon Lender’s receipt of the financial statements of Borrower required herein.
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(c) Depository Relationship; Treasury Services. In consideration for Lender’s agreement to make the Loan, and for the interest rate and other terms agreed to by Lender (i) Borrower shall maintain with Lender all its depository accounts account(s) at all times during the term of the Loan and, within one hundred fifty (150) days after the date hereof, shall implement with and thereafter maintain with Lender all of its treasury services (including, without limitation, merchant card services), (ii) Borrower, within thirty (30) days after the date hereof shall cause Parent to maintain with Lender all depository accounts with respect to the payments received by Parent under those franchise agreements which have been assigned by Parent to Lender as security for the Loan. If, by March 31, 2020, the depository accounts maintained by Borrower and Parent pursuant to the foregoing (specifically excluding the account established under Section 3 above), fail to average, for any calendar month period, at least $3,800,000.00 in average daily balances, Borrower shall pay then to Lender a fee of $5,000.00. Thereafter, until such an average daily balance amount of $3,800,000.00 has been achieved for a full quarterly period, Borrower shall continue to pay to Lender a fee of $5,000.00 at the end of each quarter. If such threshold is not met in the first month of a quarter, then such fee shall be payable at the end of that quarter, notwithstanding that this threshold was subsequently met in that quarter. The afordescribed is paid to Lender, in part, to compensate Lender for the loss of income suffered by Lender by reason of Borrower and Parent failing to maintain with Lender deposit amounts which Lender expected when it made the Loan.
(d) Borrower’s Annual Financial Statements. Within one hundred twenty (120) days after the end of each Fiscal Year, Borrower shall supply Lender with (i) an annual audited financial statement for Borrower for the prior Fiscal Year in form acceptable to Lender in its sole and absolute discretion, and (ii) such supporting documentation as Lender reasonably requests, if the 10-K report of Parent fails to include a separate audited financial statement for Borrower.
(e) Borrower’s Quarterly Financial Statements. Within sixty (60) days after the end of each fiscal quarter, Borrower shall supply Lender with (i) a quarterly management-prepared financial statement for the Borrower for the prior fiscal quarter in form acceptable to Lender in its sole and absolute discretion, prepared in accordance with GAAP and all other applicable statutes, (ii) a covenant compliance certificate confirming compliance with the financial covenants set forth herein, in form satisfactory to Lender in its sole and absolute discretion, and (iii) such supporting documentation as Lender reasonably requests, if the 10-Q report of Borrower fails to include a separate quarterly financial statement for Borrower.
(f) Parent’s 10-K Reports. Borrower shall provide to Lender a copy of each 10-K of Parent simultaneously with its filing with the SEC, but in any event within one hundred twenty (120) days after the end of each Fiscal Year.
(g) Parent’s Quarterly 10-Q Reports. Borrower shall provide to Lender a copy of each 10-Q of Parent simultaneously with its filing with the SEC, but in any event within sixty (60) days after the end of each fiscal quarter.
(h) Guarantor’ Financial Statements. Within forty-five (45) days after the end of each calendar year, Guarantor shall supply Lender with (i) an annual personal financial statement, together with bank and brokerage statements for the prior calendar year, in form acceptable to Lender in its sole and absolute discretion, and (ii) such supporting documentation as Lender reasonably requests.
(i) Guarantor Tax Returns. Within thirty (30) days of filing, Guarantor shall supply Lender with a copy of its annual federal income tax returns, including, without limitation, K-1 statements for all Partnerships and Sub Chapter S Corporations, or, if an extension is filed for any tax return, within thirty (30) days after any permitted extension date.
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(j) Form of Financial Statements. The form and content of each financial statement as required in Sections (d), (e) and (h) above, shall be acceptable to Lender in its sole discretion, shall be certified by each party to be correct and complete, and shall include a complete description of all contingent liabilities, including, without limitation, all indebtedness guaranteed.
For ease of reference and for the convenience of the parties, all of the reporting requirements are being attached verbatim as Exhibit “A” hereto. To the extent of any conflict between the parties, the terms of this Agreement shall control.
8. DEFAULT. Upon the occurrence of any of the following events (each an “Event of Default” and collectively, the “Events of Default”), Lender may at its option exercise any of its remedies set forth herein:
(a) Borrower fails to perform any obligation under this Agreement or the Note, when due, whether on the scheduled due date or upon acceleration, maturity or otherwise; or
(b) A “Default” or an “Event of Default” (as defined in each respective document) occurs (beyond any applicable notice and cure period) under any of the Loan Documents; or
(c) If any material warranty or representation made by Borrowers in this Agreement or pursuant to the terms hereof shall at any time be false or misleading in any material respect, and if of a curable nature, not be cured within fifteen (15) days after notice from Lender to Borrower; or
(d) The dissolution of, termination of existence of, loss of good standing status by Borrower, its subsidiaries or affiliates, if any, or any party to the Loan Documents; or
(e) Borrower or Guarantor becomes the subject of any bankruptcy or other voluntary or involuntary proceeding, in or out of court, for the adjustment of debtor-creditor relationships and which, in the case of any involuntary proceeding, is not dismissed within ninety (90) days of its filing; or
(f) The entry of a judgment against Borrower or Guarantor which Lender deems to be of a material nature, in Lender’s sole discretion; or
(g) The seizure or forfeiture of, or the issuance of any writ of possession, garnishment or attachment, or any turnover order for any property of Borrower or Guarantor; or
(h) A material alteration in the kind or type of Borrower’s prospects or business, financial or otherwise, or in the financial condition of the Guarantor, is made without the prior written consent of Lender; or
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(i) Lender determines in good faith, in its sole discretion, that the prospects for payment or performance of Borrower’s obligations under the Loan Documents are impaired or there has occurred a material adverse change in the business or prospects of Borrower, financial or otherwise; or
(j) If Borrower or any Guarantor defaults under any loan, contract or agreement extended by Lender or any of its affiliates, as the same may be amended, restated, modified or replaced from time to time; or
(k) The failure of Borrower or Guarantor to timely provide any of the information as required in Section 8 above; or
(l) The failure of Borrower to timely satisfy any of the covenants as required in Section 6(e), (f), (j), (k), (n), (o), (q) or (r) above, or Section 8 above; or
(m) Any default by Borrower under the Seller Note; or
(n) The failure of the Borrower’s business to comply with any law or regulation controlling its operation.
9. REMEDIES OF LENDER. Upon the happening of an Event of Default, then Lender may, at its option, upon written notice to Borrower:
(a) Cancel this Agreement;
(b) Commence an appropriate legal or equitable action to enforce performance of this Agreement;
(c) Accelerate the payment of the Note and the Loan and any other sums secured by the Leasehold Mortgage, the Security Agreement and the other Loan Documents, apply all or any portion of any equity funds toward payment of the Loan, and commence appropriate legal and equitable action to collect all such amounts due Lender;
(d) Exercise any other rights or remedies Lender may have under the Leasehold Mortgage, the Security Agreement or other Loan Documents referred to in this Agreement or executed in connection with the Loan or which may be available under applicable law.
