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): July 3, 2018
FAT Brands Inc.
(Exact name of Registrant as Specified in Its Charter)
Delaware | 001-38250 | 08-2130269 | ||
(State or Other Jurisdiction of Incorporation) |
(Commission File Number) |
(IRS Employer Identification No.) |
9720 Wilshire Blvd., Suite 500 Beverly Hills, CA |
90212 | |
(Address of Principal Executive Offices) |
(Zip Code) |
Registrant’s Telephone Number, Including Area Code: (310) 402-0600
Not Applicable
(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 Instructions 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)) |
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 [X]
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. [X]
Item 1.01 Entry into a Material Definitive Agreement.
Hurricane Grill & Wings
On July 3, 2018, FAT Brands Inc. (the “Company”) completed the acquisition of Hurricane AMT, LLC, a Florida limited liability company (“Hurricane”), for a purchase price of $12,500,000. Hurricane is the franchisor of Hurricane Grill & Wings and Hurricane BTW Restaurants. In connection with the closing of the acquisition, on July 3 the Company entered into an Amended and Restated Membership Interest Purchase Agreement (the “Amended Purchase Agreement”), under which the Company agreed to purchase all of the membership interests of Hurricane. The Amended Purchase Agreement amended and restated the Membership Interest Purchase Agreement, dated November 14, 2017 (the “Purchase Agreement”), by and between the Company and the members of Hurricane (the “Sellers”), previously reported in the Company’s Form 8-K filed on November 17, 2017.
The Amended Purchase Agreement contains generally the same terms as the Purchase Agreement, except that the purchase price of $12,500,000 was delivered through the payment of $8,000,000 in cash and the issuance to the Sellers of $4,500,000 of equity units of the Company valued at $10,000 per unit, or a total of 450 units. Each unit consists of (i) 100 shares of the Company’s newly designated Series A-1 Fixed Rate Cumulative Preferred Stock (the “Series A-1 Preferred Stock”) and (ii) a warrant to purchase 125 shares of the Company’s Common Stock at $8.00 per share (the “Hurricane Warrants”). The Company also entered into a Registration Rights Agreement with the Sellers under which the Company agreed to prepare and file a registration statement with the Securities and Exchange Commission (“SEC”) to register for resale the Series A-1 Preferred Stock and shares of Common Stock issuable upon exercise of the Hurricane Warrants and upon conversion of the Series A-1 Preferred Stock.
The Amended Purchase Agreement contains customary representations and warranties of the Sellers and provides that the Sellers will, subject to certain limitations, indemnify the Company against claims and losses incurred or suffered by the Company as a result of, among other things, any inaccuracy of any representation or warranty of the Sellers contained in the Amended Purchase Agreement.
The foregoing descriptions of the Amended Purchase Agreement, Hurricane Warrants and Registration Rights Agreement do not purport to be complete and are qualified in their entirety by reference to the copies thereof which are filed as Exhibits 2.1, 4.1 and 10.1, respectively, to this Current Report on Form 8-K and incorporated herein by this reference.
Debt Facility
Also on July 3, 2018, the Company as borrower, and certain of the Company’s direct and indirect subsidiaries and affiliates as guarantors, entered into a new Loan and Security Agreement (the “Loan Agreement”) with FB Lending, LLC (the “Lender”). Pursuant to the Loan Agreement, the Company borrowed $16.0 million in a term loan from the Lender. The Company used a portion of the loan proceeds to fund (i) the cash payment of $8.0 million to the members of Hurricane and closing costs in connection with the acquisition of Hurricane, and (ii) to repay borrowings of $2.0 million plus interest and fees owing under the Company’s existing loan facility with TCA Global Credit Master Fund, LP. The Company intends to use the remaining proceeds for additional acquisitions and general working capital purposes.
The new term loan under the Loan Agreement matures on June 30, 2020. Interest on the term loan accrues at an annual fixed rate of 15.0%. The Company may prepay all or a portion of the outstanding principal and accrued unpaid interest under the Loan Agreement at any time upon prior notice to the Lender, subject to a prepayment penalty of 10% in the first year and 5% in the second year of the term loan. The Company is required to prepay all or a portion of the outstanding principal and accrued unpaid interest under the Loan Agreement in connection with certain dispositions of assets, extraordinary receipts, issuances of additional debt or equity, or a change of control of the Company. In connection with the Loan Agreement, the Company also issued to the Lender a warrant to purchase up to 499,000 shares of the Company’s Common Stock at $7.35 per share (the “Lender Warrant”).
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As security for its obligations under the Loan Agreement, the Company granted a lien on substantially all of its assets to the Lender. In addition, certain of the Company’s direct and indirect subsidiaries and affiliates entered into a Guaranty (the “Guaranty”) in favor of the Lender, pursuant to which they guaranteed the obligations of the Company under the Loan Agreement and granted as security for their guaranty obligations a lien on substantially all of their assets.
The Loan Agreement contains customary affirmative and negative covenants, including covenants that limit or restrict the Company’s ability to, among other things, incur other indebtedness, grant liens, merge or consolidate, dispose of assets, pay dividends or make distributions, in each case subject to customary exceptions. The Loan Agreement also includes customary events of default that include, among other things, non-payment, inaccuracy of representations and warranties, covenant breaches, events that result in a material adverse effect (as defined in the Loan Agreement), cross default to other material indebtedness, bankruptcy, insolvency and material judgments. The occurrence and continuance of an event of default could result in the acceleration of the Company’s obligations under the Loan Agreement and an increase in the interest rate by 5.0% per annum.
The foregoing descriptions of the Loan Agreement, Guaranty and Lender Warrant do not purport to be complete and are qualified in their entirety by reference to the copies thereof which are filed as Exhibits 10.2, 10.3 and 4.2, respectively, to this Current Report on Form 8-K and incorporated herein by this reference.
Item 2.01 Completion of Acquisition or Disposition of Assets.
The information set forth in Item 1.01 above concerning the acquisition of Hurricane is incorporated herein by reference.
Item 2.03. Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of a Registrant
The information set forth in Item 1.01 above concerning the Loan Agreement and Guaranty is incorporated herein by reference.
Item 3.02 Unregistered Sales of Equity Securities
The information set forth in Item 1.01 above concerning the issuance of the Series A-1 Preferred Stock, Hurricane Warrants and Lender Warrant is incorporated herein by reference.
The issuances of Series A-1 Preferred Stock, Hurricane Warrants and Lender Warrant were exempt from the registration requirements of the Securities Act of 1933, as amended (the “Securities Act”) pursuant to the exemption for transactions by an issuer not involving any public offering under Section 4(a)(2) of the Securities Act and Rule 506 of Regulation D of the Securities Act and in reliance on similar exemptions under applicable state laws.
Item 5.03 Amendments to Articles of Incorporation or Bylaws; Change in Fiscal Year.
On July 3, 2018, the Company filed with the Secretary of State of the State of Delaware a Certificate of Designation of Rights and Preferences of Series A-1 Fixed Rate Cumulative Preferred Stock (the “Certificate of Designation”), designating a total of 200,000 shares of Series A-1 Preferred Stock. The Certificate of Designation contains the following terms pertaining to the Series A-1 Preferred Stock:
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Dividends. Holders of Series A-1 Preferred Stock will be entitled to receive cumulative dividends on the $100.00 per share stated liquidation preference of the Series A-1 Preferred Stock, in the amount of cash dividends at a rate of 6.0% per year.
Voting Rights. As long as any shares of Series A-1 Preferred Stock are outstanding and remain unredeemed, the Company may not, without the majority vote of the Series A-1 Preferred Stock, (a) materially and adversely alter or change the rights, preferences or voting power given to the Series A-1 Preferred Stock, (b) enter into any merger, consolidation or share exchange that materially and adversely affects the rights, preferences or voting power of the Series A-1 Preferred Stock, or (c) waive or amend the dividend restrictions in Sections 3(d) or 3(e) of the Certificate of Designation. The Series A-1 Preferred Stock will not have any other voting rights, except as may be provided under applicable law.
Liquidation and Redemption. Upon (i) the five-year anniversary of the initial issuance date (July 3, 2023), or (ii) the earlier liquidation, dissolution or winding-up of the Company (the “Mandatory Redemption Date”), the holders of Series A-1 Preferred Stock will be entitled to cash redemption of their shares in an amount equal to $100.00 per share plus any accrued and unpaid dividends. In addition, prior to the Mandatory Redemption Date, the Company may optionally redeem the Series A-1 Preferred Stock, in whole or in part, at par plus any accrued and unpaid dividends.
Holders of Series A-1 Preferred Stock may also optionally cause the Company to redeem all or any portion of their shares of Series A-1 Preferred Stock beginning any time after the two-year anniversary of the initial issuance date for an amount equal to $100.00 per share plus any accrued and unpaid dividends, which amount may be settled in cash or Common Stock of the Company, at the option of the holder. If a holder elects to receive Common Stock, shares will be issued as payment for redemption at the rate of $12.00 per share of Common Stock.
The foregoing description of the terms of the Series A-1 Preferred Stock is not complete and is qualified in its entirety by reference to the full text of the Certificate of Designation, a copy of which is filed as Exhibit 3.1 to this Current Report on Form 8-K and incorporated herein by this reference.
Item 7.01 Regulation FD Disclosure
The Company issued two press releases on July 5, 2018 announcing the completion of the Hurricane acquisition and entry into the Loan Agreement, copies of which are attached hereto as Exhibits 99.1 and 99.2, respectively, and incorporated by reference into this Item 7.01 in satisfaction of the public disclosure requirements of Regulation FD. The information in the attached press releases are “furnished” and not “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, or otherwise subject to the liabilities of that section.
Item 9.01. Financial Statements and Exhibits.
(a) Financial Statements of Businesses Acquired.
The Company intends to file the financial statements of Hurricane required by Item 9.01(a) as part of an amendment to this Current Report on Form 8-K no later than 71 calendar days after the required filing date for this Current Report on Form 8-K.
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(b) Pro Forma Financial Information.
The Company intends to file the pro forma financial information required by Item 9.01(b) as an amendment to this Current Report on Form 8-K no later than 71 days after the required filing date for this Current Report on Form 8-K.
(d) Exhibits.
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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 thereunto duly authorized.
Date: July 10, 2018
FAT Brands Inc. | ||
By: | /s/ Andrew A. Wiederhorn | |
Andrew A. Wiederhorn | ||
Chief Executive Officer |
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AMENDED AND RESTATED
MEMBERSHIP INTEREST PURCHASE AGREEMENT
(HURRICANE AMT, LLC)
by and among
GAMA
GROUP LLC, SALIENT POINT TRUST, SATOVSKY ENTERPRISES, LLC,
MAPES HOLDINGS LLC and
MARTIN O’DOWD (SELLERS)
and
FAT BRANDS INC. (BUYER)
dated as of
July 2, 2018
TABLE OF CONTENTS
Page | ||
ARTICLE I DEFINITIONS | 1 | |
ARTICLE II PURCHASE AND SALE | 11 | |
Section 2.01 Purchase and Sale. | 11 | |
Section 2.02 Purchase Price. | 11 | |
Section 2.03 Transactions to be Effected at the Closing. | 13 | |
Section 2.04 Closing. | 15 | |
Section 2.05 Withholding Tax. | 15 | |
ARTICLE III REPRESENTATIONS AND WARRANTIES OF SELLER | 15 | |
Section 3.01 Organization and Authority of Sellers. | 15 | |
Section 3.02 Organization and Organizational Documents. | 16 | |
Section 3.03 Capitalization. | 16 | |
Section 3.04 Subsidiaries. | 17 | |
Section 3.05 No Conflicts; Consents. | 17 | |
Section 3.06 Financial Statements. | 17 | |
Section 3.07 Undisclosed Liabilities. | 18 | |
Section 3.08 Absence of Certain Changes, Events, and Conditions. | 18 | |
Section 3.09 Material Contracts. | 21 | |
Section 3.10 Real Property and Personal Property Matters. | 22 | |
Section 3.11 Condition and Sufficiency of Assets. | 23 | |
Section 3.12 Intellectual Property. | 23 | |
Section 3.13 Inventory; Accounts Receivable. | 25 | |
Section 3.14 Franchise Matters. | 25 | |
Section 3.15 Suppliers. | 28 | |
Section 3.16 Insurance. | 28 | |
Section 3.17 Legal Proceedings; Governmental Orders. | 29 | |
Section 3.18 Compliance With Laws; Franchising Compliance. | 29 | |
Section 3.19 Environmental Matters. | 29 |
TABLE OF CONTENTS CONTINUED
Section 3.20 Employee Benefit Matters. | 31 | |
Section 3.21 Employment Matters. | 34 | |
Section 3.22 Taxes. | 35 | |
Section 3.23 Books and Records. | 37 | |
Section 3.24 Brokers. | 37 | |
Section 3.25 No Other Representations and Warranties. | 37 | |
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF BUYER | 38 | |
Section 4.01 Organization and Authority of Buyer. | 38 | |
Section 4.02 No Conflicts; Consents. | 38 | |
Section 4.03 Brokers. | 38 | |
Section 4.04 Sufficiency of Funds. | 38 | |
Section 4.05 Legal Proceedings. | 39 | |
Section 4.06 Compliance With Laws. | 39 | |
Section 4.07 Solvency. | 39 | |
Section 4.08 Independent Investigation. | 39 | |
ARTICLE V COVENANTS | 40 | |
Section 5.01 Conduct of Business Prior to the Closing. | 40 | |
Section 5.02 Access to Information. | 40 | |
Section 5.03 Solicitation of Other Bids. | 41 | |
Section 5.04 Notice of Certain Events. | 41 | |
Section 5.05 Post-closing Management. | 42 | |
Section 5.06 Confidentiality. | 42 | |
Section 5.07 Non-competition; Non-solicitation. | 42 | |
Section 5.08 Governmental Approvals and Consents. | 44 | |
Section 5.09 Books and Records. | 45 | |
Section 5.10 Closing Conditions | 46 | |
Section 5.11 Operation of Company Restaurants. | 46 | |
Section 5.12 Public Announcements. | 46 | |
Section 5.13 Post-Closing Audit of Media Fund. | 47 | |
Section 5.14 Further Assurances. | 47 |
TABLE OF CONTENTS CONTINUED
ARTICLE VI TAX MATTERS | 47 | |
Section 6.01 Tax Covenants. | 47 | |
Section 6.02 Termination of Existing Tax Sharing Agreements. | 48 | |
Section 6.03 Tax Indemnification. | 48 | |
Section 6.04 Straddle Period. | 49 | |
Section 6.05 Contests. | 49 | |
Section 6.06 Cooperation and Exchange of Information. | 49 | |
Section 6.07 Tax Treatment of Indemnification Payments. | 50 | |
Section 6.08 Survival. | 50 | |
Section 6.09 Overlap. | 50 | |
Section 6.10 Purchase Price Allocation. | 50 | |
ARTICLE VII CONDITIONS TO CLOSING | 51 | |
Section 7.01 Conditions to Obligations of All Parties. | 51 | |
Section 7.02 Conditions to Obligations of Buyer. | 51 | |
Section 7.03 Conditions to Obligations of Seller. | 53 | |
ARTICLE VIII INDEMNIFICATION | 54 | |
Section 8.01 Survival. | 54 | |
Section 8.02 Indemnification By Seller Indemnitors. | 55 | |
Section 8.03 Indemnification By Buyer. | 56 | |
Section 8.04 Certain Limitations. | 56 | |
Section 8.05 Indemnification Procedures. | 57 | |
Section 8.06 Payments. | 60 | |
Section 8.07 Tax Treatment of Indemnification Payments. | 61 | |
Section 8.08 Effect of Investigation. | 61 | |
Section 8.09 Exclusive Remedies; Appointment of Representative for Sellers. | 61 |
TABLE OF CONTENTS CONTINUED
ARTICLE IX TERMINATION | 62 | |
Section 9.01 Termination. | 62 | |
Section 9.02 Effect of Termination. | 63 | |
ARTICLE X MISCELLANEOUS | 63 | |
Section 10.01 Expenses. | 63 | |
Section 10.02 Notices. | 63 | |
Section 10.03 Interpretation. | 64 | |
Section 10.04 Headings. | 64 | |
Section 10.05 Severability. | 64 | |
Section 10.06 Entire Agreement. | 65 | |
Section 10.07 Successors and Assigns. | 65 | |
Section 10.08 No Third-party Beneficiaries. | 65 | |
Section 10.09 Amendment and Modification; Waiver. | 65 | |
Section 10.10 Governing Law; Submission to Jurisdiction; Waiver of Jury Trial. | 65 | |
Section 10.11 Specific Performance. | 66 | |
Section 10.12 Counterparts. | 66 |
AMENDED AND RESTATED MEMBERSHIP INTEREST PURCHASE AGREEMENT
(HURRICANE AMT, LLC)
This Amended and Restated Membership Interest Purchase Agreement (this “Agreement”), dated as of July 2, 2018, is entered into by and among Gama Group LLC, Salient Point Trust, Satovsky Enterprises, LLC, Mapes Holdings LLC and Martin O’Dowd (each, a “Seller”, and together, “Sellers”), on the one hand, and FAT Brands Inc., a Delaware corporation, on the other hand (“Buyer”).
RECITALS
WHEREAS, Sellers and Buyer entered into that certain membership Interest Purchase Agreement dated November 14, 2017, as amended by various email exchanges among the parties (the “Original Agreement”);
WHEREAS, the parties to this Agreement desire to amend and restate the Original Agreement so that there shall not have been any lapse in time between the Original Agreement and this Agreement;
WHEREAS, Sellers collectively own all of the issued and outstanding membership interests (the “Membership Interests”) in Hurricane AMT, LLC, a Florida limited liability company (the “Company”); and
WHEREAS, Sellers wish to sell to Buyer, and Buyer wishes to purchase from Sellers, the Membership Interests, subject to the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the mutual covenants and agreements hereinafter set forth and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:
ARTICLE
I
Definitions
The following terms have the meanings specified or referred to in this ARTICLE I:
“Acquisition Proposal” has the meaning set forth in Section 5.03(a).
“Accrued Salary and Payroll Tax Cap” has the meaning set forth in Section 2.02(a).
“Action” means any claim, action, cause of action, demand, lawsuit, arbitration, inquiry, audit, notice of violation, proceeding, litigation, citation, summons, subpoena or investigation of any nature, civil, criminal, administrative, regulatory or otherwise, whether at law or in equity, including any written claim or demand that does not involving any formal proceeding.
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“Affiliate” of a Person means any other Person that directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with, such Person. The term “control” (including the terms “controlled by” and “under common control with”) means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract or otherwise.
“Agreement” has the meaning set forth in the preamble.
“Allocation” has the meaning set forth in Section 6.10.
“Area Developer Agreement” has the meaning set forth in Section 3.14(a).
“Assignment” has the meaning set forth in Section 2.03(b)(i) .
“Audited Financial Statements” has the meaning set forth in Section 3.06.
“Balance Sheet” has the meaning set forth in Section 3.06.
“Balance Sheet Date” has the meaning set forth in Section 3.06.
“Basket” has the meaning set forth in Section 8.04(a).
“Benefit Plan” has the meaning set forth in Section 3.20(a).
“Business Day” means any day except Saturday, Sunday or any other day on which commercial banks located in New York are authorized or required by Law to be closed for business.
“Buyer” has the meaning set forth in the preamble.
“Buyer Indemnitees” has the meaning set forth in Section 8.02.
“Cap” has the meaning set forth in Section 8.04(a).
“Cash Consideration” has the meaning set forth in Section 2.02(a).
“CERCLA” means the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended by the Superfund Amendments and Reauthorization Act of 1986, 42 U.S.C. §§ 9601 et seq.
“Closing” has the meaning set forth in Section 2.04.
“Closing Date” has the meaning set forth in Section 2.04.
“Closing Worksheet” has the meaning set forth in Section 2.02(c).
“Code” means the Internal Revenue Code of 1986, as amended.
“Company” has the meaning set forth in the recitals.
“Company Indebtedness” has the meaning set forth in Section 2.02(b).
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“Company Intellectual Property” means all Intellectual Property that is owned or held for use by the Company.
“Company IP Agreements” means all licenses, sublicenses, consent to use agreements, settlements, coexistence agreements, covenants not to sue, permissions and other Contracts (including any right to receive or obligation to pay royalties or any other consideration), whether written or oral, relating to Intellectual Property to which the Company is a party, beneficiary or otherwise bound.
“Company IP Registrations” means all Company Intellectual Property that is subject to any issuance registration, application or other filing by, to or with any Governmental Authority or authorized private registrar in any jurisdiction, including registered trademarks, domain names and copyrights, issued and reissued patents and pending applications for any of the foregoing.
“Company Restaurants” means the restaurants operated and managed by Hurricane Wings Management LLC, a Florida limited liability company (“Wings Management”), all of which will be identified, by restaurant name, address and ownership thereof, in Section 1(a) of the Disclosure Schedules; none of which is owned by the Company, it being understood and agreed that the Buyer is not acquiring any Company Restaurants.
“Consulting Agreement” has the meaning set forth in Section 5.05.
“Contracts” means all agreements, contracts, leases, deeds, mortgages, licenses, instruments, notes, commitments, undertakings, indentures, joint ventures, and all other agreements, commitments and legally binding arrangements, whether written or oral.
“Demand Claims” has the meaning set forth in Section 8.02(g).
“Direct Claim” has the meaning set forth in Section 8.05(c).
“Disclosure Schedules” means the updated Disclosure Schedules dated as of the date hereof and delivered by Sellers to Buyer simultaneously with the execution and delivery of this Agreement.
“Dollars” or “$” means the lawful currency of the United States.
“Environmental Claim” means any Action, Governmental Order, lien, fine, penalty, or, as to each, any settlement or judgment arising therefrom, by or from any Person alleging liability of whatever kind or nature (including liability or responsibility for the costs of enforcement proceedings, investigations, cleanup, governmental response, removal or remediation, natural resources damages, property damages, personal injuries, medical monitoring, penalties, contribution, indemnification and injunctive relief) arising out of, based on or resulting from: (a) the presence, Release of, or exposure to, any Hazardous Materials; or (b) any actual or alleged non-compliance with any Environmental Law or term or condition of any Environmental Permit.
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“Environmental Law” means any applicable Law, and any Governmental Order or binding agreement with any Governmental Authority: (a) relating to pollution (or the cleanup thereof) or the protection of natural resources, endangered or threatened species, human health or safety, or the environment (including ambient air, soil, surface water or groundwater, or subsurface strata); or (b) concerning the presence of, exposure to, or the management, manufacture, use, containment, storage, recycling, reclamation, reuse, treatment, generation, discharge, transportation, processing, production, disposal or remediation of any Hazardous Materials. The term “Environmental Law” includes, without limitation, the following (including their implementing regulations and any state analogs): the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended by the Superfund Amendments and Reauthorization Act of 1986, 42 U.S.C. §§ 9601 et seq.; the Solid Waste Disposal Act, as amended by the Resource Conservation and Recovery Act of 1976, as amended by the Hazardous and Solid Waste Amendments of 1984, 42 U.S.C. §§ 6901 et seq.; the Federal Water Pollution Control Act of 1972, as amended by the Clean Water Act of 1977, 33 U.S.C. §§ 1251 et seq.; the Toxic Substances Control Act of 1976, as amended, 15 U.S.C. §§ 2601 et seq.; the Emergency Planning and Community Right-to-Know Act of 1986, 42 U.S.C. §§ 11001 et seq.; the Clean Air Act of 1966, as amended by the Clean Air Act Amendments of 1990, 42 U.S.C. §§ 7401 et seq.; and the Occupational Safety and Health Act of 1970, as amended, 29 U.S.C. §§ 651 et seq.
“Environmental Notice” means any written directive, notice of violation or infraction, or notice respecting any Environmental Claim relating to actual or alleged non-compliance with any Environmental Law or any term or condition of any Environmental Permit.
“Environmental Permit” means any Permit, letter, clearance, consent, waiver, closure, exemption, decision or other action required under or issued, granted, given, authorized by or made pursuant to Environmental Law.
“ERISA” means the Employee Retirement Income Security Act of 1974, as amended, and the regulations promulgated thereunder.
“ERISA Affiliate” means all employers (whether or not incorporated) that would be treated together with the Company or any of its Affiliates as a “single employer” within the meaning of Section 414 of the Code.
“Financial Statements” has the meaning set forth in Section 3.06.
“Florida Courts” has the meaning set forth in Section 10.10(a).
“Franchise Agreement” means any Contract granting Franchise Rights of the Company to any other Person.
“Franchise Breach” means, with respect to a Franchise Agreement or Area Developer Agreement, as the case may be, (a) any breach, inaccuracy, default, violation or failure to perform, comply or notify, (except any such breach, inaccuracy, default, violation or failure to perform, comply or notify that would not, individually or in the aggregate with any other such breach, inaccuracy, default, violation or failure to perform, comply or notify, have or reasonably be expected to have a Material Adverse Effect); or (b) any other act, omission, event, occurrence, or condition the existence of which would (i) permit any Person to accelerate any monetary obligation or terminate, cancel or modify any right or obligation or (ii) require the payment of a monetary penalty.
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“Franchise Rights” means any and all rights relating to the ownership, operation and development of one or more restaurants branded as “Hurricane Grill & Wings”.
“Franchise Sales Persons” has the meaning set forth in Section 3.14(g).
“Franchise Status Call” has the meaning set forth in Section 5.02.
“Franchisee” has the meaning set forth in Section 3.14(a).
“Fundamental Rep” has the meaning set forth in Section 8.01.
“GAAP” means United States generally accepted accounting principles in effect from time to time.
“Government Contracts” has the meaning set forth in Section 3.09(a)(viii) .
“Governmental Authority” means any federal, state, local or foreign government or political subdivision thereof, or any agency or instrumentality of such government or political subdivision, or any self-regulated organization or other non-governmental regulatory authority or quasi-governmental authority (to the extent that the rules, regulations or orders of such organization or authority have the force of Law), or any arbitrator, court or tribunal of competent jurisdiction.
“Governmental Order” means any order, writ, judgment, injunction, decree, stipulation, determination or award entered by or with any Governmental Authority.
“Greenstalk Entity” means each of Greenstalk Capital LLC and Hurricane Wings Bradenton Investor, LLC, Hurricane Wings International Drive Investor, LLC and Proteggere, LLC, each as an assignee of Greenstalk Capital, LLC.
“Hazardous Materials” means: (a) any material, substance, chemical, waste, product, derivative, compound, mixture, solid, liquid, mineral or gas, in each case, whether naturally occurring or manmade, that is hazardous, acutely hazardous, toxic, or words of similar import or regulatory effect under Environmental Laws; and (b) any petroleum or petroleum-derived products, radon, radioactive materials or wastes, asbestos in any form, lead or lead-containing materials, urea formaldehyde foam insulation, and polychlorinated biphenyls.
“HSR Act” means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended.
“Indebtedness” means any liability or obligation under or for any of the following, in each case to the extent any related amount is actually owed: (a) indebtedness for borrowed money, including the principal and accrued and unpaid interest thereon and any guaranty of any indebtedness or other amount owed by any other Person; (b) indebtedness evidenced by a note, debenture, deed of trust, mortgage or similar instrument; (c) letter of credit or surety bond, the extent drawn upon and then only the outstanding amount required to be paid; (d) capital lease; (e) deferred purchase price of any property; and (f) conditional sale obligations, excluding trade accounts payable in the ordinary course of business.
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“Indemnified Party” has the meaning set forth in Section 8.05.
“Indemnifying Party” has the meaning set forth in Section 8.05.
“Independent Accountant” means a mutually acceptable nationally recognized firm of independent certified public accountants other than the Company’s or Buyer’s principal independent accounting firm.
“Indirect Damages” has the meaning set forth in the definition of “Losses”.
“Insurance Policies” has the meaning set forth in Section 3.16.
“Intellectual Property” means all intellectual property and industrial property rights and assets, and all rights, interests and protections that are associated with, or required for the exercise of, any of the foregoing, however arising, pursuant to the Laws of any jurisdiction throughout the world in which the Company does business or owns any intellectual property, whether registered or unregistered, including any and all: (a) Marks, trademarks, service marks, trade names, brand names, logos, trade dress, design rights and other similar designations of source, sponsorship, association or origin, together with the goodwill connected with the use of and symbolized by, and all registrations, applications and renewals for, any of the foregoing; (b) internet domain names, whether or not trademarks, registered in any top-level domain by any authorized private registrar or Governmental Authority, web addresses, web pages, websites and related content, accounts with Twitter, Facebook and other social media companies and the content found thereon and related thereto, and URLs; (c) works of authorship, expressions, designs and design registrations, whether or not copyrightable, including copyrights, author, performer, moral and neighboring rights, and all registrations, applications for registration and renewals of such copyrights; (d) inventions, discoveries, trade secrets, business and technical information and know-how, databases, data collections and other confidential and proprietary information and all rights therein; (e) patents (including all reissues, divisionals, provisionals, continuations and continuations-in-part, re-examinations, renewals, substitutions and extensions thereof), patent applications, and other patent rights and any other Governmental Authority-issued indicia of invention ownership (including inventor’s certificates, petty patents and patent utility models); and (f) software and firmware, including data files, source code, object code, application programming interfaces, architecture, files, records, schematics, computerized databases and other related specifications and documentation.
“Interim Balance Sheet” has the meaning set forth in Section 3.06.
“Interim Balance Sheet Date” has the meaning set forth in Section 3.06.
“Interim Financial Statements” has the meaning set forth in Section 3.06.
“Knowledge of Sellers” or “Sellers’ Knowledge” or any other similar knowledge qualification, means the actual knowledge of John Metz or Fred Grant, Jr., and such knowledge that such Person would reasonably be expected to obtain or have in the course of diligently performing his duties to the Company.
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“Law” means any statute, law, ordinance, regulation, rule, code, order, constitution, treaty, common law, judgment, decree, other requirement or rule of law of any Governmental Authority.
“Lease” means all leases, subleases, licenses, concessions, and other agreements (written or oral) under which the Company holds any Leased Real Estate, including the right to all security deposits and other amounts and instruments deposited by or on behalf of the Company.
“Leased Real Estate” means all leasehold or subleasehold estates and other rights to use or occupy any land, buildings, structures, improvements, fixtures, or other interest in real property held by the Company.
“Liabilities” has the meaning set forth in Section 3.07.
“Lien” means, with respect to any asset or property, any mortgage, deed of trust, lien, pledge, charge, security interest, title retention device, conditional sale or other security arrangement, collateral assignment, claim, charge, adverse claim of title, ownership or right to use, restriction or other encumbrance of any kind in respect of such asset or property.
“Losses” means all actual out-of-pocket losses, damages, liabilities, deficiencies, Actions, judgments, interest, awards (including arbitration awards), amounts agreed to in settlement (whether as a result of mediation or otherwise), fines, reasonable costs and reasonable expenses of whatever kind, including reasonable attorneys’ fees and the cost of enforcing any right to indemnification hereunder and the reasonable cost of pursuing any insurance providers; provided, however, that “Losses” shall not include punitive, incidental, consequential, special or indirect damages, including any actual and anticipated loss or reduction of revenue, diminution in value or any damages based on any type of multiple (collectively, “Indirect Damages”), except in the case of fraud or to the extent (a) awarded to a Governmental Authority or any other Person in connection with a Third Party Claim either (i) in a final, non-appealable order of a court of competent jurisdiction or (ii) by any arbitrator or mediator or (b) agreed to in mediation or by any other settlement in accordance with the provisions of ARTICLE VIII.
“Marks” means all fictitious business names, trading names, corporate names, and registered trademarks, and service marks and applications therefor.
“Material Adverse Effect” means any event, occurrence, fact, condition or change that is or would reasonably be expected to be, individually or in the aggregate with any other event, occurrence, fact, condition or change, materially adverse to (a) the business, results of operations, condition (financial or otherwise) or assets of the Company or (b) the ability of Sellers, or any Seller, to consummate the transactions contemplated hereby on a timely basis; provided, however, that “Material Adverse Effect” shall not include any event, occurrence, fact, condition or change, directly or indirectly, arising out of or attributable to: (i) general economic or political conditions; (ii) conditions generally affecting the industries in which the Company operates; (iii) any changes in financial, banking or securities markets in general, including any disruption thereof and any general decline in any market index or any change in prevailing interest rates; (iv) acts of war (whether or not declared), armed hostilities or terrorism, or the escalation or worsening thereof; (v) any changes in applicable Laws or accounting rules, including GAAP, or the enforcement, implementation or interpretation thereof; (vi) any action required or permitted by this Agreement or any action taken (or omitted to be taken) with the written consent of or at the written request of Buyer; (vii) any natural or man-made disaster or act of God, such as hurricanes, tornadoes, floods, earthquakes or other natural disasters; (viii) the announcement, pendency or completion of the transactions contemplated by this Agreement, including losses or threatened losses of employees, suppliers, distributors, franchisees or others having relationships with the Company as a result thereof; or (ix) any failure by the Company to meet any internal or published projections, forecasts or revenue or earnings predictions (provided that the underlying causes of such failures (subject to the other provisions of this definition) shall not be excluded); provided further, however, that any event, occurrence, fact, condition or change referred to in clauses (i) through (v) immediately above shall be taken into account in determining whether a Material Adverse Effect has occurred or could reasonably be expected to occur to the extent that such event, occurrence, fact, condition or change has a disproportionate effect on the Company compared to other participants in the industries in which the Company conducts its business.
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“Material Contracts” has the meaning set forth in Section 3.09(a).
“Material Suppliers” has the meaning set forth in Section 3.15.
“Media Fund” has the meaning set forth in Section 5.13.
“Membership Interests” has the meaning set forth in the recitals.
“Multiemployer Plan” has the meaning set forth in Section 3.20(c).
“Net Cash Consideration” has the meaning set forth in Section 2.02(b).
“Non-escrow Units” has the meaning set forth in Section 2.02(a).
“Organizational Documents” means (a) in the case of a Person that is a corporation, its articles or certificate of incorporation and its by-laws, regulations or similar governing instruments required by the laws of its jurisdiction of formation or organization; (b) in the case of a Person that is a partnership, its articles or certificate of partnership, formation or association, and its partnership agreement (in each case, limited, limited liability, general or otherwise); (c) in the case of a Person that is a limited liability company, its articles or certificate of formation or organization, and its limited liability company agreement or operating agreement; and (d) in the case of a Person that is none of a corporation, partnership (limited, limited liability, general or otherwise), limited liability company or natural person, its governing instruments as required or contemplated by the laws of its jurisdiction of organization.
“Original Agreement” has the meaning set forth in the recitals.
“Original Issue Price”, when used with respect to the Units, means ten thousand dollars ($10,000) per Unit.
“Permits” means all permits, licenses, franchises, approvals, authorizations, registrations, certificates, variances and similar rights obtained, or required to be obtained, from Governmental Authorities.
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“Permitted Liens” means: (a) statutory Liens for current Taxes or other governmental charges not yet due and payable or the amount or validity of which is being contested in good faith (provided appropriate reserves required pursuant to GAAP have been made in respect thereof); (b) mechanics’, carriers’, workers’, repairers’, and similar statutory Liens arising or incurred in the ordinary course of business for amounts which are not delinquent or which are being contested by appropriate proceedings (provided appropriate reserves required pursuant to GAAP have been made in respect thereof); (c) zoning, entitlement, building, and other land use regulations imposed by Governmental Authorities having jurisdiction over such Person’s owned or leased real property, which are not violated by the current use and operation of such real property; (d) covenants, conditions, restrictions, easements, and other similar non-monetary matters of record affecting title to such Person’s owned or leased real property, which do not materially impair the occupancy or use of such real property for the purposes for which it is currently used in connection with such Person’s businesses; (e) any right of way or easement related to public roads and highways, which do not materially impair the occupancy or use of such real property for the purposes for which it is currently used in connection with such Person’s businesses; and (f) Liens arising under workers’ compensation, unemployment insurance, social security, retirement, and similar legislation.
“Person” means an individual, corporation, partnership, joint venture, limited liability company, Governmental Authority, unincorporated organization, trust, association, or other entity.
“Post-Closing Tax Period” means any taxable period beginning after the Closing Date and, with respect to any taxable period beginning before and ending after the Closing Date, the portion of such taxable period beginning after the Closing Date.
“Pre-Closing Tax Period” means any taxable period ending on or before the Closing Date and, with respect to any taxable period beginning before and ending after the Closing Date, the portion of such taxable period ending on and including the Closing Date.
“Purchase Price” has the meaning set forth in Section 2.02(a).
“Qualified Benefit Plan” has the meaning set forth in Section 3.20(c).
“Real Property” means all Leased Real Estate.
“Related Party Indebtedness” means any Indebtedness owed by the Company to any Seller or any Affiliate of any Seller or owed by any Seller or any Affiliate of any Seller to the Company.
“Release” means any actual or threatened release, spilling, leaking, pumping, pouring, emitting, emptying, discharging, injecting, escaping, leaching, dumping, abandonment, disposing or allowing to escape or migrate into or through the environment (including, without limitation, ambient air (indoor or outdoor), surface water, groundwater, land surface or subsurface strata or within any building, structure, facility or fixture).
“Release Agreement” has the meaning set forth in Section 2.03(b)(i).
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“Representative” means, with respect to any Person, any and all directors, managing members, managers, officers, employees, consultants, financial advisors, counsel, accountants and other agents of such Person.
“Restricted Business” means the business of owning or operating, except as a Franchisee of the Company, or franchising, as franchisor, one or more restaurants that specialize in the sale of chicken wings.
“Restricted Period” has the meaning set forth in Section 5.07(a).
“Seller Indemnitors” means each of Salient Point Trust, GAMA Group, LLC and Satovsky Enterprises, LLC.
“Seller” or “Sellers” have the meaning set forth in the preamble.
“Seller Units” has the meaning set forth in Section 2.02(a).
“Sellers Indemnitees” has the meaning set forth in Section 8.03.
“Straddle Period” has the meaning set forth in Section 6.04.
“Subsidiary” means a corporation, partnership, limited liability company, or other business entity of which a majority of the shares of voting securities is at the time beneficially owned, or the management of which is otherwise controlled, directly or indirectly, through one or more intermediaries, or both, by the Company.
“T&T” has the meaning set forth in Section 2.02(b).
“Tax Claim” has the meaning set forth in Section 6.05.
“Taxes” means all federal, state, local, foreign and other income, gross receipts, sales, use, production, ad valorem, transfer, franchise, registration, profits, license, lease, service, service use, withholding, payroll, employment, unemployment, estimated, excise, severance, environmental, stamp, occupation, premium, property (real or personal), real property gains, windfall profits, customs, duties or other taxes, fees, assessments or charges of any kind whatsoever, together with any interest, additions or penalties with respect thereto and any interest in respect of such additions or penalties.
“Tax Return” means any return, declaration, report, claim for refund, information return, or statement or other document relating to Taxes, including any schedule or attachment thereto, and including any amendment thereof.
“Territorial Rights” has the meaning set forth in Section 3.14(h).
“Territory” means the United States of America, including its territories and possessions.
“Third Party Claim” has the meaning set forth in Section 8.05(a).
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“Transaction Documents” means this Agreement, the Assignment and such other agreements to be executed and delivered by a party hereto in connection with the Closing.
“Union” has the meaning set forth in Section 3.21(b).
“Units” means units of Buyer, each of which consists of (a) one hundred (100) shares of Series A-1 Fixed Rate Cumulative Preferred Stock of Buyer and (b) warrants to purchase one hundred twenty-five (125) shares of Common Stock of Buyer, which shares of Series A-1 Fixed Rate Cumulative Preferred Stock and Common Stock and which warrants are more fully described in the term sheet and certificate of designation of Buyer, a copy of which has been provided to Sellers.
“WARN Act” means the federal Worker Adjustment and Retraining Notification Act of 1988, and similar state, local and foreign laws related to plant closings, relocations, mass layoffs and employment losses.
“Wings Management” has the meaning set forth in the definition of “Company Restaurants”.