10. GENERAL TERMS. The following shall be applicable throughout the period of this Agreement or thereafter as provided herein:
(a) Rights of Third Parties. All conditions of the Lender hereunder are imposed solely and exclusively for the benefit of Lender and its successors and assigns, and no other Person shall have standing to require satisfaction of such conditions or be entitled to assume that Lender will make advances in the absence of strict compliance with any or all thereof, and no other Person shall, under any circumstances, be deemed to be a beneficiary of this Agreement or the Loan Documents, any provisions of which may be freely waived in whole or in part by the Lender at any time if, in its sole discretion, it deems it desirable to do so.
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(b) Borrower is not Lender’s Agent. Nothing in this Agreement, the Note, the Leasehold Mortgage, the Security Agreement or any other Loan Document shall be construed to make the Borrower the Lender’s agent for any purpose whatsoever, or the Borrower and Lender partners, or joint or co-venturers, and the relationship of the parties shall, at all times, be that of debtor and creditor.
(c) Loan Expense/Enforcement Expense. Borrower agrees to pay to Lender on demand all reasonable costs and expenses incurred by Lender in seeking to enforce Lender’s rights and remedies under this Agreement, including court costs, costs of alternative dispute resolution and reasonable attorneys’ fees and costs, whether or not suit is filed or other proceedings are initiated hereon.
(d) Evidence of Satisfaction of Conditions. Lender shall, at all times, be free independently to establish to its good faith and satisfaction, and in its absolute discretion, the existence or nonexistence of a fact or facts which are disclosed in documents or other evidence required by the terms of this Agreement.
(e) Headings. The headings of the sections, paragraphs and subdivisions of this Agreement are for the convenience of reference only, and shall not limit or otherwise affect any of the terms hereof.
(f) Invalid Provisions to Affect No Others. If performance of any provision hereof or any transaction related hereto is limited by law, then the obligation to be performed shall be reduced accordingly; and if any clause or provision herein contained operates or would prospectively operate to invalidate this Agreement in part, then the invalid part of said clause or provision only shall be held for naught, as though not contained herein, and the remainder of this Agreement shall remain operative and in full force and effect.
(g) Application of Interest to Reduce Principal Sums Due. In the event that any charge, interest or late charge is above the maximum rate provided by law, then any excess amount over the lawful rate shall be applied by Lender to reduce the principal sum of the Loan or any other amounts due Lender hereunder.
(h) Governing Law. The laws of the State of Florida shall govern the interpretation and enforcement of this Agreement.
(i) Number and Gender. Whenever the singular or plural number, masculine or feminine or neuter gender is used herein, it shall equally include the others and shall apply jointly and severally.
(j) Prior Agreement. To the extent necessary, this Agreement shall be deemed to be an amendment to any prior loan agreement between Borrower and Lender, and in the event of a conflict between the terms of this Agreement or any such prior agreement, the terms of this Agreement shall govern.
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(k) Waiver. If Lender shall waive any provisions of the Loan Documents, or shall fail to enforce any of the conditions or provisions of this Agreement, such waiver shall not be deemed to be a continuing waiver and shall never be construed as such; and Lender shall thereafter have the right to insist upon the enforcement of such conditions or provisions. Furthermore, no provision of this Agreement shall be amended, waived, modified, discharged or terminated, except by instrument in writing signed by the parties hereto.
(l) Notices. All notices from the Borrower to Lender and Lender to Borrower required or permitted by any provision of this Agreement shall be in writing and sent by registered or certified mail or nationally recognized overnight delivery service and addressed as follows:
| TO LENDER: | CITY NATIONAL BANK OF FLORIDA | |
| 25 West Flagler Street | ||
| Miami, Florida 33130 | ||
| Attention: Legal Department | ||
| TO BORROWER: | ARC WINGHOUSE LLC | |
| 1409 Kingsley Avenue, Suite 2 | ||
| Orange Park, Florida 32073 | ||
| Attention: Seenu G. Kasturi |
Such addresses may be changed by such notice to the other party. Notice given as hereinabove provided shall be deemed given on the date of its deposit in the United States Mail and, unless sooner actually received, shall be deemed received by the party to whom it is addressed on the third calendar day following the date on which said notice is deposited in the mail, or if a courier system is used, on the date of delivery of the notice.
(m) Successors and Assigns. This Agreement shall inure to the benefit of and be binding on the parties hereto and their heirs, legal representatives, successors and assigns; but nothing herein shall authorize the assignment hereof by the Borrower.
(n) USA Patriot Act Notice. Lender hereby notifies Borrower and Guarantor that pursuant to the requirements of the USA Patriot Act (Title III of Pub. L. 107-56 (signed into law October 26, 2001)) (the “Act”), Lender is required to obtain, verify and record information that identifies Borrower and Guarantor, which information includes the name and address of Borrower and Guarantor and other information that will allow Lender to identify Borrower and Guarantor in accordance with the Act.
(o) Counterparts, Facsimiles. This Agreement may be executed in counterparts. Each executed counterpart of this Agreement will constitute an original document, and all executed counterparts, together, will constitute the same agreement. Any counterpart evidencing signature by one party that is delivered by facsimile by such party to the other party hereto shall be binding on the sending party when such facsimile is sent, and such sending party shall within ten (10) days thereafter deliver to the other parties a hard copy of such executed counterpart containing the original signature of such party or its authorized representative.
(p) WAIVER OF JURY TRIAL. LENDER, BORROWER AND GUARANTOR HEREBY KNOWINGLY, VOLUNTARILY, AND INTENTIONALLY WAIVE THE RIGHT ANY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH THIS AGREEMENT AND ANY AGREEMENT TO BE CONTEMPLATED TO BE EXECUTED IN CONJUNCTION HEREWITH, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF ANY PARTY. THIS PROVISION IS A MATERIAL INDUCEMENT FOR LENDER ENTERING INTO THIS AGREEMENT.
[CONTINUES
ON THE FOLLOWING PAGE
THIS SPACE IS INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, Borrower and Lender have caused this Agreement to be executed on the date first above written.
| BORROWER: | ||
| ARC WINGHOUSE LLC, a Florida limited liability company | ||
| By: | /s/ Seenu G. Kasturi | |
| Seenu G. Kasturi, Manager | ||
| LENDER: | ||
| CITY NATIONAL BANK OF FLORIDA | ||
| By: | Lance Aylsworth | |
| Name: | Lance Aylsworth | |
| Title: | SVP | |
(Signature Page to Loan Agreement)
JOINDER OF GUARANTOR
Guarantor hereby joins in and consents to the foregoing Loan Agreement. Without limiting the foregoing, Guarantor agrees to the terms of the Loan Agreement applicable to Guarantor including, without limitation, the terms of Section 3.
| /s/ Seenu G. Kasturi | |
| Seenu G. Kasturi |
EXHIBIT “A”
Financial Reporting Requirements
FINANCIAL COVENANTS AND REPORTING REQUIREMENTS.