ARTICLE
II
Purchase and sale
Section 2.01 Purchase and Sale. Subject to the terms and conditions set forth herein, at the Closing, Sellers shall sell to Buyer, and Buyer shall purchase from Sellers, all of Sellers’ right, title, and interest in and to the Membership Interests, free and clear of all Liens, for the consideration specified in Section 2.02.
Section 2.02 Purchase Price.
(a) Purchase Price. The aggregate purchase price (the “Purchase Price”) for the Membership Interests shall be Twelve Million Five Hundred Thousand Dollars ($12,500,000), payable as set forth below. The Purchase Price shall be payable by delivery at the Closing of (i) cash in the amount of Eight Million Dollars ($8,000,000) (the “Cash Consideration”); (ii) four hundred (400) Units, valued at Ten Thousand Dollars ($10,000) per Unit or Four Million Dollars ($4,000,000) in the aggregate (the “Seller Units”; and (iii) the issuance by Buyer of an additional fifty (50) Units, valued at Five Hundred Thousand Dollars ($500,000), to certain Sellers, which Sellers shall be named and the respective Units to be issued to each Seller are set forth on the Closing Worksheet (the “Non-escrow Units”). At the Closing, the Cash Consideration and the Units will be paid or issued, as applicable, to Sellers and the other Persons entitled to a portion of the Purchase Price; provided that the Seller Units will be held by Buyer in escrow until released in accordance with Section 8.06. At the Closing, the Company shall be sold on a cash-free, debt-free basis and will have no accrued salaries and payroll taxes in excess of Sixty-Five Thousand Dollars ($65,000), including for the Company’s Subsidiary, Hurricane Media Fund, LLC (the “Accrued Salary and Payroll Tax Cap”). All accounts receivable and accounts payable of the Company earned or incurred on or prior to July 1, 2018 shall be deemed the property of Sellers, and all accounts receivable and accounts payable earned or incurred after July 1, 2018 shall be the property of Buyer. Any payments for accounts receivable that are received by Buyer after the Closing Date that pertain to services performed by the Company prior to or on July 1, 2018 shall be deemed to be held by Buyer in trust for Sellers and Buyer shall remit same to Sellers within fifteen (15) Business Days after receipt thereof.
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(b) Closing Payments and Deliveries.
(i) The Cash Consideration payable to Sellers at the Closing (the “Net Cash Consideration”) shall equal the difference between the Cash Consideration minus the sum of (A) all Indebtedness of the Company (“Company Indebtedness”), including all Related Party Indebtedness and all Indebtedness identified in Section 3.08(i) of the Disclosure Schedules, then outstanding; (B) all other Liabilities of the Company, including the Liabilities identified in Section 3.07 of the Disclosure Schedules (other than the Liabilities identified in Item 1 and Item 2 thereof) and all Liabilities with respect to the legal proceedings identified as “Other Legal Items” in Section 3.17(a) of the Disclosure Schedules as noted thereon, but excluding Liabilities incurred and payable in the ordinary course of business consistent with past practices; and (C) any accrued salaries and payroll taxes in excess of the Accrued Salary and Payroll Tax Cap.
(ii) All amounts payable to Casual Dining Ventures, Inc., Mark Bartholomay, Fred Grant, Kevin Kruse and any Greenstalk Entity for their respective options to acquire, or other rights with respect to, membership interests in the Company and the “Liquidating Event Compensation” payable to T&T Holdings LLC (“T&T”) pursuant to the Agreement dated February 15, 2011 between the Company and T&T shall be paid by the issuance to such Persons of Seller Units with a value as close as possible, without issuance of any fractional Units, equal to the amount to which each such Person is entitled (it being understood and agreed that (A) the maximum amount that may be payable to T&T shall be utilized for this purpose and (B) the number of Seller Units issuable to Sellers shall be reduced by the number of Seller Units issued to each such Person).
(iii) All amounts described in clauses (A) and (B) of Section 2.02(b)(i) will be payable by Buyer at the Closing in accordance with the wire transfer instructions provided by Sellers in the Closing Worksheet delivered by Sellers pursuant to Section 2.02(c).
(iv) The Net Cash Consideration payable to Sellers pursuant to Section 2.02(b)(i) shall be paid to Sellers in accordance with their respective interests therein, as set forth in the Closing Worksheet, by wire transfer of immediately available funds to the accounts identified by Sellers in the Closing Worksheet.
(v) The Seller Units shall be issued in the name of each Seller or other Person entitled to Seller Units in accordance with their respective interests therein as set forth in the Closing Worksheet, but shall be held by Buyer in escrow as provided herein.
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(c) Closing Worksheet. Prior to the Closing Date, Sellers shall deliver to Buyer a worksheet (the “Closing Worksheet”) setting forth Sellers’ calculation of the aggregate Net Cash Consideration and including:
(i) the percentage of the Net Cash Consideration to which each Seller is entitled, together with wire transfer instructions for the payment thereof to each Seller and the number of Seller Units issuable to each Seller, together with the name in which such Seller Units shall be issued (if not in such Seller’s name), it being understood and agreed that (A) the aggregate number of Seller Units issuable to Sellers shall be reduced by the number of Seller Units issued to the other Persons entitled to Seller Units pursuant to Section 2.02(b); and (B) each Seller’s and each such other Person’s Seller Units shall be held by Buyer in escrow and not delivered to the applicable Seller or other Person until released therefrom in accordance with Section 8.06;
(ii) the amount payable with respect to all Company Indebtedness, the name of the payee thereof and wire transfer instructions for each such payment;
(iii) the amount payable with respect to each other Liability referred to in Section 2.02(b)(i)(B), together with the name of the payee thereof and wire transfer or other payment instructions for each such payment;
(iv) the name and aggregate number of Non-escrow Units to be issued to each Seller entitled thereto in accordance with Section 2.02(a)(iii), all of which Non-escrow Units shall be issued to the Sellers entitled thereto at Closing;
(v) the aggregate amount of the accrued salaries and payroll taxes in excess of the Accrued Salary and Payroll Tax Cap; and
(vi) the number of Seller Units issuable to each of Casual Dining Ventures, Inc., Mark Bartholomay, Fred Grant, Kevin Kruse, each Greenstalk Entity and T&T, all of which Seller Units shall be held by Buyer in escrow until released therefrom in accordance with Section 8.06.
Section 2.03 Transactions to be Effected at the Closing.
(a) At the Closing, Buyer shall:
(i) deliver to Sellers the Net Cash Consideration by wire transfer of immediately available funds to the accounts of Sellers set forth in the Closing Worksheet;
(ii) issue the Seller Units in the name of each Seller and other Person entitled thereto in accordance as set forth in the Closing Worksheet, but retain such Seller Units in escrow until released as provided herein;
(iii) issue and deliver the Non-escrow Units to the Sellers entitled thereto as set forth in the Closing Worksheet; and
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(iv) deliver to Sellers all other agreements, documents, instruments or certificates required to be delivered by Buyer at or prior to the Closing pursuant to Section 7.03 of this Agreement.
(b) At the Closing, Sellers shall deliver to Buyer:
(i) an assignment of the Membership Interests to Buyer in form and substance reasonably satisfactory to Buyer (the “Assignment”), duly executed by each Seller; and
(ii) all other agreements, documents, instruments or certificates required to be delivered by Sellers at or prior to the Closing pursuant to Section 7.02 of this Agreement.
(c) In addition to the deliveries contemplated by Sections 2.03(a) and 2.03(b), at the Closing (or, in the case of the Release Agreements described in clause (ii) below, as soon as practicable, but in no event more than ten (10) Business Days, following the Closing), Sellers shall deliver or cause to be delivered to Buyer:
(i) a list of and the amount due to each holder of Company Indebtedness;
(ii) subject to the last few sentences of this Section 2.03(c), a release and waiver of claims agreement (specifically including, in the case of Persons having options or equity interests in the Company, a waiver of all applicable appraisers’ and/or dissenters’ rights), in a form reasonably acceptable to Buyer (each, a “Release Agreement”), duly executed by each of Casual Dining Ventures, Inc., Mark Bartholomay, Fred Grant, Kevin Kruse, T&T and each Greenstalk Entity;
(iii) evidence reasonably satisfactory to Buyer that the Ultimate Net Loss Obligation Agreement dated October 12, 2012 between the Company and Franchise Credit, LLC has been, or as of the Closing shall be, terminated, it being understood that the payoff letter or confirmation of satisfaction from Franchise Credit, LLC, together with the Repayment and Release Agreement effective as of December 18, 2017, by and among the Company, John Metz and Franchise Credit, LLC, shall be sufficient evidence thereof; and
(iv) evidence reasonably satisfactory to Buyer that Chitowngus LLC is waiving and declining to exercise its right to terminate the Area Director Agreement dated December 22, 2010, as amended by the Amendment to Area Director Agreement dated December 22, 2010, by and between the Company and Chitowngus LLC, which right to terminate arises as a result of the transactions contemplated hereby.
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Notwithstanding anything to the contrary expressed or implied in this Agreement, Buyer understands that Sellers and the Company are in dispute with T&T and the Greenstalk Entities, which disputes make it unlikely that Sellers shall be able to deliver a Release Agreement from T&T or any Greenstalk Entity on or prior to the tenth (10th) Business Day following the Closing. Accordingly, when and if Sellers and T&T or the Greenstalk Entities agree to the number of Units to which any such Person is entitled, Sellers shall so notify Buyer in writing and the number of Seller Units issued to such Person on the Closing Date shall be adjusted to reflect such agreement (with any upward adjustment reducing, on a pro rata basis, the number of Seller Units issued to Sellers and any downward adjustment increasing, on a pro rata basis, the number of Seller Units issued to Sellers).
Section 2.04 Closing. Subject to the terms and conditions of this Agreement, the purchase and sale of the Membership Interests contemplated hereby shall take place at a closing (the “Closing”) to be held at 10:00 a.m., New York time, no later than one (1) Business Day after the last of the conditions to Closing set forth in ARTICLE VII have been satisfied or waived (other than conditions which, by their nature, are to be satisfied on the Closing Date), at the offices of Loeb & Loeb LLP in New York, NY, or Los Angeles, CA, or at such other time or on such other date or at such other place as Buyer and Sellers shall mutually agree upon in writing (the day on which the Closing takes place being the “Closing Date”).
Section 2.05 Withholding Tax. Buyer and the Company shall be entitled to deduct and withhold from the Purchase Price all Taxes that Buyer or the Company may be required to deduct and withhold under any provision of Tax Law. All such withheld amounts shall be treated as delivered to Sellers hereunder.
ARTICLE
III
Representations and warranties of Sellers
Except as set forth in the Disclosure Schedules, each Seller, as to itself and not as to any other Seller with respect to the representations and warranties set forth in Section 3.01 and, solely to the extent related to a particular Seller, Section 3.05, and each Seller Indemnitor, jointly and severally with respect to all of the other representations and warranties set forth in this ARTICLE III, represents and warrants to Buyer that the statements contained in this ARTICLE III are true and correct as of the date hereof. The Disclosure Schedules may include sections and disclosures in addition to those Sections of the Disclosure Schedules referenced in this ARTICLE III.
Section 3.01 Organization and Authority of Sellers. Each Seller that is an entity is a corporation, general partnership or limited liability company, as applicable, duly organized, validly existing and in good standing under the Laws of its state of organization. Each Seller has full corporate, general partnership or limited liability company, as applicable, power and authority to enter into this Agreement, the Assignment and the other Transaction Documents to which such Seller is a party, to carry out its obligations hereunder and thereunder and to consummate the transactions contemplated hereby and thereby. The execution and delivery by each Seller that is an entity of this Agreement and the Assignment and any other Transaction Document to which such Seller is a party, the performance by such Seller of its obligations hereunder and thereunder and the consummation by such Seller of the transactions contemplated hereby and thereby have been duly authorized by all requisite corporate, general partnership or limited liability company action on the part of such Seller. This Agreement has been duly executed and delivered by each Seller, and (assuming due authorization, execution, and delivery by Buyer) this Agreement constitutes a legal, valid, and binding obligation of each Seller enforceable against each of them in accordance with its terms, except as such enforceability is limited by bankruptcy, insolvency, reorganization, moratorium and other similar Laws and principles of equity affecting creditors’ rights and remedies generally. When the Assignment and each other Transaction Document to which Sellers are or will be a party has been duly executed and delivered by Sellers (assuming due authorization, execution, and delivery by each other party thereto), the Assignment and such other Transaction Documents will constitute a legal and binding obligation of each Seller enforceable against it in accordance with its terms, except as such enforceability is limited by bankruptcy, insolvency, reorganization, moratorium and other similar Laws and principles of equity affecting creditors’ rights and remedies generally.
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Section 3.02 Organization and Organizational Documents.
(a) The Company is a limited liability company duly organized, validly existing, and in good standing under the Laws of its jurisdiction of organization, and has the requisite limited liability company power and authority to own, lease, and operate its assets and to carry on its business as now conducted. The Company is duly qualified or licensed to do business as a limited liability company, and is in good standing in each jurisdiction where the character of the assets and properties owned, leased, or operated by it or the nature of its business makes such qualification or license necessary, except where the failure to be so qualified or licensed or to be in good standing, would not reasonably be expected to have, individually or in the aggregate, a Company Material Adverse Effect.
(b) Sellers have delivered or made available to Buyer a true and correct copy of the Organizational Documents of the Company. The Company is not in violation of any of the provisions of its Organizational Documents.
Section 3.03 Capitalization.
(a) Each Seller is the record owner of and has good and valid title to its Membership Interests, free and clear of all Liens. The Membership Interests constitute 100% of the total issued and outstanding membership interests in the Company. The Membership Interests have been duly authorized and are validly issued, fully-paid and non-assessable. Upon consummation of the transactions contemplated by this Agreement, Buyer shall own all of the Membership Interests, free and clear of all Liens. The Membership Interests were issued in compliance with applicable Laws. To Sellers’ Knowledge, the Membership Interests were not issued in violation of the Organizational Documents of the Company or any other agreement, arrangement, or commitment to which each such Seller or the Company is a party and are not subject to or in violation of any preemptive or similar rights of any Person.
(b) Except as set forth in Section 3.03(b) of the Disclosure Schedules, there are no outstanding or authorized options, warrants, convertible securities or other rights, agreements, arrangements or commitments of any character relating to any membership interests in the Company or obligating Sellers or the Company to issue or sell any membership interests (including the Membership Interests), or any other interest, in the Company. Other than the Organizational Documents, there are no voting trusts, proxies or other agreements or understandings in effect with respect to the voting or transfer of any of the Membership Interests.
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Section 3.04 Subsidiaries. Except as set forth in Section 3.04 of the Disclosure Schedules, the Company does not own, or have any interest in any shares or have an ownership interest in any other Person.
Section 3.05 No Conflicts; Consents. The execution, delivery and performance by a Seller of this Agreement, the Assignment and the other Transaction Documents to which it is a party, and the consummation of the transactions contemplated hereby and thereby, do not and will not: (a) result in a violation or breach of, or default under, the Organizational Documents of such Seller, to the extent such Seller is an entity, or the Company; (b) result in a violation or breach of any provision of any Law or Governmental Order applicable to Sellers or the Company; (c) except as set forth in Section 3.05 of the Disclosure Schedules, require the consent, notice or other action by any Person under, conflict with, result in a violation or breach of, constitute a default or an event that, with or without notice or lapse of time or both, would constitute a default under, result in the acceleration of or create in any party the right to accelerate, terminate, modify or cancel any Contract to which any Seller or the Company is a party or by which any of them is bound or to which any of their respective properties and assets are subject (including any Material Contract) or any Permit affecting the properties, assets or business of the Company; or (d) result in the creation or imposition of any Lien other than Permitted Liens on any properties or assets of the Company, except in the cases of clauses (c) and (d), where the conflict, violation, breach, default, acceleration, termination, modification, cancellation, failure to give notice or Lien would not, individually or in the aggregate, have or reasonably be expected to have a Material Adverse Effect. No consent, approval, Permit, Governmental Order, declaration or filing with, or notice to, any Governmental Authority is required by or with respect to Sellers or the Company in connection with the execution and delivery of this Agreement and the Assignment and the other Transaction Documents and the consummation of the transactions contemplated hereby and thereby, except for such filings as may be required under the HSR Act and as set forth in Section 3.05 of the Disclosure Schedules and such consents, approvals, Permits, Governmental Orders, declarations, filings or notices with respect to which the failure to obtain, individually or in the aggregate, would not have or reasonably be expected to have a Material Adverse Effect.
Section 3.06 Financial Statements. Sellers have made available to Buyer complete copies of the audited financial statements of the Company, consisting of the balance sheet as of its fiscal year-end in the years 2016 and 2015, and the related statements of income and retained earnings, members’ equity and cash flow for the years then ended (the “Audited Financial Statements”), unaudited financial statements of the Company consisting of the balance sheet as of December 31, 2017, and the related statements of income and retained earnings, members’ equity and cash flow for the year then ended, and unaudited financial statements of the Company consisting of the balance sheet as of March 30, 2018 and the related statements of income and retained earnings, members’ equity and cash flow for the three (3) month period then ended (the “Interim Financial Statements” and together with the Audited Financial Statements, the “Financial Statements”). The Financial Statements have been prepared in accordance with GAAP applied on a consistent basis throughout the period involved, subject, in the case of the Interim Financial Statements, to normal and recurring year-end adjustments (the effect of which will not be materially adverse) and the absence of notes (that, if presented, would not differ materially from those presented in the Audited Financial Statements). The Financial Statements fairly present in all material respects the financial condition of the Company as of the respective dates they were prepared and the results of the operations of the Company for the periods indicated, all in accordance with GAAP. The balance sheet of the Company as of its fiscal year-end in 2017 is referred to herein as the “Balance Sheet” and the date thereof as the “Balance Sheet Date” and the balance sheet of the Company as of the three (3) month period then ended March 30, 2018 is referred to herein as the “Interim Balance Sheet” and the date thereof as the “Interim Balance Sheet Date.” To Sellers’ Knowledge, the Company maintains in all material respects a standard system of accounting established and administered in accordance with GAAP.
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Section 3.07 Undisclosed Liabilities. Except as set forth in Section 3.07 of the Disclosure Schedules, the Company has no liabilities, obligations or commitments of any nature whatsoever, asserted or unasserted, known or unknown, absolute or contingent, accrued or unaccrued, matured or unmatured, or otherwise, including guaranties of the obligations of any other Person (“Liabilities”), except (a) those which are adequately reflected or reserved against in the applicable Balance Sheet as of the applicable Interim Balance Sheet Date, and (b) those which have been incurred in the ordinary course of business consistent with past practice since the applicable Interim Balance Sheet Date and which are not, individually or in the aggregate, material in amount. The Company is not a party to, or has any commitment to become a party to: (i) any joint venture, off balance sheet partnership, or any similar Contract or arrangement (including any such Contract or arrangement relating to any transaction or relationship between the Company and any other Person, including any structured finance, special purpose, or limited purpose Person, on the other hand); or (ii) any “off balance sheet arrangements” (as defined in Item 303(a) of Regulation S-K under the Securities Exchange Act of 1934, as amended). At Closing, the Company will have no (i) Indebtedness, including Related Party Indebtedness, except as otherwise agreed by Buyer as contemplated by this Agreement, or (ii) accrued salaries or payroll taxes in excess of the Accrued Salary and Payroll Tax Cap.
Section 3.08 Absence of Certain Changes, Events, and Conditions. Except as expressly contemplated by this Agreement or as set forth in Section 3.08 of the Disclosure Schedules, from the Balance Sheet Date, the Company has operated in the ordinary course of business consistent with past practice and there has not been, with respect to the Company, any:
(a) event, occurrence or development that has had or would reasonably be expected to have a Material Adverse Effect;
(b) amendment of the Organizational Documents of the Company;
(c) split, combination or reclassification of any equity interests in the Company;
(d) issuance, sale or other disposition of, or creation of any Lien on, any equity interests in the Company, or grant of any options, warrants or other rights to purchase or obtain (including upon conversion, exchange or exercise) any membership interests in the Company;
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(e) declaration or payment of any distributions on or in respect of any equity interest in the Company, or redemption, purchase or acquisition of any outstanding equity interests in the Company;
(f) material change in any method of accounting or accounting practice of the Company, except as required by GAAP or applicable Law or as disclosed in the notes to the Financial Statements;
(g) material change in cash management practices of the Company, or any of their policies, practices and procedures with respect to collection of accounts receivable, establishment of reserves for uncollectible accounts, accrual of accounts receivable, inventory control, prepayment of expenses, payment of trade accounts payable, accrual of other expenses, deferral of revenue and acceptance of customer deposits;
(h) except as set forth in Section 3.08(h) of the Disclosure Schedules, entry into any Contract that would constitute a Material Contract;
(i) except as set forth in Section 3.08(i) of the Disclosure Schedules, incurrence, assumption or guarantee of any indebtedness for borrowed money except (1) unsecured current obligations and Liabilities incurred in the ordinary course of business consistent with past practice and (2) Related Party Indebtedness;
(j) except as set forth in Section 3.08(j) of the Disclosure Schedules, transfer, assignment, sale or other disposition of any of the assets shown or reflected in the Balance Sheet of the Company or cancellation of any debts (except possibly in connection with the elimination of Related Party Indebtedness) or entitlements;
(k) transfer, assignment or grant of any license or sublicense of any material rights under or with respect to any Company Intellectual Property or Company IP Agreements;
(l) material damage, destruction or loss (whether or not covered by insurance) to its property;
(m) any capital investment in, or any loan to, any other Person;
(n) acceleration, termination, material modification to or cancellation of any Material Contract to which the Company is a party or by which it is bound;
(o) any material capital expenditures;
(p) imposition of any Lien upon any properties or assets, tangible or intangible, of the Company;
(q) hiring or promoting any person as an officer except to fill a vacancy in the ordinary course of business;
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(r) (i) grant of any bonus, whether monetary or otherwise, or increase in any wages, salary, severance, pension or other compensation or benefits in respect of its current or former employees, officers, managers, independent contractors or consultants, other than (A) as provided for in any written agreements or required by applicable Law in the ordinary course of business or (B) increases in compensation made to non-officer employees in the ordinary course of business consistent with past practice, (ii) change in the terms of employment for any employee or any termination of any employees for which the aggregate costs and expenses exceed $100,000 per annum, or (iii) action to accelerate the vesting or payment of any compensation or benefit for any current or former employee, officer, manager, independent contractor or consultant, except as set forth in Section 3.08(r) of the Disclosure Schedules;
(s) adoption, modification or termination of any: (i) employment, severance, retention or other agreement with any current or former employee, officer, manager, independent contractor or consultant, except in the ordinary course of business consistent with past practice, (ii) Benefit Plan, the effect of which in the aggregate would increase the obligations of the Company by more than ten percent (10%) of its existing annual obligations of such plans or (iii) collective bargaining or other agreement with a Union, in each case whether written or oral;
(t) any loan to (or forgiveness of any loan to), or entry into any other transaction with, any of its members or current or former managers, officers and employees (other than the payment of compensation to officers and employees in the ordinary course of business) and except as set forth in Section 3.08(t) of the Disclosure Schedules;
(u) except as set forth in Section 3.08(u) of the Disclosure Schedules, entry into a new line of business or abandonment or discontinuance of the existing line of business;
(v) adoption of any plan of merger, consolidation, reorganization, liquidation or dissolution or filing of a petition in bankruptcy under any provisions of federal or state bankruptcy Law or consent to the filing of any bankruptcy petition against it under any similar Law;
(w) purchase, lease or other acquisition of the right to own, use or lease any property or assets for an amount in excess of $25,000, individually (in the case of a lease, per annum) or $100,000 in the aggregate (in the case of a lease, for the entire term of the lease, not including any option term), except for purchases of inventory or supplies in the ordinary course of business consistent with past practice;
(x) acquisition by merger or consolidation with, or by purchase of a substantial portion of the assets, stock or other equity of, or by any other manner, any business or any Person or any division thereof;
(y) action by the Company to make, change or rescind any Tax election, amend any Tax Return or take any position on any Tax Return, take any action, omit to take any action or enter into any other transaction that would have the effect of increasing the Tax liability or reduce any Tax asset of Buyer in respect of any Post-Closing Tax Period; or
(z) any Contract to do any of the foregoing, or any action or omission that would result in any of the foregoing.
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Section 3.09 Material Contracts.
(a) Section 3.09(a) of the Disclosure Schedule lists each of the following Contracts of the Company (such Contracts, together with all Contracts disclosed in Sections 3.10(a) or 3.10(b) (“Real Property”), Section 3.12(b) (“Company IP Agreements”) and Section 3.14(a) (“Franchise Agreements”) of the Disclosure Schedules, are referred to herein as “Material Contracts”):
(i) each Contract of the Company involving aggregate consideration in excess of $100,000 and which, in each case, cannot be cancelled by the Company without penalty or without more than 90 days’ notice;
(ii) all Contracts that require the Company to purchase its total requirements of any product or service from a third party or that contain “take or pay” provisions;
(iii) all Contracts that provide for the indemnification by the Company of any Person with respect to any Tax or environmental Liability of any Person;
(iv) all Contracts that relate to the acquisition or disposition of any business, a material amount of equity or assets of any other Person or any real property (whether by merger, sale of stock or other equity interests, sale of assets or otherwise);
(v) all broker, distributor, dealer, manufacturer’s representative, franchise, agency, sales promotion, market research, marketing consulting and advertising Contracts to which the Company is a party;
(vi) all employment agreements and Contracts with independent contractors or consultants (or similar arrangements) to which the Company is a party and which are not cancellable without material penalty or without more than 90 days’ notice;
(vii) except for Contracts relating to trade receivables, all Contracts relating to indebtedness (including, without limitation, guarantees) of the Company;
(viii) all Contracts with any Governmental Authority to which the Company is a party (“Government Contracts”);
(ix) all Contracts that limit or purport to limit the ability of the Company to compete in any line of business or with any Person or in any geographic area or during any period of time;
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(x) any Contracts to which the Company is a party that provide for any joint venture, partnership or similar arrangement by the Company;
(xi) all Contracts between the Company, on the one hand, and Sellers or any Affiliate of Sellers (other than the Company), on the other hand;
(xii) all collective bargaining agreements or Contracts with any Union to which the Company is a party; and
(xiii) any other Contract that is material to the Company and not previously disclosed pursuant to this Section 3.09.
(b) To the Knowledge of Sellers, each Material Contract is valid and binding on the Company in accordance with its terms and is in full force and effect. Except as set forth in Section 3.09(b) of the Disclosure Schedules, neither the Company, nor, to Sellers’ Knowledge, any other party to a Material Contract is in breach of or default under (or is alleged to be in breach of or default under) in any material respect, or has provided or received any notice of any intention to terminate, any Material Contract as of the date hereof. No event or circumstance has occurred that, with notice or lapse of time or both, would constitute an event of default under any Material Contract or result in a termination thereof or would cause or permit the acceleration or other changes of any right or obligation or the loss of any benefit thereunder. Complete and correct copies of each Material Contract (including all modifications, amendments, and supplements thereto and waivers thereunder) have been made available to Buyer. The “knowledge” qualification set forth in the first sentence of this Section 3.09(b) shall not minimize, impair or be deemed to modify or qualify any representation or warranty set forth in any other Section of this ARTICLE III, including in particular the representations and warranties set forth in Sections 3.10(b), 3.12 and 3.14.
Section 3.10 Real Property and Personal Property Matters.
(a) The Company does not own any real property.
(b) Section 3.10(b) of the Disclosure Schedules sets forth a true and complete list of all Leases (including all amendments, extensions, renewals, guaranties, and other agreements with respect thereto) as of the date hereof for each such Leased Real Estate (including the date and name of the parties to such Lease document). The Company has made available to Buyer a true and complete copy of each such Lease. Except as would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect or as set forth in Section 3.10(b) of the Disclosure Schedules, with respect to each Lease: (i) such Lease is legal, valid, binding, enforceable, and in full force and effect; (ii) neither the Company nor, to the Knowledge of Sellers, any other party to the Lease, is in breach or default under such Lease and no event has occurred or circumstance exists which, with or without notice, lapse of time, or both, would constitute a breach or default under such Lease; (iii) the Company’s possession and quiet enjoyment of the Leased Real Estate under such Lease has not been disturbed, and to the Knowledge of Sellers, there are no disputes with respect to such Lease; and (iv) there are no Liens on the estate created by such Lease other than Permitted Liens. The Company has not assigned, pledged, mortgaged, hypothecated, or otherwise transferred any Lease or any interest therein, nor has the Company subleased, licensed, or otherwise granted any Person a right to use or occupy such Leased Real Estate or any portion thereof.
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(c) The Leased Real Estate identified in Section 3.10(b) comprises all of the real property used or intended to be used in, or otherwise related to, the business of the Company.
(d) Except as would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect, the Company is in possession of and has good and marketable title to, or valid leasehold interests in or valid rights under contract to use, the machinery, equipment, furniture, fixtures, and other tangible personal property and assets owned, leased, or used by the Company, free and clear of all Liens other than Permitted Liens.
Section 3.11 Condition and Sufficiency of Assets. Except as set forth in Section 3.11 of the Disclosure Schedules, the items of tangible personal property of the Company are in good operating condition and repair, and are adequate for the uses to which they are being put, and none of such items of tangible personal property are in need of maintenance or repairs except for ordinary, routine maintenance and repairs that are not material in nature or cost. The items of tangible personal property currently owned or leased by the Company are sufficient for the continued conduct of the business of the Company after the Closing in substantially the same manner as conducted prior to the Closing and constitute all of the tangible personal property necessary to conduct the business of the Company as currently conducted.
Section 3.12 Intellectual Property.
(a) Section 3.12(a) of the Disclosure Schedules sets forth a list of all (i) Company IP Registrations and (ii) Company Intellectual Property that are not registered but that are material to the business or operations of the Company. All required filings and fees related to the Company IP Registrations have been timely filed with and paid to the relevant Governmental Authorities and authorized registrars, and all Company IP Registrations are otherwise in good standing. Sellers have provided Buyer with true and complete copies of file histories, documents, certificates, office actions, correspondence, and other materials related to all Company IP Registrations.
(b) Section 3.12(b) of the Disclosure Schedules will identify all Company IP Agreements that are material to the Company’s business and operations, except for any shrink-wrap, click-wrap, and similar licenses for commercially available off-the-shelf software. Sellers have made available to Buyer true and complete copies of all such Company IP Agreements, including all modifications, amendments, and supplements thereto and waivers thereunder. Each Company IP Agreement is valid and binding on the Company in accordance with its terms and is in full force and effect. Neither the Company nor, to Sellers’ Knowledge, any other party to a Company IP Agreement is in breach of or default under (or is alleged to be in breach of or default under), or has provided or received any notice of breach or default of or any intention to terminate, any Company IP Agreement.
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(c) Except as set forth in Section 3.12(c) of the Disclosure Schedules, to Sellers’ Knowledge, the Company is the sole and exclusive legal and beneficial, and with respect to the Company IP Registrations, record, owner of all right, title and interest in and to the Company Intellectual Property, and has the valid right to use all other Intellectual Property used in or necessary for the conduct of the current business or operations of the Company, in each case, free and clear of Liens other than Permitted Liens. Without limiting the generality of the foregoing, the Company has entered into binding, written agreements with every current and former employee of the Company, and with every current and former independent contractor, whereby such employees and independent contractors (i) assign to the Company any ownership interest and right they may have in the Company Intellectual Property; and (ii) acknowledge the exclusive ownership of all Company Intellectual Property in the Company, as applicable. Sellers have made available to Buyer true and complete copies of all such agreements.
(d) The consummation of the transactions contemplated hereby will not result in the loss or impairment of or payment of any additional amounts with respect to, nor require the consent of any other Person in respect of, the right of the Company to own, use or hold for use any Intellectual Property as owned, used or held for use in the conduct of its business or operations as currently conducted, except in any such case as would not, individually or in the aggregate have or reasonably be expected to have a Material Adverse Effect.
(e) The rights of the Company in the material Company Intellectual Property are valid, subsisting, and enforceable. The Company has taken all reasonable steps to maintain the Company Intellectual Property and to protect and preserve the confidentiality of all trade secrets included in the Company Intellectual Property.
(f) The conduct of the business of the Company, as currently conducted, and the products, processes and services of the Company do not infringe, dilute, misappropriate or otherwise violate, and have not during the past year infringed, diluted, misappropriated or otherwise violated in any material respect, the Intellectual Property or other rights of any Person. To Sellers’ Knowledge, no Person has infringed, misappropriated, diluted or otherwise violated or is currently infringing, misappropriating, diluting or otherwise violating any Company Intellectual Property.
(g) To Sellers’ Knowledge, there are no Actions (including any oppositions, interferences or re-examinations) settled or pending or threatened (including in the form of offers to obtain a license): (i) alleging any infringement, misappropriation, dilution or violation of the Intellectual Property of any Person by the Company; (ii) challenging the validity, enforceability, registrability, or ownership of any Company Intellectual Property or the rights of the Company with respect to any Company Intellectual Property; or (iii) by the Company or any other Person alleging any infringement, misappropriation, dilution or violation by any Person of the Company Intellectual Property. The Company is not subject to any outstanding or prospective Governmental Order (including any motion or petition therefor) that does or would restrict or impair the use of any Company Intellectual Property.
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Section 3.13 Inventory; Accounts Receivable.
(a) All inventory of the Company, whether or not reflected in the Balance Sheet, 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 such inventory is owned by the Company free and clear of all Liens, 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 the Company.
(b) The accounts receivable of the Company reflected on the Interim Balance Sheet and the accounts receivable arising after the date thereof (a) have arisen from bona fide transactions entered into by the Company involving the sale of goods or the rendering of services in the ordinary course of business consistent with past practice; (b) constitute only valid, undisputed claims of the Company, not subject to claims of set-off or other defenses or counterclaims other than normal cash discounts accrued in the ordinary course of business consistent with past practice; and (c) are subject to a reasonable reserve for bad debts shown on the Interim Balance Sheet or, with respect to accounts receivable arising after the applicable Interim Balance Sheet Date, on the accounting records of the Company. The reserve for bad debts shown on the Interim Balance Sheet or, with respect to accounts receivable arising after the Interim Balance Sheet Date, on the accounting records of the Company have been determined in accordance with GAAP, consistently applied, subject to normal year-end adjustments and the absence of disclosures normally made in footnotes.
Section 3.14 Franchise Matters.
(a) Section 3.14(a) of the Disclosure Schedules sets forth a true and correct list of all currently effective Franchise Agreements and area development agreements (“Area Developer Agreements”), including any amendments thereto, to which the Company is a party, listing the name of the franchisee, licensee or area developer (“Franchisee”), date of agreement or amendment and location of restaurant(s) or development area. No other Contracts exist between the Company and any third party granting any such third party the right, or any option or right of first refusal, to conduct business under the name “Hurricane Grill & Wings”, “Hurricane BTW”, or any other Marks owned or used by the Company, all of which will be identified in Section 3.14(a) of the Disclosure Schedules. Except as set forth in Section 3.14(a) of the Disclosure Schedules, the consummation of the transactions contemplated hereby will not require the consent of any Franchisee. Except as set forth in Section 3.14(a) of the Disclosure Schedules, to Sellers’ Knowledge, the restaurants that are the subject of Franchise Agreements with Franchisees are presently open to the public and operating. Seller has made available to Buyer a correct and complete copy of each Franchise Agreement (as amended to date) listed in Section 3.14(a) of the Disclosure Schedules.
(b) With respect to each Franchise Agreement identified and Area Development Agreement in Section 3.14(a) of the Disclosure Schedules:
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(i) Except as set forth in Section 3.14(b)(i) of the Disclosure Schedules, such Franchise Agreement and Area Development Agreement is the legal, valid, and binding obligation of the applicable Franchisee or area developer, enforceable in accordance with its terms, except as such enforceability may be subject to (x) the effects of bankruptcy, insolvency, reorganization, moratorium, or other Laws relating to or affecting the rights of creditors, and general principles of equity and (y) the effects of franchise and other Laws;
(ii) Except as set forth in Section 3.14(b)(ii) of the Disclosure Schedules, the Company is not, nor is, to Sellers’ Knowledge, any counter-party, in Franchise Breach of such Franchise Agreement or Area Development Agreement, and, to Sellers’ Knowledge, no event has occurred that with notice or lapse of time would constitute a Franchise Breach under such Franchise Agreement or Area Development Agreement, except for such Franchise Breaches by the counter-party thereto which would not, individually or in the aggregate, reasonably be expected to result in a Material Adverse Effect or materially and adversely impact the economic or business benefits to Buyer of such Franchise Agreement or Area Development Agreement;
(iii) Except as set forth in Section 3.14(b)(iii) of the Disclosure Schedules, no party to such Franchise Agreement or Area Development Agreement has delivered a formal written demand for early termination pursuant to the terms thereof or any written notice claiming a breach or violation by the Company of or a default by the Company under such Franchise Agreement or Area Development Agreement; it being understood and agreed that the disclosures in Section 3.14(b)(iii) and in other Sections of the Disclosure Schedules of the Demand Claims shall not limit, diminish or impact in any way the Seller Indemnitors’ obligations to indemnify the Buyer Indemnitees from any and all Losses with respect thereto;
(iv) Except as set forth in Section 3.14(b)(iv) of the Disclosure Schedules, the Company has not granted a waiver or consent with respect to a provision of such Franchise Agreement or Area Development Agreement regarding a counter-party’s obligation to make payments of royalty fees, contributions to any marketing development fund, or expenditures for advertising purposes;
(v) the Company has in its possession an original or executed copy of each Franchise Agreement and Area Development Agreement, and any amendments thereto;
(vi) Except as set forth in Section 3.14(b)(vi) of the Disclosure Schedules, each Franchisee is current in its financial obligations to each the Company, including without limitation, for payments due for franchise, development, or license fees, royalties, advertising contributions, and product purchases; and
(vii) Except as set forth in Section 3.14(b)(vii) of the Disclosure Schedules, each Franchisee is current in its development obligations with respect to each restaurant to be developed by such Franchisee in such Franchisee’s development area.
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(c) Since the Interim Balance Sheet Date, the Company has not received any formal written notice, claim or demand pursuant to the terms of a Franchise Agreement from any Franchisee of any Franchise Breach by the Company of any material term or provision of such Franchise Agreement, except as set forth on Schedule 3.14(c) of the Disclosure Schedules.
(d) Schedule 3.14(d) of the Disclosure Schedules sets forth each state or other jurisdiction in which the Company is currently registered to sell its franchises or with which the Company has filed an application for registration to sell its franchises that is currently pending, or has filed (where such filing is required) an application for exemption from registration, to sell franchises, and the effective date and expiration date of each such registration and exemption.
(e) To Sellers’ Knowledge, other than matters for which the Company has obtained releases, during the period commencing on January 1, 2012 and continuing through the date of this Agreement, the Company has in all material respects made all disclosures in each Franchise Offering Circular required by all applicable federal and state laws and regulations which govern the sale of franchises, and to the Knowledge of Sellers, neither the Company, nor any “Franchise Sales Person”, has offered for sale, accepted an offer, or sold a Franchise except in compliance with all applicable federal and state laws and regulations which govern the sale of franchises.
(f) Except as disclosed in any Franchise Offering Circular, during the period commencing on the Interim Balance Sheet Date and continuing through the date of this Agreement, the Company has received no written notice of any violation by the Company of any franchise law from any federal or state regulatory agency and, to Sellers’ Knowledge, no allegations of violations by the Company of any state franchise registration, disclosure, relationship or termination law have been made by any federal or state regulatory agency.
(g) Section 3.14(g) of the Disclosure Schedules sets forth a complete and accurate list of all independent sales representatives, area developers, agents, employees, contractors, brokers or consultants authorized by the Company to offer or sell franchises during the period commencing on the Interim Balance Sheet Date and continuing through the date of this Agreement (collectively, “Franchise Sales Persons”), including a list of all written or oral agreements or arrangements (and with respect to oral agreements a description thereof) with such Franchise Sales Persons under which the Company has authorized any Franchise Sales Persons to offer or sell franchises on behalf of the Company or agreed to rebate or share amounts receivable under any Franchise Agreement. Sellers have delivered to Buyer true, complete and correct copies of all such agreements.
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(h) Except as set forth in the Franchise Agreements or Area Developer Agreements, no Franchisee has a protected territory, exclusive territory, covenant not to compete, right of first refusal, option or other arrangement (collectively, the “Territorial Rights”) with the Company pursuant to which (A) the Company is restricted in any way in its right to own or operate, or license others to own or operate, any business or line of business; or (B) the Franchisee is granted rights for the acquisition of additional franchises or expansion of the Franchisee’s territory. No Franchisee’s Territorial Rights conflict with the Territorial Rights of any other Franchisee. To the extent the Company granted any such Territorial Rights (whether disclosed or required to be disclosed herein), the Company has complied with such Territorial Rights and, in the course of offering or selling franchises, the Company has not violated the Territorial Rights of any Franchisee.
(i) Section 3.14(i) of the Disclosure Schedules sets forth a complete and accurate list of the name, last known address and telephone number of all Franchisees whose franchise agreements were terminated, cancelled, not renewed, reacquired by the Company or who have otherwise ceased to do business during the period commencing on January 1, 2012 and continuing through the date of this Agreement.
Section 3.15 Suppliers. Section 3.15 of the Disclosure Schedules sets forth (i) each supplier to whom the Company has paid consideration for goods or services rendered in an amount greater than or equal to $100,000 for the most recent fiscal year (collectively, the “Material Suppliers”); and (ii) the amount of purchases from each Material Supplier during such periods. Except as set forth in Section 3.15 of the Disclosure Schedules, the Company has not received any notice, and has no reason to believe, that any of its Material Suppliers has ceased, or intends to cease, to supply goods or services to the Company or to otherwise terminate or materially reduce its relationship with the Company.
Section 3.16 Insurance. Section 3.16 of the Disclosure Schedules sets forth a true and complete list of all current policies or binders of fire, liability, product liability, umbrella liability, real and personal property, workers’ compensation, vehicular, directors’ and officers’ liability, fiduciary liability and other casualty and property insurance maintained by the Company and relating to the assets, business, operations, employees, officers and managers of the Company (collectively, the “Insurance Policies”) and true and complete copies of such Insurance Policies have been made available to Buyer, except as otherwise noted on Section 3.16 of the Disclosure Schedules. To Sellers’ Knowledge, such Insurance Policies are in full force and effect as of the date hereof, and, to Sellers’ Knowledge, such Insurance Policies will remain in full force and effect following the Closing (except to the extent terminated by Buyer or the Company after the Closing). Except as would not have a Material Adverse Effect, the Company has not received written notice of cancellation of, premium increase with respect to, or alteration of coverage under, any of such Insurance Policies. All premiums due on such Insurance Policies have either been paid or, if due and payable prior to Closing, will be paid prior to Closing in accordance with the payment terms of each Insurance Policy. The Insurance Policies do not provide for any retrospective premium adjustment or other experience-based liability on the part of the Company. All such Insurance Policies (a) are valid and binding in accordance with their terms; and (b) have not been subject to any lapse in coverage. There are no claims related to the business of the Company pending under any such Insurance Policies as to which coverage has been questioned, denied or disputed or in respect of which there is an outstanding reservation of rights. The Company is not in default under, nor has the Company otherwise failed to comply, in any material respect, with any provision contained in any such Insurance Policy.
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Section 3.17 Legal Proceedings; Governmental Orders.
(a) Except as set forth in Section 3.17(a) of the Disclosure Schedules, to the Sellers’ Knowledge, there are no Actions pending or threatened (a) against or by the Company affecting any of its properties or assets (or by or against Sellers or any Affiliate thereof and relating to the Company); or (b) against or by the Company, Sellers or any Affiliate of Sellers that challenges or seeks to prevent, enjoin or otherwise delay the transactions contemplated by this Agreement. To Sellers’ Knowledge, no event has occurred or circumstances exist that may give rise to, or serve as a basis for, any such Action.
(b) Except as set forth in Section 3.17(b) of the Disclosure Schedules, there are no outstanding Governmental Orders and no unsatisfied judgments, penalties or awards against or affecting the Company or any of its properties or assets. The Company is in compliance with the terms of each Governmental Order set forth in Section 3.17(b) of the Disclosure Schedules. To Sellers’ Knowledge, no event has occurred or circumstances exist that may constitute or result in (with or without notice or lapse of time) a violation of any such Governmental Order.
Section 3.18 Compliance With Laws; Franchising Compliance.
(a) The Company is in compliance with all Laws applicable to it or its business, properties or assets, except where the failure to be in compliance, individually or in the aggregate, would not have or reasonably be expected to have a Material Adverse Effect.
(b) All Permits required for the Company to conduct its business have been obtained by it and are valid and in full force and effect, except where the failure to obtain such Permits would not, individually or in the aggregate, have or reasonably be expected to have a Material Adverse Effect. Section 3.18(b) of the Disclosure Schedules will identify all current Permits issued to the Company, including the names of the Permits and their respective dates of issuance and expiration. To the Sellers’ Knowledge, no event has occurred that, with or without notice or lapse of time or both, would reasonably be expected to result in the revocation, suspension, lapse, or limitation of any Permit set forth in Section 3.18(b) of the Disclosure Schedules.
(c) The Company has offered Franchise Rights only pursuant to duly registered offerings, in compliance with, and as contemplated by, a current and effective franchise disclosure document and otherwise in compliance in all material respects with all Laws.
Section 3.19 Environmental Matters. The following representations and warranties are the Seller Indemnitors’ sole representations and warranties with respect to environmental matters:
(a) The Company has obtained and is in material compliance with all Environmental Permits (each of which is disclosed in Section 3.19(a) of the Disclosure Schedules) necessary for the ownership, lease, operation or use of the business or assets of the Company, and all such Environmental Permits are in full force and effect and shall be maintained in full force and effect through the Closing Date in accordance with Environmental Law, and neither Sellers nor the Company are aware of any condition, event or circumstance that might prevent or impede, after the Closing Date, the ownership, lease, operation or use of the business or assets of the Company as currently carried out. With respect to any such Environmental Permits, Sellers have undertaken, or will undertake prior to the Closing Date, all measures necessary to facilitate transferability of the same, and neither the Company nor Sellers are aware of any condition, event or circumstance that might prevent or impede the transferability of the same, nor have they received any Environmental Notice or written communication regarding any material adverse change in the status or terms and conditions of the same.
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(b) There has been no Release of Hazardous Materials in contravention of Environmental Law with respect to the business or assets of the Company, or any real property currently or formerly owned, operated or leased by the Company, and none of the Company or any Seller has received an Environmental Notice that any real property currently or formerly owned, operated or leased in connection with the business of the Company (including soils, groundwater, surface water, buildings and other structure located on any such real property) has been contaminated with any Hazardous Material which could reasonably be expected to result in an Environmental Claim against, or a violation of Environmental Law or term of any Environmental Permit by, Sellers or the Company.
(c) To Sellers’ Knowledge, there are no active or abandoned aboveground or underground storage tanks owned or operated by the Company.
(d) To Seller’s Knowledge, there are no off-site Hazardous Materials treatment, storage, or disposal facilities or locations used by the Company, and any predecessors as to which the Company may retain liability, and none of these facilities or locations has been placed or proposed for placement on the National Priorities List (or CERCLIS) under CERCLA, or any similar state list, and none of Sellers or the Company has received any Environmental Notice regarding potential liabilities with respect to such off-site Hazardous Materials treatment, storage, or disposal facilities or locations used by any of them.
(e) To Sellers’ Knowledge, none of Sellers or the Company has retained or assumed, by contract or operation of Law, any liabilities or obligations of third parties under Environmental Law.
(f) To Seller’s Knowledge, (i) there are no environmental reports, studies, audits, records, sampling data, site assessments, risk assessments, economic models and other similar documents with respect to the business or assets of the Company or any currently owned, operated or leased real property which are in the possession or control of Sellers or the Company related to compliance with Environmental Laws, Environmental Claims or an Environmental Notice or the Release of Hazardous Materials; and (ii) there are no material documents concerning planned or anticipated capital expenditures required to reduce, offset, limit or otherwise control pollution and/or emissions, manage waste or otherwise ensure compliance with current or future Environmental Laws (including, without limitation, costs of remediation, pollution control equipment and operational changes).
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(g) To Seller’s Knowledge, none of Sellers or the Company is aware of or reasonably anticipates, as of the Closing Date, any condition, event or circumstance concerning the Release or regulation of Hazardous Materials that might, after the Closing Date, prevent, impede or materially increase the costs associated with the ownership, lease, operation, performance or use of the business or assets of the Company as currently carried out.
Section 3.20 Employee Benefit Matters.
(a) Section 3.20(a) of the Disclosure Schedules sets forth a true and complete list of each pension, benefit, retirement, compensation, employment, consulting, profit-sharing, deferred compensation, incentive, bonus, performance award, phantom equity or other equity, change in control, retention, severance, vacation, paid time off, welfare, fringe-benefit and other similar agreement, plan, policy, program or arrangement (and any amendments thereto), in each case whether or not reduced to writing and whether funded or unfunded, including each “employee benefit plan” within the meaning of Section 3(3) of ERISA, whether or not tax-qualified and whether or not subject to ERISA, which is or has been maintained, sponsored, contributed to, or required to be contributed to by the Company for the benefit of any current or former employee, officer, manager, retiree, independent contractor or consultant of the Company, or any spouse or dependent of such individual, or under which the Company or any of its ERISA Affiliates has or may have any Liability, or with respect to which Buyer or any of its Affiliates would reasonably be expected to have any Liability, contingent or otherwise (as listed in Section 3.20(a) of the Disclosure Schedules, each, a “Benefit Plan”).
(b) With respect to each Benefit Plan, Sellers have made available to Buyer accurate, current and complete copies of each of the following: (i) where the Benefit Plan has been reduced to writing, the plan document together with all amendments; (ii) where the Benefit Plan has not been reduced to writing, a written summary of all material plan terms; (iii) where applicable, copies of any trust agreements or other funding arrangements, custodial agreements, insurance policies and contracts, administration agreements and similar agreements, and investment management or investment advisory agreements, now in effect or required in the future as a result of the transactions contemplated by this Agreement or otherwise; (iv) copies of any summary plan descriptions, summaries of material modifications, employee handbooks and any other written communications (or a description of any oral communications) relating to any Benefit Plan; (v) in the case of any Benefit Plan that is intended to be qualified under Section 401(a) of the Code, a copy of the most recent determination, opinion or advisory letter from the Internal Revenue Service; (vi) in the case of any Benefit Plan for which a Form 5500 is required to be filed, a copy of the two most recently filed Form 5500, with schedules and financial statements attached; (vii) actuarial valuations and reports related to any Benefit Plans with respect to the two most recently completed plan years; (viii) the most recent nondiscrimination tests performed under the Code; and (ix) copies of material notices, letters or other correspondence from the Internal Revenue Service, Department of Labor, Pension Benefit Guaranty Corporation or other Governmental Authority relating to the Benefit Plan.
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(c) Each Benefit Plan and related trust (other than any multiemployer plan within the meaning of Section 3(37) of ERISA (each a “Multiemployer Plan”) has been established, administered and maintained in accordance with its terms and, to Sellers’ Knowledge, in compliance with all applicable Laws (including ERISA, the Code and any applicable local Laws). Each Benefit Plan that is intended to be qualified under Section 401(a) of the Code (a “Qualified Benefit Plan”) is so qualified and has received a favorable and current determination letter from the Internal Revenue Service, or with respect to a prototype plan, can rely on an opinion letter from the Internal Revenue Service to the 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, and nothing has occurred that could reasonably be expected to adversely affect the qualified status of any Qualified Benefit Plan. Nothing has occurred with respect to any Benefit Plan that has subjected or would reasonably be expected to subject the Company or any of its ERISA Affiliates or, with respect to any period on or after the Closing Date, Buyer or any of its Affiliates, to a penalty under Section 502 of ERISA or to tax or penalty under Section 4975 of the Code. All benefits, contributions and premiums relating to each Benefit Plan have been timely paid in accordance with the terms of such Benefit Plan and all applicable Laws and accounting principles, and all benefits accrued under any unfunded Benefit Plan have been paid, accrued or otherwise adequately reserved to the extent required by, and in accordance with, GAAP.
(d) None of the Company or any of its ERISA Affiliates has (i) incurred or reasonably expects to incur, either directly or indirectly, any material Liability under Title I or Title IV of ERISA or related provisions of the Code or applicable local Law relating to employee benefit plans; (ii) failed to timely pay premiums to the Pension Benefit Guaranty Corporation; (iii) withdrawn from any Benefit Plan; or (iv) engaged in any transaction which would give rise to liability under Section 4069 or Section 4212(c) of ERISA.
(e) With respect to each Benefit Plan (i) no such plan is a Multiemployer Plan, and (A) all contributions required to be paid by the Company or any of its respective ERISA Affiliates have been timely paid to the applicable Multiemployer Plan, (B) none of the Company or any of its ERISA Affiliates has incurred any withdrawal liability under Title IV of ERISA which remains unsatisfied, and (C) a complete withdrawal from all such Multiemployer Plans at the Effective Time would not result in any material liability to the Company; (ii) no such plan is a “multiple employer plan” within the meaning of Section 413(c) of the Code or a “multiple employer welfare arrangement” (as defined in Section 3(40) of ERISA); (iii) no Action has been initiated by the Pension Benefit Guaranty Corporation to terminate any such plan or to appoint a trustee for any such plan; (iv) no such plan is subject to the minimum funding standards of Section 412 of the Code or Title IV of ERISA, and none of the assets of the Company or any ERISA Affiliate is, or may reasonable be expected to become, the subject of any lien arising under Section 302 of ERISA or Section 412(a) of the Code; and (v) no “reportable event,” as defined in Section 4043 of ERISA, has occurred with respect to any such plan.
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(f) Each Benefit Plan can be amended, terminated, or otherwise discontinued after the Closing in accordance with its terms, without material liabilities to Buyer, the Company or any of their Affiliates other than ordinary administrative expenses typically incurred in a termination event. The Company does not have a commitment or obligation, nor has it made any representations to any employee, officer, manager, independent contractor, or consultant, whether or not legally binding, to adopt, amend, modify, or terminate any Benefit Plan or any collective bargaining agreement, in connection with the consummation of the transactions contemplated by this Agreement or otherwise.
(g) Except as set forth in Section 3.20(g) of the Disclosure Schedules and other than as required under Section 601 et. seq. of ERISA or other applicable Law, no Benefit Plan provides post-termination or retiree welfare benefits to any individual for any reason, and none of the Company or any of its ERISA Affiliates has any Liability to provide post-termination or retiree welfare benefits to any individual or ever represented, promised or contracted to any individual that such individual would be provided with post-termination or retiree welfare benefits.
(h) There is no pending or, to Sellers’ Knowledge, threatened Action relating to a Benefit Plan (other than routine claims for benefits), and no Benefit Plan has within the three (3) years prior to the date hereof been the subject of an examination or audit by a Governmental Authority or the subject of an application or filing under or is a participant in, an amnesty, voluntary compliance, self-correction or similar program sponsored by any Governmental Authority.
(i) There has been no amendment to, announcement by Sellers, the Company or any of their Affiliates relating to, or change in employee participation or coverage under, any Benefit Plan or collective bargaining agreement that would increase the annual expense of maintaining such plan above the level of the expense incurred for the most recently completed fiscal year with respect to any manager, officer, employee, independent contractor or consultant, as applicable. None of Sellers, the Company, nor any of their respective Affiliates have any commitment or obligation or has made any representations to any manager, officer, employee, independent contractor, or consultant, whether or not legally binding, to adopt, amend, modify, or terminate any Benefit Plan or any collective bargaining agreement.
(j) Each Benefit Plan that is subject to Section 409A of the Code has been administered in compliance with its terms and the operational and documentary requirements of Section 409A of the Code and all applicable regulatory guidance (including notices, rulings, and proposed and final regulations) thereunder. The Company has no obligation to gross up, indemnify, or otherwise reimburse any individual for any excise taxes, interest, or penalties incurred pursuant to Section 409A of the Code.
(k) Each individual who is classified by the Company as an independent contractor has been properly classified for purposes of participation and benefit accrual under each Benefit Plan.
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(l) Except as set forth in Section 3.20(l) of the Disclosure Schedules, neither the execution of this Agreement nor the consummation of any of the transactions contemplated by this Agreement will, individually or collectively: (i) entitle any current or former manager, officer, employee, independent contractor or consultant of the Company to severance pay or any other payment; (ii) accelerate the time of payment, funding or vesting, or increase the amount of compensation due to any such individual; (iii) limit or restrict the right of the Company to merge, amend or terminate any Benefit Plan; (iv) increase the amount payable under or result in any other material obligation pursuant to any Benefit Plan; (v) result in “excess parachute payments” within the meaning of Section 280G(b) of the Code; or (vi) require a “gross-up” or other payment to any “disqualified individual” within the meaning of Section 280G(c) of the Code.
Section 3.21 Employment Matters.
(a) Section 3.21(a) of the Disclosure Schedules sets forth a list of all persons who are employees, independent contractors or consultants of the Company as of the date hereof, including any employee who is on a leave of absence of any nature, paid or unpaid, authorized or unauthorized, and sets forth for each such individual the following: (i) name; (ii) title or position (including whether full or part time); and (iii) hire date. The Company has previously disclosed to Buyer compensation and benefits information with respect to employees of the Company. As of the date hereof, all compensation, including wages, commissions and bonuses, payable to all employees, independent contractors or consultants of the Company for services performed on or prior to the date hereof have been paid in full or accrued only since the most recent pay period.
(b) The Company is not, and has not been for the past five (5) years, a party to, bound by, or negotiating any collective bargaining agreement or other Contract with a union, works council or labor organization (collectively, “Union”), and there is not, and has not been for the past five (5) years, any Union representing or purporting to represent any employee of the Company, and, to Sellers’ Knowledge, no Union or group of employees is seeking or has sought to organize employees for the purpose of collective bargaining. During the past five (5) years there has not been, nor has there been any threat of, any strike, slowdown, work stoppage, lockout, concerted refusal to work overtime or other similar labor disruption or dispute affecting the Company or any of its employees.
(c) The Company is in compliance in all material respects with all applicable Laws pertaining to employment and employment practices to the extent they relate to employees of the Company, including all Laws relating to labor relations, equal employment opportunities, fair employment practices, employment discrimination, harassment, retaliation, reasonable accommodation, disability rights or benefits, immigration, wages, hours, overtime compensation, child labor, hiring, promotion and termination of employees, working conditions, meal and break periods, privacy, health and safety, workers’ compensation, leaves of absence and unemployment insurance. All individuals characterized and treated by the Company as independent contractors or consultants are properly treated as independent contractors under all applicable Laws. All employees of the Company classified as exempt under the Fair Labor Standards Act and state and local wage and hour laws are properly classified. Except as set forth in Section 3.21(c) of the Disclosure Schedules, there are no Actions against the Company pending, or to Sellers’ Knowledge, threatened to be brought or filed, by or with any Governmental Authority or arbitrator in connection with the employment of any current or former applicant, employee, consultant, volunteer, intern or independent contractor of the Company, including, without limitation, any claim relating to unfair labor practices, employment discrimination, harassment, retaliation, equal pay, wage and hours or any other employment related matter arising under applicable Laws.
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(d) The Company has complied in all material respects with the WARN Act with respect to the transactions contemplated herein.
(e) The Company has not been the subject of any audit, investigation, or enforcement action by any Governmental Authority in connection with any Government Contract. The Company has not been debarred, suspended, or otherwise made ineligible from doing business with the United States government or any government contractor.
Section 3.22 Taxes. Except as set forth in Section 3.22 of the Disclosure Schedules:
(a) All Tax Returns required to be filed on or before the Closing Date by the Company have been, or will be, timely filed. Such Tax Returns are, or will be, true, complete and correct in all respects. All Taxes due and owing by the Company (whether or not shown on any Tax Return) have been, or will be, timely paid.
(b) The Company has withheld and paid each Tax required to have been withheld and paid in connection with amounts paid or owing to any employee, independent contractor, creditor, customer, member or other party, and complied with all information reporting and backup withholding provisions of applicable Law.
(c) No written claim has been made by any taxing authority in any jurisdiction where the Company does not file Tax Returns that it is, or may be, subject to Tax by that jurisdiction.
(d) No extensions or waivers of statutes of limitations have been given or requested with respect to any Taxes of the Company.
(e) The amount of the Company’s Liability for unpaid Taxes for all periods ending on or before the Interim Balance Sheet Date does not, in the aggregate, exceed the amount of accruals for Taxes (excluding reserves for deferred Taxes) reflected on the Financial Statements. The amount of the Company’s Liability for unpaid Taxes for all periods following the end of the recent period covered by the Financial Statements shall not, in the aggregate, exceed the amount of accruals for Taxes (excluding reserves for deferred Taxes) as adjusted for the passage of time in accordance with the past custom and practice of the Company (and which accruals shall not exceed comparable amounts incurred in similar periods in prior years).
(f) Section 3.22(f) of the Disclosure Schedules sets forth: (i) the taxable years of the Company as to which the applicable statutes of limitations on the assessment and collection of Taxes have not expired; (ii) those years for which examinations by the taxing authorities have been completed; and (iii) those taxable years for which examinations by taxing authorities are presently being conducted.
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(g) All deficiencies asserted, or assessments made, against the Company as a result of any examinations by any taxing authority have been fully paid.
(h) The Company is not a party to any Action by any taxing authority. To Sellers’ Knowledge, there are no pending or, to the Sellers’ Knowledge, threatened Actions by any taxing authority with respect to the Company.
(i) Sellers have made available to Buyer copies of all federal, state, local, and foreign income, franchise and similar Tax Returns, examination reports, and statements of deficiencies assessed against, or agreed to by, the Company for all Tax periods ending after December 28, 2012.
(j) There are no Liens for Taxes (other than for current Taxes not yet due and payable) upon the assets of the Company.
(k) The Company is not a party to, or bound by, any Tax indemnity, Tax-sharing, or Tax allocation agreement.
(l) No private letter rulings, technical advice memoranda or similar agreement or rulings have been requested, entered into, or issued by any taxing authority with respect to the Company.
(m) Except as set forth in Section 3.22(m) of the Disclosure Schedule, the Company has not been a member of an affiliated, combined, consolidated, or unitary Tax group for Tax purposes. The Company has no Liability for Taxes of any other Person under Treasury Regulations Section 1.1502-6 (or any corresponding provision of state, local or foreign Law), as transferee or successor, by contract or otherwise.
(n) Since the date of formation, the Company has been treated as a partnership for U.S. federal income tax purposes and has been so treated in all Tax years since the date of formation. The Company has never made an election to be treated as a C-corporation for U.S. federal, state, local or foreign tax purposes.
(o) The Company will not be required to include any item of income in, or exclude any item or deduction from, taxable income for any taxable period or portion thereof ending after the Closing Date as a result of:
(i) any change in a method of accounting under Section 481 of the Code (or any comparable provision of state, local or foreign Tax Laws), or use of an improper method of accounting, for a taxable period ending on or prior to the Closing Date;
(ii) an installment sale or open transaction occurring on or prior to the Closing Date;
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(iii) a prepaid amount received on or before the Closing Date;
(iv) any closing agreement under Section 7121 of the Code, or similar provision of state, local or foreign Law; or
(v) any election under Section 108(i) of the Code.
(p) No Seller is a “foreign person” as that term is used in Treasury Regulations Section 1.1445-2. The Company is not, nor has it been, a United States real property holding corporation (as defined in Section 897(c)(2) of the Code) during the applicable period specified in Section 897(c)(1)(a) of the Code.
(q) The Company is not, and has not been, a party to, or a promoter of, a “reportable transaction” within the meaning of Section 6707A(c)(1) of the Code and Treasury Regulations Section 1.6011-4(b).
(r) Section 3.22(r) of the Disclosure Schedules sets forth all foreign jurisdictions in which the Company is subject to Tax, is engaged in business, or has a permanent establishment. The Company has not entered into any gain recognition agreement pursuant to Treasury Regulations Section 1.367(a)-8. The Company has not transferred an intangible the transfer of which would be subject to the rules of Section 367(d) of the Code.
(s) No property owned by the Company is (i) required to be treated as being owned by another Person pursuant to the so-called “safe harbor lease” provisions of former Section 168(f)(8) of the Internal Revenue Code of 1954, as amended, (ii) subject to Section 168(g)(1)(A) of the Code, or (iii) subject to a disqualified leaseback or long-term agreement as defined in Section 467 of the Code.
Section 3.23 Books and Records. The minute books of the Company have been made available to Buyer, are complete and correct in all material respects, and have been maintained in accordance with sound business practices. The minute books of the Company contain accurate and complete records in all material respects of all meetings, and actions taken by written consent of, the members and the managers, or ratifications of all actions taken by the members and the managers, and no meeting has been held or written consent obtained with respect to any material action of any such members or managers for which minutes or ratifications have not been prepared that are not or will not be contained in such minute books. At the Closing, all of those books and records will be in the possession of the Company.
Section 3.24 Brokers. No broker, finder or investment banker is entitled to any brokerage, finder’s or other fee or commission in connection with the transactions contemplated by this Agreement, the Assignment or any other Transaction Document based upon arrangements made by or on behalf of Sellers.
Section 3.25 No Other Representations and Warranties. Except for the representations and warranties contained in this Article III (including the related portions of the Disclosure Schedules), none of Sellers, the Company, or any other Person has made or makes any other express or implied representation or warranty, either written or oral, on behalf of Sellers or the Company. Without limiting the generality of the foregoing, none of Sellers, the Company or any other Person has made or makes any representation or warranty with respect to any projections, future results of operations, estimates or budgets of future revenues, future cash flows, or future financial condition (or any component of any of the foregoing) of the Company.
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ARTICLE
IV
Representations and warranties of buyer
Buyer represents and warrants to Sellers that the statements contained in this ARTICLE IV are true and correct as of the date hereof.
Section 4.01 Organization and Authority of Buyer. Buyer is a corporation duly organized, validly existing and in good standing under the Laws of the State of Maryland. Buyer has full corporate power and authority to enter into this Agreement and the other Transaction Documents to which Buyer is a party, to carry out its obligations hereunder and thereunder and to consummate the transactions contemplated hereby and thereby. The execution and delivery by Buyer of this Agreement and any other Transaction Document to which Buyer is a party, the performance by Buyer of its obligations hereunder and thereunder and the consummation by Buyer of the transactions contemplated hereby and thereby have been duly authorized by all requisite corporate action on the part of Buyer. This Agreement has been duly executed and delivered by Buyer, and (assuming due authorization, execution, and delivery by Sellers) this Agreement constitutes a legal, valid, and binding obligation of Buyer enforceable against Buyer in accordance with its terms. When each other Transaction Document to which Buyer is or will be a party has been duly executed and delivered by Buyer (assuming due authorization, execution and delivery by each other party thereto), such Transaction Document will constitute a legal and binding obligation of Buyer enforceable against it in accordance with its terms.
Section 4.02 No Conflicts; Consents. The execution, delivery and performance by Buyer of this Agreement and the other Transaction Documents to which it is a party, and the consummation of the transactions contemplated hereby and thereby, do not and will not: (a) conflict with or result in a violation or breach of, or default under, any provision of the Organizational Documents of Buyer; (b) conflict with or result in a violation or breach of any provision of any Law or Governmental Order applicable to Buyer; or (c) require the consent, notice or other action by any Person under any Contract to which Buyer is a party. No consent, approval, Permit, Governmental Order, declaration or filing with, or notice to, any Governmental Authority is required by or with respect to Buyer in connection with the execution and delivery of this Agreement and the other Transaction Documents and the consummation of the transactions contemplated hereby and thereby, except for such filings as may be required under the HSR Act.
Section 4.03 Brokers. No broker, finder or investment banker is entitled to any brokerage, finder’s or other fee or commission in connection with the transactions contemplated by this Agreement or any other Transaction Document based upon arrangements made by or on behalf of Buyer.
Section 4.04 Sufficiency of Funds. At Closing, Buyer will have sufficient cash on hand or other sources of immediately available funds to enable it to make payment of the Cash Consideration and sufficient authorized and unissued shares of Series A-1 Fixed Rate Cumulative Preferred Stock and Common Stock to enable it to issue the Units and to consummate the transactions contemplated by this Agreement, all in accordance with applicable state and federal law, including without limitation applicable securities laws.
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Section 4.05 Legal Proceedings. There are no Actions pending or, to Buyer’s knowledge, threatened against or by Buyer or any Affiliate of Buyer that challenge or seek to prevent, enjoin or otherwise delay the transactions contemplated by this Agreement. No event has occurred or circumstances exist that may give rise or serve as a basis for any such Action.
Section 4.06 Compliance With Laws. Buyer is in material compliance with all Laws applicable to it or its business, properties or assets, except where the failure to be in compliance would not have a Material Adverse Effect.
Section 4.07 Solvency. Immediately after giving effect to the transactions contemplated hereby, each of Buyer and its subsidiaries and Affiliates, including the Company, shall be solvent and shall: (a) be able to pay its debts as they become due; (b) own property that has a fair saleable value greater than the amounts required to pay its debts (including a reasonable estimate of the amount of all contingent liabilities); and (c) have adequate capital to carry on its business. No transfer of property is being made and no obligation is being incurred in connection with the transactions contemplated hereby with the intent to hinder, delay or defraud either present or future creditors of any of Buyer and its subsidiaries and Affiliates, including the Company. In connection with the transactions contemplated hereby, Buyer has not incurred, nor plans to incur, debts beyond its ability to pay as they become absolute and matured.
Section 4.08 Independent Investigation. As of the Closing, Buyer shall have conducted its own independent investigation, review, and analysis of the business, results of operations, prospects, condition (financial or otherwise) or assets of the Company, and acknowledges that it shall have been provided adequate access to the personnel, properties, assets, premises, books and records, and other documents and data of Sellers and the Company for such purpose. Buyer acknowledges and agrees that (a) in making its decision to enter into this Agreement and the other Transaction Documents to which Buyer is a party and to consummate the transactions contemplated hereby and thereby, Buyer has relied solely upon its own investigation and the express representations and warranties of Sellers set forth in Article III of this Agreement (including the related portions of the Disclosure Schedules), and (b) none of Sellers, the Company or any other Person has made any representation or warranty as to Sellers, the Company or this Agreement, except as expressly set forth in Article III of this Agreement (including the related portions of the Disclosure Schedules).
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ARTICLE
V
Covenants
Section 5.01 Conduct of Business Prior to the Closing. From the date hereof until the Closing or the termination of this Agreement in accordance with Section 9.01, except as otherwise provided in this Agreement or consented to in writing by Buyer (which consent shall not be unreasonably withheld or delayed), Sellers shall, and shall cause the Company to, conduct the business of the Company in the ordinary course of business substantially consistent with past practice; and use commercially reasonable efforts to maintain and preserve intact the current organization, business and franchise of the Company and to preserve the rights, franchises, goodwill and relationships of its employees, customers, lenders, suppliers, regulators and others having business relationships with the Company. Without limiting the foregoing, from the date hereof until the Closing Date, Sellers shall:
(a) cause the Company to preserve and maintain all of its Permits;
(b) cause the Company to pay its debts, Taxes and other obligations when due;
(c) cause the Company to maintain the properties and assets owned, operated or used by the Company in the same condition as they were on the date of this Agreement, subject to reasonable wear and tear;
(d) cause the Company to continue in full force and effect without modification all Insurance Policies, except as required by applicable Law;
(e) cause the Company to defend and protect its properties and assets from infringement or usurpation;
(f) cause the Company to perform all of its obligations under all Contracts relating to or affecting its properties, assets or business;
(g) cause the Company to maintain its books and records in accordance with past practice;
(h) cause the Company to comply in all material respects with all applicable Laws; and
(i) cause the Company not to take or permit any action that would cause any of the changes, events, or conditions described in Section 3.08 to occur.
Section 5.02 Access to Information. From the date hereof until the Closing or the termination of this Agreement in accordance with Section 9.01, Sellers shall, and shall cause the Company to, (a) afford Buyer and its Representatives reasonable access to and the right to inspect all of the Real Property, properties, assets, premises, books and records, Contracts and other documents and data related to the Company; (b) furnish Buyer and its Representatives with such financial, operating and other data and information related to the Company as Buyer or any of its Representatives may reasonably request; (c) instruct the Representatives of Sellers and the Company to reasonably cooperate with Buyer in its investigation of the Company; and (d) permit Buyer to communicate with the Franchisees and, to the extent necessary or requested by Buyer, facilitate such communications. In addition, shortly prior to the Closing, Buyer may schedule one or more calls (“Franchise Status Calls”) with any of the Company’s Franchisees to confirm such Franchisee’s status and intent with respect to its Franchise Agreement or Area Developer Agreement, as applicable. Any investigation pursuant to this Section 5.02 shall be conducted in such manner as not to interfere unreasonably with the conduct of the business of Sellers, the Company or any Franchisee. No investigation by Buyer or other information received by Buyer shall operate as a waiver or otherwise affect any representation, warranty, or agreement given or made by Sellers in this Agreement. Buyer shall, and shall cause its Representatives and Affiliates to, comply with all confidentiality requirements under this Agreement in connection with such investigation.
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Section 5.03 Solicitation of Other Bids.
(a) Buyer agrees that, pursuant to the various amendments of the Original Agreement by way of email exchanges among the parties, Sellers or any of their Affiliates (including the Company) or any of their respective Representatives have been permitted to pursue or receive any back-up Acquisition Proposal(s) to this Agreement, and Buyer further agrees that such parties may continue to pursue or receive back-up Acquisition Proposals until the Closing. For purposes hereof, “Acquisition Proposal” means any inquiry, proposal or offer from any Person (other than Buyer or any of its Affiliates) concerning (i) a merger, consolidation, liquidation, recapitalization or other business combination transaction involving the Company; (ii) the issuance or acquisition of membership interests or other equity interests in the Company; or (iii) the sale, lease, exchange or other disposition of any significant portion of the Company’s properties or assets.
(b) Sellers shall promptly (and in any event within two (2) Business Days after receipt thereof by Sellers or their Representatives) advise Buyer orally and in writing of any written back-up Acquisition Proposal, request for information with respect to any potential back-up Acquisition Proposal or inquiry with respect to or which could reasonably be expected to result in a back-up Acquisition Proposal, the material terms and conditions of such request, back-up Acquisition Proposal or inquiry, and the identity of the Person making the same, that Sellers receive after the date hereof.
Section 5.04 Notice of Certain Events.
(a) From the date hereof until the Closing or the termination of this Agreement in accordance with Section 9.01, Sellers shall promptly notify Buyer in writing of:
(i) any fact, circumstance, event or action the existence, occurrence or taking of which (A) has had, or would reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect, (B) has resulted in, or would reasonably be expected to result in, any representation or warranty made by Sellers hereunder not being true and correct or (C) has resulted in, or would reasonably be expected to result in, the failure of any of the conditions set forth in Section 7.02 to be satisfied;
(ii) any notice or other communication from any Person alleging that the consent of such Person is or may be required in connection with the transactions contemplated by this Agreement;
(iii) any notice or other communication from any Governmental Authority in connection with the transactions contemplated by this Agreement; and
(iv) any Actions commenced or, to Sellers’ Knowledge, threatened against, relating to or involving or otherwise affecting Sellers or the Company that, if pending on the date of this Agreement, would have been required to have been disclosed pursuant to Section 3.17 or that relates to the consummation of the transactions contemplated by this Agreement.
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(b) Buyer’s receipt of information pursuant to this Section 5.04 shall not operate as a waiver or otherwise affect any representation, warranty or agreement given or made by Sellers in this Agreement (including Section 8.02 and Section 9.01(b)) and shall not be deemed to amend or supplement the Disclosure Schedules.
Section 5.05 Post-Closing Management. From the date hereof until the Closing or the termination of this Agreement pursuant to Section 9.01, Buyer and John Metz shall negotiate in good faith the terms of a two-year consulting or similar agreement (the “Consulting Agreement”) pursuant to which John Metz (or an entity controlled by John Metz) shall provide certain consulting and advisory services to the Company for which he shall be paid four (4) times the excess of the royalty fee revenue, not including any royalty and/or franchise fees that the Company shares with any area developer, area director or any other Person, recognized by the Company during the first and second twelve (12) month periods during the term of such Consulting Agreement over such royalty fee revenue recognized by the Company for twelve (12) month period ending June 30, 2018.
Section 5.06 Confidentiality. From and after the Closing, Sellers shall, and shall cause their respective Affiliates to, hold, and shall use its reasonable best efforts to cause its Representatives to hold, in confidence any and all information, whether written or oral, concerning the Company, except to the extent that Sellers can show that such information (a) is generally available to and known by the public through no fault of Sellers, any of their respective Affiliates or their respective Representatives; or (b) is lawfully acquired by Sellers, any of their respective Affiliates or their respective Representatives from and after the Closing from sources which are not prohibited from disclosing such information by a legal, contractual or fiduciary obligation. If any Seller or its Affiliates or Representatives are compelled to disclose any information by judicial or administrative process or by other requirements of Law, such Seller shall promptly notify Buyer in writing and shall disclose only that portion of such information which such Seller is advised by its counsel in writing is legally required to be disclosed, provided that such Seller shall use reasonable best efforts to obtain an appropriate protective order or other reasonable assurance that confidential treatment will be accorded such information; it being understood and agreed the confidentiality requirement set forth in this Section 5.06 shall not apply to information regarding the Company Restaurants.
Section 5.07 Non-competition; Non-solicitation.
(a) For a period of three (3) years commencing on the Closing Date (the “Restricted Period”), Sellers shall not, and shall not permit any of their respective Affiliates to, directly or indirectly, (i) engage in or assist others in engaging in the Restricted Business in the Territory; (ii) have an interest in any Person that engages directly or indirectly in the Restricted Business in the Territory in any capacity, including as a partner, shareholder, member, franchisor, franchisee, employee, principal, agent, trustee or consultant; or (iii) intentionally interfere in any material respect with the business relationships (whether formed prior to or after the date of this Agreement) between the Company and customers or suppliers of the Company; provided, however, that the foregoing restrictions shall not apply with respect to the ownership, operation and management of the Company Restaurants, provided that the Company Restaurants are operated and managed in accordance with Section 5.11. Notwithstanding the foregoing, Sellers and their respective Affiliates may own, directly or indirectly, solely as an investment, securities of any Person traded on any national securities exchange if Sellers are not a controlling Person of, or a member of a group which controls, such Person and does not, directly or indirectly, own 5% or more of any class of securities of such Person.
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(b) During the Restricted Period, Sellers shall not, and shall not permit any of their respective Affiliates to, directly or indirectly, hire or solicit any employee of the Company or encourage any such employee to leave such employment or hire any such employee who has left such employment, except pursuant to a general solicitation which is not directed specifically to any such employees; provided that nothing in this Section 5.07(b) shall prevent Sellers or any of their Affiliates from hiring (i) any employee whose employment has been terminated by the Company or Buyer or (ii) after 180 days from the date of termination of employment, any employee whose employment has been terminated by the employee.
(c) During the Restricted Period, Sellers shall not, and shall not permit any of their respective Affiliates to, directly or indirectly, solicit or entice, or attempt to solicit or entice, any franchise owner or operator of the Company for purposes of diverting their business or services from the Company.
(d) Each Seller acknowledges that a breach or threatened breach of this Section 5.07 would give rise to irreparable harm to Buyer, for which monetary damages would not be an adequate remedy, and hereby agrees that in the event of a breach or a threatened breach by Sellers of any such obligations, Buyer shall, in addition to any and all other rights and remedies that may be available to it in respect of such breach, be entitled to equitable relief, including a temporary restraining order, an injunction, specific performance and any other relief that may be available from a court of competent jurisdiction (without any requirement to post bond).