(q) Fixed Charge Coverage Ratio. At all times during the term of the Loan, Borrower, shall maintain a minimum Fixed Charge Coverage Ratio of not less than 1.20 to 1.00. For purposes hereof, “Fixed Charge Coverage Ratio” shall mean the ratio of (a) EBITDA, plus lease expenses, less Distributions, less payments made by Borrower under the Put Agreement (including, without limitation, any payments due as a result of the occurrence of a Listing Failure Anniversary), less increases in amounts due from shareholders (members) of Affiliates, to (b) to total debt service, inclusive of the Loan and all contractual repayments of loans from shareholders (members), if applicable, plus lease expenses. This covenant shall be measured for compliance quarterly commencing as of March 31, 2020, on a trailing 12-month period, upon Lender’s receipt of the financial statements and other supporting documentation of Borrower required herein.
(r) Operating Leverage. At all times during the term of the Loan, Borrower shall maintain a maximum Operating Leverage of not more than 3.50 to 1.00. For purposes hereof, “Operating Leverage” shall mean total funded bank debt to EBITDA for the trailing 12-month period. This covenant shall be measured quarterly upon Lender’s receipt of the financial statements of Borrower required herein.
(s) Depository Relationship; Treasury Services. In consideration for Lender’s agreement to make the Loan, and for the interest rate and other terms agreed to by Lender (i) Borrower shall maintain with Lender all its depository accounts account(s) at all times during the term of the Loan and, within one hundred fifty (150) days after the date hereof, shall implement with and thereafter maintain with Lender all of its treasury services (including, without limitation, merchant card services), (ii) Borrower, within thirty (30) days after the date hereof shall cause Parent to maintain with Lender all depository accounts with respect to the payments received by Parent under those franchise agreements which have been assigned by Parent to Lender as security for the Loan. If, by March 31, 2020, the depository accounts maintained by Borrower and Parent pursuant to the foregoing (specifically excluding the account established under Section 3 above), fail to average, for any calendar month period, at least $3,800,000.00 in average daily balances, Borrower shall pay then to Lender a fee of $5,000.00. Thereafter, until such an average daily balance amount of $3,800,000.00 has been achieved for a full quarterly period, Borrower shall continue to pay to Lender a fee of $5,000.00 at the end of each quarter. If such threshold is not met in the first month of a quarter, then such fee shall be payable at the end of that quarter, notwithstanding that this threshold was subsequently met in that quarter. The afordescribed is paid to Lender, in part, to compensate Lender for the loss of income suffered by Lender by reason of Borrower and Parent failing to maintain with Lender deposit amounts which Lender expected when it made the Loan.
(t) Borrower’s Annual Financial Statements. Within one hundred twenty (120) days after the end of each Fiscal Year, Borrower shall supply Lender with (i) an annual audited financial statement for Borrower for the prior Fiscal Year in form acceptable to Lender in its sole and absolute discretion, and (ii) such supporting documentation as Lender reasonably requests, if the 10-K report of Parent fails to include a separate audited financial statement for Borrower.
(u) Borrower’s Quarterly Financial Statements. Within sixty (60) days after the end of each fiscal quarter, Borrower shall supply Lender with (i) a quarterly management-prepared financial statement for the Borrower for the prior fiscal quarter in form acceptable to Lender in its sole and absolute discretion, prepared in accordance with GAAP and all other applicable statutes, (ii) a covenant compliance certificate confirming compliance with the financial covenants set forth herein, in form satisfactory to Lender in its sole and absolute discretion, and (iii) such supporting documentation as Lender reasonably requests, if the 10-Q report of Borrower fails to include a separate quarterly financial statement for Borrower.
(v) Parent’s 10-K Reports. Borrower shall provide to Lender a copy of each 10-K of Parent simultaneously with its filing with the SEC, but in any event within one hundred twenty (120) days after the end of each Fiscal Year.
(w) Parent’s Quarterly 10-Q Reports. Borrower shall provide to Lender a copy of each 10-Q of Parent simultaneously with its filing with the SEC, but in any event within sixty (60) days after the end of each fiscal quarter.
(x) Guarantor’ Financial Statements. Within forty-five (45) days after the end of each calendar year, Guarantor shall supply Lender with (i) an annual personal financial statement, together with bank and brokerage statements for the prior calendar year, in form acceptable to Lender in its sole and absolute discretion, and (ii) such supporting documentation as Lender reasonably requests.
(y) Guarantor Tax Returns. Within thirty (30) days of filing, Guarantor shall supply Lender with a copy of its annual federal income tax returns, including, without limitation, K-1 statements for all Partnerships and Sub Chapter S Corporations, or, if an extension is filed for any tax return, within thirty (30) days after any permitted extension date.
(z) Form of Financial Statements. The form and content of each financial statement as required in Sections (d), (e) and (h) above, shall be acceptable to Lender in its sole discretion, shall be certified by each party to be correct and complete, and shall include a complete description of all contingent liabilities, including, without limitation, all indebtedness guaranteed.
For ease of reference and for the convenience of the parties, all of the reporting (to be inserted here)
ALL FLORIDA DOCUMENTARY STAMP TAXES DUE ON THIS NOTE ARE BEING PAID ON THE MORTGAGE SECURING THIS NOTE
PROMISSORY NOTE
| Date of Note: | October 11, 2019 |
| Amount of Note: | TWELVE MILLION TWO HUNDRED FIFTY THOUSAND AND 00/100 DOLLARS ($12,250,000.00) |
| Maturity Date: | October 11, 2024, unless otherwise extended and/or accelerated pursuant to and in accordance with the terms and conditions set forth in this Note or extended as provided herein. |
FOR VALUE RECEIVED, ARC WINGHOUSE, LLC, a Florida limited liability company, the “Borrower”) hereby covenants and promises to pay to the order of CITY NATIONAL BANK OF FLORIDA, its successors and/or assigns (the “Lender”), at 25 West Flagler Street, Miami, Florida 33130, or at such other place as Lender may designate to Borrower in writing from time to time, in legal tender of the United States, TWELVE MILLION TWO HUNDRED FIFTY THOUSAND AND 00/100 DOLLARS ($12,250,000.00), together with all accrued interest, which shall be due and payable upon the following terms and conditions contained in this Promissory Note (this “Note”) and the Loan Agreement (as defined herein).
| A. | Interest Rate: |
Interest shall accrue on the unpaid principal balance of this Note from the date hereof at a fixed rate per annum equal to SIX PERCENT (6%) (the “Interest Rate”).
Interest on this Note shall be calculated on the basis of a 360 day year and charged for the actual number of days elapsed; that is, by applying the ratio of the interest rate over a year of 360 days, multiplied by the outstanding principal balance, multiplied by the actual number of days the principal balance is outstanding during the period for which the interest is being calculated. All interest payable under this Note is computed using this method
| B. | Payment Terms: |
Commencing on November 11, 2019 and continuing on the eleventh (11th) day of each month thereafter, Borrower shall make equal monthly payments of principal and interest in the amount of $179,481.31 each. Unless this Note is otherwise accelerated in accordance with the terms and conditions hereof, the entire outstanding principal balance of this Note plus all accrued interest shall be due and payable in full on October 11, 2024 (the “Maturity Date”).
| C. | Security: |
This Note is secured, in part, by that certain Leasehold Mortgage and Assignment of Leases (as the same may be amended or modified from time to time, the “Mortgage”) from Borrower in favor of Lender and that certain Security Agreement from Borrower in favor of Lender (as the same may be amended or modified from time to time, the “Security Agreement”), granting Lender a lien and security interest in and to all assets owned by Borrower.
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| D. | Loan Documents: |
This Note, the Mortgage, the Security Agreement, that certain Loan Agreement dated as of even date herewith by and between Borrower and Lender (as the same may be amended, restated, modified or replaced from time to time, the “Loan Agreement”), that certain Guaranty of Payment and Performance dated as of even date herewith from Seenu G. Kasturi (the “Guarantor”) in favor of Lender (as the same may be amended, restated, modified or replaced from time to time, the “Guaranty”), and all other documents and instruments executed in connection with this Note are hereinafter individually and/or collectively referred to as the “Loan Documents”.
| E. | Default Interest Rate: |
All principal and installments of interest shall bear interest from the date that said payments are due and unpaid or from the date of occurrence of any other Event of Default (as hereinafter defined) under this Note, the Mortgage, the Security Agreement or any other Loan Document, at a rate equal to the highest rate authorized by applicable law (the “Default Rate”).
| F. | Prepayment/Prepayment Compensation]: |
Borrower may make prepayments of principal under this Note, provided, however, (i) if Borrower prepays any portion of the outstanding balance of this Note during the first year of the term of this Note, Borrower shall pay a fee to Lender in an amount equal to 3% of the amount prepaid by Borrower in excess of $2,250,000, (ii) if Borrower prepays any portion of the outstanding balance of this Note during the second year of the term of this Note, Borrower shall pay to Lender a fee in an amount equal to 2% of the amount prepaid by Borrower, and (iii) if Borrower prepays any portion of the outstanding balance of this Note during the third (3rd) year of the term of this Note, Borrower shall pay to Lender a fee in an amount equal to 1% of the amount prepaid by Borrower. Thereafter, Borrower may make prepayments of principal under this Note without penalty or premium. Any prepayment under this Note shall be applied to the outstanding principal balance of this Note in any manner determined by Lender, in its sole discretion. No prepayment shall cause a reamortization of the outstanding principal balance under this Note.
| G. | Late Charges: |
Lender may collect a late charge not to exceed an amount equal to five percent (5%) of any installment which is not paid within ten (10) days of the due date thereof, to cover the extra expense involved in handling delinquent payments, provided that collection of said late charge shall not be deemed a waiver by Lender of any of its rights under this Note. Notwithstanding the foregoing, there shall be no grace period or late charges for payments due on the outstanding principal balance due on the Maturity Date or upon acceleration, as set forth in Section H below, but such outstanding balance shall accrue interest at the Default Rate. The late charge is intended to compensate the Lender for administrative and processing costs incident to late payments. The late charge payments are not interest. The late charge payment shall not be subject to rebate or credit against any other amount due. Any late charge shall be in addition to any other interest due.
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| H. | Default and Acceleration: |
If any of the following “Events of Default” occur, at the Lender’s option, exercisable in its sole discretion, all sums of principal and interest under this Note shall be accelerated and become immediately due and payable without notice of default, presentment or demand for payment, protest or notice of nonpayment or dishonor, or other notices or demands of any kind or character, and the Lender shall be immediately entitled to exercise all of its available remedies under the Loan Documents:
a. Borrower fails to perform any obligation under this Note to pay principal or interest when due; or
b. A “Default” or an “Event of Default” (as defined in each respective document) beyond any applicable notice and cure period occurs under any of the Loan Documents.
In any such event, all sums of principal and interest under this Note shall automatically become immediately due and payable without notice of default, presentment or demand for payment, protest or notice of nonpayment or dishonor, or other notices or demands of any kind or character. All persons now or at any time liable for payment of this Note hereby waive presentment, protest, notice of protest and dishonor. The Borrower expressly consents to any extension or renewal, in whole or in part, and all delays in time of payment or other performance which Lender may grant at any time and from time to time without limitation and without any notice or further consent of the undersigned.
The remedies of Lender as provided herein, or in the Security Agreement, the Loan Agreement or the other Loan Documents shall be cumulative and concurrent and may be pursued singularly, successively or together, at the sole discretion of Lender, and may be exercised as often as the occasion therefor shall arise.
The Lender may, in the sole discretion of Lender, accept payments made by Borrower after any default has occurred, without waiving any of Lender’s rights herein.
| I. | Costs: |
In the event that this Note is collected by law or through attorneys at law, or under advice therefrom (whether such attorneys are employees of Lender or an affiliate of Lender or are outside counsel), Borrower and any endorser, guarantor or other person primarily or secondarily liable for payment hereof hereby, severally and jointly agree to pay all costs of collection, including attorneys’ fees, including charges for paralegals, appraisers, experts and consultants working under the direction or supervision of Lender’s attorneys; costs for evaluating preserving or disposing of any collateral granted as security for payment of this Note, including the costs of any audits, environmental inspections which Lender may deem necessary form time to time; any premiums for property insurance purchased on behalf of Borrower, or any other charges permitted by applicable law, whether or not suit is brought, and whether incurred in connection with collection, trial, appeal, bankruptcy or other creditors’ proceedings or otherwise.
| J. | Loan Charges: |
Nothing herein contained, nor any transaction related thereto, shall be construed or so operate as to require Borrower or any person liable for the repayment of same, to pay interest in an amount or at a rate greater than the maximum allowed by applicable law. Should any interest or other charges paid by Borrower, or any parties liable for the payment of the loan made pursuant to this Note, result in the computation or earning of interest in excess of the maximum legal rate of interest permitted under the law in effect while said interest is being earned, then any and all of such excess shall be and is waived by Lender, and all such excess shall be automatically credited against and in reduction of the principal balance, and any portion of the excess that exceeds the principal balance shall be paid by Lender to Borrower or any parties liable for the payment of the loan made pursuant to this Note so that under no circumstances shall the Borrower, or any parties liable for the payment of the loan hereunder, be required to pay interest in excess of the maximum rate allowed by applicable law.
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| K. | Jurisdiction: |
The laws of the State of Florida shall govern the interpretation and enforcement of this Note. In the event that legal action is instituted to collect any amounts due under, or to enforce any provision of, this instrument, Borrower and any endorser, guarantor or other person primarily or secondarily liable for payment hereof consent to, and by execution hereof submit themselves to, the jurisdiction of the courts of the State of Florida, and, notwithstanding the place of residence of any of them or the place of execution of this instrument, such litigation may be brought in or transferred to a court of competent jurisdiction in and for Miami-Dade County, Florida.
| L. | Assignment: |
Lender shall have the unrestricted right at any time and from time to time and without Borrower’s or Guarantor’s consent, to assign all or any portion of its rights and obligations hereunder to one or more lenders or Purchasers (each, an “Assignee”) under this Note and the Loan Documents and all information now or hereafter in its possession relating to the Borrower and all Guarantors (all rights of privacy hereby being waived, and to retain any compensation received by Lender in connection with any such transaction and Borrower and Guarantor agrees that it shall execute such documents, including without limitation, the delivery of an estoppels certificate and such other documents as Lender shall deem necessary to effect the foregoing. The Borrower hereby waive any notice of the transfer of this Note by the Lender or by any other subsequent holder of this Note and agree to be bound by the terms of the Note subsequent to any transfer and agree that the terms of the Note maybe fully enforced by any subsequent holder of this Note.