(e) Sellers acknowledge that the restrictions contained in this Section 5.07 are reasonable and necessary to protect the legitimate interests of Buyer and constitute a material inducement to Buyer to enter into this Agreement and consummate the transactions contemplated by this Agreement. In the event that any covenant contained in this Section 5.07 should ever be adjudicated to exceed the time, geographic, product or service, or other limitations permitted by applicable Law in any jurisdiction, then any court is expressly empowered to reform such covenant, and such covenant shall be deemed reformed, in such jurisdiction to the maximum time, geographic, product or service, or other limitations permitted by applicable Law. The covenants contained in this Section 5.07 and each provision hereof are severable and distinct covenants and provisions. The invalidity or unenforceability of any such covenant or provision as written shall not invalidate or render unenforceable the remaining covenants or provisions hereof, and any such invalidity or unenforceability in any jurisdiction shall not invalidate or render unenforceable such covenant or provision in any other jurisdiction.
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Section 5.08 Governmental Approvals and Consents.
(a) Each party hereto shall, as promptly as possible, (i) make, or cause or be made, all filings and submissions (including those under the HSR Act if applicable) required under any Law applicable to such party or any of its Affiliates; and (ii) use reasonable best efforts to obtain, or cause to be obtained, all consents, authorizations, orders and approvals from all Governmental Authorities that may be or become necessary for its execution and delivery of this Agreement and the performance of its obligations pursuant to this Agreement and the Assignment and the other Transaction Documents. Each party shall cooperate fully with the other party and its Affiliates in promptly seeking to obtain all such consents, authorizations, orders, and approvals. The parties hereto shall not willfully take any action that will have the effect of delaying, impairing, or impeding the receipt of any required consents, authorizations, orders, and approvals.
(b) Sellers and Buyer shall use reasonable best efforts to give all notices to, and obtain all consents from, all third parties that are described in Section 3.05 of the Disclosure Schedules.
(c) Without limiting the generality of the parties’ undertakings pursuant to subsections (a) and (b) above, each of the parties hereto shall use all reasonable best efforts to:
(i) respond to any inquiries by any Governmental Authority regarding antitrust or other matters with respect to the transactions contemplated by this Agreement, the Assignment or any Transaction Document;
(ii) avoid the imposition of any order or the taking of any action that would restrain, alter or enjoin the transactions contemplated by this Agreement, the Assignment or any Transaction Document; and
(iii) in the event any Governmental Order adversely affecting the ability of the parties to consummate the transactions contemplated by this Agreement, the Assignment or any Transaction Document has been issued, to have such Governmental Order vacated or lifted.
(d) If any consent, approval, or authorization necessary to preserve any right or benefit under any Contract to which the Company is a party is not obtained prior to the Closing, Sellers shall, subsequent to the Closing, cooperate with Buyer and the Company in attempting to obtain such consent, approval, or authorization as promptly thereafter as practicable. If such consent, approval, or authorization cannot be obtained, Sellers shall use its reasonable best efforts to provide the Company with the rights and benefits of the affected Contract for the term thereof, and, if Sellers provide such rights and benefits, the Company shall assume all obligations and burdens thereunder.
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(e) All analyses, appearances, meetings, discussions, presentations, memoranda, briefs, filings, arguments, and proposals made by or on behalf of either party before any Governmental Authority or the staff or regulators of any Governmental Authority, in connection with the transactions contemplated hereunder (but, for the avoidance of doubt, not including any interactions between Sellers or the Company with Governmental Authorities in the ordinary course of business, any disclosure which is not permitted by Law or any disclosure containing confidential information) shall be disclosed to the other party hereunder in advance of any filing, submission or attendance, it being the intent that the parties will consult and cooperate with one another, and consider in good faith the views of one another, in connection with any such analyses, appearances, meetings, discussions, presentations, memoranda, briefs, filings, arguments, and proposals. Each party shall give notice to the other party with respect to any meeting, discussion, appearance, or contact with any Governmental Authority or the staff or regulators of any Governmental Authority, with such notice being sufficient to provide the other party with the opportunity to attend and participate in such meeting, discussion, appearance, or contact.
(f) Notwithstanding the foregoing, nothing in this Section 5.08 shall require, or be construed to require, Buyer or any of its Affiliates to agree to (i) sell, hold, divest, discontinue or limit, before or after the Closing Date, any assets, businesses or interests of Buyer, Sellers or any of their respective Affiliates; (ii) any conditions relating to, or changes or restrictions in, the operations of any such assets, businesses or interests which, in either case, could reasonably be expected to result in a Material Adverse Effect or materially and adversely impact the economic or business benefits to Buyer of the transactions contemplated by this Agreement; or (iii) any material modification or waiver of the terms and conditions of this Agreement.
Section 5.09 Books and Records.
(a) In order to facilitate the resolution of any claims made against or incurred by Sellers prior to the Closing, or for any other reasonable purpose, for a period of three (3) years after the Closing, Buyer shall:
(i) retain the books and records (including personnel files) of the Company relating to periods prior to the Closing in a manner reasonably consistent with the prior practices of the Company; and
(ii) upon reasonable notice, afford the Representatives of Sellers reasonable access (including the right to make, at Sellers’ expense, photocopies), during normal business hours, to such books and records;
provided, however, that any books and records related to Tax matters shall be retained pursuant to the periods set forth in ARTICLE VI.
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(b) In order to facilitate the resolution of any claims made by or against or incurred by Buyer or the Company after the Closing, or for any other reasonable purpose, for a period of three (3) years following the Closing, Sellers shall:
(i) retain the books and records (including personnel files) of Sellers which relate to the Company and their operations for periods prior to the Closing; and
(ii) upon reasonable notice, afford the Representatives of Buyer or the Company reasonable access (including the right to make, at Buyer’s expense, photocopies), during normal business hours, to such books and records;
provided, however, that any books and records related to Tax matters shall be retained pursuant to the periods set forth in ARTICLE VI.
(c) Neither Buyer nor Sellers shall be obligated to provide the other party with access to any books or records (including personnel files) pursuant to this Section 5.09 where such access would violate any Law.
Section 5.10 Closing Conditions. From the date hereof until the Closing, each party hereto shall, and Sellers shall cause the Company to, use reasonable best efforts to take such actions as are necessary to expeditiously satisfy the closing conditions set forth in ARTICLE VII.
Section 5.11 Operation of Company Restaurants. The parties acknowledge that none of the existing Company Restaurants currently pay royalty fees and have not paid royalty fees since February 1, 2018. As of the Closing, four of the existing Company Restaurants will pay royalty fees equal to 3% and two of the existing Company Restaurants (being Jupiter, Florida and International Drive, Orlando, Florida) will pay royalty fees equal to 1%, which royalty fees shall increase to 3% when the sales of such Company Restaurant reach $2,000,000 per annum. Wings Management currently has plans to build additional restaurants, with the same focus and concept as the Company Restaurants, three of which have been approved by Buyer (to be located in Redington Beach, Florida, Boynton Beach, Florida and Daytona Beach Shores, Florida), to be built within the next five (5) years in Wings Management’s sole discretion. All such additional restaurants, which must be approved by Buyer, shall pay a royalty fee of 3% and a marketing contribution of 2%. Subject to the terms of any applicable Franchise Agreement, Wings Management (or its Affiliate) shall have the right to close or sell, on the same terms, including the same royalty terms, any Company Restaurants and any such new restaurants. With the prior written consent of the Company, Wings Management shall have full right and authority to determine the menu items and direction for any such Company Restaurants operating under the Hurricane Dockside Grill branding, it being understood and agreed that such Company Restaurants shall be maintained as a “Florida Fish House”.
Section 5.12 Public Announcements. Unless otherwise required by applicable Law or stock exchange requirements (based upon the reasonable advice of counsel), no party to this Agreement shall (a) make any public announcements in respect of this Agreement or the transactions contemplated hereby or otherwise communicate with any news media without the prior written consent of the other party (which consent shall not be unreasonably withheld or delayed), and the parties shall cooperate as to the timing and contents of any such announcement; or (b) until this Agreement is made public as a result of any filing required by the stock exchange requirements, disclose to any Person the terms and conditions of this Agreement or provide to any Person a copy of this Agreement; provided, however, that the foregoing shall not preclude Wings Management, John Metz or any other owner of a Company Restaurant from making any public announcement regarding any one or more Company Restaurant.
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Section 5.13 Post-Closing Audit of Media Fund. As soon as reasonably practicable after the Closing, the Company shall conduct an independent, third-party audit of the marketing, advertising and promotional fund (the “Media Fund”) for the calendar years 2016 and 2017 administered by the Company’s Subsidiary, Hurricane Media Fund, LLC. Such audit shall be paid for out of funds in the Media Fund; provided, however, that, should the audit reveal any improprieties on the part of the Company, or any shortfall in funds in excess of ten thousand dollars ($10,000) within the Media Fund, then (a) the cost of the audit will be borne by the Sellers; (b) Sellers shall deliver to the Company or Buyer no later than ten (10) days after demand therefor, by wire transfer of immediately available funds, the sum of (i) the full amount of any shortfall discovered plus (ii) the cost of the audit; and (c) in the reasonable discretion of Buyer in an effort to resolve the Demand Claims, further audits of the Media Fund for calendar year 2015 may be undertaken at the cost and expense of Sellers, except that, if any such audit does not reveal any improprieties on the part of the Company, or any shortfall in funds in excess of ten thousand dollars ($10,000) within the Media Fund, then the cost thereof shall be paid for out of funds in the Media Fund. The cost of any audits of years prior to 2015 shall be borne by Buyer.
Section 5.14 Post-Closing Audit. No later than July 16, 2018, the Company shall have completed its independent third-party audit for calendar year 2017; provided, however, that the Company may extend the deadline for the completion of such audit for additional one-week increments in its sole discretion and upon written notice to Buyer, based upon any updated timing provided by the third-party auditor.
Section 5.15 Further Assurances. Following the Closing, each of the parties hereto shall, and shall cause their respective Affiliates to, execute and deliver such additional documents, instruments, conveyances and assurances and take such further actions as may be reasonably required to carry out the provisions hereof and give effect to the transactions contemplated by this Agreement.
ARTICLE
VI
Tax matters
Section 6.01 Tax Covenants.
(a) Without the prior written consent of Buyer, Sellers (and, prior to the Closing, the Company, and their Affiliates and their respective Representatives) shall not, to the extent it may affect the Company, change or rescind any Tax election or amend any Tax Return or take any action, omit to take any action or enter into any other transaction that would have the effect of increasing the Tax liability or reducing any Tax asset of Buyer or the Company in respect of any Post-Closing Tax Period.
(b) All transfer, documentary, sales, use, stamp, registration, value added and other such Taxes and fees (including any penalties and interest) incurred in connection with this Agreement, the Assignment and the other Transaction Documents (including any real property transfer Tax and any other similar Tax) shall be borne and paid by Sellers when due. Sellers shall, at its own expense, timely file any Tax Return or other document with respect to such Taxes or fees (and Buyer shall cooperate with respect thereto as necessary).
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(c) Sellers shall prepare or cause to be prepared and file or cause to be filed all Tax Returns required to be filed for the Company for all periods ending on or prior to the Closing Date which are filed after the Closing Date, and shall timely pay all Taxes showing as due thereon. Any such Tax Return shall be prepared in a manner consistent with past practice (unless otherwise required by Law) and without a change of any election or any accounting method and shall be submitted by the Sellers to the Buyer (together with schedules, statements and, to the extent requested by the Sellers, supporting documentation) no later than forty-five (45) days prior to the due date thereof, and the Sellers shall permit Buyer to approve each such Tax Return prior to filing, which approval shall not be unreasonably withheld, conditioned, or delayed.
(d) Buyer shall prepare, or cause to be prepared, all Tax Returns required to be filed by the Company after the Closing Date for all Straddle Periods. Any such Tax Return shall be prepared in a manner consistent with past practice (unless otherwise required by Law) and without a change of any election or any accounting method and shall be submitted by Buyer to Sellers (together with schedules, statements and, to the extent requested by Sellers, supporting documentation) at least 30 days prior to the due date (including extensions) of such Tax Return. If any Seller objects to any item on any such Tax Return, it shall, within ten days after delivery of such Tax Return, notify Buyer in writing that it so objects, specifying with particularity any such item and stating the specific factual or legal basis for any such objection. If a notice of objection shall be duly delivered, Buyer and Sellers shall negotiate in good faith and use their reasonable best efforts to resolve such items. If Buyer and Sellers are unable to reach such agreement within ten days after receipt by Buyer of such notice, the disputed items shall be resolved by the Independent Accountant and any determination by the Independent Accountant shall be final. The Independent Accountant shall resolve any disputed items within twenty days of having the item referred to it pursuant to such procedures as it may require. If the Independent Accountant is unable to resolve any disputed items before the due date for such Tax Return, the Tax Return shall be filed as prepared by Buyer and then amended to reflect the Independent Accountant’s resolution. The costs, fees, and expenses of the Independent Accountant shall be borne equally by Buyer and Sellers. The preparation and filing of any Tax Return of the Company that does not relate to a Pre-Closing Tax Period shall be exclusively within the control of Buyer.
Section 6.02 Termination of Existing Tax Sharing Agreements. Any and all existing Tax sharing agreements (whether written or not) binding upon the Company shall be terminated as of the Closing Date. After such date none of the Company, Sellers or any of Sellers’ Affiliates and their respective Representatives shall have any further rights or liabilities thereunder.
Section 6.03 Tax Indemnification. Sellers shall indemnify the Company, Buyer, and each Buyer Indemnitee and hold them harmless from and against (a) any Loss attributable to any breach of or inaccuracy in any representation or warranty made in Section 3.22; (b) any Loss attributable to any breach or violation of, or failure to fully perform, any covenant, agreement, undertaking or obligation in ARTICLE VI; (c) all Taxes of the Company or relating to the business of the Company for all Pre-Closing Tax Periods; (d) all Taxes of any member of an affiliated, consolidated, combined or unitary group of which the Company (or any predecessor of the Company) is or was a member on or prior to the Closing Date by reason of a liability under Treasury Regulation Section 1.1502-6 or any comparable provisions of foreign, state or local Law; and (e) any and all Taxes of any Person imposed on the Company arising under the principles of transferee or successor liability or by contract, relating to an event or transaction occurring before the Closing Date. In each of the above cases, together with any out-of-pocket fees and expenses (including attorneys’ and accountants’ fees) incurred in connection therewith. Sellers shall reimburse Buyer for any Taxes of the Company that are the responsibility of Sellers pursuant to this Section 6.03 within ten (10) Business Days after payment of such Taxes by Buyer or the Company.
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Section 6.04 Straddle Period. In the case of Taxes that are payable with respect to a taxable period that begins before and ends after the Closing Date (each such period, a “Straddle Period”), the portion of any such Taxes that are treated as Pre-Closing Taxes for purposes of this Agreement shall be:
(a) in the case of Taxes (i) based upon, or related to, income, receipts, profits, wages, capital or net worth, (ii) imposed in connection with the sale, transfer or assignment of property, or (iii) required to be withheld, deemed equal to the amount which would be payable if the taxable year ended with the Closing Date; and
(b) in the case of other Taxes, deemed to be the amount of such Taxes for the entire period multiplied by a fraction the numerator of which is the number of days in the period ending on the Closing Date and the denominator of which is the number of days in the entire period.
Section 6.05 Contests. Buyer agrees to give written notice to Sellers of the receipt of any written notice by the Company, Buyer or any of Buyer’s Affiliates which involves the assertion of any claim, or the commencement of any Action, in respect of which an indemnity may be sought by Buyer pursuant to this ARTICLE VI (a “Tax Claim”); provided, that failure to comply with this provision shall not affect Buyer’s right to indemnification hereunder, except and only to the extent that Seller forfeits its rights or defenses by reason of such failure. Buyer shall control the contest or resolution of any Tax Claim; provided, however, that Buyer shall obtain the prior written consent of Sellers (which consent shall not be unreasonably withheld or delayed) before entering into any settlement of a claim or ceasing to defend such claim; and, provided further, that Sellers shall be entitled to participate in the defense of such claim and to employ counsel of its choice for such purpose, the fees and expenses of which separate counsel shall be borne solely by Sellers.
Section 6.06 Cooperation and Exchange of Information. Sellers and Buyer shall provide each other with such cooperation and information as either of them reasonably may request of the other in filing any Tax Return pursuant to this ARTICLE VI or in connection with any audit or other proceeding in respect of Taxes of the Company. Such cooperation and information shall include providing copies of relevant Tax Returns or portions thereof, together with accompanying schedules, related work papers and documents relating to rulings or other determinations by tax authorities. Each of Sellers and Buyer shall retain all Tax Returns, schedules and work papers, records and other documents in its possession relating to Tax matters of the Company for any taxable period beginning before the Closing Date until the expiration of the statute of limitations of the taxable periods to which such Tax Returns and other documents relate, without regard to extensions except to the extent notified by the other party in writing of such extensions for the respective Tax periods. Prior to transferring, destroying or discarding any Tax Returns, schedules and work papers, records and other documents in its possession relating to Tax matters of the Company for any taxable period beginning before the Closing Date, Sellers or Buyer (as the case may be) shall provide the other party with reasonable written notice and offer the other party the opportunity to take custody of such materials.
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Section 6.07 Tax Treatment of Indemnification Payments. Any indemnification payments pursuant to this ARTICLE VI shall be treated as an adjustment to the Purchase Price by the parties for Tax purposes, unless otherwise required by Law.
Section 6.08 Survival. Notwithstanding anything in this Agreement to the contrary, the provisions of Section 3.22 and this ARTICLE VI shall survive for the full period of all applicable statutes of limitations (giving effect to any waiver, mitigation or extension thereof) plus 90 days.
Section 6.09 Overlap. To the extent that any obligation or responsibility pursuant to ARTICLE VIII may overlap with an obligation or responsibility pursuant to this ARTICLE VI, the provisions of this ARTICLE VI shall govern.
Section 6.10 Purchase Price Allocation. As soon as practicable after the Closing, Buyer shall deliver to Sellers a statement setting forth the allocation (the “Allocation”) of the Purchase Price (including, for this purpose, liabilities of the Company treated as assumed by Buyer for U.S. federal income Tax purposes) among the assets of the Company, in accordance with the provisions of Section 1060 of the Code and the Treasury Regulations promulgated thereunder (and any similar provisions of state, local or foreign Law). If, within twenty (20) days after the delivery of the initial Allocation, the Sellers notify Buyer in writing that the Sellers object to the initial Allocation, Buyer and the Sellers shall use commercially reasonable efforts to resolve such dispute within twenty (20) days. In the event that Buyer and the Sellers are unable to resolve such dispute within twenty (20) days, Buyer and the Sellers shall jointly retain the Independent Accountant to resolve the disputed item. Upon resolution of the disputed items, the Allocation shall be adjusted to reflect such resolution. The costs, fees and expenses of the Independent Accountant shall be borne equally by Buyer and the Sellers. Buyer and the Sellers shall prepare and file all Tax Returns in a manner consistent with the Allocation and shall not take any position inconsistent with the Allocation except as may be required pursuant to a “determination” within the meaning of Section 1313(a) of the Code (or any similar provision of state, local or foreign Law).
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ARTICLE
VII
Conditions to closing
Section 7.01 Conditions to Obligations of All Parties. The obligations of each party to consummate the transactions contemplated by this Agreement shall be subject to the fulfillment, at or prior to the Closing, of each of the following conditions:
(a) No Governmental Authority shall have enacted, issued, promulgated, enforced or entered any Governmental Order which is in effect and has the effect of making the transactions contemplated by this Agreement illegal, otherwise restraining or prohibiting consummation of such transactions or causing any of the transactions contemplated hereunder to be rescinded following completion thereof.
(b) Sellers shall have received all consents, authorizations, orders and approvals from the Governmental Authorities referred to in Section 3.05 of the Disclosure Schedules, in form and substance reasonably satisfactory to Buyer, and no such consent, authorization, order and approval shall have been revoked.
(c) The Company and John Metz (or an entity controlled by John Metz) shall have executed and delivered the Consulting Agreement.
Section 7.02 Conditions to Obligations of Buyer. The obligations of Buyer to consummate the transactions contemplated by this Agreement shall be subject to the fulfillment or Buyer’s waiver, at or prior to the Closing, of each of the following conditions:
(a) The representations and warranties of Sellers contained in this Agreement, the Assignment and the other Transaction Documents, and any certificate or other writing delivered pursuant hereto shall be true and correct in all respects (in the case of any representation or warranty qualified by materiality or Material Adverse Effect) or in all material respects (in the case of any representation or warranty not qualified by materiality or Material Adverse Effect) on and as of the date hereof and on and as of the Closing Date with the same effect as though made at and as of such date, except those representations and warranties that address matters only as of a specified date, the accuracy of which shall be determined as of that specified date in all respects.
(b) Sellers shall have duly performed and complied in all material respects with all agreements, covenants and conditions required by this Agreement, the Assignment and each of the other Transaction Documents to be performed or complied with by it prior to or on the Closing Date; provided that, with respect to agreements, covenants and conditions that are qualified by materiality, Sellers shall have performed such agreements, covenants and conditions, as so qualified, in all respects.
(c) At the Closing, the Company shall be free of (i) Indebtedness, including Related Party Indebtedness, except as otherwise agreed by the parties; (ii) other Liabilities, other than those Liabilities incurred and payable in the ordinary course of business consistent with past practices; and (iii) accrued salaries and payroll taxes in excess of the Accrued Salary and Payroll Tax Cap.
(d) No Action shall have been commenced against Buyer, Sellers, or the Company which would prevent the Closing. No injunction or restraining order shall have been issued by any Governmental Authority, and be in effect, which restrains or prohibits any transaction contemplated hereby.
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(e) All approvals, consents and waivers that are listed in Section 3.05 of the Disclosure Schedules shall have been received, and executed counterparts thereof shall have been delivered to Buyer at or prior to the Closing.
(f) From the date of this Agreement, there shall not have occurred any Material Adverse Effect, nor shall any event or events have occurred that, individually or in the aggregate, with or without the lapse of time, would reasonably be expected to result in a Material Adverse Effect.
(g) Buyer shall be satisfied, in its reasonable business judgment, based on the information received from the Franchisees during the Franchise Status Calls, that the Franchisees do not have, and are not likely to raise, any additional material issues not otherwise disclosed herein based on prior actions or failures to act of the Company or Sellers or with respect to the transactions contemplated hereby.
(h) Sellers shall have duly executed and delivered the Assignment to Buyer.
(i) Buyer shall have received a certificate, dated the Closing Date and signed by a duly authorized officer of Sellers, that each of the conditions set forth in Section 7.02(a) and Section 7.02(b) have been satisfied.
(j) Buyer shall have received a certificate of the Secretary or an Assistant Secretary (or equivalent officer) of each Seller that is an entity certifying that attached thereto are true and complete copies of all resolutions adopted by the board of directors or managers of such Seller, as applicable, authorizing the execution, delivery and performance of this Agreement, the Assignment and the other Transaction Documents and the consummation of the transactions contemplated hereby and thereby, and that all such resolutions are in full force and effect and are all the resolutions adopted in connection with the transactions contemplated hereby and thereby.
(k) Buyer shall have received a certificate of the Secretary or an Assistant Secretary (or equivalent officer) of each Seller that is an entity certifying the names and signatures of the officers of Sellers authorized to sign this Agreement, the Assignment and the Transaction Documents, and the other documents to be delivered hereunder and thereunder.
(l) Buyer shall have received a certificate of the Secretary or an Assistant Secretary (or equivalent officer) of the Company certifying that attached thereto are true and complete copies of (i) the articles or certificate of organization or formation of the Company, as filed with the secretary of state or similar Governmental Authority of the State of Florida, (ii) the Operating Agreement of the Company as then in effect and (iii) a good standing certificate (or its equivalent) for the Company from the secretary of state or similar Governmental Authority of the State of Florida.
(m) Sellers shall have delivered, or caused the Company to deliver, to Buyer resignations of all of the managers and officers of the Company.
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(n) Sellers shall have delivered to Buyer a certificate pursuant to Treasury Regulations Section 1.1445-2(b) that Sellers are not a foreign person within the meaning of Section 1445 of the Code.
(o) Sellers shall have delivered to Buyer evidence reasonably satisfactory to Buyer that Sellers have or have caused the Company to: (i) adopted resolutions and taken such other actions as are required to terminate the Benefit Plans effective immediately prior to the Closing Date; (ii) ceased contributions under the Benefit Plan effective as of the Closing Date; and (c) filed with the IRS such forms as may be required by applicable Law to terminate such Benefit Plans, all of which shall be in form and substance reasonably satisfactory to Buyer.
(p) Sellers shall have delivered to Buyer such other documents or instruments as Buyer reasonably requests and are reasonably necessary to consummate the transactions contemplated by this Agreement, including the Release Agreements and the evidence of termination of the Ultimate Net Loss Obligation Agreement and the exercise or termination of the Grant of Options described in Section 2.03(c).
Section 7.03 Conditions to Obligations of Sellers. The obligations of Sellers to consummate the transactions contemplated by this Agreement shall be subject to the fulfillment or Sellers’ waiver, at or prior to the Closing, of each of the following conditions:
(a) The representations and warranties of Buyer contained in this Agreement, the other Transaction Documents and any certificate or other writing delivered pursuant hereto shall be true and correct in all respects (in the case of any representation or warranty qualified by materiality or Material Adverse Effect) or in all material respects (in the case of any representation or warranty not qualified by materiality or Material Adverse Effect) on and as of the date hereof and on and as of the Closing Date with the same effect as though made at and as of such date, except those representations and warranties that address matters only as of a specified date, the accuracy of which shall be determined as of that specified date in all respects.
(b) Buyer shall have duly performed and complied in all material respects with all agreements, covenants and conditions required by this Agreement and each of the other Transaction Documents to be performed or complied with by it prior to or on the Closing Date; provided that, with respect to agreements, covenants and conditions that are qualified by materiality, Buyer shall have performed such agreements, covenants and conditions, as so qualified, in all respects.
(c) No injunction or restraining order shall have been issued by any Governmental Authority, and be in effect, which restrains or prohibits any material transaction contemplated hereby.
(d) Sellers shall have received a certificate, dated the Closing Date and signed by a duly authorized officer of Buyer, that each of the conditions set forth in Section 7.03(a) and Section 7.03(b) have been satisfied.
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(e) Sellers shall have received a certificate of the Secretary or an Assistant Secretary (or equivalent officer) of Buyer certifying that attached thereto are true and complete copies of all resolutions adopted by the board of directors of Buyer authorizing the execution, delivery and performance of this Agreement and the other Transaction Documents and the consummation of the transactions contemplated hereby and thereby, and that all such resolutions are in full force and effect and are all the resolutions adopted in connection with the transactions contemplated hereby and thereby.
(f) Sellers shall have received a certificate of the Secretary or an Assistant Secretary (or equivalent officer) of Buyer certifying the names and signatures of the officers of Buyer authorized to sign this Agreement, the Transaction Documents and the other documents to be delivered hereunder and thereunder.
(g) Buyer shall have delivered (i) to Sellers, cash in the amount of the Net Cash Consideration; and (ii) to each of the other payees entitled to a portion of the Cash Consideration, the amount to which each such payee is entitled, in each case by wire transfer of immediately available funds in the amounts and to the accounts identified in the Closing Worksheet.
(h) Buyer shall have issued to each Seller and each other Person entitled thereto the number of Seller Units to which each Seller and other Person is entitled in the name of such Seller or other Person, which Seller Units shall be retained by Buyer in escrow as provided herein.
(i) Buyer shall have issued in the name of the applicable Seller and delivered to such Seller the number of Non-escrow Units to which such Seller is entitled.
(j) Buyer shall have delivered to Sellers such other documents or instruments as Sellers reasonably requests and are reasonably necessary to consummate the transactions contemplated by this Agreement.
ARTICLE
VIII
Indemnification
Section 8.01 Survival. Subject to the limitations and other provisions of this Agreement, the representations and warranties contained herein shall survive the Closing and shall remain in full force and effect until one (1) year from the Closing Date; provided that the representations and warranties (each, a “Fundamental Rep”) in Section 3.01 (Organization and Authority of Sellers), Section 3.02(a) (Organization and Organizational Documents), Section 3.03 (Capitalization), Section 3.19 (Environmental Matters) and Section 3.22 (Taxes) shall survive for the full period of all applicable statutes of limitations (giving effect to any waiver, mitigation or extension thereof) plus ninety (90) days. All covenants and agreements of the parties contained herein (other than any covenants or agreements contained in ARTICLE VI which are subject to ARTICLE VI) that are to be performed following the Closing shall survive the Closing for one (1) year from the Closing Date or for the period explicitly specified therein; provided that the covenants contained in Section 5.06 (Confidentiality) shall survive the Closing for three (3) years following the Closing Date. Notwithstanding the foregoing, any claims asserted in good faith with reasonable specificity (to the extent known at such time) and in writing by notice from the non-breaching party to the breaching party prior to the expiration date of the applicable survival period shall not thereafter be barred by the expiration of the relevant representation or warranty and such claims shall survive until finally resolved. During the applicable survival period, Buyer will cause the Company to maintain liability insurance in amounts at least comparable to the liability insurance currently maintained by the Company, provided that neither such obligation, nor any breach thereof nor any insurance so maintained shall reduce or otherwise limit any indemnification to which Buyer or any other Buyer Indemnitee is entitled under this Agreement.
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Section 8.02 Indemnification By Seller Indemnitors. Subject to the other terms and conditions of this ARTICLE VIII, the Seller Indemnitors shall, jointly and severally, indemnify and defend each of Buyer and its Affiliates (including the Company) and their respective Representatives (collectively, the “Buyer Indemnitees”) against, and shall hold each of them harmless from and against, and shall pay and reimburse each of them for, any and all Losses incurred or sustained by, or imposed upon, Buyer Indemnitees based upon, arising out of, with respect to or by reason of:
(a) any inaccuracy in or breach of any of the representations or warranties of Sellers contained in this Agreement or in any certificate or instrument delivered by or on behalf of Sellers pursuant to this Agreement (other than in respect of Section 3.22, it being understood that the sole remedy for any such inaccuracy in or breach thereof shall be pursuant to ARTICLE VI), as of the date such representation or warranty was made or as if such representation or warranty was made on and as of the Closing Date (except for representations and warranties that expressly relate to a specified date, the inaccuracy in or breach of which will be determined with reference to such specified date);
(b) any breach or non-fulfillment of any covenant, agreement or obligation to be performed by Sellers pursuant to this Agreement (other than any breach or violation of, or failure to fully perform, any covenant, agreement, undertaking or obligation in ARTICLE VI, it being understood that the sole remedy for any such breach, violation or failure shall be pursuant to ARTICLE VI);
(c) any Loss incurred by such Buyer Indemnitee within three (3) years after the Closing as a result of any guaranty of any lease of a Franchisee;
(d) any Action identified with an asterisk on Section 3.17(a) of the Disclosure Schedules;
(e) any Company Indebtedness, including any Related Party Indebtedness, and any other Liabilities and payables of the Company that should have been paid at Closing in accordance with Section 2.02(b);
(f) any Loss incurred by a Buyer Indemnitee as a result of any Action, claim or assertion by any Person identified Section 2.02(b)(ii), which Person has not executed and delivered a Release Agreement, that such Person is entitled to a portion of the Cash Consideration, a different number of Units or any other consideration in exchange for such Person’s options to acquire, or other rights with respect to, membership interests in the Company;
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(g) any and all actions or failures to act of the Company and/or Sellers generally described in various demand letters served on the Company, as set forth in Item 9 and Item 13 of Section 3.07 of the Disclosure Schedules (notwithstanding the disclosure therein and in multiple other Sections of the Disclosure Schedules) (such actions or failures to act, and the claims against the Company with respect thereto, as such descriptions and claims may be modified, amended, restated, expanded, embellished or otherwise, collectively, the “Demand Claims”); and
(h) any and all amounts for which Sellers are liable under Section 5.13 of this Agreement.
Section 8.03 Indemnification By Buyer. Subject to the other terms and conditions of this ARTICLE VIII, Buyer shall indemnify and defend each of Sellers and its Affiliates and their respective Representatives (collectively, the “Sellers Indemnitees”) against, and shall hold each of them harmless from and against, and shall pay and reimburse each of them for, any and all Losses incurred or sustained by, or imposed upon, Sellers Indemnitees based upon, arising out of, with respect to or by reason of:
(a) any inaccuracy in or breach of any of the representations or warranties of Buyer contained in this Agreement or in any certificate or instrument delivered by or on behalf of Buyer pursuant to this Agreement, as of the date such representation or warranty was made or as if such representation or warranty was made on and as of the Closing Date (except for representations and warranties that expressly relate to a specified date, the inaccuracy in or breach of which will be determined with reference to such specified date); or
(b) any breach or non-fulfillment of any covenant, agreement or obligation to be performed by Buyer pursuant to this Agreement (other than ARTICLE VI, it being understood that the sole remedy for any such breach thereof shall be pursuant to ARTICLE VI).
Section 8.04 Certain Limitations. The indemnification provided for in Section 8.02 and Section 8.03 shall be subject to the following limitations:
(a) The Seller Indemnitors shall not be liable to Buyer Indemnitees for indemnification under Section 8.02(a) until the aggregate amount of all Losses in respect of indemnification under Section 8.02(a) exceeds One Hundred Thousand Dollars ($100,000) (the “Basket”), in which event Sellers shall only be required to pay or be liable for Losses in excess of the Basket. The aggregate amount of all Losses for which the Seller Indemnitors shall be liable pursuant to Section 8.02(a) shall not exceed One Million Dollars ($1,000,000) (the “Cap”).
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(b) Buyer shall not be liable to Sellers Indemnitees for indemnification under Section 8.03(a) until the aggregate amount of all Losses in respect of indemnification under Section 8.03(a) exceeds the Basket, in which event Buyer shall be required to pay or be liable for all such Losses from the first dollar. The aggregate amount of all Losses for which Buyer shall be liable pursuant to Section 8.03(a) shall not exceed the Cap.
(c) Notwithstanding the foregoing, the limitations set forth in Section 8.04(a) and Section 8.04(b) shall not apply to Losses based upon, arising out of, with respect to or by reason of, (i) fraud or willful or intentional misconduct or breach, (ii) any inaccuracy in or breach of any Fundamental Rep, or (iii) the Demand Claims, for which the aggregate liability of the Seller Indemnitors under clauses (i), (ii), and (iii) shall be limited to the Purchase Price.
(d) For purposes of this ARTICLE VIII, any inaccuracy in or breach of any representation or warranty shall be determined without regard to any materiality, Material Adverse Effect or other similar qualification contained in or otherwise applicable to such representation or warranty.
(e) No Losses may be claimed under Section 8.02 or Section 8.03 by any Indemnified Party to the extent such Losses are included in the calculation of any adjustment to the Purchase Price pursuant to Section 2.02.
(f) The amount to which an Indemnified Party may become entitled hereunder with respect to any indemnified matter shall be reduced by the amount of insurance proceeds, if any, actually received by such Indemnified Party with respect to such indemnified matter.
Section 8.05 Indemnification Procedures. The party making a claim under this ARTICLE VIII is referred to as the “Indemnified Party,” and the party against whom such claims are asserted under this ARTICLE VIII is referred to as the “Indemnifying Party.”
(a) Third Party Claims. If any Indemnified Party receives notice of the assertion or commencement of any Action made or brought by any Person who is not a party to this Agreement or an Affiliate of a party to this Agreement or a Representative of the foregoing (a “Third Party Claim”) against such Indemnified Party with respect to which the Indemnifying Party is obligated to provide indemnification under this Agreement, the Indemnified Party shall give the Indemnifying Party reasonably prompt written notice thereof, but in any event not later than thirty (30) calendar days after receipt of such notice of such Third Party Claim. The failure to give such prompt written notice shall not, however, relieve the Indemnifying Party of its indemnification obligations, except and only to the extent that the Indemnifying Party forfeits rights or defenses by reason of such failure. Such notice by the Indemnified Party shall describe the Third Party Claim in reasonable detail, shall include copies of all material written evidence thereof and shall indicate the estimated amount, if reasonably practicable, of the Loss that has been or may be sustained by the Indemnified Party. Without limiting the foregoing, the Demand Claims shall be deemed to be Third Party Claims hereunder. The following provisions shall apply to any Third Party Claim:
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(i) The Indemnifying Party shall have the right to participate in, or by giving written notice to the Indemnified Party, to assume the defense of any Third Party Claim at the Indemnifying Party’s expense and by the Indemnifying Party’s own counsel, and the Indemnified Party shall cooperate in good faith in such defense; provided that if the Indemnifying Party is the Seller Indemnitors, such Indemnifying Party shall not have the right to direct the defense of any Third Party Claim that seeks an injunction or other equitable relief against the Indemnified Party.
(ii) In the event that the Indemnifying Party assumes the defense of any Third Party Claim pursuant to the provisions hereof, subject to Section 8.05(b), the Indemnifying Party shall have the right to take such action as it deems necessary to avoid, dispute, defend, appeal or make counterclaims pertaining to any such Third Party Claim in the name and on behalf of the Indemnified Party.
(iii) The Indemnified Party shall have the right to participate in the defense or negotiation of any Third Party Claim with counsel selected by it, subject to the Indemnifying Party’s right to control the defense thereof, if applicable. Except in the case of the Demand Claims (in which event the fees and disbursements of the Company’s and Buyer’s outside counsel shall be included in Losses in all events), the fees and disbursements of such counsel shall be at the expense of the Indemnified Party, provided that, if in the reasonable opinion of counsel to the Indemnified Party, (A) there are legal defenses available to an Indemnified Party that are different from or additional to those available to the Indemnifying Party; or (B) there exists a conflict of interest between the Indemnifying Party and the Indemnified Party that cannot be waived, the Indemnifying Party shall be liable for the fees and expenses of outside counsel to the Indemnified Party in each jurisdiction for which the Indemnified Party determines counsel is required (in which event such fees and expenses of outside counsel shall be included in Losses in all events).
(iv) Subject to the requirement in Section 8.05(a) to provide notice to the Indemnifying Party of any Third Party Claims, if the Indemnifying Party elects not to defend a Third Party Claim, fails to promptly notify the Indemnified Party in writing of its election to defend a Third Party Claim as provided in this Agreement, or fails to diligently prosecute the defense of a Third Party Claim, the Indemnified Party may, subject to Section 8.05(b), assume and control the defense of such Third Party Claim and seek indemnification for any and all Losses based upon, arising from or relating to such Third Party Claim.
(v) The Seller Indemnitors and Buyer shall cooperate with each other in all reasonable respects in connection with the defense of any Third Party Claim, including making available (subject to the provisions of Section 5.06) records relating to such Third Party Claim and furnishing, without expense (other than reimbursement of actual out-of-pocket expenses) to the defending party, management employees of the non-defending party as may be reasonably necessary for the preparation of the defense of such Third Party Claim.
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(b) Settlement of Third Party Claims. Notwithstanding any other provision of this Agreement, the Indemnifying Party shall not enter into settlement of any Third Party Claim without the prior written consent of the Indemnified Party, except as provided in this Section 8.05(b). The Indemnifying Party shall give prompt written notice to the Indemnified Party if the Indemnifying Party receives a firm offer to settle a Third Party Claim that the Indemnifying Party desires to accept. If such firm offer (i) does not involve any financial liability or obligation or any other obligation on the part of any Indemnified Party, and (ii) provides, in customary form, for the unconditional release of each Indemnified Party from all liabilities and obligations (monetary and otherwise) arising from such Third Party Claim, the Indemnified Party shall have ten (10) days after its receipt of such notice to consent to the settlement of such Third Party Claim as provided in such firm offer. If the Indemnified Party fails to consent to such firm offer within such ten (10) day period, the Indemnified Party may continue to contest or defend such Third Party Claim, in which event the maximum liability of the Indemnifying Party as to such Third Party Claim shall not exceed the amount set forth in such firm offer. If the Indemnified Party fails to consent to such firm offer and also fails to assume defense of such Third Party Claim, the Indemnifying Party may settle the Third Party Claim upon the terms set forth in such firm offer. If the Indemnified Party has assumed the defense of a Third Party Claim pursuant to Section 8.05(a)(iv), it shall not agree to any settlement without the written consent of the Indemnifying Party (which consent shall not be unreasonably withheld, conditioned or delayed). Notwithstanding anything to the contrary expressed or implied in this Section 8.05(b), with respect to any settlement of any Third Party Claim brought by any Franchisee, (A) the Seller Indemnitors shall have the right, in their reasonable discretion and without impeding or otherwise delaying the ability to settle such Third Party Claim, to determine and agree to the monetary amount of damages payable to the applicable Franchisees; (B) the Buyer Indemnitees shall have the right, in their reasonable discretion and without impeding or otherwise delaying the ability to settle such Third Party Claim, to determine any ongoing obligations of the Company with respect thereto, including with respect to the Franchisees.