| M. | Non-Waiver: |
The failure at any time of Lender to exercise any of its options or any other rights hereunder shall not constitute a waiver thereof, nor shall it be a bar to the exercise of any of its options or rights at a later date. All rights and remedies of Lender shall be cumulative and may be pursued singly, successively or together, at the option of Lender.
| N. | Right of Setoff: |
In addition to all liens upon and rights of setoff against the Borrower’s money, securities or other property given to the Lender by law, the Lender shall have, with respect to the Borrower’s obligations to the Lender under this Note and to the extent permitted by law, a contractual possessory security interest in and a contractual right of setoff against, and the Borrower hereby grants the Lender a security interest in, and hereby assigns, conveys, delivers, pledges and transfers to the Lender, all of the Borrower’s right, title and interest in and to, all of the Borrower’s deposits, moneys, securities and other property now or hereafter in the possession of or on deposit with, or in transit to, the Lender, whether held in a general or special account or deposit, whether held jointly with someone else, or whether held for safekeeping or otherwise, excluding, however, all IRA, Keogh, and trust accounts. Every such security interest and right of setoff may be exercised without demand upon or notice to the Borrower. Every such right of setoff shall be deemed to have been exercised immediately upon the occurrence of an Event of Default hereunder without any action of the Lender, although the Lender may enter such setoff on its books and records at a later time.
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O. |
Miscellaneous: |
| 1. | TIME IS OF THE ESSENCE OF THIS NOTE. | |
| 2. | It is agreed that the granting to Borrower or any other party of an extension or extensions of time for the payment of any sum or sums due under this Note or under any other Loan Document or for the performance of any covenant or stipulation thereof or the taking of other or additional security shall not in any way release or affect the liability of Borrower under this Note or any of the Loan Documents. | |
| 3. | This Note may not be changed orally, but only by an agreement in writing, signed by the party against whom enforcement of any waiver, change, modification or discharge is sought. | |
| 4. | All parties to this Note, whether Borrower, principal, surety, guarantor or endorser, hereby waive presentment for payment, demand, notice, protest, notice of protest and notice of dishonor. | |
| 5. | Notwithstanding anything herein to the contrary, the obligations of Borrower under this Note shall be subject to the limitation that payments of interest shall not be required to the extent that receipt of any such payment by Lender would be contrary to provisions of law applicable to Lender limiting the maximum rate of interest which may be charged or collected by Lender. In the event that any charge, interest or late charge is above the maximum rate provided by law, then any excess amount over the lawful rate shall be applied by Lender to reduce the principal sum of the Loan or any other amounts due Lender hereunder. | |
| 6. | Borrower acknowledges that Lender shall have no obligation whatsoever to renew, modify or extend this Note or to refinance the indebtedness under this Note upon the maturity thereof, except as specifically provided herein. | |
| 7. | Lender shall have the right to accept and apply to the outstanding balance of this Note and all payments or partial payments received from Borrower after the due date therefor, whether this Note has been accelerated or not, without waiver of any of Lender’s rights to continue to enforce the terms of this Note and to seek any and all remedies provided for herein or in any instrument securing the same, including, but not limited to, the right to foreclose on such security. | |
| 8. | All amounts received by Lender shall be applied to expenses, late fees and interest before principal or in any other order as determined by Lender, in its sole discretion, as permitted by law. | |
| 9. | Borrower shall not assign Borrower’s rights or obligations under this Note without Lender’s prior consent. |
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| 10. | The term “Borrower” as used herein, in every instance shall include the makers of this Note, and its heirs, executors, administrators, successors, legal representatives and assigns, and shall denote the singular and/or plural, the masculine and/or feminine, and natural and/or artificial persons whenever and wherever the context so requires or admits. | |
| 11. | If more than one party executes this Note, all such parties shall be jointly and severally liable for the payment of this Note. | |
| 12. | If any clause or provision herein contained operates or would prospectively operate to invalidate this Note in part, then the invalid part of said clause or provision only shall be held for naught, as though not contained herein, and the remainder of this Note shall remain operative and in full force and effect. |
| P. | Waiver of Jury Trial: |
BORROWER AND LENDER HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE THE RIGHT EITHER MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON OR ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS NOTE AND ANY AGREEMENT CONTEMPLATED TO BE EXECUTED IN CONJUNCTION HEREWITH, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF EITHER PARTY. THIS PROVISION IS A MATERIAL INDUCEMENT FOR LENDER TO EXTEND TO BORROWER THE LOAN EVIDENCED BY THIS NOTE.
[CONTINUES ON FOLLOWING PAGE]
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Borrower has duly executed this Note effective as of the date set forth hereinabove.
| BORROWER: | ||
| ARC WINGHOUSE LLC, a Florida limited liability company | ||
| By: | /s/ Seenu G. Kasturi | |
| Seenu G. Kasturi, Manager | ||
| STATE OF FLORIDA | ) |
| ) SS: | |
| COUNTY OF DUVAL | ) |
The foregoing instrument was acknowledged before me this 10th day of October, 2019, by Seenu G. Kasturi, as Manager of ARC WINGHOUSE, LLC, a Florida limited liability company, on behalf of the company. He personally appeared before me, is personally known to me or produced _______________________ as identification.
| Notary: /s/ Elizabeth Binkoski | |
| [NOTARIAL SEAL] | Print Name: /s/ Elizabeth Binkoski |
| Notary Public, State of Florida | |
| My commission expires: March 21, 2021 |
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SECURITY AGREEMENT
1. The Collateral. For value received, the undersigned (the “Debtor”) hereby pledges, assigns and grants to CITY NATIONAL BANK OF FLORIDA (the “Secured Party”), with full recourse to Debtor and subject to the provisions of this Agreement, a security interest in the following described personal property (the “Collateral”):
A. All Equipment of every type now owned or hereafter acquired by Debtor, wherever located, including without limitation all machinery, furniture, fixtures, parts, leasehold equipment, fittings, accessories and special tools affixed thereto or used in connection therewith.
B. All Inventory now owned or hereafter acquired by Debtor, wherever located, whether in process or finished, including without limitation all materials used or usable in manufacturing, processing, packaging and shipping the same.
C. All rights to the payment of money now owned or hereafter acquired by Debtor, whether due or to become due and whether or not earned by performance, including but not limited to those rights relating to, evidenced by or constituting Accounts, General Intangibles, Chattel Paper, Instruments, contract rights, notes, drafts, acceptances, letters of credit and certificates of deposit, together with any interest accrued or to accrue thereon, any security held therefor, any guaranties thereof and all records and credit information pertaining thereto (the “Receivables”).
D. All Documents now owned or hereafter acquired by Debtor, whether negotiable or non-negotiable, including without limitation all warehouse receipts, receipts in the nature of warehouse receipts, and bills of lading.
E. All Consumer Goods, Securities, manufacturing and processing rights, licenses, contract rights, permits, franchise agreements, trademarks, trade names, copyrights and all other personal property of Debtor, now owned or hereafter acquired, and wherever located.