(c) Direct Claims. Any Action by an Indemnified Party on account of a Loss which does not result from a Third Party Claim (a “Direct Claim”) shall be asserted by the Indemnified Party giving the Indemnifying Party reasonably prompt written notice thereof, but in any event not later than thirty (30) days after the Indemnified Party becomes aware of such Direct Claim. The failure to give such prompt written notice shall not, however, relieve the Indemnifying Party of its indemnification obligations, except and only to the extent that the Indemnifying Party forfeits rights or defenses by reason of such failure. Such notice by the Indemnified Party shall describe the Direct Claim in reasonable detail, shall include copies of all material written evidence thereof and shall indicate the estimated amount, if reasonably practicable, of the Loss that has been or may be sustained by the Indemnified Party. The Indemnifying Party shall have thirty (30) days after its receipt of such notice to respond in writing to such Direct Claim. The Indemnified Party shall allow the Indemnifying Party and its professional advisors to investigate the matter or circumstance alleged to give rise to the Direct Claim, and whether and to what extent any amount is payable in respect of the Direct Claim and the Indemnified Party shall assist the Indemnifying Party’s investigation by giving such information and assistance (including access to the Company’s premises and personnel and the right to examine and copy any accounts, documents or records) as the Indemnifying Party or any of its professional advisors may reasonably request. If the Indemnifying Party does not so respond within such thirty (30) day period, the Indemnifying Party shall be deemed to have rejected such claim, in which case the Indemnified Party shall be free to pursue such remedies as may be available to the Indemnified Party on the terms and subject to the provisions of this Agreement.
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(d) Tax Claims. Notwithstanding any other provision of this Agreement, the control of any claim, assertion, event or proceeding in respect of Taxes of the Company (including, but not limited to, any such claim in respect of a breach of the representations and warranties in Section 3.22 hereof or any breach or violation of or failure to fully perform any covenant, agreement, undertaking or obligation in ARTICLE VI) shall be governed exclusively by ARTICLE VI.
Section 8.06 Payments; Release from Escrow.
(a) Once a Loss is agreed to by the Indemnifying Party or finally adjudicated to be payable pursuant to this ARTICLE VIII, subject to Section 8.06(b), the Indemnifying Party shall satisfy its obligations within fifteen (15) Business Days of such final, non-appealable adjudication by wire transfer of immediately available funds. The parties hereto agree that should an Indemnifying Party not make full payment of any such obligations within such fifteen (15) Business Day period, any amount payable shall accrue interest from and including the date of agreement of the Indemnifying Party or final, non-appealable adjudication to but excluding the date such payment has been made at a rate per annum equal to ten percent (10%). Such interest shall be calculated daily on the basis of a 365 day year and the actual number of days elapsed, without compounding.
(b) Notwithstanding the foregoing, if the Seller Indemnitors are the Indemnifying Party, then Seller Units with an aggregate Original Issue Price equal to the indemnified amount of the Loss (i.e., after applying the Basket and/or the Cap if applicable) shall be released from escrow to Buyer and cancelled by Buyer, unless, within five (5) Business Days after such Loss is determined, the Seller Indemnitors notify Buyer in writing that they prefer to retain such Seller Units and pay the obligation in cash, in which event such Seller Indemnitors shall satisfy such obligations within ten (10) Business Days after such notice to Buyer by wire transfer of immediately available funds. If the aggregate indemnifiable Loss(es) payable by Seller Indemnitors exceeds the aggregate Original Issue Price of the Seller Units then held in escrow, the Seller Indemnitors shall promptly (and in any event within the timeframe described above) pay to Buyer, by wire transfer of immediately available funds, an amount equal to the difference between the indemnifiable Loss(es) and the Original Issue Price of the Units; provided that, if Seller Units have previously been released from escrow pursuant to the terms of this Agreement, Sellers may, in their discretion, pay all or part of such difference by delivery to Buyer of Seller Units with a value, based on the Original Issue Price, equal to all or part of such difference.
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(c) On the Business Day after the first anniversary of the Closing Date, one-half (1/2) of the Seller Units then held in escrow shall be issued and released to Sellers and the other Persons entitled thereto, pro rata in accordance with their respective interests therein as set forth in the Closing Worksheet, provided that claims for indemnification have not been asserted as of such date by any one or more Buyer Indemnitees, the amount of which exceeds the aggregate value of the remaining one-half (1/2) of the Seller Units, valued at the Original Issue Price. On the Business Day after the second anniversary of the Closing Date, the Seller Units then held in escrow shall be issued and released to Sellers and the other Persons entitled thereto, pro rata in accordance with their respective interests therein as set forth in the Closing Worksheet; provided that, if one or more Buyer Indemnitees has in good faith asserted a claim for indemnification of any Loss by the Seller Indemnitors prior to such date, Seller Units with an Original Issue Price equal to the claimed Loss shall be retained in escrow until the resolution of such claim, at which time such Seller Units shall be released to Buyer and/or Sellers, as applicable.
Section 8.07 Tax Treatment of Indemnification Payments. All indemnification payments made under this Agreement shall be treated by the parties as an adjustment to the Purchase Price for Tax purposes, unless otherwise required by Law.
Section 8.08 Effect of Investigation. The representations, warranties and covenants of the Indemnifying Party, and the Indemnified Party’s right to indemnification with respect thereto, shall not be affected or deemed waived by reason of any investigation made by or on behalf of the Indemnified Party (including by any of its Representatives) or by reason of the fact that the Indemnified Party or any of its Representatives knew or should have known that any such representation or warranty is, was or might be inaccurate or by reason of the Indemnified Party’s waiver of any condition set forth in Section 7.02 or Section 7.03, as the case may be.
Section 8.09 Exclusive Remedies; Appointment of Representative for Sellers.
(a) Exclusive Remedies. Subject to Section 5.07 and Section 10.11, the parties acknowledge and agree that their sole and exclusive remedy with respect to any and all claims (other than claims arising from fraud, criminal activity or willful misconduct on the part of a party hereto in connection with the transactions contemplated by this Agreement) for any breach of any representation, warranty, covenant, agreement or obligation set forth herein or otherwise relating to the subject matter of this Agreement, shall be pursuant to the indemnification provisions set forth in ARTICLE VI and this ARTICLE VIII. In furtherance of the foregoing, each party hereby waives, to the fullest extent permitted under Law, any and all rights, claims and causes of action for any breach of any representation, warranty, covenant, agreement or obligation set forth herein or otherwise relating to the subject matter of this Agreement it may have against the other parties hereto and their Affiliates and each of their respective Representatives arising under or based upon any Law, except pursuant to the indemnification provisions set forth in ARTICLE VI and this ARTICLE VIII. Nothing in this Section 8.09(a) shall limit any Person’s right to seek and obtain any equitable relief to which any Person shall be entitled or to seek any remedy on account of any party’s fraudulent, criminal or intentional misconduct.
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(b) Sellers’ Representative. Notwithstanding anything to the contrary expressed or implied in this ARTICLE VIII, Sellers agree that for all purposes of this ARTICLE VIII, John Metz shall act for and on behalf of all Sellers, and Sellers hereby appoint John Metz to serve as their representative and attorney-in-fact for all purposes of this ARTICLE VIII, which appointment is coupled with an interest; provided that Sellers may, at any time by written notice to Buyer executed by at least a majority of Sellers, appoint a different individual to act as their representative and attorney-in-fact for Sellers for all purposes of this ARTICLE VIII and such appointment will be coupled with an interest.
ARTICLE
IX
Termination
Section 9.01 Termination. This Agreement may be terminated at any time prior to the Closing:
(a) by the mutual written consent of Sellers and Buyer;
(b) by Buyer by written notice to Sellers if:
(i) Buyer is not then in material breach of any provision of this Agreement and there has been a breach, inaccuracy in or failure to perform any representation, warranty, covenant or agreement made by Sellers pursuant to this Agreement that would give rise to the failure of any of the conditions specified in ARTICLE VII and such breach, inaccuracy or failure has not been cured by Sellers within ten (10) days of Sellers’ receipt of written notice of such breach from Buyer; or
(ii) any of the conditions set forth in Section 7.01 or Section 7.02 shall not have been, or if it becomes apparent that any of such conditions will not be, fulfilled by July 3, 2018, unless such failure shall be due to the failure of Buyer to perform or comply with any of the covenants, agreements or conditions hereof to be performed or complied with by it prior to the Closing;
(c) by Sellers by written notice to Buyer if:
(i) Sellers are not then in material breach of any provision of this Agreement and there has been a breach, inaccuracy in or failure to perform any representation, warranty, covenant or agreement made by Buyer pursuant to this Agreement that would give rise to the failure of any of the conditions specified in ARTICLE VII and such breach, inaccuracy or failure has not been cured by Buyer within ten (10) days of Buyer’s receipt of written notice of such breach from Sellers; or
(ii) any of the conditions set forth in Section 7.01 or Section 7.03 shall not have been, or if it becomes apparent that any of such conditions will not be, fulfilled by July 3, 2018, unless such failure shall be due to the failure of Sellers to perform or comply with any of the covenants, agreements or conditions hereof to be performed or complied with by it prior to the Closing.
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(d) by Buyer or Sellers in the event that (i) there shall be any Law that makes consummation of the transactions contemplated by this Agreement illegal or otherwise prohibited or (ii) any Governmental Authority shall have issued a Governmental Order restraining or enjoining the transactions contemplated by this Agreement, and such Governmental Order shall have become final and non-appealable.
Section 9.02 Effect of Termination. In the event of the termination of this Agreement in accordance with this Article, this Agreement shall forthwith become void and there shall be no liability on the part of any party hereto except:
(a) as set forth in this ARTICLE IX, Section 5.06 and ARTICLE X; and
(b) that nothing herein shall relieve any party hereto from liability for any willful breach of any provision hereof.
ARTICLE
X
Miscellaneous
Section 10.01 Expenses. Except as otherwise expressly provided herein, all costs and expenses, including, without limitation, fees and disbursements of counsel, financial advisors and accountants, incurred in connection with this Agreement and the transactions contemplated hereby shall be paid by the party incurring such costs and expenses, whether or not the Closing shall have occurred.
Section 10.02 Notices. All notices, requests, consents, claims, demands, waivers and other communications hereunder shall be in writing and shall be deemed to have been given (a) when delivered by hand (with written confirmation of receipt); (b) when received by the addressee if sent by a nationally recognized overnight courier (receipt requested); (c) on the date sent by facsimile or email of a PDF document (with confirmation of transmission) if sent during normal business hours of the recipient, and on the next Business Day if sent after normal business hours of the recipient or (d) on the third day after the date mailed, by certified or registered mail, return receipt requested, postage prepaid. Such communications must be sent to the respective parties at the following addresses (or at such other address for a party as shall be specified in a notice given in accordance with this Section 10.02):
If to Sellers or any Seller: | 1800 Old Okeechobee Road, #100 | |
West Palm Beach, FL 33409 | ||
Facsimile: | ||
Email: | ||
Attention: John Metz | ||
and | ||
Email: | ||
Attention: Paul Mapes | ||
with a copy to: | Nason,
Yeager, Gerson, White & Lioce, P.A.3001 PGA Boulevard, Suite 305 | |
Palm Beach Gardens, Florida 33410 | ||
Facsimile: | ||
Email: | ||
Attention: Gary N. Gerson, Esq. |
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If to Buyer: | 9720 Wilshire Blvd., Suite 500 | |
Beverly Hills, CA 90212 | ||
Facsimile: | ||
Email: | ||
Attention: Andrew Wiederhorn | ||
with a copy to: | Loeb & Loeb LLP | |
10100 Santa Monica Blvd., Suite 2200 | ||
Los Angeles, CA 90067 | ||
Facsimile: | ||
Email: | ||
Attention: Allen Z. Sussman, Esq. |
Section 10.03 Interpretation. For purposes of this Agreement, (a) the words “include,” “includes” and “including” shall be deemed to be followed by the words “without limitation”; (b) the word “or” is not exclusive; and (c) the words “herein,” “hereof,” “hereby,” “hereto” and “hereunder” refer to this Agreement as a whole. Unless the context otherwise requires, references herein: (x) to Articles, Sections, Disclosure Schedules and Exhibits mean the Articles and Sections of, and Disclosure Schedules and Exhibits attached to, this Agreement; (y) to an agreement, instrument or other document means such agreement, instrument or other document as amended, supplemented and modified from time to time to the extent permitted by the provisions thereof and (z) to a statute means such statute as amended from time to time and includes any successor legislation thereto and any regulations promulgated thereunder. This Agreement shall be construed without regard to any presumption or rule requiring construction or interpretation against the party drafting an instrument or causing any instrument to be drafted. The Disclosure Schedules and Exhibits referred to herein shall be construed with, and as an integral part of, this Agreement to the same extent as if they were set forth verbatim herein.
Section 10.04 Headings. The headings in this Agreement are for reference only and shall not affect the interpretation of this Agreement.
Section 10.05 Severability. If any term or provision of this Agreement is invalid, illegal, or unenforceable in any jurisdiction, such invalidity, illegality or unenforceability shall not affect any other term or provision of this Agreement or invalidate or render unenforceable such term or provision in any other jurisdiction. Except as provided in Section 5.07(e), upon such determination that any term or other 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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Section 10.06 Entire Agreement. This Agreement, the Assignment and the other Transaction Documents constitute the sole and entire agreement of the parties to this Agreement with respect to the subject matter contained herein and therein, and supersede all prior and contemporaneous understandings and agreements, both written and oral, with respect to such subject matter. In the event of any inconsistency between the statements in the body of this Agreement and those in the Assignment, the other Transaction Documents, the Exhibits and Disclosure Schedules (other than an exception expressly set forth as such in the Disclosure Schedules), the statements in the body of this Agreement will control.
Section 10.07 Successors and Assigns. This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors and permitted assigns. Neither party may assign its rights or obligations hereunder without the prior written consent of the other party, which consent shall not be unreasonably withheld or delayed. No assignment shall relieve the assigning party of any of its payment or other obligations hereunder.
Section 10.08 No Third-party Beneficiaries. Except as provided in Section 6.03 and ARTICLE VIII, this Agreement is for the sole benefit of the parties hereto and their respective successors and permitted assigns and nothing herein, express or implied, is intended to or shall confer upon any other Person or entity any legal or equitable right, benefit or remedy of any nature whatsoever under or by reason of this Agreement.
Section 10.09 Amendment and Modification; Waiver. This Agreement may only be amended, modified, or supplemented by an agreement in writing signed by each party hereto. No waiver by any party of any of the provisions hereof shall be effective unless explicitly set forth in writing and signed by the party so waiving. No waiver by any party shall operate or be construed as a waiver in respect of any failure, breach or default not expressly identified by such written waiver, whether of a similar or different character, and whether occurring before or after that waiver. No failure to exercise, or delay in exercising, any right, remedy, power or privilege arising from this Agreement shall operate or be construed as a waiver thereof; nor shall any single or partial exercise of any right, remedy, power, or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power, or privilege.
Section 10.10 Governing Law; Submission to Jurisdiction; Waiver of Jury Trial.
(a) This Agreement shall be governed by and construed in accordance with the internal laws of the State of Florida, without giving effect to any choice or conflict of law provision or rule (whether of the State of Florida or any other jurisdiction). Each party hereby (i) submits to the exclusive jurisdiction of the state and federal courts sitting in Palm Beach County, State of Florida (the “Florida Courts”), for any action, suit or proceeding arising out of or relating to this Agreement, the Assignment or the other Transaction Documents or the transactions contemplated hereby or thereby, (ii) agrees that no such action, suit or proceeding shall be brought by it except in such court, and (iii) irrevocably waives, and agrees not to assert (by way of motion, defense or otherwise), in any such action, suit or proceeding, any claim that it is not subject personally to the jurisdiction of the Florida Courts that its property is exempt or immune from attachment or execution, that such action, suit or proceeding is brought in an inconvenient forum, that the venue of such action, suit or proceeding is improper or that this Agreement may not be enforced in or by the Florida Courts. If any provision of this Agreement is determined by a court of law to be illegal or unenforceable, then such provision will be enforced to the maximum extent possible and the other provisions will remain fully effective and enforceable.
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(b) EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY WHICH MAY ARISE UNDER THIS AGREEMENT, THE ASSIGNMENT OR THE OTHER TRANSACTION DOCUMENTS IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT ISSUES AND, THEREFORE, EACH SUCH PARTY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LEGAL ACTION ARISING OUT OF OR RELATING TO THIS AGREEMENT, THE ASSIGNMENT OR THE OTHER TRANSACTION DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY. EACH PARTY TO THIS AGREEMENT CERTIFIES AND ACKNOWLEDGES THAT (1) NO REPRESENTATIVE OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT SEEK TO ENFORCE THE FOREGOING WAIVER IN THE EVENT OF A LEGAL ACTION, (2) SUCH PARTY HAS CONSIDERED THE IMPLICATIONS OF THIS WAIVER, (3) SUCH PARTY MAKES THIS WAIVER VOLUNTARILY, AND (4) SUCH PARTY HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 10.10(b).
Section 10.11 Specific Performance. The parties agree that irreparable damage would occur if any provision of this Agreement were not performed in accordance with the terms hereof and that the parties shall be entitled to specific performance of the terms hereof, in addition to any other remedy to which they are entitled at law or in equity.
Section 10.12 Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which together shall be deemed to be one and the same agreement. A signed copy of this Agreement delivered by facsimile, email or other means of electronic transmission shall be deemed to have the same legal effect as delivery of an original signed copy of this Agreement.
[signature page follows]
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the date first written above by their respective officers thereunto duly authorized.
SELLERS: | BUYER: | |||
SALIENT POINT TRUST | FAT BRANDS INC. | |||
By: | /s/ John Metz | By: | /s/ Andrew Wiederhorn | |
Name: | John Metz | Name: | Andrew Wiederhorn | |
Title: | Trustee | Title: | Chief Executive Officer | |
GAMA GROUP, LLC | ||||
By: | /s/ Gail Asarch | |||
Name: | Gail Asarch | |||
Title: | Manager | |||
SATOVSKY ENTERPRISES, LLC | ||||
By: | /s/ James Satovsky | |||
Name: | James Satovsky | |||
Title: | Manager | |||
MAPES HOLDINGS, LLC | ||||
By: | /s/ Paul Mapes | |||
Name: | Paul Mapes | |||
Title: | Manager | |||
/s/ Martin O’Dowd | ||||
Martin O’Dowd |
The undersigned executes this Agreement solely to reflect its agreement to be bound by the provisions of Section 5.11.
HURRICANE WINGS MANAGEMENT LLC
By: | /s/ John Metz | |
Name: | John Metz | |
Title: | Manager |
[Signature page to Amended and Restated Membership Interest Purchase Agreement]
CERTIFICATE OF DESIGNATION OF RIGHTS AND PREFERENCES
SERIES A-1 FIXED RATE CUMULATIVE PREFERRED STOCK
(Pursuant to Section 151 of the General Corporation Law of the State of Delaware)
FAT Brands Inc., a corporation organized and existing under the General Corporation Law of the State of Delaware, as amended (the “DGCL”), in accordance with Section 151 of the DGCL, does hereby certify that:
1. The name of the corporation is FAT Brands Inc. (the “Corporation”).
2. The Amended and Restated Certificate of Incorporation of the Corporation (as it may be amended or restated further from time to time, the “Certificate of Incorporation”) was filed with the Secretary of State of the State of Delaware on October 19, 2017.
3. Pursuant to the authority conferred upon the Board of Directors of the Corporation by the Certificate of Incorporation, as amended, and pursuant to the provisions of Sections 103 and 151(g) of the DGCL, said Board of Directors, on July 2, 2018, adopted a resolution establishing the rights, preferences, privileges and restrictions of, and the number of shares comprising, the Corporation’s Series A-1 Fixed Rate Cumulative Preferred Stock, which resolution is as follows:
RESOLVED, that, pursuant to authority given by Article IV of the Certificate of Incorporation, as amended (which authorized 5,000,000 shares of preferred stock, par value $0.0001 per share), a new series of preferred stock in the Corporation, having the rights, preferences, privileges and restrictions, and the number of shares constituting such series and the designation of such series, set forth below be, and it hereby is, authorized by the Board of Directors of the Corporation as follows:
Section 1. Number of Shares and Designation. This series of Preferred Stock shall be designated as Series A-1 Fixed Rate Cumulative Preferred Stock, par value $0.0001 per share (the “Series A-1 Preferred Stock”), and the number of shares that shall constitute such series shall be 200,000.
Section 2. Definitions. For purposes of the Series A-1 Preferred Stock and as used in this Certificate, the following terms shall have the meanings indicated:
“Business Day” shall mean any day other than a Saturday, Sunday or a day on which state or federally chartered banking institutions in New York, New York are not required to be open.
“Call Date” shall mean the date fixed for redemption of the Series A-1 Preferred Stock and specified in the notice to holders required under paragraph (f) of Section 5 hereof as the Call Date.
“Certificate” shall mean this Certificate of Designation of Rights and Preferences of the Series A-1 Preferred Stock.
“Change of Control” shall mean when, after the original issuance of the Series A-1 Preferred Stock, any of the following has occurred and is continuing: (i) any sale, lease, or transfer, exclusive license or other dispositions (or series of sales, leases, transfers, exclusive licenses or other dispositions) of all or substantially all of the assets of the Corporation and its subsidiaries; (ii) any sale, transfer or issuance (or series of sales, transfers or issuances) of capital stock by the Corporation or the holders of Common Shares (or other Voting Stock of the Corporation) that results in the inability of the holders of Common Shares (or other Voting Stock of the Corporation) immediately prior to such sale, transfer or issuance to designate or elect a majority of the board of directors (or its equivalent) of the Corporation; or (iii) any merger, consolidation, recapitalization or reorganization of the Corporation with or into another Person (whether or not the Corporation is the surviving corporation) that results in the inability of the beneficial holders of Common Shares (or other Voting Stock of the Corporation) immediately prior to such merger, consolidation, recapitalization or reorganization to designate or elect a majority of the board of directors (or its equivalent) of the resulting entity or its parent company.
“Common Shares” shall mean the shares of common stock, $0.0001 par value, of the Corporation.
“Dividend Default” shall have the meaning set forth in subparagraph (b)(i) of Section 3 hereof.
“Dividend Payment Date” shall have the meaning set forth in subparagraph (a)(i) of Section 3 hereof.
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“Dividend Periods” shall mean quarterly dividend periods commencing on the first day of each of January, April, July and October and ending on and including the day preceding the first day of the next succeeding Dividend Period; provided, however, that any Dividend Period during which any Series A-1 Preferred Stock shall be redeemed pursuant to Section 5 hereof shall end on but shall not include the Call Date only with respect to the Series A-1 Preferred Stock being redeemed.
“Dividend Rate” shall mean 6.0% per annum.
“Dividend Record Date” shall have the meaning set forth in subparagraph (a)(i) of Section 3 hereof.
“Exchange Act” shall mean the U.S. Securities Exchange Act of 1934, as amended.
“FAT Board” shall mean the board of directors of the Corporation or any committee of members of the board of directors authorized by such board to perform any of its responsibilities with respect to the Series A-1 Preferred Stock.
“Issue Date” shall mean the original date of issuance of Series A-1 Preferred Stock, or July 3, 2018.
“Junior Shares” shall have the meaning set forth in paragraph (a)(iii) of Section 7 hereof.
“Mandatory Redemption Date” shall have the meaning set forth in paragraph (c) of Section 5 hereof.
“Parity Shares” shall have the meaning set forth in paragraph (b) of Section 7 hereof.
“Penalty Rate” shall mean the Dividend Rate then in effect plus 1.0% per annum.
“Person” shall mean any individual, firm, partnership, limited liability company, corporation or other entity, and shall include any successor (by merger or otherwise) of such entity.
A “Quarterly Dividend Default” shall occur if the Corporation fails to pay dividends on the Series A-1 Preferred Stock provided for in Section 3(a) in full for any Dividend Period.
“SEC” shall have the meaning set forth in Section 9 hereof.
“Securities Act” shall mean the U.S. Securities Act of 1933, as amended.
“Senior Shares” shall have the meaning set forth in paragraph (a) of Section 7 hereof.
“Series A-1 Preferred Stock” shall have the meaning set forth in Section 1 hereof.
“set apart for payment” shall be deemed to include, without any further action, the following: the recording by the Corporation in its accounting ledgers of any accounting or bookkeeping entry that indicates, pursuant to an authorization by the FAT Board and a declaration of dividends or other distribution by the Corporation, the initial and continued allocation of funds to be so paid on any series or class of shares of stock of the Corporation; provided, however, that if any funds for any class or series of Junior Shares or any class or series of Parity Shares are placed in a separate account of the Corporation or delivered to a disbursing, paying or other similar agent, then “set apart for payment” with respect to the Series A-1 Preferred Stock shall mean irrevocably placing such funds in a separate account or irrevocably delivering such funds to a disbursing, paying or other similar agent.
“Transfer Agent” means VStock Transfer, LLC, or such other agent or agents of the Corporation as may be designated by the FAT Board or its duly authorized designee as the transfer agent, registrar and dividend disbursing agent for the Series A-1 Preferred Stock.
“Voting Stock” shall mean stock of any class or kind having the power to vote generally for the election of directors.
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Section 3. Dividends.
(a) Holders of Series A-1 Preferred Stock shall be entitled to receive, when, as and if declared by the FAT Board or a duly authorized committee thereof, in its sole discretion, out of funds of the Corporation legally available for the payment of distributions, cumulative preferential cash dividends at a rate per annum equal to the Dividend Rate multiplied by $100.00 per share stated liquidation preference of the Series A-1 Preferred Stock (subject to adjustment as set forth in paragraphs (b) and (c) of this Section 3). Such dividends shall accrue without interest and accumulate, whether or not earned or declared, on each issued and outstanding share of the Series A-1 Preferred Stock from (and including) the original date of issuance of such share, and shall be payable quarterly in arrears on a date selected by the Corporation each quarter that is no later than twenty (20) days following the end of each Dividend Period (each such day being hereinafter called a “Dividend Payment Date”); provided, that (i) Series A-1 Preferred Stock issued during any Dividend Period after the Dividend Record Date for such Dividend Period shall only begin to accrue dividends on the first day of the next Dividend Period; and provided, further, that (ii) if any Dividend Payment Date is not a Business Day, then the dividend that would otherwise have been payable on such Dividend Payment Date (if declared) may be paid on the next succeeding Business Day with the same force and effect as if paid on such Dividend Payment Date, and no interest or additional dividends or other sums shall accrue on the amount so payable from such Dividend Payment Date to such next succeeding Business Day. Any dividend payable on the Series A-1 Preferred Stock for any partial Dividend Period shall be prorated and computed on the basis of a 360-day year consisting of twelve 30-day months. Dividends shall be payable to holders of record as they appear in the stock records of the Corporation at the close of business on the applicable record date, which shall be the fifteenth day of the month in which the applicable Dividend Payment Date occurs, or such other date designated by the FAT Board or an officer of the Corporation duly authorized by the FAT Board for the payment of dividends that is not more than 30 nor less than ten days prior to such Dividend Payment Date (each such date, a “Dividend Record Date”).
(b) Upon the occurrence of four accumulated, accrued and unpaid Quarterly Dividend Defaults, whether consecutive or non-consecutive (a “Dividend Default”), then:
(i) the Dividend Rate shall increase to the Penalty Rate, commencing on the first day after the Dividend Payment Date on which a Dividend Default occurs and for each subsequent Dividend Payment Date thereafter until such time as the Corporation has paid all accumulated accrued and unpaid dividends on the Series A-1 Preferred Stock in full and has paid accrued dividends for all Dividend Periods during the two most recently completed Quarterly Dividend Periods in full, at which time the Dividend Rate shall be reinstated; and
(ii) when the Dividend Default is cured and the Dividend Rate is reinstated, a second Dividend Default shall not occur until the Corporation has an additional four accumulated, accrued and unpaid Quarterly Dividend Defaults, whether consecutive or non-consecutive after the initial default is cured.
(c) No dividend on the Series A-1 Preferred Stock will be declared by the Corporation or paid or set apart for payment by the Corporation at such time as the terms and provisions of Senior Shares or any agreement of the Corporation, including any agreement relating to its indebtedness, prohibit such declaration, payment or setting apart for payment or provide that such declaration, payment or setting apart for payment would constitute a breach thereof or a default thereunder, or if such declaration, payment or setting aside of funds is restricted or prohibited under the DGCL or other applicable law; provided, however, notwithstanding anything to the contrary contained herein, dividends on the Series A-1 Preferred Stock shall continue to accrue without interest and accumulate regardless of whether: (i) any or all of the foregoing restrictions exist; (ii) the Corporation has earnings or profits; (iii) there are funds legally available for the payment of such dividends; or (iv) such dividends are authorized by the FAT Board. Accrued and unpaid dividends on the Series A-1 Preferred Stock will accumulate as of the Dividend Payment Date on which they first become payable or on the date of redemption of the Series A-1 Preferred Stock, as the case may be.
(d) Except as provided in the next sentence, if any Series A-1 Preferred Stock is outstanding, no dividends will be declared or paid or set apart for payment on any Parity Shares or Junior Shares, unless all accumulated accrued and unpaid dividends are contemporaneously declared and paid in cash or declared and a sum of cash sufficient for the payment thereof set apart for such payment on the Series A-1 Preferred Stock for all past Dividend Periods with respect to which full dividends were not paid on the Series A-1 Preferred Stock in cash. When dividends are not paid in full (or a sum sufficient for such full payment is not so set apart for payment) upon the Series A-1 Preferred Stock and upon all Parity Shares, all dividends declared, paid or set apart for payment upon the Series A-1 Preferred Stock and all such Parity Shares shall be declared and paid pro rata or declared and set apart for payment pro rata so that the amount of dividends declared per share of Series A-1 Preferred Stock and per share of such Parity Shares shall in all cases bear to each other the same ratio that accumulated dividends per share of Series A-1 Preferred Stock and such other Parity Shares (which shall not include any accumulation in respect of unpaid dividends for prior dividend periods if such other Parity Shares do not bear cumulative dividends) bear to each other. No interest, or sum of money in lieu of interest, shall be payable in respect of any dividend payment or payments on Series A-1 Preferred Stock which may be in arrears, whether at the Dividend Rate or at the Penalty Rate.
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(e) Except as provided in paragraph (d) of this Section 3, unless all accumulated accrued and unpaid dividends on the Series A-1 Preferred Stock are contemporaneously declared and paid in cash or declared and a sum of cash sufficient for the payment thereof is set apart for payment for all past Dividend Periods with respect to which full dividends were not paid on the Series A-1 Preferred Stock, no dividends (other than payable in shares of Common Stock or Junior Shares ranking junior to the Series A-1 Preferred Stock as to dividends and upon liquidation) may be declared or paid or set apart for payment upon the Common Stock or any Junior Shares or Parity Shares, nor shall any Common Stock or any Junior Shares or Parity Shares be redeemed, purchased or otherwise acquired directly or indirectly for any consideration (or any monies be paid to or made available for a sinking fund for the redemption of any such stock) by the Corporation (except by conversion into or exchange for Junior Shares or by redemption, purchase or acquisition of stock under any employee benefit plan of the Corporation).
(f) Holders of Series A-1 Preferred Stock shall not be entitled to any dividend in excess of all accumulated accrued and unpaid dividends on the Series A-1 Preferred Stock as described in this Section 3. Any dividend payment made on the Series A-1 Preferred Stock shall first be credited against the earliest accumulated accrued and unpaid dividend due with respect to such shares which remains payable at the time of such payment.
Section 4. Liquidation Preference.
(a) Subject to the rights of the holders of Senior Shares and Parity Shares, in the event of any liquidation, dissolution, winding up or Change of Control of the Corporation, whether voluntary or involuntary, before any payment or distribution of the assets of the Corporation (whether capital or surplus) shall be made to or set apart for the holders of Junior Shares as to the distribution of assets on any liquidation, dissolution, winding up or Change of Control of the Corporation, each holder of the Series A-1 Preferred Stock shall be entitled to receive an amount of cash equal to $100.00 per share of Series A-1 Preferred Stock plus an amount in cash equal to all accumulated accrued and unpaid dividends thereon (whether or not earned or declared) to the date of final distribution to such holders. If, upon any liquidation, dissolution, winding up or Change of Control of the Corporation, the assets of the Corporation, or proceeds thereof, distributable among the holders of the Series A-1 Preferred Stock shall be insufficient to pay in full the preferential amount aforesaid and liquidating payments on any other shares of any class or series of Parity Shares as to the distribution of assets on any liquidation, dissolution, winding up or Change of Control of the Corporation, then such assets, or the proceeds thereof, shall be distributed among the holders of Series A-1 Preferred Stock and any such other Parity Shares ratably in accordance with the respective amounts that would be payable on such Series A-1 Preferred Stock and any such other Parity Shares if all amounts payable thereon were paid in full.
(b) Written notice of any such liquidation, dissolution, winding up or Change of Control of the Corporation, stating the payment date or dates when, and the place or places where, the amounts distributable in such circumstances shall be payable, shall be given by first class mail, postage pre-paid, not less than 20 nor more than 60 days prior to the payment date stated therein, to each record holder of Series A-1 Preferred Stock at the respective address of such holders as the same shall appear on the stock transfer records of the Corporation.
Subject to the rights of the holders of Senior Shares and Parity Shares upon liquidation, dissolution, winding up or Change of Control, upon any liquidation, dissolution, winding up or Change of Control of the Corporation, after payment shall have been made in full to the holders of the Series A-1 Preferred Stock, as provided in this Section 4, any other series or class or classes of Junior Shares shall, subject to the respective terms and provisions (if any) applying thereto, be entitled to receive any and all assets remaining to be paid or distributed, and the holders of the Series A-1 Preferred Stock shall not be entitled to share therein.
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Section 5. Redemption.
(a) Optional Redemption at Election of Corporation. The Corporation may redeem the Series A Preferred Stock, in whole at any time or from time to time in part, at the option of the Corporation, for cash, at $100.00 per share of Series A Preferred Stock, plus the amounts indicated in paragraph (d) of this Section 5. If fewer than all of the outstanding shares of Series A Preferred Stock are to be redeemed pursuant to the Corporation’s exercise of its redemption right under this paragraph (a), the shares to be redeemed shall be selected pro rata (as nearly as practicable without creating fractional shares) or by lot or in such other equitable method prescribed by the Corporation.
(b) Optional Redemption at Election of Holder.
(i) Holders of record of Series A-1 Preferred Stock may elect to cause the Corporation to redeem all or any portion of their shares of Series A-1 Preferred Stock for cash beginning any time after the two-year anniversary of the Issue Date, or July 3, 2020, for an amount equal to $100.00 per share plus the amounts indicated in paragraph (d) of this Section 5, which amount may be settled by delivery of cash or Common Shares, at the option of the Holder. If the holder elects settlement in Common Shares, the Corporation will deliver such number of Common Shares equal to $100.00 per share of Series A-1 Preferred Stock to be redeemed plus the amounts indicated in paragraph (d) of this Section 5 corresponding to the redeemed shares, divided by $12.00 per share (subject to pro rata adjustment in connection with any stock splits, stock dividends, or similar changes to the Corporation’s capitalization occurring after the date of this Certificate), with any fraction rounded up to the next whole Commmon Share. A holder making such election shall provide written notice thereof to the Corporation specifying the name and address of the holder, the number of shares of Series A-1 Preferred Stock to be redeemed and whether settlement shall be in cash or Common Shares. The Corporation shall redeem the specified shares of Series A-1 Preferred Stock for Common Shares no later than ten (10) days, or for cash no later than 365 days, following receipt of such notice. The Corporation may require the surrender and endorsement of the physical share certificates representing the redeemed shares upon payment of the redemption price.
(ii) Until the Corporation obtains approval to waive this Section 5(b)(ii) by the requisite number of its stockholders at a duly called special or annual meeting of stockholders, the Corporation shall not deliver Common Shares in settlement of a holder’s redemption right under Section 5(b)(i) hereof, and a holder of Series A-1 Preferred Stock shall not have the right to elect delivery of Common Shares under Section 5(b)(i), to the extent that (A) the aggregate Common Shares issued by the Corporation to all holders pursuant to Section 5(b)(i) plus (B) the aggregate Common Shares issued or issuable by the Corporation pursuant to the exercise of warrants issued by the Corporation under that certain Amended and Restated Purchase Agreement, dated July 3, 2018, would exceed 19.99% of the Common Shares issued and outstanding on the date of this Certificate, subject to pro rata adjustment in connection with any stock splits, stock dividends, or similar changes to the Corporation’s capitalization occurring after the date of this Certificate.
(c) Mandatory Redemption by Corporation. Unless the Series A-1 Preferred Stock shall have been redeemed pursuant to paragraph (a) or paragraph (b) of this Section 5, the Series A-1 Preferred Stock shall be subject to mandatory redemption by the Corporation for an amount equal to $100.00 per share plus the amounts indicated in paragraph (d) of this Section 5 upon the occurrence of the first to occur of the following: (i) the date which is the five-year anniversary of the Issue Date, or July 3, 2023 (the “Mandatory Redemption Date”), or (ii) the liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary.
(d) Unpaid Dividends. Upon any redemption of Series A-1 Preferred Stock pursuant to this Section 5, the Corporation shall, subject to the next sentence, pay any accumulated accrued and unpaid dividends in arrears for any Dividend Period ending on or prior to the Call Date. If the Call Date falls after a Dividend Record Date and prior to the corresponding Dividend Payment Date, then each holder of Series A-1 Preferred Stock at the close of business on such Dividend Record Date shall be entitled to the dividend payable on such shares on the corresponding Dividend Payment Date notwithstanding the redemption of such shares before such Dividend Payment Date. Except as provided above, the Corporation shall make no payment or allowance for unpaid dividends, whether or not in arrears, on Series A-1 Preferred Stock called for redemption.
(e) Additional Limitation on Redemption. If all accumulated accrued and unpaid dividends on the Series A-1 Preferred Stock and any other class or series of Parity Shares of the Corporation have not been paid in cash (or, with respect to any Parity Shares, in Parity Shares), declared and set apart for payment in cash (or, with respect to any Parity Shares, in Parity Shares), then the Corporation shall not redeem, purchase or acquire any shares of Series A-1 Preferred Stock or Parity Shares, otherwise than (i) pursuant to a purchase or exchange offer made on the same terms to all holders of Series A-1 Preferred Stock and Parity Shares, (ii) in exchange for Junior Shares, (iii) pursuant to paragraph (b) of this Section 5; provided that the holders of not less than 75% of the outstanding shares of Series A-1 preferred Stock have elected to redeem such shares, or (iv) pursuant to paragraph (c) of this Section 5.
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(f) Redemption Procedures. Notice of the redemption of any Series A-1 Preferred Stock under paragraph (a) or (c) of this Section 5 shall be mailed by first class mail to each holder of record of Series A-1 Preferred Stock to be redeemed at the address of each such holder as shown on the Corporation’s records, not less than 20 nor more than 60 days prior to the Call Date. Neither the failure to mail any notice required by this paragraph (f), nor any defect therein or in the mailing thereof, to any particular holder, shall affect the sufficiency of the notice or the validity of the proceedings for redemption with respect to the other holders. Any notice mailed in the manner herein provided shall be conclusively presumed to have been duly given on the date mailed whether or not the holder receives the notice. Each such mailed notice shall state, as appropriate: (1) the Call Date; (2) the number of shares of Series A-1 Preferred Stock to be redeemed and, if fewer than all the shares held by such holder are to be redeemed, the number of such shares to be redeemed from such holder; (3) the redemption price per share of Series A-1 Preferred Stock (determined as set forth in paragraph (a) or paragraph (c) of this Section 5, as applicable) plus accumulated accrued and unpaid dividends through the Call Date (determined as set forth in paragraph (d) of this Section 5); (4) if any shares are represented by certificates, the place or places at which certificates for such shares are to be surrendered; (5) that dividends on the shares to be redeemed shall cease to accrue on such Call Date except as otherwise provided herein; and (6) any other information required by law or by the applicable rules of any exchange or national securities market upon which the Series A-1 Preferred Stock may be listed or admitted for trading. Notice having been mailed as aforesaid, from and after the Call Date (unless the Corporation shall fail to make available an amount of cash necessary to effect such redemption), (i) except as otherwise provided herein, dividends on the Series A-1 Preferred Stock so called for redemption shall cease to accrue, (ii) said shares shall no longer be deemed to be outstanding, and (iii) all rights of the holders thereof as holders of Series A-1 Preferred Stock shall cease (except the right to receive cash payable upon such redemption, without interest thereon, upon surrender and endorsement of their certificates if so required and to receive any dividends payable thereon).
(g) Set Asides. The Corporation’s obligation to provide cash in accordance with the preceding subsection shall be deemed fulfilled if, on or before the Call Date, the Corporation shall irrevocably deposit funds necessary for such redemption, in trust, with a bank or trust company that has, or is an affiliate of a bank or trust company that has, capital and surplus of at least $50 million, with irrevocable instructions that such cash be applied to the redemption of the Series A-1 Preferred Stock so called for redemption, in which case the notice to holders of the Series A-1 Preferred Stock will (i) state the date of such deposit, (ii) specify the office of such bank or trust company as the place of payment of the redemption price and (iii) require such holders to surrender the certificates, if any, representing such shares at such place on or about the date fixed in such redemption notice (which may not be later than the Call Date) against payment of the redemption price (including all accumulated accrued and unpaid dividends to the Call Date, determined as set forth in paragraph (d) of this Section 5). No interest shall accrue for the benefit of the holders of Series A-1 Preferred Stock to be redeemed on any cash so set aside by the Corporation. Subject to applicable escheat laws, any such cash unclaimed at the end of six months from the Call Date shall revert to the general funds of the Corporation after which reversion the holders of such shares so called for redemption shall look only to the general funds of the Corporation for the payment of such cash.
Section 6. Status of Acquired Shares. All shares of Series A-1 Preferred Stock issued and redeemed by the Corporation in accordance with Section 5 hereof, or otherwise acquired by the Corporation, shall be restored to the status of authorized but unissued shares of undesignated Preferred Stock of the Corporation.
Section 7. Ranking.
(a) Any class or series of shares of stock of the Corporation shall be deemed to rank:
(i) prior to the Series A-1 Preferred Stock, as to the payment of dividends and as to distribution of assets upon liquidation, dissolution, winding up or Change of Control, if the holders of such class or series shall be entitled to the receipt of dividends or of amounts distributable upon liquidation, dissolution, winding up or Change of Control, as the case may be, in preference or priority to the holders of Series A-1 Preferred Stock (“Senior Shares”);
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(ii) on a parity with the Series A-1 Preferred Stock, as to the payment of dividends and as to distribution of assets upon liquidation, dissolution, winding up or Change of Control, whether or not the dividend rates, dividend payment dates or redemption or liquidation prices per share thereof be different from those of the Series A-1 Preferred Stock, if the holders of such class or series and the Series A-1 Preferred Stock shall be entitled to the receipt of dividends and of amounts distributable upon liquidation, dissolution, winding up or Change of Control in proportion to their respective amounts of accrued and unpaid dividends per share or liquidation preferences, without preference or priority one over the other (“Parity Shares”); and
(iii) junior to the Series A-1 Preferred Stock, as to the payment of dividends and as to the distribution of assets upon liquidation, dissolution, winding up or Change of Control, if such class or series shall be the Common Shares or any other class or series of shares of stock of the Corporation now or hereafter issued and outstanding over which the Series A-1 Preferred Stock have preference or priority in the payment of dividends and in the distribution of assets upon any liquidation, dissolution, winding up or Change of Control of the Corporation (“Junior Shares”).
(b) The Corporation’s Series A Fixed Rate Cumulative Preferred Stock shall be considered Senior Shares relative to the Series A-1 Preferred Stock. The Corporation’s Common Shares shall be considered Junior Shares relative to the Series A-1 Preferred Stock.
Section 8. Voting Rights.
(a) So long as any shares of Series A-1 Preferred Stock are outstanding, the affirmative vote of the holders of more than fifty percent (50%) of the Series A-1 Preferred Stock then outstanding, given in person or by proxy, either in writing without a meeting or by vote at any meeting called for the purpose, shall be necessary for effecting or validating:
(i) Any amendment, alteration or repeal of any provisions of the Certificate of Incorporation or this Certificate that materially and adversely affects the rights, preferences or voting power of the Series A-1 Preferred Stock; provided, however, that the amendment of the Certificate of Incorporation to authorize or create, or to increase or decrease the authorized amount of, Series A-1 Preferred Stock, Senior Shares, Parity Shares or Junior Shares, shall not be deemed to materially or adversely affect the rights, preferences or voting power of the Series A-1 Preferred Stock;
(ii) A statutory share exchange, consolidation with or merger of the Corporation with or into another entity or consolidation of the Corporation with or merger of another entity into the Corporation, that in each case materially and adversely affects the rights, preferences or voting power of the Series A-1 Preferred Stock, unless in such case each share of Series A-1 Preferred Stock shall be converted into or exchanged for an amount of cash equal to or greater than the applicable redemption price called for under Section 5 hereof at the time of such conversion or exchange or preferred shares of the surviving entity having preferences, conversion or other rights, voting powers, restrictions, limitations as to dividends or distributions, qualifications and terms or conditions of redemption thereof that are materially the same as those of a share of Series A-1 Preferred Stock; or
(iii) Approving any waiver or amendment of the restrictions set forth in paragraphs (d) or (e) of Section 3 hereof;
provided, however, that no such vote of the holders of Series A-1 Preferred Stock shall be required if, at or prior to the time when any of the above actions is to take effect, a deposit is made for the redemption in cash of all shares of Series A-1 Preferred Stock at the time outstanding, as provided in paragraph (f) of Section 5 hereof, for a redemption price called for under Section 5 at the time of such redemption.
(b) For purposes of paragraph (a) of this Section 8, each share of Series A-1 Preferred Stock shall have one vote per share. Except as required by applicable provisions of the DGCL, the Series A-1 Preferred Stock shall not have any relative, participating, optional or other special voting rights and powers other than as set forth herein, and the consent of the holders thereof shall not be required for the taking of any corporate action. No amendment to these terms of the Series A-1 Preferred Stock shall require the vote of the holders of Common Shares (except as required by law) or any other series of Preferred Stock.
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Section 9. Information Rights. During any period in which the Corporation is not subject to Section 13 or 15(d) of the Exchange Act and any shares of Series A-1 Preferred Stock are outstanding, the Corporation shall (a) transmit by mail to all holders of Series A-1 Preferred Stock, as their names and addresses appear in the Corporation’s record books and without cost to such holders, copies of the annual reports and quarterly reports in substantially the same form that the Corporation would have been required to file with the Securities and Exchange Commission (the “SEC”) pursuant to Section 13 or 15(d) of the Exchange Act if the Corporation was subject to such sections (other than any exhibits that would have been required); and (b) promptly upon written request, supply copies of such reports to any prospective holder of Series A-1 Preferred Stock. The Corporation shall mail the reports to the holders of Series A-1 Preferred Stock within 15 days after the respective dates by which the Corporation would have been required to file the reports with the SEC if the Corporation were then subject to Section 13 or 15(d) of the Exchange Act, assuming the Corporation is a “non-accelerated filer” in accordance with the Exchange Act.
Section 10. Record Holders. The Corporation and the Transfer Agent shall deem and treat the record holder of any shares of Series A-1 Preferred Stock as the true and lawful owner thereof for all purposes, and neither the Corporation nor the Transfer Agent shall be affected by any notice to the contrary.
Section 11. Sinking Fund. The Series A-1 Preferred Stock shall not be entitled to the benefits of any retirement or sinking fund.
Section 12. No Conversion Right. Except as set forth in paragraph (b) of Section 5, the shares of Series A-1 Preferred Stock are not convertible into or exchangeable for any other property or securities of the Corporation.
Section 13. Uncertificated Book-Entry Securities. The Series A-1 Preferred Stock shall be issued as book-entry securities directly registered in the stockholder’s name on the Corporation’s books and records. The Series A-1 Preferred Stock shall not be represented by certificates but instead shall be uncertificated securities of the Corporation.
[Signature page follows]
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IN WITNESS WHEREOF, the Corporation has caused this Certificate of Designation to be duly executed and acknowledged by the undersigned officer of the Corporation as of this 3rd day of July 2018.
FAT BRANDS INC. | ||
By: | /s/ Andrew A. Wiederhorn | |
Andrew A. Wiederhorn | ||
President and Chief Executive Officer |
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THIS WARRANT (AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS WARRANT) HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), OR ANY STATE SECURITIES LAWS AND NEITHER THE SECURITIES NOR ANY INTEREST THEREIN MAY BE OFFERED, SOLD, TRANSFERRED, PLEDGED OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT OR SUCH LAWS OR AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT AND SUCH LAWS WHICH, IN THE OPINION OF COUNSEL FOR THE ISSUER, IS AVAILABLE.
FAT BRANDS INC.
WARRANT AGREEMENT
(Common Stock)
Warrant No. [●]
This Warrant Agreement (this “Warrant”) is dated as of July 3, 2018 (the “Issue Date”) and entered into by and between FAT Brands Inc., a company organized under the laws of State of Delaware (the “Company”), and the undersigned, (together with its successors and assigns, the “Warrant Holder”).
WHEREAS, the Company and the Warrant Holder have entered into that certain Amended and Restated Membership Interest Purchase Agreement, dated as of the Issue Date (the “Purchase Agreement”), pursuant to which the Warrant Holder, together with the other parties, agreed to acquire certain Series A-1 Units of the Company, including the Warrants evidenced by this Warrant; and
WHEREAS, all of the terms and conditions of such Purchase Agreement are incorporated herein by this reference, and all capitalized terms not separately defined in this Warrant, shall have the same meanings as defined in the Purchase Agreement.
NOW, THEREFORE, in consideration of the mutual covenants set forth in this Warrant, and for other good and valuable consideration, the parties agree as follows:
1. Grant of Warrant. This Warrant entitles the Warrant Holder, upon the terms and subject to the conditions set forth herein, to purchase from the Company up to [●] shares of Common Stock (subject to adjustment as provided in Section 6, the “Warrant Shares”).
2. Term and Termination of Warrant. The Warrant shall be exercisable at any time or times beginning on the Issue Date and ending on the five (5) year anniversary of the Issue Date, at which time this Warrant shall terminate.
3. Exercise of the Warrant.
(a) Exercise Price. For the purposes of this Warrant, the exercise price shall be $8.00 per share of Common Stock (the “Exercise Price”), subject to adjustment as provided in Section 6.
(b) Exercise and Payment. The purchase rights represented by the Warrant may be exercised in round lots only by the Warrant Holder, in whole or in part, by the surrender of the Warrant (together with a duly executed notice of exercise in the form attached hereto as Exhibit A (the “Exercise Notice”) at the principal office of the Company and by the payment to the Company by check or wire transfer of immediately available funds of an amount equal to (i) the number of shares of Common Stock being purchased upon exercise of the Warrant multiplied by (ii) the Exercise Price (the “Warrant Price”).
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(c) Cashless Exercise. If at any time after the date hereof, there is no effective registration or offering statement effective or qualified in connection with, or no current prospectus or offering circular available for, the public resale of the Warrant Shares by the Warrant Holder, then this Warrant may also be exercised, in whole or in part, at such time by means of a “cashless exercise” by instructing the Company to issue Warrant Shares then issuable upon exercise of all or any part of this Warrant on a net basis such that, without payment of any cash consideration or other immediately available funds, the Warrant Holder shall surrender this Warrant in exchange for the number of Warrant Shares as is computed using the following formula X = Y(A - B) ÷ A:
Where:
X = the number of Warrant Shares to be issued to the Warrant Holder.
Y = the total number of Warrant Shares for which the Holder has elected to exercise this Warrant
A = the Fair Market Value of one Warrant Share as of the applicable Exercise Date.
B = the Exercise Price in effect under this Warrant as of the applicable Exercise Date.
For purposes of this Warrant, “Fair Market Value” of a Warrant Share shall mean the arithmetic average of the last trade price of the Common Stock (as reported by Bloomberg Financial Markets) for the five (5) consecutive days on which the Nasdaq Stock Market is open for trading, ending on the date immediately preceding the Exercise Date, on the principal trading market on which the Common Stock is quoted or listed for trading. If the Fair Market Value cannot be calculated on a particular date on the foregoing basis, the Fair Market Value shall be determined in good faith by the Board of Directors of the Company. All such determinations shall be appropriately adjusted for any stock dividend, stock split, stock combination or other similar transaction during the applicable calculation period.
(d) Warrant Shares. Subject to the other provisions of this Warrant, on or before the fifth (5th) day following the date on which the Company has received an Exercise Notice, so long as the Warrant Holder delivers the Warrant Price, the Company shall issue and deliver to the Warrant Holder or, at the Warrant Holder’s instruction pursuant to the Exercise Notice, the Warrant Holder’s agent or designee, in each case, sent by reputable overnight courier to the address as specified in the applicable Exercise Notice, a certificate, registered in the Company’s share register in the name of the Warrant Holder or its designee (as indicated in the applicable Exercise Notice), for the number of shares of Common Stock to which the Warrant Holder is entitled pursuant to such exercise. The Company shall be responsible for all fees and expenses of the Transfer Agent and all fees and expenses with respect to the issuance of shares of Common Stock via DTC, if available. Upon delivery of an Exercise Notice, the Warrant Holder shall be deemed for all corporate purposes to have become the holder of record of the Warrant Shares with respect to which this Warrant has been exercised, irrespective of the date such Warrant Shares are credited to the Warrant Holder’s DTC account or the date of delivery of the certificates evidencing such Warrant Shares (as the case may be). If this Warrant is submitted in connection with any exercise pursuant to this Section 3 and the number of Warrant Shares represented by this Warrant submitted for exercise is for a greater number of Warrant Shares than the number of Warrant Shares being acquired upon an exercise, then, at the request of the Warrant Holder, the Company shall as soon as practicable and in no event later than three (3) business days after any exercise and at its own expense, issue and deliver to the Warrant Holder (or its designee) a new Warrant (in accordance with Section 9(d)) representing the right to purchase the number of Warrant Shares purchasable immediately prior to such exercise under this Warrant, less the number of Warrant Shares with respect to which this Warrant is exercised. No fractional shares of Common Stock are to be issued upon the exercise of this Warrant, but rather the number of Warrant Shares to be issued shall be rounded up to the nearest whole number.
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(e) Legends. The Warrant Shares to be acquired by the Warrant Holder pursuant hereto, may not be sold or transferred unless (i) such shares are sold pursuant to an effective registration or offering statement under the Securities Act, or (ii) the Company or its transfer agent shall have been furnished with an opinion of counsel (which opinion shall be in form, substance and scope customary for opinions of counsel in comparable transactions and from an attorney who regularly practices securities law) to the effect that the shares to be sold or transferred may be sold or transferred pursuant to an exemption from such registration. Except as otherwise provided in this Warrant (and subject to the removal provisions set forth below), until such time as the Warrant Shares issuable upon exercise of the Warrant have been registered under the Act or otherwise may be sold pursuant to Rule 144 without any restriction as to the number of securities as of a particular date that can then be immediately sold, each certificate for Warrant Shares that has not been so included in an effective registration statement or that has not been sold pursuant to an effective registration statement or an exemption that permits removal of the legend, shall bear a legend substantially in the following form, as appropriate:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS AND HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF. NO SUCH TRANSFER MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL IN A FORM SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.
The legend set forth above shall be removed and the Company shall issue to the Warrant Holder a new certificate therefor free of any transfer legend if (i) the Company shall have received an opinion of counsel, in form, substance and scope customary for opinions of counsel in comparable transactions, to the effect that a public sale or transfer of such Securities may be made without registration under the Act and the shares are so sold or transferred, or (ii) such security is registered for sale by the Warrant Holder under an effective registration statement filed under the Act.
(f) Limitation on Exercise. Notwithstanding anything contained herein, this Warrant shall not be exercisable to the extent that (A) the aggregate shares of Common Stock issued by the Company to holders of Preferred Stock upon conversion into Common Stock pursuant to Section 5(b)(i) of the Company’s Certificate of Designation, dated July 3, 2018, for Series A-1 Fixed Rate Cumulative Preferred Stock, plus (B) the aggregate shares of Common Stock issued or issuable by the Company pursuant to the exercise of all warrants issued by the Company under the Purchase Agreement, would exceed 19.99% of all shares of Common Stock issued and outstanding on the Issue Date, subject to pro rata adjustment in connection with any stock splits, stock dividends, or similar changes to the Company’s capitalization occurring after the Issue Date (the “20% Cap”), unless the Company receives stockholder approval to exceed the 20% Cap. If applicable, the restrictions and redemption obligations set forth in this Section 3(f) shall cease to apply if (1) the Company obtains stockholder approval to issue Common Stock in excess of the 20% Cap pursuant to the rules and regulations of The Nasdaq Stock Market (or such other principal trading market on which the Common Stock is quoted or listed for trading), or (2) the Company provides the Holder with irrevocable written notice, based upon the written advice of its counsel, that any such issuance of Common Stock is not subject to the 20% Cap pursuant to the rules and regulations of The Nasdaq Stock Market LLC. The Company will use its best efforts promptly to obtain either the stockholder approval or the irrevocable notice described in the preceding sentence and to provide the Holder with a copy of same.
(g) Delivery of Cash in Lieu of Warrant Shares. If the Warrant Holder delivers an Exercise Notice and Warrant Price, the Company may, in lieu of delivering all of the Warrant Shares upon such exercise, instead deliver less than the requested number of Warrant Shares (the “Withheld Shares”) plus an amount of cash that is equal to the Fair Market Value of the Warrant Shares that would be deliverable to the Holder had the Holder elected a “cashless exercise” under Section 3(c) for the number of Withheld Shares. Such cash payment shall be made within twenty (20) business days of the Exercise Notice.
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4. Stock Fully Paid; Reservation of Warrant Shares.
(a) Stock Fully Paid. All of the Warrant Shares issuable upon the exercise of the Warrant will, upon issuance and receipt of the Warrant Price for such Warrant Shares, be duly authorized, validly issued, fully paid and nonassessable, and will be free and clear of all taxes, liens, encumbrances and charges with respect to the issue.
(b) Reservation. For so long as any of the Warrants are outstanding, the Company shall take all action necessary to reserve and keep available out of its authorized and unissued Common Stock, solely for the purpose of effecting the exercise of the Warrants, 100% of the number of shares of Common Stock as shall from time to time be necessary to effect the exercise of all Warrants then outstanding (the “Required Reserve Amount”).
(c) Insufficient Authorized Shares. If at any time the Company does not have a sufficient number of authorized and unreserved shares of Common Stock to satisfy its obligation to reserve for issuance upon exercise of the Warrants at least a number of shares of Common Stock equal to the Required Reserve Amount (an “Authorized Share Failure”), then the Company shall use its reasonable best efforts immediately to take all action necessary to increase the Company’s authorized shares of Common Stock to an amount sufficient to allow the Company to reserve the Required Reserve Amount for the Warrants then outstanding. Without limiting the generality of the foregoing sentence, as soon as practicable after the date of the occurrence of an Authorized Share Failure, but in no event later than sixty (60) days after the occurrence of such Authorized Share Failure, the Company shall use its reasonable best efforts to either (x) obtain the written consent of its stockholders for the approval of an increase in the number of authorized shares of Common Stock or (y) hold a special meeting of its stockholders for the approval of an increase in the number of authorized shares of Common Stock; provided, that if the Company is then subject to review of any such related documents by the Securities and Exchange Commission, the time frame above shall be extended by an additional thirty (30) days. In connection with such meeting, the Company shall use its best efforts to solicit its stockholders’ approval of such increase in authorized shares of Common Stock, to cause its Board of Directors to recommend to the stockholders that they approve such proposal and to cause its management to vote in favor of such proposal.
5. Rights of the Warrant Holder. The Warrant Holder shall have no voting rights as a stockholder or rights to dividends or other distributions with respect to Warrant Shares subject to this Warrant until payment in full of the Warrant Price for Warrant Shares being issued.
6. Adjustment of Exercise Price and Number of Warrant Shares. In order to prevent dilution of the purchase rights granted under this Warrant, the Exercise Price and the number of Warrant Shares issuable upon exercise of this Warrant shall be subject to adjustment from time to time as provided in this Section 6 (in each case, after taking into consideration any prior adjustments pursuant to this Section 6).
(a) Stock Dividend, Subdivision or Combination. If the Company shall, at any time or from time to time after the Original Issue Date, (i) pay a dividend or make any other distribution upon the Common Stock or any other capital stock of the Company payable in shares of Common Stock, or (ii) subdivide (by any stock split, recapitalization or otherwise) its outstanding shares of Common Stock into a greater number of shares, the Exercise Price in effect immediately prior to any such dividend, distribution or subdivision shall be proportionately reduced and the number of Warrant Shares issuable upon exercise of this Warrant shall be proportionately increased. If the Company at any time combines (by combination, reverse stock split or otherwise) its outstanding shares of Common Stock into a smaller number of shares, the Exercise Price in effect immediately prior to such combination shall be proportionately increased and the number of Warrant Shares issuable upon exercise of this Warrant shall be proportionately decreased. Any adjustment under this Section 6(a) shall become effective at the close of business on the date the dividend, subdivision or combination becomes effective.
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(b) Reorganization, Reclassification, Consolidation or Merger. In the event of any (i) capital reorganization of the Company, (ii) reclassification of the stock of the Company (other than a change in par value or from par value to no par value or from no par value to par value or as a result of a stock dividend or subdivision, split-up or combination of shares), (iii) consolidation or merger of the Company with or into another Person, (iv) sale of all or substantially all of the Company’s assets to another Person or (v) other similar transaction, in each case which entitles the holders of Common Stock to receive (either directly or upon subsequent liquidation) stock, securities or assets with respect to or in exchange for Common Stock, each Warrant shall, immediately after such reorganization, reclassification, consolidation, merger, sale or similar transaction, remain outstanding and shall thereafter, in lieu of or in addition to (as the case may be) the number of Warrant Shares then exercisable under this Warrant, be exercisable for the kind and number of shares of stock or other securities or assets of the Company or of the successor Person resulting from such transaction to which the Warrant Holder would have been entitled upon such reorganization, reclassification, consolidation, merger, sale or similar transaction if the Warrant Holder had exercised this Warrant in full immediately prior to the time of such reorganization, reclassification, consolidation, merger, sale or similar transaction and acquired the applicable number of Warrant Shares then issuable hereunder as a result of such exercise (without taking into account any limitations or restrictions on the exercisability of this Warrant); and, in such case, appropriate adjustment shall be made with respect to the Warrant Holder’s rights under this Warrant to insure that the provisions of this Section 6 hereof shall thereafter be applicable, as nearly as possible, to this Warrant in relation to any shares of stock, securities or assets thereafter acquirable upon exercise of this Warrant (including, in the case of any consolidation, merger, sale or similar transaction in which the successor or purchasing Person is other than the Company, an immediate adjustment in the Exercise Price to the value per share for the Common Stock reflected by the terms of such consolidation, merger, sale or similar transaction, and a corresponding immediate adjustment to the number of Warrant Shares acquirable upon exercise of this Warrant without regard to any limitations or restrictions on exercise, if the value so reflected is less than the Exercise Price in effect immediately prior to such consolidation, merger, sale or similar transaction). The provisions of this Section 6(b) shall similarly apply to successive reorganizations, reclassifications, consolidations, mergers, sales or similar transactions.
(c) Certificate as to Adjustment.
(i) As promptly as reasonably practicable following any adjustment of the Exercise Price, but in any event not later ten (10) days thereafter, the Company shall furnish to the Warrant Holder a certificate of an executive officer setting forth in reasonable detail such adjustment and the facts upon which it is based and certifying the calculation thereof.
(ii) As promptly as reasonably practicable following the receipt by the Company of a written request by the Warrant Holder, but in any event not later than ten (10) thereafter, the Company shall furnish to the Warrant Holder a certificate of an executive officer certifying the Exercise Price then in effect and the number of Warrant Shares or the amount, if any, of other shares of stock, securities or assets then issuable upon exercise of the Warrant.
(iii) All calculations under this Section 6 shall be made to the nearest cent or the nearest 1/100th of a share, as the case may be. No adjustment shall be made to the Exercise Price unless such adjustment would require a change of at least 1% in the Exercise Price. Any adjustment that would otherwise be required to be made shall be carried forward and taken into account in any subsequent adjustment or in connection with any exercise of the Warrant. For purposes of this Section 6, the number of shares of Common Stock deemed to be issued and outstanding as of a given date shall be the sum of the number of shares of Common Stock (excluding any treasury shares of the Company) issued and outstanding.
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7. Representations and Warranties. The representations and warranties of the Warrant Holder set forth in the Purchase Agreement shall be true and correct as of the Issue Date and are incorporated by reference herein.
8. Noncircumvention. The Company hereby covenants and agrees that the Company will not, by amendment of its Certificate of Incorporation or Bylaws, or through any reorganization, transfer of assets, consolidation, merger, scheme of arrangement, dissolution, issue or sale of securities, or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, and will at all times in good faith carry out all the provisions of this Warrant and take all action as may be required to protect the rights of the Warrant Holder. Without limiting the generality of the foregoing, the Company (i) shall not increase the par value of any shares of Common Stock receivable upon the exercise of this Warrant above the Exercise Price then in effect and (ii) shall take all such actions as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and nonassessable shares of Common Stock upon the exercise of this Warrant.
9. Reissuance Of Warrants.
(a) Transfer of Warrant. If this Warrant is to be transferred, the Warrant Holder shall surrender this Warrant to the Company, together with an opinion of counsel in form and substance satisfactory to the Company from an attorney regularly engaged in the practice of securities law, whereupon the Company will forthwith issue and deliver upon the order of the Warrant Holder a new Warrant (in accordance with Section 9(d)), registered as the Warrant Holder may request, representing the right to purchase the number of Warrant Shares being transferred by the Warrant Holder and, if less than the total number of Warrant Shares then underlying this Warrant is being transferred, a new Warrant (in accordance with Section 9(d)) to the Warrant Holder representing the right to purchase the number of Warrant Shares not being transferred.
(b) Lost, Stolen or Mutilated Warrant. Upon receipt by the Company of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant, and, in the case of loss, theft or destruction, of any indemnification and payment of any required bond undertaking by the Warrant Holder to the Company in customary form and, in the case of mutilation, upon surrender and cancellation of this Warrant, the Company shall execute and deliver to the Warrant Holder a new Warrant (in accordance with Section 9(d)) representing the right to purchase the Warrant Shares then underlying this Warrant.
(c) Exchangeable for Multiple Warrants. This Warrant is exchangeable, upon the surrender hereof by the Warrant Holder at the principal office of the Company, for a new Warrant or Warrants (in accordance with Section 9(d)) representing in the aggregate the right to purchase the number of Warrant Shares then underlying this Warrant, and each such new Warrant will represent the right to purchase such portion of such Warrant Shares as is designated by the Warrant Holder at the time of such surrender; provided, however, that no Warrants for fractional shares of Common Stock shall be given.
(d) Issuance of New Warrants. Whenever the Company is required to issue a new Warrant pursuant to the terms of this Warrant, such new Warrant (i) shall be of like tenor with this Warrant, (ii) shall represent, as indicated on the face of such new Warrant, the right to purchase the Warrant Shares then underlying this Warrant (or in the case of a new Warrant being issued pursuant to Section 9(a) or Section 9(c), the Warrant Shares designated by the Warrant Holder which, when added to the number of shares of Common Stock underlying the other new Warrants issued in connection with such issuance, does not exceed the number of Warrant Shares then underlying this Warrant), (iii) shall have an issuance date, as indicated on the face of such new Warrant which is the same as the Issuance Date, and (iv) shall have the same rights and conditions as this Warrant.
10. Amendment And Waiver. Except as otherwise provided herein, the provisions of this Warrant may be amended and the Company may take any action herein prohibited, or omit to perform any act herein required to be performed by it, only if the Company has obtained the written consent of a majority the Warrant Holders.
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11. Transfer. This Warrant may not be offered for sale, sold, transferred or assigned without the consent of the Company.
12. Severability. If any provision of this Warrant is prohibited by law or otherwise determined to be invalid or unenforceable by a court of competent jurisdiction, the provision that would otherwise be prohibited, invalid or unenforceable shall be deemed amended to apply to the broadest extent that it would be valid and enforceable, and the invalidity or unenforceability of such provision shall not affect the validity of the remaining provisions of this Warrant so long as this Warrant as so modified continues to express, without material change, the original intentions of the parties as to the subject matter hereof and the prohibited nature, invalidity or unenforceability of the provision(s) in question does not substantially impair the respective expectations or reciprocal obligations of the parties or the practical realization of the benefits that would otherwise be conferred upon the parties. The parties will endeavor in good faith negotiations to replace the prohibited, invalid or unenforceable provision(s) with a valid provision(s), the effect of which comes as close as possible to that of the prohibited, invalid or unenforceable provision(s).
13. Choice of Law and Jurisdiction. All questions concerning the construction, validity, enforcement and interpretation of this Warrant shall be determined in accordance with the provisions of the Purchase Agreement.
14. Notices. Any notice, request or other document required or permitted to be given or delivered to the Warrant Holder by the Company shall be delivered in accordance with the notice provisions of the Purchase Agreement.
[signatures on following page]
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IN WITNESS WHEREOF, the undersigned hereby execute this Warrant Agreement as of the day and year first above written.
COMPANY | ||
FAT BRANDS INC. | ||
By: | /s/ Andrew A. Wiederhorn | |
Name: | Andrew A. Wiederhorn | |
Title: | Chief Executive Officer | |
Warrant Holder | ||
Print Name: ______________________________________ | ||
By: | ||
Name: | ||
Title: |
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EXHIBIT A
NOTICE OF EXERCISE
The undersigned holder hereby exercises the right to purchase _________________ shares of Common Stock (“Warrant Shares”) of FAT Brands Inc., a Delaware corporation (the “Company”), evidenced by the attached Warrant No. [ ] (the “Warrant”). Capitalized terms used herein and not otherwise defined shall have the respective meanings set forth in the Warrant.
1. | _____ Check if Applicable. The undersigned, pursuant to the provisions set forth in the within Warrant, hereby agrees to purchase ________ shares of Common Stock covered by such Warrant, and makes payment herewith in full therefore at the price per share provided by such Warrant in cash or by certified or official bank check or by wired funds in the amount of $_______. | |
2. | _____ Check if Applicable. The undersigned, pursuant to the provisions set forth in the within Warrant, hereby elects to exercise the cashless exercise provisions of the within warrant with respect to ________ shares of Common Stock covered by such Warrant, and requests that the Company issue to the undersigned an aggregate of _______ Warrant Shares based on the application of the formula set forth in Section 3(c) of such Warrant. |
Date: _______________ __, ______
___________________________________
Name of Registered Holder
By: | ||
Name: | ||
Title: |
THIS WARRANT (AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS WARRANT) HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), OR ANY STATE SECURITIES LAWS AND NEITHER THE SECURITIES NOR ANY INTEREST THEREIN MAY BE OFFERED, SOLD, TRANSFERRED, PLEDGED OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT OR SUCH LAWS OR AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT AND SUCH LAWS WHICH, IN THE OPINION OF COUNSEL FOR THE ISSUER, IS AVAILABLE.
FAT BRANDS INC.
WARRANT AGREEMENT
(Common Stock)
Warrant No. 2
This Warrant Agreement (this “Warrant”) is dated as of July 3, 2018 (the “Issue Date”) and entered into by and between FAT Brands Inc., a company organized under the laws of State of Delaware (the “Company”), and the undersigned, (together with its successors and assigns, the “Warrant Holder”).
WHEREAS, the Warrant Holder, the Company and its subsidiaries and affiliates parties thereto have entered into that certain Loan Agreement (the “Loan Agreement”), pursuant to which the Warrant Holder agreed to extend a senior secured term loan facility to the Company in the amount of $16,000,000.
WHEREAS, all capitalized terms not separately defined in this Warrant, shall have the same meanings as defined in the Loan Agreement.
NOW, THEREFORE, in consideration of the mutual covenants set forth in this Warrant, and for other good and valuable consideration, the parties agree as follows:
1. Grant of Warrant. This Warrant entitles the Warrant Holder, upon the terms and subject to the conditions set forth herein, to purchase from the Company up to 499,000 shares of the Company’s common stock, par value $0.0001 per share (“Common Stock”), subject to adjustment as provided in Section 6 (the “Warrant Shares”).
2. Term and Termination of Warrant. The Warrant shall be exercisable at any time or times beginning on the Issue Date and ending on the five (5) year anniversary of the Issue Date (such five-year period, the “Exercise Period”), at which time this Warrant shall terminate.
3. Exercise of the Warrant.
(a) Exercise Price. For the purposes of this Warrant, the exercise price shall be $7.35 per share of Common Stock (the “Exercise Price”), subject to adjustment as provided in Section 6.
(b) Exercise and Payment. The purchase rights represented by the Warrant may be exercised in round lots only by the Warrant Holder, in whole or in part, by the surrender of the Warrant (or an indemnification undertaking with respect to this Warrant in the case of its loss, theft or destruction), together with a duly executed notice of exercise in the form attached hereto as Exhibit A (the “Exercise Notice”) at the principal office of the Company and by the payment to the Company by check or wire transfer of immediately available funds of an amount equal to (i) the number of shares of Common Stock being purchased upon exercise of the Warrant multiplied by (ii) the Exercise Price (the “Warrant Price”). For purposes of this Warrant, “Exercise Date” means, for any given exercise of this Warrant, the date on which the conditions to such exercise as set forth in this Section 3 shall have been satisfied at or prior to
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(c) 5:00 p.m., Eastern time, on a Business Day, including, without limitation, the receipt by the Company of the Exercise Notice, the Warrant and the Warrant Price.
(d) Cashless Exercise. If at any time after the date hereof, there is no effective registration or offering statement effective or qualified in connection with, or no current prospectus or offering circular available for, the public resale of the Warrant Shares by the Warrant Holder, then this Warrant may also be exercised, in whole or in part, at such time by means of a “cashless exercise” by instructing the Company to issue Warrant Shares then issuable upon exercise of all or any part of this Warrant on a net basis such that, without payment of any cash consideration or other immediately available funds, the Warrant Holder shall surrender this Warrant in exchange for the number of Warrant Shares as is computed using the following formula X = Y(A - B) ÷ A:
Where:
X = the number of Warrant Shares to be issued to the Warrant Holder.
Y = the total number of Warrant Shares for which the Warrant Holder has elected to exercise this Warrant
A = the Fair Market Value of one Warrant Share as of the applicable Exercise Date.
B = the Exercise Price in effect under this Warrant as of the applicable Exercise Date.
For purposes of this Warrant, “Fair Market Value” of a Warrant Share shall mean the arithmetic average of the last trade price of the Common Stock (as reported by Bloomberg Financial Markets) for the five (5) consecutive days on which the Nasdaq Stock Market is open for trading, ending on the date immediately preceding the Exercise Date, on the principal trading market on which the Common Stock is quoted or listed for trading. If the Fair Market Value cannot be calculated on a particular date on the foregoing basis, the Fair Market Value shall be the average of the highest bid and lowest asked prices for the Common Stock on the principal trading market at the end of such day. If at any time the Common Stock is not listed on a domestic securities exchange or quoted on the Financial Industry Regulatory Authority OTC Bulletin Board electronic inter-dealer quotation system, the OTC Markets Group Inc. electronic inter-dealer quotation system or similar quotation system or association, the Fair Market Value of the Common Stock shall be the fair market value determined jointly in good faith by the Board of Directors of the Company and the Warrant Holder; provided, that if the Board of Directors and the Warrant Holder are unable to agree on the Fair Market Value of a Warrant Share within a reasonable period of time (not to exceed five (5) days from the Company’s receipt of the Exercise Notice), Fair Market Value shall be determined by a nationally recognized investment banking, accounting or valuation firm jointly selected by the Warrant Holder and the Company and engaged by the Company. The determination of such firm shall be final and conclusive, and the fees and expenses of such valuation firm shall be borne by the Company. The investment bank so engaged shall determine the Fair Market Value of the Common Stock assuming an orderly sale transaction between a willing buyer and a willing seller, using valuation techniques then prevailing in the securities industry without regard to the lack of liquidity of the Common Stock due to any restrictions (contractual or otherwise) applicable thereto or any discount for minority interests and assuming full disclosure of all relevant information and a reasonable period of time for effectuating such sale and assuming the sale of all of the issued and outstanding Common Stock (including fractional interests) calculated on a fully diluted basis (except those securities, rights and warrants (a) owned or held by or for the account of the Company or any of its subsidiaries, or (b) convertible or exchangeable into Common Stock where the conversion, exchange or exercise price per share is greater than the Fair Market Value). All such determinations shall be appropriately adjusted for any stock dividend, stock split, stock combination or other similar transaction during the applicable calculation period.
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(e) Conditional Exercise. Notwithstanding any other provision hereof, if an exercise of any portion of this Warrant is to be made in connection with a public offering or a sale of the Company (pursuant to a merger, sale of stock, or otherwise), such exercise may at the election of the Warrant Holder be conditioned upon the consummation of such transaction, in which case such exercise shall not be deemed to be effective until immediately prior to the consummation of such transaction.
(f) Warrant Shares. Subject to the other provisions of this Warrant, on or before the second (2nd) day following the date on which the Company has received an Exercise Notice, so long as the Warrant Holder delivers the Warrant Price (such 2nd day, the “Warrant Share Delivery Date”), the Company shall issue and deliver to the Warrant Holder or, at the Warrant Holder’s instruction pursuant to the Exercise Notice, the Warrant Holder’s agent or designee, in each case, sent by reputable overnight courier to the address as specified in the applicable Exercise Notice, a certificate, registered in the Company’s share register in the name of the Warrant Holder or its designee (as indicated in the applicable Exercise Notice), for the number of shares of Common Stock to which the Warrant Holder is entitled pursuant to such exercise. The Company shall be responsible for all fees and expenses of the transfer agent and all fees and expenses with respect to the issuance of shares of Common Stock via DTC, if available. Upon delivery of an Exercise Notice, the Warrant Holder shall be deemed for all corporate purposes to have become the holder of record of the Warrant Shares with respect to which this Warrant has been exercised, irrespective of the date such Warrant Shares are credited to the Warrant Holder’s DTC account or the date of delivery of the certificates evidencing such Warrant Shares (as the case may be). If this Warrant is submitted in connection with any exercise pursuant to this Section 3 and the number of Warrant Shares represented by this Warrant submitted for exercise is for a greater number of Warrant Shares than the number of Warrant Shares being acquired upon an exercise, then, at the request of the Warrant Holder, the Company shall as soon as practicable and in no event later than two (2) business days after any exercise and at its own expense, issue and deliver to the Warrant Holder (or its designee) a new Warrant (in accordance with Section 9(d)) representing the right to purchase the number of Warrant Shares purchasable immediately prior to such exercise under this Warrant, less the number of Warrant Shares with respect to which this Warrant is exercised. No fractional shares of Common Stock are to be issued upon the exercise of this Warrant, but rather the number of Warrant Shares to be issued shall be rounded up to the nearest whole number. If the Company fails to cause its transfer agent to transmit to the Warrant Holder the Warrant Shares by the Warrant Share Delivery Date, then the Warrant Holder will have the right to rescind such exercise.