F. All monies, bank accounts, balances, credits, deposits, collections, drafts, bills, notes and other assets property of every kind (whether tangible or intangible) now owned or hereafter acquired by Debtor and at any time in the actual or constructive possession of (or in transit to) Secured Party or its correspondents or agents in any capacity or for any purpose.
G. All Proceeds and products and profits of any Collateral, all increases and additions and accessions to any Collateral and all replacements and substitutions for any Collateral, including without limitation any proceeds of any insurance, indemnity, warranty or guaranty payable with respect to any Collateral, any awards or payments due or payable in connection with any condemnation, requisition, confiscation, seizure or forfeiture of any Collateral by any person acting under governmental authority or color thereof, and any damages or other amounts payable to Debtor in connection with any lawsuit regarding any of the Collateral.
2. The Obligations. The Collateral secures and will secure the prompt and unconditional payment of the “Obligations.” As used in this Agreement, the term “Obligations” means all indebtedness owing to Secured Party by Debtor including, without limitation, the indebtedness under that certain promissory note from Debtor to Secured Party of even date herewith in the amount of Twelve Million Two Hundred Fifty Thousand and No/100 Dollars ($12,250,000.00), and all modifications, extensions and/or renewals thereof.
3. Certain Definitions. For purposes of this Agreement, unless Debtor shall have otherwise agreed in writing, the Obligations shall not include any “consumer credit” subject to the disclosure requirements of the Federal Consumers Credit Protection Act (Truth-in-Lending Act) or any regulations promulgated thereunder. As used in this Agreement, the term “Obligors” means Debtor and all endorsers, sureties, guarantors, accommodation parties and any other persons liable or to become liable with respect to the Obligations. As used in this Agreement, the term “Loan Documents” means this Agreement and all promissory notes, loan agreements, credit agreements, guaranties, mortgages, security agreements, assignments, contracts, indemnity agreements and other instruments or writings executed by any Obligor in favor of Secured Party in connection with the Obligations. All capitalized terms used but not otherwise defined in this Agreement shall have the respective meanings given them in the Florida Uniform Commercial Code.
4. Representations, Warranties and Covenants. Debtor acknowledges and agrees that Secured Party is relying on the representations and warranties and covenants in this Agreement and all other Loan Documents as a precondition to the extension of credit secured hereby, and that all such representations and warranties and covenants shall survive the execution and delivery of this Agreement, the extension of credit secured hereby, and any bankruptcy, insolvency or similar proceedings. Debtor hereby represents and warrants to Secured Party and covenants for the benefit of Secured Party as follows:
A. Debtor is the sole legal and equitable owner of the Collateral free from any adverse claim, lien, security interest, encumbrance or other right, title or interest of any person except for the security interest created hereby or other lien in favor Secured Party.
B. The execution and delivery of this Agreement and all other Loan Documents do not and shall not (i) violate any provisions of any law, rule, regulation, order, writ, judgment, injunction, decree, determination or award applicable to Debtor, nor (ii) result in a breach of, or constitute a default under, any indenture, bond, mortgage, lease, instrument, credit agreement, undertaking, contract or other agreement to which Debtor is a party or by which any of them or their respective properties may be bound or affected.
5. Representations and Warranties. Debtor acknowledges and agrees that Secured Party is relying on the representations and warranties in this Agreement and all other Loan Documents as a condition precedent to the extension(s) of credit secured hereby, and that all such representations and warranties shall survive the execution and delivery of this Agreement, the extension(s) of credit secured hereby, and any bankruptcy, insolvency or similar proceedings. Debtor hereby represents and warrants to Secured Party as follows:
(a) Debtor is (and with respect to all Collateral acquired hereafter, shall be) the sole legal and equitable owner of the Collateral free from any adverse claim, lien, security interest, encumbrance or other right, title or interest of any person except for the security interest created hereby or in favor of Lender, or arising by operation of law in favor of any collecting bank or seller of goods. Debtor has the unqualified right and power to grant a security interest in the Collateral to Secured Party as contemplated herein without the consent of any person (other than any person whose written consent has been duly obtained, a true and correct copy of such consent having been delivered to Secured Party), and Debtor shall at Debtor’s expense defend the Collateral against all claims and demands of all persons at any time claiming the Collateral or any interest therein adverse to Secured Party. There is and shall be no financing statement or security agreement or similar instrument of registration under the law of any jurisdiction on file in any public office purporting to cover any interest of any kind in the Collateral except in favor of Secured Party.
(b) Debtor’s chief place of business is: __________________________________________________, or if left blank, is the address shown for Debtor in Secured Party’s records, and (except to the extent delivered to Secured Party) all original Documents, Instruments and Chattel Paper included in the Collateral and all of Debtor’s books, papers and records related to the Collateral are and shall be located at all times at Debtor’s chief place of business.
(c) The execution and delivery of this Agreement and all other Loan Documents do not and shall not (i) violate any provisions of any law, rule, regulation, order, writ, judgment, injunction, decree, determination or award applicable to any Obligor, nor (ii) result in a breach of, or constitute a default under, any indenture, bond, mortgage, lease, instrument, credit agreement, undertaking, contract or other agreement to which any Obligor is a party or by which any of them or their respective properties may be bound or affected. This Agreement and all other Loan Documents constitute the legal, valid and binding obligations of the Obligor(s) executing the same, enforceable against such Obligor(s) in accordance with their respective terms.
6. Covenants. Debtor acknowledges and agrees that Secured Party is relying on the covenants in this Agreement and all other Loan Documents as a condition precedent to the extension(s) of credit secured hereby, and that all such covenants shall survive the execution and delivery of this Agreement, the extension(s) of credit secured hereby, and any bankruptcy, insolvency or similar proceedings. Debtor hereby covenants and agrees for the benefit of Secured Party as follows:
(a) Without first notifying Secured Party in writing, Debtor shall not change Debtor’s chief place of business or the office(s) where Debtor’s books, papers and records concerning the Collateral are kept, nor change Debtor’s name, identity or corporate structure, nor do business under any fictitious or assumed name.
(b) Except as expressly permitted under the other Loan Documents, Debtor shall not create, grant nor suffer to exist any pledge, mortgage, security interest, lien, levy, garnishment, attachment, charge or encumbrance upon any of the Collateral (except in favor of Secured Party or arising by operation of law in favor of any collecting bank or seller of goods) and shall at all times keep the Collateral free from the same.
(c) Except as expressly permitted under the other Loan Documents, without the prior written consent of Secured Party, Debtor shall not sell, transfer, assign, convey, lease, or otherwise dispose of any interest in any of the Collateral, nor enter into any contract or agreement to do so, except in the ordinary course of Debtor’s business on arm’s-length terms for not less than its fair market value. Unless an Event of Default is then continuing, Debtor may use the Collateral in any lawful manner not inconsistent with this Agreement or with any insurance policy thereon, and Debtor may use and consume any raw materials or supplies to the extent necessary to carry on Debtor’s business.