(g) Legends. The Warrant Shares to be acquired by the Warrant Holder pursuant hereto, may not be sold or transferred unless (i) such shares are sold pursuant to an effective registration or offering statement under the Securities Act, or (ii) the Company or its transfer agent shall have been furnished with an opinion of counsel (which opinion shall be in form, substance and scope customary for opinions of counsel in comparable transactions and from an attorney who regularly practices securities law) to the effect that the shares to be sold or transferred may be sold or transferred pursuant to an exemption from such registration. Except as otherwise provided in this Warrant (and subject to the removal provisions set forth below), until such time as the Warrant Shares issuable upon exercise of the Warrant have been registered under the Act or otherwise may be sold pursuant to Rule 144 without any restriction as to the number of securities as of a particular date that can then be immediately sold, each certificate for Warrant Shares that has not been so included in an effective registration statement or that has not been sold pursuant to an effective registration statement or an exemption that permits removal of the legend, shall bear a legend substantially in the following form, as appropriate:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), OR ANY STATE SECURITIES LAWS AND HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF. NO SUCH TRANSFER MAY BE EFFECTED UNLESS (1) A REGISTRATION STATEMENT COVERING SUCH SECURITIES IS EFFECTIVE UNDER THE ACT AND IS QUALIFIED UNDER APPLICABLE STATE SECURITIES LAWS OR (2) THE TRANSACTION IS EXEMPT FROM THE REGISTRATION REQUIREMENTS UNDER THE ACT AND, IF THE COMPANY REQUESTS, AN OPINION OF COUNSEL IN A FORM SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE ACT HAS BEEN RENDERED BY COUNSEL.
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The legend set forth above shall be removed and the Company shall issue to the Warrant Holder a new certificate therefor free of any transfer legend if (i) the Company shall have received an opinion of counsel, in form, substance and scope customary for opinions of counsel in comparable transactions, to the effect that a public sale or transfer of such Warrant Shares may be made without registration under the Act and the shares are so sold or transferred, or (ii) such security is registered for sale under an effective registration statement filed under the Act.
(h) Limitation on Exercise.
(i) The Company shall not affect any exercise of this Warrant, and the Warrant Holder shall not have the right to exercise any portion of this Warrant, pursuant to Section 3 or otherwise, to the extent that after giving effect to such issuance after exercise as set forth on the applicable Exercise Notice, the Warrant Holder (together with its Affiliates, and any other Persons acting as a group together with the Warrant Holder or any of its Affiliates), would beneficially own in excess of 4.99% of the number of shares of Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock issuable upon exercise of this Warrant (the “Beneficial Ownership Limitation”). For purposes of the foregoing sentence, the number of shares of Common Stock beneficially owned by the Warrant Holder and its Affiliates shall include the number of shares of Common Stock issuable upon exercise of this Warrant with respect to which such determination is being made, but shall exclude the number of shares of Common Stock which would be issuable upon (i) exercise of the remaining, nonexercised portion of this Warrant beneficially owned by the Warrant Holder or any of its Affiliates and (ii) exercise or conversion of the unexercised or nonconverted portion of any other securities of the Company (including, without limitation, any other Common Stock Equivalents) subject to a limitation on conversion or exercise analogous to the limitation contained herein beneficially owned by the Warrant Holder or any of its Affiliates. Except as set forth in the preceding sentence, for purposes of this Section 3(g), beneficial ownership shall be calculated in accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the rules and regulations promulgated thereunder. To the extent that the limitation contained in this Section 3(g)(i) applies, the determination of whether this Warrant is exercisable (in relation to other securities owned by the Warrant Holder together with any Affiliates) and of which portion of this Warrant is exercisable shall be in the sole discretion of the Warrant Holder, and the submission of an Exercise Notice shall be deemed to be the Warrant Holder’s determination of whether, and representation and certification to the Company that, this Warrant is exercisable (in relation to other securities owned by the Warrant Holder together with any Affiliates) and of which portion of this Warrant is exercisable, in each case subject to the Beneficial Ownership Limitation, and the Company shall have no obligation to verify or confirm the accuracy of such determination. In addition, a determination as to any group status as contemplated above shall be determined in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder. For purposes of this Section 3(g), in determining the number of outstanding shares of Common Stock, a Holder may rely on the number of outstanding shares of Common Stock as reflected in (A) the Company’s most recent periodic or annual report filed with the Securities and Exchange Commission, as the case may be, (B) a more recent public announcement by the Company or (C) a more recent written notice by the Company or its transfer agent setting forth the number of shares of Common Stock outstanding. Upon the written or oral request of a Holder, the Company shall within two (2) trading days confirm orally and in writing to the Warrant Holder the number of shares of Common Stock then outstanding. In any case, the number of outstanding shares of Common Stock shall be determined after giving effect to the conversion or exercise of securities of the Company, including this Warrant, by the Warrant Holder or its Affiliates since the date as of which such number of outstanding shares of Common Stock was reported.
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(ii) Notwithstanding anything contained herein, this Warrant shall not be exercisable to the extent that (A) the aggregate shares of Common Stock issued after giving effect to the exercise of this Warrant as set forth on the applicable Exercise Notice, plus (B) the aggregate shares of Common Stock issued or issuable by the Company to holders of Common Stock Equivalents (as defined below) upon conversion or exchange thereof (excluding from this calculation any Common Stock and Common Stock Equivalents beneficially owned by Fog Cutter Capital Group Inc. or its Affiliates) would exceed 19.99% of all shares of Common Stock issued and outstanding on the Issue Date, subject to pro rata adjustment in connection with any stock splits, stock dividends, or similar changes to the Company’s capitalization occurring after the Issue Date (the “20% Cap”), unless the Company receives stockholder approval to exceed the 20% Cap. To the extent that the limitation contained in this Section 3(g)(ii) applies, the determination of whether this Warrant is exercisable, and of which portion of this Warrant is exercisable, shall be in the sole discretion of the Company. If applicable, the restrictions and redemption obligations set forth in this Section 3(g)(ii) shall cease to apply if (1) the Company obtains stockholder approval to issue Common Stock in excess of the 20% Cap pursuant to the rules and regulations of The Nasdaq Stock Market (or such other principal trading market on which the Common Stock is quoted or listed for trading), or (2) the Company provides the Warrant Holder with irrevocable written notice, based upon the written advice of its counsel, that any such issuance of Common Stock is not subject to the 20% Cap pursuant to the rules and regulations of The Nasdaq Stock Market LLC. The Company will use its best efforts promptly to obtain either the stockholder approval or the irrevocable notice described in the preceding sentence and to provide the Warrant Holder with a copy of same. Without limiting the foregoing, in the event at any time the number of Common Stock described in (A) and (B) above is 85% of the 20% Cap (assuming full exercise without regard to any beneficial ownership limitations set forth herein or therein), then the Company shall within 60 days hold a stockholder meeting and solicit the aforementioned stockholder approval by soliciting proxies in favor of issuing Common Stock in excess of the 20% Cap and will use its best efforts to have all affiliates of the Company which own or control shares of Common Stock to vote their shares in favor of such resolution.
(iii) Notwithstanding anything contained herein, this Warrant shall not be exercisable to the extent that the exercise thereof would have the effect of causing Fog Cutter Capital Group Inc. to hold less than 80.0% of the issued and outstanding shares of Common Stock of the Company; provided, that such restriction shall terminate immediately upon any consolidation, merger or other similar business combination between Fog Cutter Capital Group Inc. and the Company.
(iv) Upon any attempted exercise of this Warrant, the Warrant Holder shall have the right to receive cash payments from the Company for all shares of Common Stock that Section 3(g)(i), 3(g)(ii) or 3(g)(iii) renders the Company incapable of issuing to the Warrant Holder (“Deficiency Shares”) at a price equal to the value determined by the Black-Scholes pricing model for such portion of the Warrants which would otherwise be exercisable for Deficiency Shares, and the number of Warrant Shares corresponding to such payment shall be cancelled upon delivery of such payment to the Warrant Holder.
4. Stock Fully Paid; Reservation of Warrant Shares.
(a) Stock Fully Paid. All of the Warrant Shares issuable upon the exercise of the Warrant (and any Warrant issued in substitution for or replacement of this Warrant) will, upon issuance and receipt of the Warrant Price for such Warrant Shares, be duly authorized, validly issued, fully paid and nonassessable, and will issued without violation of any preemptive or similar rights of any stockholder of the Company and be free and clear of all taxes, liens, encumbrances and charges with respect to the issue.
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(b) Reservation. For so long as this Warrant is outstanding, the Company shall take all action necessary to reserve and keep available out of its authorized and unissued Common Stock, solely for the purpose of effecting the exercise of this Warrant, 100% of the number of shares of Common Stock as shall from time to time be necessary to effect such exercise (the “Required Reserve Amount”).
(c) Insufficient Authorized Shares. If at any time the Company does not have a sufficient number of authorized and unreserved shares of Common Stock to satisfy its obligation to reserve for issuance upon exercise of this Warrant at least a number of shares of Common Stock equal to the Required Reserve Amount (an “Authorized Share Failure”), then the Company shall use its reasonable best efforts immediately to take all action necessary to increase the Company’s authorized shares of Common Stock to an amount sufficient to allow the Company to reserve the Required Reserve Amount for this Warrant. Without limiting the generality of the foregoing sentence, as soon as practicable after the date of the occurrence of an Authorized Share Failure, but in no event later than sixty (60) days after the occurrence of such Authorized Share Failure, the Company shall use its reasonable best efforts to either (x) obtain the written consent of its stockholders for the approval of an increase in the number of authorized shares of Common Stock or (y) hold a special meeting of its stockholders for the approval of an increase in the number of authorized shares of Common Stock; provided, that if the Company is then subject to review of any such related documents by the Securities and Exchange Commission, the time frame above shall be extended by an additional thirty (30) days. In connection with such meeting, the Company shall use its best efforts to solicit its stockholders’ approval of such increase in authorized shares of Common Stock, to cause its Board of Directors to recommend to the stockholders that they approve such proposal and to cause its management to vote in favor of such proposal.
5. Rights of the Warrant Holder. The Warrant Holder shall have no voting rights as a stockholder or rights to dividends or other distributions with respect to Warrant Shares subject to this Warrant until payment in full of the Warrant Price for Warrant Shares being issued.
6. Adjustment of Exercise Price and Number of Warrant Shares. In order to prevent dilution of the purchase rights granted under this Warrant, the Exercise Price and the number of Warrant Shares issuable upon exercise of this Warrant shall be subject to adjustment from time to time as provided in this Section 6 (in each case, after taking into consideration any prior adjustments pursuant to this Section 6).
(a) Stock Dividend, Subdivision or Combination. If the Company shall, at any time or from time to time after the Issue Date, (i) pay a dividend or make any other distribution upon the Common Stock or any other capital stock of the Company payable in shares of Common Stock, or (ii) subdivide (by any stock split, recapitalization or otherwise) its outstanding shares of Common Stock into a greater number of shares, the Exercise Price in effect immediately prior to any such dividend, distribution or subdivision shall be proportionately reduced and the number of Warrant Shares issuable upon exercise of this Warrant shall be proportionately increased. If the Company at any time combines (by combination, reverse stock split or otherwise) its outstanding shares of Common Stock into a smaller number of shares, the Exercise Price in effect immediately prior to such combination shall be proportionately increased and the number of Warrant Shares issuable upon exercise of this Warrant shall be proportionately decreased. Any adjustment under this Section 6(a) shall become effective at the close of business on the date the dividend, subdivision or combination becomes effective.
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(b) Reorganization, Reclassification, Consolidation or Merger. In the event of any (i) capital reorganization of the Company, (ii) reclassification of the stock of the Company (other than a change in par value or from par value to no par value or from no par value to par value or as a result of a stock dividend or subdivision, split-up or combination of shares), (iii) consolidation or merger of the Company with or into another Person, (iv) sale of all or substantially all of the Company’s assets to another Person or (v) other similar transaction, in each case which entitles the holders of Common Stock to receive (either directly or upon subsequent liquidation) stock, securities or assets with respect to or in exchange for Common Stock, each Warrant shall, immediately after such reorganization, reclassification, consolidation, merger, sale or similar transaction, remain outstanding and shall thereafter, in lieu of or in addition to (as the case may be) the number of Warrant Shares then exercisable under this Warrant, be exercisable for the kind and number of shares of stock or other securities or assets of the Company or of the successor Person resulting from such transaction to which the Warrant Holder would have been entitled upon such reorganization, reclassification, consolidation, merger, sale or similar transaction if the Warrant Holder had exercised this Warrant in full immediately prior to the time of such reorganization, reclassification, consolidation, merger, sale or similar transaction and acquired the applicable number of Warrant Shares then issuable hereunder as a result of such exercise (without taking into account any limitations or restrictions on the exercisability of this Warrant); and, in such case, appropriate adjustment shall be made with respect to the Warrant Holder’s rights under this Warrant to insure that the provisions of this Section 6 hereof shall thereafter be applicable, as nearly as possible, to this Warrant in relation to any shares of stock, securities or assets thereafter acquirable upon exercise of this Warrant (including, in the case of any consolidation, merger, sale or similar transaction in which the successor or purchasing Person is other than the Company, an immediate adjustment in the Exercise Price to the value per share for the Common Stock reflected by the terms of such consolidation, merger, sale or similar transaction, and a corresponding immediate adjustment to the number of Warrant Shares acquirable upon exercise of this Warrant without regard to any limitations or restrictions on exercise, if the value so reflected is less than the Exercise Price in effect immediately prior to such consolidation, merger, sale or similar transaction). The provisions of this Section 6(b) shall similarly apply to successive reorganizations, reclassifications, consolidations, mergers, sales or similar transactions. The Company shall not effect any such reorganization, reclassification, consolidation, merger, sale or similar transaction unless, prior to the consummation thereof, the successor Person (if other than the Company) resulting from such reorganization, reclassification, consolidation, merger, sale or similar transaction, shall assume, by written instrument substantially similar in form and substance to this Warrant and satisfactory to the Warrant Holder, the obligation to deliver to the Warrant Holder such shares of stock, securities or assets which, in accordance with the foregoing provisions, such Warrant Holder shall be entitled to receive upon exercise of this Warrant.
(c) Subsequent Rights Offerings. In addition to any adjustments pursuant to Sections 6(a)-(b) above, if at any time during which this Warrant is outstanding the Company grants, issues or sells any Common Stock Equivalents or other rights to purchase stock, warrants, securities or other property pro rata to the record holders of any class of shares of Common Stock (the “Purchase Rights”), then the Warrant Holder will be entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights which the Warrant Holder could have acquired if the Warrant Holder had held the number of shares of Common Stock acquirable upon complete exercise of this Warrant (without regard to any limitations on exercise hereof, including without limitation, the limits imposed by Section 3(g)) immediately before the date on which a record is taken for the grant, issuance or sale of such Purchase Rights, or, if no such record is taken, the date as of which the record holders of shares of Common Stock are to be determined for the grant, issue or sale of such Purchase Rights (provided, however, to the extent that the Warrant Holder’s right to participate in any such Purchase Right would result in the Warrant Holder exceeding the Beneficial Ownership Limitation, then the Warrant Holder shall not be entitled to participate in such Purchase Right to such extent (or beneficial ownership of such shares of Common Stock as a result of such Purchase Right to such extent) and such Purchase Right to such extent shall be held in abeyance for the Warrant Holder until such time, if ever, as its right thereto would not result in the Warrant Holder exceeding the Beneficial Ownership Limitation). The provisions of this Section 6(c) will not apply to any grant, issuance or sale of Common Stock Equivalents or other rights to purchase stock, warrants, securities or other property of the Company which is not made pro rata to the record holders of any class of shares of Common Stock.
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(d) Certificate as to Adjustment.
(i) As promptly as reasonably practicable following any adjustment of the Exercise Price, but in any event not later ten (10) days thereafter, the Company shall furnish to the Warrant Holder a certificate of an executive officer setting forth in reasonable detail such adjustment and the facts upon which it is based and certifying the calculation thereof.
(ii) As promptly as reasonably practicable following the receipt by the Company of a written request by the Warrant Holder, but in any event not later than ten (10) days thereafter, the Company shall furnish to the Warrant Holder a certificate of an executive officer certifying the Exercise Price then in effect and the number of Warrant Shares or the amount, if any, of other shares of stock, securities or assets then issuable upon exercise of the Warrant.
(iii) All calculations under this Section 6 shall be made to the nearest cent or the nearest 1/100th of a share, as the case may be. No adjustment shall be made to the Exercise Price unless such adjustment would require a change of at least 1% in the Exercise Price. Any adjustment that would otherwise be required to be made shall be carried forward and taken into account in any subsequent adjustment or in connection with any exercise of the Warrant.
(e) Notices. In the event:
(i) that the Company shall take a record of the holders of its Common Stock (or other capital stock or securities at the time issuable upon exercise of the Warrant) for the purpose of entitling or enabling them to receive any dividend or other distribution, to vote at a meeting (or by written consent), to receive any right to subscribe for or purchase any shares of capital stock of any class or any other securities, or to receive any other security; or
(ii) of any capital reorganization of the Company, any reclassification of the Common Stock of the Company, any consolidation or merger of the Company with or into another Person, or sale of all or substantially all of the Company’s assets to another Person; or
(iii) of the voluntary or involuntary dissolution, liquidation or winding-up of the Company;
then, and in each such case, the Company shall send or cause to be sent to the Warrant Holder at least 30 days prior to the applicable record date or the applicable expected effective date, as the case may be, for the event, a written notice specifying, as the case may be, (A) the record date for such dividend, distribution, meeting or consent or other right or action, and a description of such dividend, distribution or other right or action to be taken at such meeting or by written consent, or (B) the effective date on which such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation or winding-up is proposed to take place, and the date, if any is to be fixed, as of which the books of the Company shall close or a record shall be taken with respect to which the holders of record of Common Stock (or such other capital stock or securities at the time issuable upon exercise of the Warrant) shall be entitled to exchange their shares of Common Stock (or such other capital stock or securities) for securities or other property deliverable upon such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation or winding-up, and the amount per share and character of such exchange applicable to the Warrant and the Warrant Shares.
7. Representations, Warranties and Covenants.
(a) Obligations of the Company. The Company hereby covenants and agrees:
(i) The Company shall take all such actions as may be necessary to ensure that all such Warrant Shares are issued without violation by the Company of any applicable law or governmental regulation or any requirements of any domestic securities exchange upon which shares of Common Stock or other securities constituting Warrant Shares may be listed at the time of such exercise (except for official notice of issuance which shall be immediately delivered by the Company upon each such issuance).
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(ii) The Company shall pay all expenses in connection with, and all taxes and other governmental charges that may be imposed with respect to, the issuance or delivery of Warrant Shares upon exercise of this Warrant; provided, that the Company shall not be required to pay any tax or governmental charge that may be imposed with respect to any applicable withholding or the issuance or delivery of the Warrant Shares to any Person other than the Warrant Holder, and no such issuance or delivery shall be made unless and until the Person requesting such issuance has paid to the Company the amount of any such tax, or has established to the satisfaction of the Company that such tax has been paid.
(b) Representation and Warranties of the Warrant Holder. The Warrant Holder represents and warrants:
(i) The Warrant Holder is an “accredited investor” as defined in Rule 501(a) of Regulation D promulgated under the Securities Act. The Warrant Holder is acquiring this Warrant and the Warrant Shares to be issued upon exercise hereof for investment for its own account and not with a view towards, or for resale in connection with, the public sale or distribution of this Warrant or the Warrant Shares, except pursuant to sales registered or exempted under the Securities Act.
(ii) The Warrant Holder understands and acknowledges that this Warrant and the Warrant Shares to be issued upon exercise hereof are “restricted securities” under the federal securities laws inasmuch as they are being acquired from the Company in a transaction not involving a public offering and that, under such laws and applicable regulations, such securities may be resold without registration under the Securities Act only in certain limited circumstances. In addition, the Warrant Holder represents that it is familiar with Rule 144 under the Securities Act, as presently in effect, and understands the resale limitations imposed thereby and by the Securities Act.
(iii) The Warrant Holder acknowledges that it can bear the economic and financial risk of its investment for an indefinite period, and has such knowledge and experience in financial or business matters that it is capable of evaluating the merits and risks of the investment in the Warrant and the Warrant Shares. The Warrant Holder has had an opportunity to ask questions and receive answers from the Company regarding the terms and conditions of the offering of the Warrant and the business, properties, prospects and financial condition of the Company.
8. Noncircumvention. The Company hereby covenants and agrees that the Company will not, by amendment of its Certificate of Incorporation or Bylaws, or through any reorganization, transfer of assets, consolidation, merger, scheme of arrangement, dissolution, issue or sale of securities, or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, and will at all times in good faith carry out all the provisions of this Warrant and take all action as may be required to protect the rights of the Warrant Holder. Without limiting the generality of the foregoing, the Company (i) shall not increase the par value of any shares of Common Stock receivable upon the exercise of this Warrant above the Exercise Price then in effect and (ii) shall take all such actions as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and nonassessable shares of Common Stock upon the exercise of this Warrant.
9. Reissuance Of Warrants.
(a) Transfer of Warrant. If this Warrant is to be transferred, the Warrant Holder shall surrender this Warrant to the Company, together with an opinion of counsel in form and substance satisfactory to the Company from an attorney regularly engaged in the practice of securities law, whereupon the Company will forthwith issue and deliver upon the order of the Warrant Holder a new Warrant (in accordance with Section 9(d)), registered as the Warrant Holder may request, representing the right to purchase the number of Warrant Shares being transferred by the Warrant Holder and, if less than the total number of Warrant Shares then underlying this Warrant is being transferred, a new Warrant (in accordance with Section 9(d)) to the Warrant Holder representing the right to purchase the number of Warrant Shares not being transferred.
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(b) Lost, Stolen or Mutilated Warrant. Upon receipt by the Company of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant, and, in the case of loss, theft or destruction, of any indemnification and payment of any required bond undertaking by the Warrant Holder to the Company in customary form and, in the case of mutilation, upon surrender and cancellation of this Warrant, the Company shall execute and deliver to the Warrant Holder a new Warrant (in accordance with Section 9(d)) representing the right to purchase the Warrant Shares then underlying this Warrant.
(c) Exchangeable for Multiple Warrants. This Warrant is exchangeable, upon the surrender hereof by the Warrant Holder at the principal office of the Company, for a new Warrant or Warrants (in accordance with Section 9(d)) representing in the aggregate the right to purchase the number of Warrant Shares then underlying this Warrant, and each such new Warrant will represent the right to purchase such portion of such Warrant Shares as is designated by the Warrant Holder at the time of such surrender; provided, however, that no Warrants for fractional shares of Common Stock shall be given.
(d) Issuance of New Warrants. Whenever the Company is required to issue a new Warrant pursuant to the terms of this Warrant, such new Warrant (i) shall be of like tenor with this Warrant, (ii) shall represent, as indicated on the face of such new Warrant, the right to purchase the Warrant Shares then underlying this Warrant (or in the case of a new Warrant being issued pursuant to Section 9(a) or Section 9(c), the Warrant Shares designated by the Warrant Holder which, when added to the number of shares of Common Stock underlying the other new Warrants issued in connection with such issuance, does not exceed the number of Warrant Shares then underlying this Warrant), (iii) shall have an issuance date, as indicated on the face of such new Warrant which is the same as the Issue Date, and (iv) shall have the same rights and conditions as this Warrant.
10. Registration Rights. The Company grants to the Warrant Holder all rights and benefits of an “Investor” set forth in the Company’s Registration Rights Agreement, dated as of June ___, 2018, as amended (the “Rights Agreement”), including without limitation registration rights and information rights, and agrees to use its reasonable best efforts to amend the Rights Agreement so that (i) the Warrant Shares issuable upon exercise of this Warrant shall be considered “Registrable Shares” (as defined in the Rights Agreement) under the Rights Agreement and (ii) the Warrant Holder shall be considered an “Investor” for all purposes of Section 2 of the Rights Agreement.
11. Amendment And Waiver. Except as otherwise provided herein, the provisions of this Warrant may be amended and the Company may take any action herein prohibited, or omit to perform any act herein required to be performed by it, only if the Company has obtained the written consent of a majority the Warrant Holders.
12. Transfer. Subject to compliance with applicable securities laws, this Warrant and all rights hereunder are transferable, in whole or in part, by the Warrant Holder without charge to the Warrant Holder, upon surrender of this Warrant to the Company at its then principal executive offices with a duly executed assignment in the form attached hereto as Exhibit B, together with funds sufficient to pay any transfer taxes described in Section 7(a)(ii) in connection with the making of such transfer. Upon such compliance, surrender and delivery and, if required, such payment, the Company shall execute and deliver a new Warrant or Warrants in the name of the assignee or assignees and in the denominations specified in such instrument of assignment, and shall issue to the assignor a new Warrant evidencing the portion of this Warrant, if any, not so assigned and this Warrant shall promptly be cancelled..
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13. Remedies. The Warrant Holder, in addition to being entitled to exercise all rights granted by law, including recovery of damages, will be entitled to specific performance of its rights under this Warrant. The Company agrees that monetary damages alone would not be adequate compensation for any loss incurred by reason of a breach by it of the provisions of this Warrant and hereby agrees to waive and not to assert the defense in any action for specific performance that a remedy at law would be adequate.
14. Severability. If any provision of this Warrant is prohibited by law or otherwise determined to be invalid or unenforceable by a court of competent jurisdiction, the provision that would otherwise be prohibited, invalid or unenforceable shall be deemed amended to apply to the broadest extent that it would be valid and enforceable, and the invalidity or unenforceability of such provision shall not affect the validity of the remaining provisions of this Warrant so long as this Warrant as so modified continues to express, without material change, the original intentions of the parties as to the subject matter hereof and the prohibited nature, invalidity or unenforceability of the provision(s) in question does not substantially impair the respective expectations or reciprocal obligations of the parties or the practical realization of the benefits that would otherwise be conferred upon the parties. The parties will endeavor in good faith negotiations to replace the prohibited, invalid or unenforceable provision(s) with a valid provision(s), the effect of which comes as close as possible to that of the prohibited, invalid or unenforceable provision(s).
15. Choice of Law and Jurisdiction. All questions concerning the construction, validity, enforcement and interpretation of this Warrant shall be determined in accordance with the provisions of the Loan Agreement.
16. Miscellaneous.
(a) Successors and Assigns. Subject to applicable securities laws, this Warrant and the rights and obligations evidenced hereby shall inure to the benefit of and be binding upon the successors and permitted assigns of the Company and the successors and permitted assigns of the Warrant Holder. The provisions of this Warrant are intended to be for the benefit of any Warrant Holder from time to time of this Warrant and shall be enforceable by the Warrant Holder or holder of Warrant Shares.
(b) Limitation of Liability. No provision hereof, in the absence of any affirmative action by the Warrant Holder to exercise this Warrant to purchase Warrant Shares, and no enumeration herein of the rights or privileges of the Warrant Holder, shall give rise to any liability of the Warrant Holder for the purchase price of any Common Stock or as a stockholder of the Company, whether such liability is asserted by the Company or by creditors of the Company.
(c) Nonwaiver and Expenses. No course of dealing or any delay or failure to exercise any right hereunder on the part of Warrant Holder shall operate as a waiver of such right or otherwise prejudice the Warrant Holder’s rights, powers or remedies. Without limiting any other provision of this Warrant or the Loan Agreement, if the Company willfully and knowingly fails to comply with any provision of this Warrant, which results in any material damages to the Warrant Holder, the Company shall pay to the Warrant Holder such amounts as shall be sufficient to cover any and all costs and expenses including, but not limited to, reasonable attorneys’ fees, including those of appellate proceedings, incurred by the Warrant Holder in collecting any amounts due pursuant hereto or in otherwise enforcing any of its rights, powers or remedies hereunder.
17. Notices. Any notice, request or other document required or permitted to be given or delivered to the Warrant Holder by the Company shall be delivered in accordance with the notice provisions of the Loan Agreement.
[signatures on following page]
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IN WITNESS WHEREOF, the undersigned hereby execute this Warrant Agreement as of the day and year first above written.
COMPANY | ||
FAT BRANDS INC. | ||
By: | /s/ Andrew A. Wiederhorn | |
Name: | Andrew A. Wiederhorn | |
Title: | Chief Executive Officer | |
WARRANT HOLDER | ||
FB LENDING, LLC | ||
By: | /s/ Vikas Tandon | |
Name: | Vikas Tandon | |
Title: | Authorized Signatory |
Signature Page
EXHIBIT A
NOTICE OF EXERCISE
The undersigned holder hereby exercises the right to purchase _________________ shares of Common Stock (“Warrant Shares”) of FAT Brands Inc., a Delaware corporation (the “Company”), evidenced by the attached Warrant No. [ ] (the “Warrant”). Capitalized terms used herein and not otherwise defined shall have the respective meanings set forth in the Warrant.
1. | _____ Check if Applicable. The undersigned, pursuant to the provisions set forth in the within Warrant, hereby agrees to purchase ________ shares of Common Stock covered by such Warrant, and makes payment herewith in full therefore at the price per share provided by such Warrant in cash or by certified or official bank check or by wired funds in the amount of $_______. | |
2. | _____ Check if Applicable. The undersigned, pursuant to the provisions set forth in the within Warrant, hereby elects to exercise the cashless exercise provisions of the within warrant with respect to ________ shares of Common Stock covered by such Warrant, and requests that the Company issue to the undersigned an aggregate of _______ Warrant Shares based on the application of the formula set forth in Section 3(c) of such Warrant. |
Date: _______________ __, ______
________________________________
Name of Registered Holder
By: | ||
Name: | ||
Title: |
EXHIBIT B
ASSIGNMENT FORM
(To assign the foregoing Warrant, execute this form and supply required information.
Do not use this form to exercise the Warrant.)
FOR VALUE RECEIVED, ____ all of or _______ shares of the foregoing Warrant and all rights evidenced thereby are hereby assigned to
whose address is: |
Date: ______________, _______
Holder’s Signature: | |
Holder’s Address: | |
Signature Guaranteed: |
NOTE: The signature to this Assignment Form must correspond with the name as it appears on the face of the Warrant, without alteration or enlargement or any change whatsoever, and must be guaranteed by a bank or trust company. Officers of corporations and those acting in a fiduciary or other representative capacity should file proper evidence of authority to assign the foregoing Warrant.
FAT BRANDS INC.
REGISTRATION RIGHTS AGREEMENT
(Series A-1 Fixed Rate Cumulative Preferred Stock)
This Registration Rights Agreement (this “Agreement”) is made and entered into as of July 3, 2018, by and between FAT Brands Inc., a Delaware corporation (the “Company”), and each of the purchasers who has delivered a signature page hereto (collectively, the “Investors” and, each individually, an “Investor”).
WHEREAS, the Company and the Investors are parties to that certain Amended and Restated Membership Interest Purchase Agreement, dated of even date herewith (the “Purchase Agreement”), pursuant to which the Investors have agreed to acquire certain Series A-1 Units of the Company (the “Units”), with each Unit consisting of (i) shares of Series A-1 Fixed Rate Cumulative Preferred Stock (the “Preferred Stock”) and (ii) a warrant to purchase shares of the Company’s Common Stock (the “Warrants”); and
WHEREAS, in connection with the consummation of the transactions contemplated by the Purchase Agreement, and pursuant to the terms of the Purchase Agreement, the parties hereto desire to enter into this Agreement in order to grant certain registration rights to the Investors as set forth below.
NOW, THEREFORE, in consideration of the foregoing and the mutual and dependent covenants hereinafter set forth, the parties hereto agree as follows:
1. Defined Terms. As used in this Agreement, the following terms shall have the following meanings:
“Agreement” has the meaning set forth in the preamble.
“Commission” means the Securities and Exchange Commission or any other federal agency administering the Securities Act and the Exchange Act at the time.
“Common Stock” means the common stock, par value $0.0001 per share, of the Company and any other shares of stock issued or issuable with respect thereto (whether by way of a change in par value, stock dividend or stock split or in exchange for or upon conversion of such shares or otherwise in connection with a combination of shares, distribution, recapitalization, merger, consolidation, other corporate reorganization or other similar event with respect to the Common Stock).
“Company” has the meaning set forth in the preamble and includes the Company’s successors by merger, acquisition, reorganization or otherwise.
“Exchange Act” means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.
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“Governmental Authority” means any federal, state, local or foreign government or political subdivision thereof, or any agency or instrumentality of such government or political subdivision, or any self-regulated organization or other non-governmental regulatory authority or quasi-governmental authority (to the extent that the rules, regulations or orders of such organization or authority have the force of law), or any arbitrator, court or tribunal of competent jurisdiction.
“Holder” means the Investor, or any assignee of an Investor
“Investors” has the meaning set forth in the preamble.
“Person” means an individual, corporation, partnership, joint venture, limited liability company, Governmental Authority, unincorporated organization, trust, association or other entity.
“Prospectus” means the prospectus or prospectuses included in any registration statement (including, without limitation, a prospectus that includes any information previously omitted from a prospectus filed as part of an effective registration statement in reliance on Rule 430A under the Securities Act or any successor rule thereto), as amended or supplemented by any prospectus supplement, with respect to the terms of the offering of any portion of the Registrable Securities covered by such registration statement and by all other amendments and supplements to the prospectus, including post-effective amendments and all material incorporated by reference in such prospectus or prospectuses.
“Registrable Securities” means (a) the shares of Preferred Stock issued to the Investors under the Purchase Agreement, (b) the shares of Common Stock issuable to the Investors upon exercise of the Warrants, and (c) any shares of Preferred Stock or Common Stock issued or issuable with respect to any shares described in subsection (a) or (b) above by way of a stock dividend or stock split or in exchange for or upon conversion of such shares or otherwise in connection with a combination of shares, distribution, recapitalization, merger, consolidation, other reorganization or other similar event with respect to the Preferred Stock or Common Stock (it being understood that, for purposes of this Agreement, a Person shall be deemed to be a Holder of Registrable Securities whenever such Person has the right to then acquire or obtain from the Company any Registrable Securities, whether or not such acquisition has actually been effected). As to any particular Registrable Securities, such securities shall cease to be Registrable Securities when (i) the Commission has declared a registration statement covering such securities effective and such securities have been disposed of pursuant to such effective registration statement, (ii) such securities are sold under circumstances in which all of the applicable conditions of Rule 144 under the Securities Act are met, or (iii) such securities have ceased to be outstanding.
“Registration Effectiveness Period” has the meaning set forth in Section 2(b).
“Rule 144” means Rule 144 under the Securities Act or any successor rule thereto.
“Securities Act” means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.
“Selling Expenses” means all underwriting discounts and selling commissions applicable to the sale of Registrable Securities.
“Purchase Agreement” has the meaning set forth in the recitals.
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Capitalized terms used herein without definition shall have the meanings set forth in the Purchase Agreement.
2. Registration Procedures. The Company shall use its reasonable best efforts to effect the registration of the offer and sale of the Registrable Securities under the Securities Act in accordance with the intended method of disposition thereof, and pursuant thereto the Company shall as soon as reasonably practicable and as applicable:
(a) prepare and file with the Commission a registration statement covering such Registrable Securities and use its reasonable best efforts to cause such registration statement to be declared effective as promptly as possible;
(b) prepare and file with the Commission such amendments, post-effective amendments and supplements to such registration statement and the Prospectus used in connection therewith as may be necessary to keep such registration statement effective for a period of not less than twelve (12) months (or, in the case of a firm commitment underwritten offering, ninety (90) days), or if earlier, until all of such Registrable Securities have been disposed of and to comply with the provisions of the Securities Act with respect to the disposition of such Registrable Securities in accordance with the intended methods of disposition set forth in such registration statement (the “Registration Effectiveness Period”);
(c) as soon as reasonably practicable before filing such registration statement, Prospectus or amendments or supplements thereto with the Commission, furnish to the Holder of such Registrable Securities copies of such documents proposed to be filed, which documents shall be subject to the review, comment and approval of such Holder’s counsel;
(d) notify each selling Holder of Registrable Securities, promptly after the Company receives notice thereof, of the time when such registration statement has been declared effective or a supplement to any Prospectus forming a part of such registration statement has been filed with the Commission;
(e) furnish to each selling Holder of Registrable Securities such number of copies of the Prospectus included in such registration statement (including each preliminary Prospectus) and any supplement thereto (in each case including all exhibits and documents incorporated by reference therein), and such other documents as such Holder may reasonably request in order to facilitate the disposition of the Registrable Securities owned by such seller;
(f) use its reasonable best efforts to register or qualify such Registrable Securities under such other securities or “blue sky” laws of such jurisdictions as any selling Holder reasonably requests and do any and all other acts and things which may be reasonably necessary or advisable to enable such Holders to consummate the disposition in such jurisdictions of the Registrable Securities owned by such Holders; provided, that the Company shall not be required to qualify generally to do business, subject itself to general taxation or consent to general service of process in any jurisdiction where it would not otherwise be required to do so;
(g) notify the Holders of Registrable Securities promptly of any request by the Commission for the amending or supplementing of such registration statement or Prospectus or for additional information;
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(h) cooperate with the Holders of the Registrable Securities to facilitate the timely preparation and delivery of certificates representing the Registrable Securities to be sold pursuant to such registration statement or Rule 144 free of any restrictive legends and representing such number of shares of Common Stock and registered in such names as the Holders of the Registrable Securities may reasonably request a reasonable period of time prior to sales of Registrable Securities pursuant to such registration statement or Rule 144;
(i) take no direct or indirect action prohibited by Regulation M under the Exchange Act; provided, that, to the extent that any prohibition is applicable to the Company, the Company will take all reasonable action to make any such prohibition inapplicable;
(j) otherwise use its reasonable best efforts to take all other steps necessary to effect the registration of such Registrable Securities contemplated hereby; and
(k) in connection with an underwritten offering, the Company will enter into such customary agreements (including underwriting and lock-up agreements in customary form) and take all such other customary actions as the Holders of such Registrable Securities or the managing underwriter of such offering reasonably request in order to facilitate the intended disposition of the Registrable Securities.
3. Expenses. All expenses (other than Selling Expenses of the Holders and other expenses of the Holders specified in the last sentence of this Section 3) incurred by the Company in complying with its obligations pursuant to this Agreement and in connection with the registration and disposition of Registrable Securities shall be paid by the Company, including, without limitation, all (i) registration and filing fees (including, without limitation, any fees relating to filings required to be made with, or the listing of any Registrable Securities on, any securities exchange or over-the-counter trading market on which the Registrable Securities are listed or quoted); (ii) underwriting expenses (other than fees, commissions or discounts); (iii) expenses of any audits incident to or required by any such registration; (iv) fees and expenses of complying with securities and “blue sky” laws (including, without limitation, fees and disbursements of counsel for the Company in connection with “blue sky” qualifications or exemptions of the Registrable Securities); (v) printing expenses; (vi) messenger, telephone and delivery expenses; (vii) fees and expenses of the Company’s counsel and accountants; and (viii) Financial Industry Regulatory Authority, Inc. filing fees (if any). In addition, the Company shall be responsible for all of its internal expenses incurred in connection with the consummation of the transactions contemplated by this Agreement (including, without limitation, all salaries and expenses of its officers and employees performing legal or accounting duties) and the expense of any annual audits. All Selling Expenses relating to the offer and sale of Registrable Securities registered under the Securities Act by a Holder pursuant to this Agreement shall be borne and paid by such Holder. In addition, each Holder of Registrable Securities shall be responsible for paying any stock transfer taxes applicable to the sale of Registrable Securities by such Holder, and the fees and disbursements of counsel, if any, retained by such Holder.