(d) At Debtor’s own expense Debtor shall properly protect and preserve the Collateral, shall maintain all Equipment and Inventory and other Goods included in the Collateral in good condition, shall promptly replace and repair all parts of the same as may be broken or worn out or damaged from time to time (without thereby allowing any lien to be created upon the same), and shall not cause or permit any waste or destruction thereto. Debtor shall not take or permit any action that may impair the Collateral or Secured Party’s security interest therein, and shall not permit any of the Collateral to be used in violation of any statute or regulation or ordinance or insurance requirements. Debtor shall not permit any of the Collateral to become affixed to any realty unless such realty is also encumbered in favor of Secured Party to secure the Obligations, and Debtor agrees that the Collateral is and shall remain personal property subject to this Agreement, whether or not so affixed. If any of the Collateral at any time is or may become subject to the lien of any landlord and/or any real estate mortgage (except a mortgage in favor of Secured Party), then Debtor shall promptly obtain and deliver to Secured Party on demand a written waiver or subordination of such lien by the holder thereof to Secured Party’s security interest, in form and content satisfactory to Secured Party.
(e) At Debtor’s own expense, Debtor shall keep all Equipment, Inventory, other Goods and other insurable Collateral (whether or not in transit) continuously insured in amounts not less than their full insurable value by a reputable and highly rated insurance company or companies acceptable to Secured Party, against loss or damage from fire, hazards included within the term “extended coverage”, theft and such other risks as Secured Party may require, in such form and for such periods as shall be satisfactory to Secured Party. Each insurance policy shall provide, by New York Standard or Union Standard endorsement, that loss and proceeds thereunder shall be payable to Secured Party as its interest may appear, and each policy shall provide at least ten (10) days’ written notice of cancellation to Secured Party. Debtor shall deliver to Secured Party on demand all such insurance policies or other evidence of compliance satisfactory to Secured Party, and Debtor shall renew each policy at Debtor’s own expense and shall deliver satisfactory evidence thereof to Secured Party not less than thirty (30) days before its expiration date. Secured Party may act as attorney-in-fact for Debtor in obtaining, adjusting, settling and cancelling such insurance and endorsing any Instruments relating thereto, and in the event of loss or damage to the Collateral, Secured Party may apply any and all insurance proceeds at Secured Party’s option to the Obligations (whether or not matured) or to the repair or replacement of the Collateral after receiving proof satisfactory to Secured Party of such repair or replacement.
(f) Debtor shall pay when due all taxes or other governmental charges whatsoever levied against the Collateral or its use and operation and all assessments (including stock assessments) upon the Collateral, and Debtor shall pay any tax which may be levied on or assessed against any Loan Document or the Obligations.
(g) If any Collateral is or becomes the subject of any Instrument, Chattel Paper or Document, including without limitation any warehouse receipt or bill of lading, then Debtor shall promptly deliver the same to Secured Party (unless Secured Party directs otherwise in writing), duly endorsed or assigned to Secured Party in form and substance satisfactory to Secured Party.
(h) Debtor shall pay on demand all filing fees and similar charges and all costs incurred by Secured Party in collecting or securing or attempting to collect or secure any Obligations, including the expenses and reasonable fees of Secured Party’s legal counsel, whether or not involving litigation and/or appellate, administrative or bankruptcy proceedings. Debtor agrees to indemnify and hold Secured Party harmless on demand against all expenses, losses, consequences or damages incurred or suffered by Secured Party arising from or relating to any claim, demand, action or proceeding brought by any person(s) whomsoever in connection with or relating to the Collateral, the Obligations, this Agreement or any other Loan Document (including without limitation any court costs and the expenses and reasonable fees of Secured Party’s legal counsel), except to the extent that a court of competent jurisdiction shall hold the same to be the result of Secured Party’s own gross negligence or willful misconduct.
(i) If so requested by Secured Party at any time (whether before or after the occurrence of an Event of Default), Debtor shall immediately: (i) deliver to Secured Party any and all Instruments, Chattel Paper, Documents, Securities, notes, drafts and acceptances included in the Collateral at the time and place and manner specified by Secured Party, together with any endorsements and assignments requested by Secured Party for their transfer to Secured Party or to any other person selected by Secured Party, all in form and substance satisfactory to Secured Party; (ii) deliver to Secured Party records and schedules showing the status, condition and location of all or any portion of the Collateral; (iii) notify any account debtors, any buyers of the Collateral or any other persons of Secured Party’s security interest in the Collateral and the proceeds thereof; (iv) obtain Secured Party’s prior written consent to any sale, contract of sale or other disposition of any Inventory or other Collateral; and (v) execute, deliver and file any and all financing statements, continuation statements, mortgages, agreements, notices, vouchers, invoices, schedules, confirmatory assignments, conveyances, transfer endorsements, powers of attorney, certificates, deeds or other papers and/or perform any act which Secured Party may deem necessary or appropriate to create, perfect, preserve, validate or otherwise protect Secured Party’s security interest in the Collateral or to enable Secured Party from time to time to exercise and enforce Secured Party’s rights under this Agreement or any other Loan Document
7. Rights of Secured Party. Debtor agrees with and for the benefit of Secured Party that:
(a) Secured Party shall have the right (but not the obligation) at its option to discharge or pay any taxes, assessments, liens, security interests or other encumbrances at any time levied or placed on or against the Collateral or Debtor, to pay for insurance on the Collateral, to pay for the maintenance, preservation or protection of the Collateral, and/or to advance monies for any other reason or purpose permitted under any Loan Documents. Any amount so paid or advanced by Secured Party shall be secured by the Collateral and shall be repayable by Debtor on demand.
(b) Secured Party may sign and file financing statements, security agreements, recording instruments or other documents or amendments thereto with respect to the Collateral or any portion thereof without the signature of Debtor, all at Debtor’s sole expense, and Debtor shall reimburse Secured Party on demand for any costs advanced or incurred by Secured Party in connection therewith.
8. Events of Default. The occurrence of a default under any Loan Document, subject to the expiration of the applicable grace period, if any, shall constitute an Event of Default hereunder.
9. Rights and Remedies on Default. If any of the foregoing Events of Default shall occur, then Secured Party, in its sole discretion and without prior notice to Debtor, may at any time and from time to time during the continuation thereof take any or all of the following actions:
(a) foreclose Secured Party’s security interest(s) in any or all of the Collateral as provided by law;
(b) sell, re-sell, discount or dispose of all or any portion of the Collateral, or assign and convey the same to any third party;
(c) apply for the appointment of a receiver or receivers (to which Secured Party shall be entitled as a matter of right without regard to the value of the Collateral or the solvency of any person liable for the payment of the Obligations) to take possession of the Collateral pending the sale or other disposition thereof; and/or
(d) exercise any and all other rights and remedies with respect to the Collateral which Secured Party may enjoy as a secured party under the Loan Documents, the Florida Uniform Commercial Code or any other applicable law.
All rights, remedies and powers granted to Secured Party in this Agreement or in any other Loan Document or by applicable law shall be cumulative and may be exercised singly or concurrently on one or more occasions. No delay in exercising or failure to exercise any of Secured Party’s rights or remedies shall constitute a waiver thereof, nor shall any single or partial exercise of any right or remedy by Secured Party preclude any other or further exercise of that or any other right or remedy. No waiver of any right or remedy by Secured Party shall be effective unless made in writing and signed by Secured Party, nor shall any waiver on one occasion apply to any future occasion, but shall be effective only with respect to the specific occasion addressed in that signed writing.
10. Sale of the Collateral. With respect to any sale or disposition of any of the Collateral, whether made under the power of sale in this Agreement, under any applicable provisions of the Florida Uniform Commercial Code or other applicable law, or under judgment or order or decree in any judicial proceeding for the foreclosure of Secured Party’s security interest or involving the enforcement of this Agreement:
(a) Any notification required by law with respect to the time and place of such sale or disposition shall be deemed reasonable if given at least five (5) days before the time thereof, but notice given in any other reasonable manner shall also be sufficient. Without precluding any other methods of sale, the sale of the Collateral shall be deemed made in a commercially reasonable manner if conducted in conformity with reasonable commercial practices of banks or other financial institutions when disposing of similar property.
(b) Secured Party may, to the fullest extent permitted by applicable law, bid for and purchase all the Collateral in a commercially reasonable manner, and upon compliance with the terms of sale may hold, retain and possess and dispose of the same in its own absolute right without further accountability.
(c) Secured Party may make and deliver to the purchaser(s) of any of the Collateral a good and sufficient deed, bill of sale and/or instrument of assignment and transfer. Secured Party is hereby irrevocably appointed Debtor’s true and lawful attorney-in-fact (which appointment is coupled with an interest) in Debtor’s name and stead, with power of substitution, to make all necessary deeds, bills of sale, endorsements and instruments of assignment and transfer of the Collateral thus sold, and for such other purposes as Secured Party may deem necessary or desirable to effectuate the provisions of this Agreement or any other Loan Document. If so requested by Secured Party or by any other person, Debtor shall ratify and confirm the acts of Secured Party (and/or any substitute) as Debtor’s attorney-in-fact.
(d) To the extent that Debtor may lawfully do so, Debtor agrees not at any time nor in any manner to insist upon, plead, claim or take the benefit or advantage of any appraisement, valuation, stay, extension or redemption laws, or any law permitting Debtor to direct the order in which all or any part of the Collateral shall be sold, which may delay, prevent or otherwise affect the performance or enforcement of this Agreement.
11. Waiver of Rights. The Debtor hereby waives notice, demand, presentment, protest, notice of dishonor, suit against or joinder of any other person, and all other requirements necessary to charge or hold Debtor liable with respect to the Obligations. The Debtor hereby consents and agrees that, at any time and from time to time without notice, Secured Party and the owner(s) of the Collateral may agree to renew, extend, compromise, discharge, or release, increase, change, substitute or exchange all or any part of the Collateral, or to modify the terms of the Obligations in any way that Secured Party and such owner(s) may deem appropriate.
12. Actions or Proceedings. With respect to any legal action or proceeding arising under this Agreement or any other Loan Document or concerning the Obligations and/or the Collateral, the Debtor, to the fullest extent permitted by law, hereby: (a) submits to the jurisdiction of the state and federal courts in the State of Florida; (b) agrees that the venue of any such action or proceeding may be laid in the county in which the Collateral is primarily located and waives any claim that the same is an inconvenient forum; (d) waives any right to immunity from any such action or proceeding and waives any immunity or exemption of any property, wherever located, from garnishment, levy, execution, seizure or attachment prior to or in execution of judgment, or sale under execution or other process for the collection of debts; and (e) waives any right to interpose any set-off or non-compulsory counterclaim or to plead laches or any statute of limitations as a defense in any such action or proceeding, and waives all provisions and requirements of law for the benefit of Debtor now or hereafter in force. No provision of this Agreement shall limit Secured Party’s right to serve legal process in any other manner permitted by law or to bring any such action or proceeding in any other competent jurisdiction.
13. Notices. Except as otherwise provided in this Agreement for service of legal process, any notice to Debtor shall be in writing and shall be deemed sufficiently made if delivered personally or if transmitted by postage prepaid first class mail (airmail if international) or by telegraph or by telex with confirmed answerback, to the respective address appearing on the signature page of this Agreement for such person (or, if none appears, to any address for such person then registered in Secured Party’s records).
14. Business Entity. If Debtor is a limited liability company, corporation, partnership or other business entity, then Debtor hereby further represents and warrants to Secured Party that: (a) Debtor is duly organized, validly existing and in good standing under the laws of the jurisdiction of its creation and is duly qualified or licensed to do business in those jurisdictions where the nature of its business requires it to be so qualified or licensed; (b) Debtor has all requisite power and authority (corporate or otherwise) to conduct its business, to own its properties, to execute and deliver this Agreement and all other Loan Documents, and to perform its obligations under the same; (c) the execution, delivery and performance of this Agreement and all other Loan Documents have been duly authorized by all necessary actions (corporate or otherwise) and do not require the consent or approval of Debtor’s stockholders (if a corporation), members or managers (if a limited liability company) or of any other person whose consent has not been obtained; and (d) the execution, delivery and performance of this Agreement and all other Loan Documents do not and shall not conflict with any provision of Debtor’s by-laws or articles of incorporation (if a corporation), partnership agreement (if a partnership), operating agreement or articles of organization (if a limited liability company) or trust agreement or other document pursuant to which Debtor was created and exists.
15. Binding Effect. The terms of this Agreement shall inure to the benefit of Secured Party and its successors and assigns and shall be binding upon Debtor and Debtor’s executors, personal representatives, heirs and permitted successors and assigns.
16. Term. This Agreement shall take effect when signed by Debtor and delivered to Secured Party. This Agreement is a continuing agreement and shall remain in full force and effect until all the Obligations shall have been paid in full, unless earlier terminated by Secured Party in writing.
17. Miscellaneous. Time is of the essence with respect to the provisions of this Agreement. This Agreement may be amended but only by an instrument in writing executed by the party to be burdened thereby. Any provision of this Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction only, be ineffective only to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof or affecting the validity or enforceability of such provision in any other jurisdiction. This Agreement shall be governed by, and construed and enforced in accordance with, the laws of the State of Florida, except that federal law shall govern to the extent that it may permit Secured Party to charge, from time to time, interest on the Obligations at a rate higher than may be permissible under Florida law, the obligations and liabilities of each such party constituting Debtor shall be joint and several, and wherever the term “Debtor” is used it shall be deemed to refer to such persons jointly and severally
18. Waiver of Jury Trial. Debtor and Secured Party hereby knowingly, voluntarily and intentionally waive trial by jury in respect to any litigation based hereon, or arising out of, under or in connection with this Agreement, or any agreement contemplated to be, executed in conjunction herewith, or any course of conduct, course of dealing statements whether verbal or written) or actions of either party.
[SIGNATURE PAGE FOLLOWS]
WITNESS THE DUE EXECUTION HEREOF by Debtor as of the 11th day October, 2019.
| Signed, sealed and delivered in the presence of: | ARC WINGHOUSE LLC, a Florida limited liability company | |||
| /s/ Alex Andre | ||||
| Name: | Alex Andre | |||
| /s/ Yannick Bastien | By: | /s/ Seenu G. Kasturi | ||
| Name: | Yannick Bastien | Seenu G. Kasturi, Manager | ||
| Address of Debtor: | ||||
| 1409 Kingsley Avenue, Suite 2 | ||||
| Orange Park, Florida 32073 | ||||
[Signature Page to Security Agreement]