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4. Indemnification. (a) The Company shall indemnify and hold harmless, to the fullest extent permitted by law, each Holder of Registrable Securities, such Holder’s officers, directors, managers, members, partners, stockholders and Affiliates, each underwriter, broker or other Person acting on behalf of such Holder of Registrable Securities and each “controlling person” (within the meaning of Section 15 of the Securities Act and Section 20 of the Exchange Act), if any, who controls any of the foregoing Persons, against all losses, claims, actions, damages, liabilities and expenses, joint or several, to which any of the foregoing Persons may become subject under the Securities Act or otherwise, insofar as such losses, claims, actions, damages, liabilities or expenses arise out of or are based upon any untrue or alleged untrue statement of a material fact contained in any registration statement, Prospectus, preliminary Prospectus, free writing prospectus (as defined in Rule 405 under the Securities Act or any successor rule thereto), information statement, offering circular, test-the-waters materials or other offering materials or any amendment thereof or supplement thereto or any omission or alleged omission of a material fact required to be stated therein or necessary to make the statements therein not misleading; and shall reimburse such Persons for any legal or other expenses reasonably incurred by any of them in connection with investigating or defending any such loss, claim, action, damage or liability, except insofar as the same are caused by or contained in any information furnished in writing to the Company by such Holder expressly for use therein. This indemnity shall be in addition to any liability the Company may otherwise have.
(b) In connection with any registration in which a Holder of Registrable Securities is participating, each such Holder shall furnish to the Company in writing such information as the Company reasonably requests for use in connection with any such registration statement or Prospectus and, to the extent permitted by law, shall indemnify and hold harmless, the Company, each director of the Company, each officer of the Company who shall sign such registration statement, each underwriter, broker or other Person acting on behalf of the Holders of Registrable Securities and each “controlling person” (within the meaning of Section 15 of the Securities Act and Section 20 of the Exchange Act) who controls any of the foregoing Persons against any losses, claims, actions, damages, liabilities or expenses resulting from any untrue or alleged untrue statement of material fact contained in the registration statement, Prospectus, preliminary Prospectus, free writing prospectus (as defined in Rule 405 under the Securities Act or any successor rule thereto), information statement or offering circular or any amendment thereof or supplement thereto or any omission or alleged omission of a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, but only to the extent that such untrue statement or omission is contained in any information so furnished in writing by such Holder; provided, that the obligation to indemnify shall be several, not joint and several, for each Holder and shall not exceed an amount equal to the net proceeds (after underwriting fees, commissions or discounts) actually received by such Holder from the sale of Registrable Securities pursuant to such registration statement. This indemnity shall be in addition to any liability the selling Holder may otherwise have.
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(c) Promptly after receipt by an indemnified party of notice of the commencement of any action involving a claim referred to in this Section 4, such indemnified party shall, if a claim in respect thereof is made against an indemnifying party, give written notice to the latter of the commencement of such action. The failure of any indemnified party to notify an indemnifying party of any such action shall not (unless such failure shall have a material adverse effect on the indemnifying party) relieve the indemnifying party from any liability in respect of such action that it may have to such indemnified party hereunder. In case any such action is brought against an indemnified party, the indemnifying party shall be entitled to participate in and to assume the defense of the claims in any such action that are subject or potentially subject to indemnification hereunder, jointly with any other indemnifying party similarly notified to the extent that it may wish, with counsel reasonably satisfactory to such indemnified party, and after written notice from the indemnifying party to such indemnified party of its election so to assume the defense thereof, the indemnifying party shall not be responsible for any legal or other expenses subsequently incurred by the indemnified party in connection with the defense thereof; provided, that, if (i) any indemnified party shall have reasonably concluded that there may be one or more legal or equitable defenses available to such indemnified party which are additional to or conflict with those available to the indemnifying party, or that such claim or litigation involves or could have an effect upon matters beyond the scope of the indemnity provided hereunder, or (ii) such action seeks an injunction or equitable relief against any indemnified party or involves actual or alleged criminal activity, the indemnifying party shall not have the right to assume the defense of such action on behalf of such indemnified party without such indemnified party’s prior written consent (but, without such consent, shall have the right to participate therein with counsel of its choice) and such indemnifying party shall reimburse such indemnified party and any “controlling person” of such indemnified party for that portion of the fees and expenses of any counsel retained by the indemnified party which is reasonably related to the matters covered by the indemnity provided hereunder. If the indemnifying party is not entitled to, or elects not to, assume the defense of a claim, it shall not be obligated to pay the fees and expenses of more than one counsel for all parties indemnified by such indemnifying party with respect to such claim, unless in the reasonable judgment of any indemnified party a conflict of interest may exist between such indemnified party and any other of such indemnified parties with respect to such claim. In such instance, the conflicting indemnified parties shall have a right to retain one separate counsel, chosen by the Holders of a majority of the Registrable Securities included in the registration, at the expense of the indemnifying party.
(d) If the indemnification provided for hereunder is held by a court of competent jurisdiction to be unavailable to an indemnified party with respect to any loss, claim, damage, liability or action referred to herein, then the indemnifying party, in lieu of indemnifying such indemnified party hereunder, shall contribute to the amounts paid or payable by such indemnified party as a result of such loss, claim, damage, liability or action in such proportion as is appropriate to reflect the relative fault of the indemnifying party on the one hand and of the indemnified party on the other in connection with the statements or omissions which resulted in such loss, claim, damage, liability or action as well as any other relevant equitable considerations; provided, that the maximum amount of liability in respect of such contribution shall be limited, in the case of each Holder of Registrable Securities, to an amount equal to the net proceeds (after underwriting fees, commissions or discounts) actually received by such seller from the sale of Registrable Securities effected pursuant to such registration. The relative fault of the indemnifying party and of the indemnified party shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the indemnifying party or by the indemnified party and the parties’ relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The parties agree that it would not be just and equitable if contribution pursuant hereto were determined by pro rata allocation or by any other method or allocation which does not take account of the equitable considerations referred to herein. No Person guilty or liable of fraudulent misrepresentation within the meaning of Section 11(f) of the Securities Act shall be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation.
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5. Participation in Underwritten Registrations. No Person may participate in any registration hereunder which is underwritten unless such Person (a) agrees to sell such Person’s securities on the basis provided in any underwriting arrangements on customary terms approved by the Person or Persons entitled hereunder to approve such arrangements and (b) completes and executes all questionnaires, powers of attorney, indemnities, underwriting agreements and other documents in customary form reasonably required under the terms of such underwriting arrangements.
6. Rule 144 Compliance. With a view to making available to the Holders of Registrable Securities the benefits of Rule 144 and any other rule or regulation of the Commission that may at any time permit a Holder to sell securities of the Company to the public without registration, the Company shall:
(a) make and keep public information available, as those terms are understood and defined in Rule 144, at all times after the Registration Date;
(b) use reasonable best efforts to file with the Commission in a timely manner all reports and other documents required of the Company under the Securities Act and the Exchange Act, at any time after the Registration Date; and
(c) furnish to any Holder so long as the Holder owns Registrable Securities, promptly upon request, a written statement by the Company as to its compliance with the reporting requirements of Rule 144 and of the Securities Act and the Exchange Act, a copy of the most recent annual or quarterly report of the Company, and such other reports and documents so filed or furnished by the Company as such Holder may reasonably request in connection with the sale of Registrable Securities without registration.
7. Quotation. The Company shall use its reasonable best efforts to cause OTC Markets Group to provide, and to continue to provide, quotations for the Preferred Stock on the OTCQX, OTCQB or Pink (with Current Information) markets not later than November 3, 2018.
8. Termination. This Agreement shall terminate and be of no further force or effect when there shall no longer be any Registrable Securities outstanding; provided, that the provisions of Section 4 and Section 6 shall survive any such termination.
9. Notices. All notices, requests, consents, claims, demands, waivers and other communications hereunder shall be in writing and shall be deemed to have been given (a) when delivered by hand (with written confirmation of receipt); (b) when received by the addressee if sent by a nationally recognized overnight courier (receipt requested); (c) on the date sent by facsimile or e-mail of a PDF document (with confirmation of transmission) if sent during normal business hours of the recipient, and on the next Business Day if sent after normal business hours of the recipient; or (d) on the third (3rd) day after the date mailed, by certified or registered mail, return receipt requested, postage prepaid. Such communications must be sent to the respective parties at the addresses indicated in the Purchase Agreement.
10. Entire Agreement. This Agreement, together with the Purchase Agreement and other Transaction Documents (as defined in the Purchase Agreement), constitutes the sole and entire agreement of the parties to this Agreement with respect to the subject matter contained herein, and supersedes all prior and contemporaneous understandings and agreements, both written and oral, with respect to such subject matter. Notwithstanding the foregoing, in the event of any conflict between the terms and provisions of this Agreement and those of the Purchase Agreement or any other Transaction Document with respect to or relating to the registration rights provided for herein, the terms and conditions of this Agreement shall control.
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11. Successor and Assigns. This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors and permitted assigns. The Company may assign this Agreement at any time in connection with a sale or acquisition of the Company, whether by merger, consolidation, sale of all or substantially all of the Company’s assets, or similar transaction, without the consent of the Investor; provided, that the successor or acquiring Person agrees in writing to assume all of the Company’s rights and obligations under this Agreement.
12. No Third-Party Beneficiaries. This Agreement is for the sole benefit of the parties hereto and their respective successors and permitted assigns and nothing herein, express or implied, is intended to or shall confer upon any other Person any legal or equitable right, benefit or remedy of any nature whatsoever, under or by reason of this Agreement.
13. Headings. The headings in this Agreement are for reference only and shall not affect the interpretation of this Agreement.
14. Amendment, Modification and Waiver. The provisions of this Agreement may only be amended, modified, supplemented or waived with the prior written consent of the Company and the Holders of a majority of the then outstanding Registrable Shares; provided, however, that any amendment that would affect any Holder of Registrable Securities then outstanding (solely in such Holder’s capacity as a Holder of Registrable Securities and not otherwise) in a disproportionately material or adverse manner shall be effected only with the prior written consent of such Holder. No waiver by any party or parties shall operate or be construed as a waiver in respect of any failure, breach or default not expressly identified by such written waiver, whether of a similar or different character, and whether occurring before or after that waiver. Except as otherwise set forth in this Agreement, no failure to exercise, or delay in exercising, any right, remedy, power or privilege arising from this Agreement shall operate or be construed as a waiver thereof; nor shall any single or partial exercise of any right, remedy, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege.
15. Severability. If any term or provision of this Agreement is invalid, illegal or unenforceable in any jurisdiction, such invalidity, illegality or unenforceability shall not affect any other term or provision of this Agreement or invalidate or render unenforceable such term or provision in any other jurisdiction. Upon such determination that any term or other 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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16. Governing Law; Submission to Jurisdiction. This Agreement shall be governed by and construed in accordance with the internal laws of the State of Delaware without giving effect to any choice or conflict of law provision or rule (whether of the State of Delaware or any other jurisdiction). Any legal suit, action or proceeding arising out of or based upon this Agreement or the transactions contemplated hereby may be instituted in the federal courts of the United States or the courts of the State of Delaware, and each party irrevocably submits to the exclusive jurisdiction of such courts in any such suit, action or proceeding. Service of process, summons, notice or other document by mail to such party’s address set forth herein shall be effective service of process for any suit, action or other proceeding brought in any such court. The parties irrevocably and unconditionally waive any objection to the laying of venue of any suit, action or any proceeding in such courts and irrevocably waive and agree not to plead or claim in any such court that any such suit, action or proceeding brought in any such court has been brought in an inconvenient forum.
17. Waiver of Jury Trial. Each party acknowledges and agrees that any controversy which may arise under this Agreement is likely to involve complicated and difficult issues and, therefore, each such party irrevocably and unconditionally waives any right it may have to a trial by jury in respect of any legal action arising out of or relating to this Agreement or the transactions contemplated hereby. Each party to this Agreement certifies and acknowledges that (a) no representative of any other party has represented, expressly or otherwise, that such other party would not seek to enforce the foregoing waiver in the event of a legal action, (b) such party has considered the implications of this waiver, (c) such party makes this waiver voluntarily, and (d) such party has been induced to enter into this Agreement by, among other things, the mutual waivers and certifications in this Section 17.
18. Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed to be an original, but all of which together shall be deemed to be one and the same agreement. A signed copy of this Agreement delivered by facsimile, e-mail or other means of electronic transmission shall be deemed to have the same legal effect as delivery of an original signed copy of this Agreement.
19. No Conflicting Rights. The Company shall not enter into any agreement, take any action, or permit any change to occur, with respect to its securities that violates or subordinates the rights expressly granted to the Holders of Registrable Securities in this Agreement.
20. Further Assurances. Each of the parties to this Agreement shall, and shall cause their affiliates to, execute and deliver such additional documents, instruments, conveyances and assurances and take such further actions as may be reasonably required to carry out the provisions hereof and to give effect to the transactions contemplated hereby.
[SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, the parties hereto have executed this Registration Rights Agreement on the date first written above.
COMPANY | ||
FAT BRANDS INC. | ||
By: | /s/ Andrew A. Wiederhorn | |
Name: | Andrew A. Wiederhorn | |
Title: | Chief Executive Officer | |
INVESTOR | ||
Print Name: ______________________________________ | ||
By: | ||
Name: | ||
Title: |
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LOAN AND SECURITY AGREEMENT
among
FAT Brands Inc., as the Borrower;
the subsidiaries and affiliates of the Borrower
listed on the signature pages hereto , as Guarantors;
and
FB Lending, LLC, as Lender
Dated as of July 3, 2018
LOAN AND SECURITY AGREEMENT
This Loan and Security Agreement, dated as of July 3, 2018 (the “Closing Date”) is made by and among FAT Brands Inc., a Delaware corporation (“Borrower”), the subsidiaries and affiliates of the Borrower listed on the signature pages hereto (the “Guarantors”) and FB Lending, LLC, a California limited liability company (“Lender”).
RECITALS:
A. The Borrower has requested that Lender extend a senior secured term loan facility to the Borrower in the amount of Sixteen Million Dollars ($16,000,000), the proceeds of which will be used, together with proceeds from the issuance of preferred stock, to (i) retire and extinguish all of the existing senior secured indebtedness owed to TCA Global Credit Master Fund, LP, a Cayman Islands limited partnership (“TCA”) under that certain Securities Purchase Agreement dated April 27, 2018 (the “TCA Facility”) between the Borrower and TCA, for a payment of approximately $2.2 million, (ii) complete the acquisition of Hurricane AMT, LLC, (iii) fund Transaction Costs and (iv) fund a minimum of $5 million to the Borrower’s balance sheet for general corporate purposes. To induce the Lender to make the Loan hereunder, the Borrower has agreed to grant a first priority security interest in all its assets to secure its Obligations under the Loan Documents.
B. To induce the Lender to make the Loan hereunder, the Guarantors, for good and valuable consideration, have agreed to guaranty the Borrower’s Obligations under the Loan Documents and to grant to Lender a first priority security interest in all the assets of the Guarantors to secure the Obligations under the Loan Documents.
NOW, THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged by the parties hereto, the parties, intending to be legally bound, agree as follows:
AGREEMENT
1. DEFINITIONS. As used herein, the following terms shall have the following meanings (terms defined in the singular shall have the same meaning when used in the plural and vice versa):
1.1 “Affiliate” shall mean any Person: (i) which directly or indirectly through one or more intermediaries controls, or is controlled by, or is under common control with, Borrower; (ii) which beneficially owns or holds 5% or more of any class of the voting stock or other equity interest in Borrower; or (iii) 5% or more of the voting stock or other equity interest of which is beneficially owned or held by Borrower. For purposes hereof, “control” means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting stock or other equity interests. by contract or otherwise.
1.2 “Agreement” shall mean this Loan and Security Agreement, together with all Schedules and Exhibits attached or otherwise identified thereto, as the same may be amended, modified, restated or supplemented from time to time.
1.3 “Anti-Terrorism Laws” shall mean any and all laws, regulations, rules, orders, etc. in effect from time to time relating to anti-money laundering and terrorism, including, without limitation, Executive Order No. 13224 (effective September 24, 2001) and the USA Patriot Act.
1.4 “Blocked Person” shall mean any person: (a) listed in the annex to Executive Order No. 13224, (b) owned or controlled by, or acting for or on behalf of, any person listed in the annex to Executive Order No. 13224, (c) with which Lender is prohibited from dealing or otherwise engaging in any transaction by any Anti-Terrorism Law, (d) that commits, threatens or conspires to commit or supports “terrorism” as defined in Executive Order No. 13224. (e) a person that is named a “specially designated national” or “blocked person” on the most current list published by OFAC or other similar list, (f) a person that is named a “denied person” on the most current list published by the U.S. Commerce Department, or (g) (i) an agency of the government of a Sanctioned Country, (ii) an organization controlled by a Sanctioned Country, or (iii) a person resident in a Sanctioned Country to the extent subject to a sanctions program administered by OFAC.
1.5 “Borrower” shall have the meaning set forth in the Preamble of this Agreement.
1.6 “Business Day” shall mean any day other than a Saturday, Sunday or other day on which commercial banks under the laws of the State of New York are authorized or required by law to close.
1.7 “Capital Expenditure” shall mean, as determined in accordance with GAAP, the dollar amount of gross expenditures (including obligations under capital leases) made or incurred for fixed assets, real property, plant and equipment, and all renewals, improvements and replacements thereto (but not repairs thereof) during any period.
1.8 “Change of Control” means the occurrence of any of the following:
(a) the direct or indirect sale, lease, transfer, conveyance or other disposition (other than by way of merger or consolidation), in one or a series of related transactions, of all or substantially all of the properties or assets of the Borrower and its Subsidiaries taken as a whole to any “person” or “group” (as such terms are used in Section 13(d) or 14(d) of the Exchange Act or any successor provision);
(b) the adoption of a plan relating to the liquidation or dissolution of the Borrower;
(c) the consummation of any transaction (including, without limitation, any merger, consolidation or other business combination), the result of which is that any “person” or “group” (as defined above), other than a Permitted Holder, becomes the Beneficial Owner in a single transaction or a series of related transactions, directly or indirectly, of more than 50% of the voting stock of the Borrower, measured by voting power rather than number of shares; or
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(d) the first day on which a majority of the members of the Board of Directors of the Borrower were not members of the Board of Directors on the Closing Date.
1.9 “Closing Date” shall have the meaning set forth in the Preamble.
1.10 “Code” shall mean the Internal Revenue Code of the United States, as amended.
1.11 “Collateral” shall mean all tangible and intangible personal property of each Loan Party, wherever located and whether now owned or hereafter acquired, including but not limited to all accounts, contracts rights, franchise rights, chattel paper, cash, general intangibles, investment property, machinery, equipment, goods, inventory, furniture, fixtures, letter of credit rights, books and records, deposit accounts, documents, instruments and commercial tort claims, together with all proceeds thereof, including insurance proceeds (as each such term above is defined in the UCC).
1.12 “Collateral Access Agreement” shall mean a Collateral Access Agreement with respect to the chief executive office of the Borrower and substantially in the form of Exhibit D with such amendments or modifications as may be approved by the Lender.
1.13 “Collateral Questionnaire” shall mean a certificate reasonably satisfactory to the Lender that provides information with respect to the personal or mixed property of each Loan Party.
1.14 “Compliance Certificate” shall mean a compliance certificate substantially in the form attached hereto as Exhibit B.
1.15 “Consolidated Adjusted EBITDA” shall mean, without duplication for any period, Consolidated Net Income for such period, adjusted by adding thereto, in each case only to the extent (and in the same proportion) deducted in determining such Consolidated Net Income and without duplication:
(a) GAAP depreciation, amortization, Consolidated Interest Expense and income taxes;
(b) one-time non-cash restructuring and integration expenses, extraordinary losses and charges, including without limitation, severance payments; provided that the aggregate amount included pursuant to this clause (b) shall not exceed 20% of Consolidated Adjusted EBITDA (prior to giving effect to this clause (b));
(c) transaction fees and expenses incurred in connection with any Permitted Acquisition and related financings, and
(d) non-cash charges and losses; less
(1) without duplication and to the extent reflected as a gain or otherwise included in the calculation of Consolidated Net Income for such period, non-cash gains.
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1.16 “Consolidated Interest Expense” shall mean, for any period, total consolidated interest expense (including interest attributable to obligations under capital leases in accordance with GAAP) of the Borrower and its Subsidiaries for such period, determined on a consolidated basis in accordance with GAAP, with respect to all outstanding Indebtedness of the Borrower and its Subsidiaries.
1.17 “Consolidated Net Income” shall mean, for any period, the consolidated net income (or loss) of the Borrower and its Subsidiaries for such period, determined on a consolidated basis in accordance with GAAP; provided, however, that there shall be excluded, without duplication:
(a) the income (or loss) of any Person accrued prior to the date it became a Subsidiary or is merged into or consolidated with the Borrower or any of its Subsidiaries or that Person’s assets are acquired by the Borrower or any of its Subsidiaries;
(b) the income (or loss) of any Person that is not a Subsidiary of the Borrower or that is accounted for by the equity method of accounting; provided that Consolidated Net Income shall be increased by the amount of dividends or distributions or other payments that are actually paid in cash or cash equivalents (or to the extent subsequently converted into cash or cash equivalents) to the Borrower or any of its Subsidiaries by such Person in such period;
(c) the undistributed earnings of any Subsidiary of the Borrower to the extent that the declaration or payment of dividends or similar distributions by such Subsidiary is not at the time permitted by operation of the terms of its Organizational Documents or any contractual obligation (other than under any Loan Document) or requirement of law applicable to such Subsidiary;
(d) any after-tax effect of any extraordinary, non-recurring or unusual items (including gains or losses and all fees and expenses relating thereto) for such period; and
(e) the cumulative effect of a change in accounting principles and changes as a result of the adoption or modification of accounting policies during such period to the extent included in Consolidated Net Income.
1.18 “Control Agreement” means, with respect to each Loan Party, a deposit account control agreement over each deposit account (other than any payroll account or zero balance account) of such Loan Party, for which the average balance over a period of three months is $20,000 or more.
1.19 “Copyright Licenses” shall mean any and all agreements, licenses and covenants providing for the granting of any right in or to any Copyright or otherwise providing for a covenant not to sue for infringement or other violation of any Copyright (whether such Loan Party is licensee or licensor thereunder) including, without limitation, each agreement required to be listed in Schedule 9.19 under the heading “Copyright Licenses” (as such schedule may be amended or supplemented from time to time).
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1.20 “Copyrights” shall mean all United States, and foreign copyrights (whether or not the underlying works of authorship have been published), including but not limited to copyrights in software and all rights in and to databases, and all designs, whether registered or unregistered, as well as all moral rights, reversionary interests, and termination rights, and, with respect to any and all of the foregoing: (i) all registrations and applications therefor including, without limitation, the registrations and applications required to be listed in Schedule 9.19 under the heading “Copyrights” (as such schedule may be amended or supplemented from time to time), (ii) all extensions and renewals thereof, (iii) the right to sue or otherwise recover for any past, present and future infringement or other violation thereof, (iv) all Proceeds of the foregoing, including, without limitation, license fees, royalties, income, payments, claims, damages and proceeds of suit now or hereafter due and/or payable with respect thereto, and (v) all other rights of any kind accruing thereunder or pertaining thereto throughout the world.
1.21 “Default” shall mean an event or condition the occurrence of which would, with the lapse of time or the giving of notice, or both, become an Event of Default, whether or not Lender has declared an Event of Default to have occurred.
1.22 “Default Rate” shall have the meaning set forth in Section 3.1.
1.23 “Domestic Subsidiaries” shall mean a Subsidiary that was formed under the laws of the United States or any State thereof or the District of Columbia and is a “United States person” within the meaning of Section 7701(a)(30) of the Code
1.24 “Environment” shall mean any water or water vapor, any land surface or subsurface, air, fish, wildlife, biota and all other natural resources.
1.25 “Environmental Laws” shall mean all federal, state and local environmental, land use, zoning, health, chemical use, safety and sanitation laws, statutes, ordinances and codes relating to the protection of the Environment and/or governing the use, storage, treatment, generation, transportation, processing, handling, production or disposal of “hazardous substances” and the rules, regulations, policies, guidelines, interpretations, decisions, orders and directives of federal, state and local governmental agencies and authorities with respect thereto.
1.26 “Equity Interest” shall mean, with respect to a Person, all of the shares, options, warrants, interests, participations, or other equivalents (regardless of how designated) of or in such Person, whether voting or nonvoting, including capital stock (or other ownership or profit interests or units), preferred stock, or any other “equity security” (as such term is defined in Rule 3a11-1 of the General Rules and Regulations promulgated by the SEC under the Exchange Act).
1.27 “ERISA” shall mean the Employee Retirement Income Security Act of 1974, as amended.
1.28 “Events of Default” shall have the meaning set forth in Article 12 of this Agreement.
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1.29 “Extraordinary Receipts” means any cash received by or paid to or for the account of any Loan Party not in the ordinary course of business, including without limitation amounts received in respect of indemnity obligations of a seller under any stock or asset purchase agreements, foreign, United States, state or local tax refunds to the extent not included in the calculation of EBITDA and pension plan reversions, but excluding (a) cash proceeds received by any Loan Party pursuant to business interruption policies of insurance and (b) cash proceeds not exceeding $1,000,000 (per occurrence) received from casualty insurance policies to the extent used by the Loan Party to replace Equipment within sixty (60) days of receipt thereof .
1.30 “Fiscal Year” shall mean with respect to any Person, a year of 365 or 366 days, as the case may be, ending on the last day of June in any calendar year.
1.31 “GAAP” shall mean United States generally accepted accounting principles consistently applied and maintained throughout the period indicated and consistent with the prior financial practice of Borrower, except for changes mandated by the Financial Accounting Standards Board or any similar accounting authority of comparable standing. Whenever any accounting term is used herein which is not otherwise defined, it shall be interpreted in accordance with GAAP.
1.32 “Governmental Rules” shall have the meaning set forth in Section 6.20 of this Agreement.
1.33 “Guarantors” shall mean each of the Borrower’s wholly-owned subsidiaries and affiliates, including , but not limited to, Fatburger North America, Inc., a Delaware corporation, Ponderosa Franchising Company LLC, a Delaware limited liability company, Bonanza Restaurant Company LLC, a Delaware limited liability company, Ponderosa International Development, Inc., a Delaware corporation, Puerto Rico Ponderosa, Inc., a Delaware corporation, Buffalo’s Franchise Concepts, Inc., a Nevada corporation, Buffalo’s Franchise Concepts Inc., a Georgia corporation, Fatburger Corporation, a Delaware corporation, and Homestyle Dining LLC, a Delaware limited liability company (together with any additional Domestic Subsidiary that at any time after the Closing Date becomes an additional Guarantor to this Agreement and any additional Person that at any time after the Closing Date guarantees payment or performance of the whole or any part of the Obligations).
1.34 “Indebtedness” shall mean and include all obligations for borrowed money of any kind or nature, including funded debt and unfunded liabilities; contingent obligations under guaranties or letters of credit; and all obligations for the acquisition or use of any fixed asset, including capitalized leases, or improvements which are payable over a period longer than one year, regardless of the term thereof or the Person or Persons to whom the same is payable, and the Obligations; provided that “Indebtedness” shall not include surety bonds or performance bonds or other obligations of a like nature incurred in the Borrower’s ordinary course of business as currently conducted.
1.35 “IP Security Agreement” shall mean each intellectual property security agreement executed and delivered by a Loan Party in favor of the Lender to perfect the Lender’s security interest in Collateral consisting of Patents, Trademarks or Copyrights held by the Borrower.
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1.36 “Lender’s Commitment” shall mean Sixteen Million Dollars ($16,000,000).
1.37 “Loan” shall mean the term loan made by Lender under this Agreement.
1.38 “Loan Documents” shall mean this Agreement, the Term Loan Note, the Warrant, the Collateral Access Agreement, each IP Security Agreement, each Control Agreement and all other agreements, guaranties, pledges, collateral access agreements, support agreements, assignments, certificates, documents and instruments to be delivered by Borrower or any other Person under this Agreement or in connection with the Loans, the Collateral or any other Indebtedness or Obligations of Borrower to Lender, as the same may be amended, modified, restated or supplemented from time to time.
1.39 “Loan Interest Rate” shall mean fifteen percent per annum.
1.40 “Loan Party” shall mean the Borrower and the Guarantors.
1.41 “Material Adverse Effect” shall mean any material adverse effect on (a) the business, assets, operations, or condition, financial or otherwise, of any Loan Party; (b) any Loan Party’s ability to pay or perform the Obligations in accordance with their terms; (c) the value, collectability or salability of the Collateral or the perfection or priority of Lender’s liens; (d) the validity or enforceability of this Agreement or any of the Loan Documents; or (e) the practical realization of the benefits, rights and remedies inuring to Lender under this Agreement or under the Loan Documents, all at the reasonable discretion of the Lender.
1.42 “Material Contract” means (i) any contract, license or other arrangement to which the Borrower or any of its Subsidiaries is a party (other than the Loan Documents) for which breach, nonperformance, cancellation or failure to renew could reasonably be expected to have a Material Adverse Effect, (ii) any contract, license, agreement or arrangement, individually or in the aggregate, to which the Borrower or any of its Subsidiaries is a party (including, without limitation, any agreement or instrument evidencing or governing Indebtedness) involving aggregate consideration payable (A) to the Borrower or such Subsidiary in connection with a revenue-generating contract, license or agreement of $1,000,000 or more per Fiscal Year or (B) by the Borrower or such Subsidiary in connection with a distributor, licensor, vendor or supplier contract, license or agreement of $1,000,000 or more per Fiscal Year (in the case of this clause (ii), other than contracts that by their terms may be terminated by such Person or the Borrower or any of its Subsidiaries in the ordinary course of its business upon less than 60 days’ notice without penalty or premium), and (iii) to the extent not listed above, all contracts and arrangements listed on Schedule 9.19 (and any extensions or renewals thereof).
1.43 “Maturity Date” shall mean June 30, 2020.
1.44 “Net Cash Proceeds” shall mean shall mean:
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(a) with respect to any sale or disposition by any Loan Party of assets (including, without limitation, the loss, destruction or damage of any thereof or any actual or threatened (in writing to any Loan Party or Subsidiary thereof) condemnation, confiscation, requisition, seizure or taking thereof), the amount of cash proceeds received (directly or indirectly) from time to time (whether as initial consideration or through the payment of deferred consideration) by or on behalf of such Loan Party, in connection therewith after deducting therefrom only (i) fees, commissions, and expenses related thereto and required to be paid by such Loan Party in connection with such sale or disposition to the extent that such fees, commissions and expenses are acceptable to Lender in its commercially reasonable discretion based on comparable sales or dispositions, (ii) any Indebtedness that financed such assets and that is required to be paid by the Loan Party in connection with such sale or disposition and (iii) taxes paid or payable to any taxing authorities by such Loan Party in connection with such sale or disposition, in each case to the extent, but only to the extent, that the amounts so deducted are, at the time of receipt of such cash, actually paid or payable to a Person that is not an Affiliate of any Loan Party, and are properly attributable to such transaction;
(b) with respect to the issuance or incurrence of any Indebtedness by any Loan Party, or the issuance by any Loan Party of any Equity Interests, the aggregate amount of cash received (directly or indirectly) from time to time (whether as initial consideration or through the payment or disposition of deferred consideration) by or on behalf of such Loan Party in connection with such issuance or incurrence, after deducting therefrom only (i) reasonable fees, commissions, and expenses related thereto and required to be paid by such Loan Party in connection with such issuance or incurrence to the extent that such fees, commissions and expenses are acceptable to Lender in its commercially reasonable discretion based on comparable sales or dispositions, and (ii) taxes paid or payable to any taxing authorities by such Loan Party in connection with such issuance or incurrence, in each case to the extent, but only to the extent, that the amounts so deducted are, at the time of receipt of such cash, actually paid or payable to a Person that is not an Affiliate of any Loan Party, and are properly attributable to such transaction; and
(c) with respect to any Extraordinary Receipt, the aggregate cash proceeds received by any Loan Party pursuant thereto, net of the direct costs relating thereto.
1.45 “Notice of Borrowing” shall mean a borrowing request in substantially the form set forth in Exhibit A attached hereto.
1.46 “Obligations” shall mean and include all loans (including the Loan), debts, liabilities, obligations, covenants and duties owing by the Borrower to the Lender or any Affiliate of the Lender of any kind or nature, present or future, whether or not evidenced by any note, guaranty or other instrument, arising under this Agreement, or any of the other Loan Documents or under any other agreement or by operation of law, whether or not for the payment of money, whether arising by reason of an extension of credit, opening, guaranteeing or confirming of a letter of credit, loan, guaranty, indemnification or in any other manner, whether direct or indirect (including those acquired by purchase or assignment), absolute or contingent, due or to become due, now due or hereafter arising and howsoever acquired including, without limitation, all interest, charges, expenses, fees (including the Prepayment Premium), commitment, facility, collateral management or other fees, attorneys’ fees and expenses, consulting fees and expenses and any other sum chargeable to the Borrower under this Agreement, or any of the other Loan Documents.
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1.47 “OFAC” shall mean the U.S. Department of Treasury Office of Foreign Assets Control (or any successor agency).
1.48 “Organizational Document” shall mean (i) with respect to any corporation or company, its certificate, memorandum or articles of incorporation, association or organization, as amended, and its by-laws, as amended, (ii) with respect to any limited partnership, its certificate of limited partnership, as amended, and its partnership agreement, as amended, (iii) with respect to any general partnership, its partnership agreement, as amended, and (iv) with respect to any limited liability company, its articles of organization, as amended, and its operating agreement, as amended. In the event any term or condition of this Agreement or any other Loan Document requires any Organizational Document to be certified by a secretary of state or similar governmental official, the reference to any such “Organizational Document” shall only be to a document of a type customarily certified by such governmental official.
1.49 “Patent Licenses” shall mean all agreements, licenses and covenants providing for the granting of any right in or to any Patent or otherwise providing for a covenant not to sue for infringement or other violation of any Patent (whether any Loan Party is licensee or licensor thereunder) including, without limitation, each agreement required to be listed in Schedule 9.19 under the heading “Patent Licenses” (as such schedule may be amended or supplemented from time to time).
1.50 “Patents” shall mean all United States and foreign patents and certificates of invention, or similar industrial property rights, and applications for any of the foregoing, including, without limitation: (i) each patent and patent application required to be listed in Schedule 9.19 under the heading “Patents” (as such schedule may be amended or supplemented from time to time), (ii) all reissues, divisions, continuations, continuations-in-part, extensions, renewals, and reexaminations thereof, (iii) all patentable inventions and improvements thereto, (iv) the right to sue or otherwise recover for any past, present and future infringement or other violation thereof, (v) all Proceeds of the foregoing, including, without limitation, license fees, royalties, income, payments, claims, damages, and proceeds of suit now or hereafter due and/or payable with respect thereto, and (vi) all other rights of any kind accruing thereunder or pertaining thereto throughout the world.
1.51 “Permitted Acquisitions” shall mean any acquisition by Borrower of (i) all or substantially all of the assets of a Person, or of all or substantially all of any business or division of a Person or (ii) no less than 80% of the equity interests of any Person, in each case, that meets all of the following requirements:
(a) prior to the proposed closing date of such acquisition, Borrower shall have delivered written notice of such acquisition to Lender, which notice shall include the proposed closing date of such acquisition;
(b) prior to the proposed closing date of such acquisition, Borrower shall have delivered to Lender, copies of substantially final acquisition documentation;
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(c) no Default or Event of Default shall have occurred and be continuing both before and after giving effect to such acquisition;
(d) prior to the proposed closing date of such acquisition, Borrower shall have delivered to Lender, a compliance certificate, in form and substance reasonably satisfactory to Lender and with supporting calculations attached, executed by the chief executive officer of Borrower, demonstrating that Borrower, on a pro forma basis for the 12 month period then ending on the closing date of the acquisition, has a cumulative Consolidated Adjusted EBITDA at least equal to the amounts required to permit Restricted Junior Payments as set forth in Section 10.6; and
(e) Borrower shall not utilize cash assets as consideration, in whole or in part, for such acquisition of assets or equity interests without the prior consent of the Lender.
1.52 “Permitted Holders” shall mean Fog Cutter Capital Group.
1.53 “Permitted Preferred Equity” shall mean (i) up to $4,500,000 of preferred stock of the Borrower, to be issued in partial consideration for the acquisition of Hurricane AMT, LLC, (ii) $8,000,000 of Series A Fixed Rate Cumulative Preferred Stock of the Borrower, which was initially issued on or about June 8, 2018 to Trojan Investments, LLC, and (iii) up to an additional $2,000,000 of Series A Fixed Rate Cumulative Preferred Stock of the Borrower.
1.54 “Permitted Liens” shall mean:
(a) liens securing the Obligations;
(b) the claims of materialmen, mechanics, carriers, warehousemen, processors or landlords arising out of operation of law so long as the obligations secured thereby (i) are not past due or (ii) are being properly contested and for which Borrower has established adequate reserves;
(c) liens consisting of deposits or pledges made in the ordinary course of business in connection with workers’ compensation, unemployment insurance, social security and similar laws;
(d) liens in equipment (including capital leases) to secure purchase money Indebtedness permitted under Section 10.1 hereof, so long as such security interests do not apply to any property of Borrower other than the equipment so acquired, and the Indebtedness secured thereby does not exceed the cost of such equipment;
(e) liens incurred in connection with surety bonds or performance bonds and other obligations of like nature incurred in its ordinary course of business as currently conducted; and
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(f) liens for taxes, assessments or governmental charges not delinquent or being contested by Borrower in good faith by appropriate proceedings being diligently conducted and for which reserves in accordance with GAAP have been established and maintained, provided that Borrower has notified Lender of such a lien and has provided Lender with all relevant documentation and related correspondence, including all ongoing correspondence related to a resolution of the matter.
1.55 “Person” shall mean an individual, partnership, limited liability company, limited liability partnership, corporation, joint venture, joint stock company, land trust, business trust or unincorporated organization, or a government or agency or political subdivision thereof.
1.56 “Plan” shall mean an employee benefit plan or other plan now or hereafter maintained for employees of Borrower or any subsidiary of Borrower and covered by Title IV of ERISA.
1.57 “Pledged Debt” shall mean all indebtedness for borrowed money owed to any Loan Party, whether or not evidenced by any instrument, including, without limitation, all indebtedness described on Schedule 9.19 under the heading “Pledged Debt” (as such schedule may be amended or supplemented from time to time), issued by the obligors named therein, the instruments, if any, evidencing such any of the foregoing, and all interest, cash, instruments and other property or proceeds from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of the foregoing.
1.58 “Pledged Equity Interests” shall mean, in each case as owned by any Loan Party and pledged as Collateral hereunder, all Pledged Stock, Pledged LLC Interests, Pledged Partnership Interests and any other participation or interests in any equity or profits of any entity including, without limitation, any trust and all management rights relating to any entity whose equity interests are included as Pledged Equity Interests.
1.59 “Pledged LLC Interests” shall mean all interests in any limited liability company and each series thereof including, without limitation, all limited liability company interests listed on Schedule 9.19 (as such schedule may be amended or supplemented from time to time) and the certificates, if any, representing such limited liability company interests and any interest of any Loan Party on the books and records of such limited liability company or on the books and records of any securities intermediary pertaining to such interest and all dividends, distributions, cash, warrants, rights, options, instruments, securities and other property or proceeds from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of such limited liability company interests and all rights as a member of the related limited liability company.
1.60 “Pledged Partnership Interests” shall mean all interests in any general partnership, limited partnership, limited liability partnership or other partnership including, without limitation, all partnership interests listed on Schedule 9.19 (as such schedule may be amended or supplemented from time to time) and the certificates, if any, representing such partnership interests and any interest of any Loan Party on the books and records of such partnership or on the books and records of any securities intermediary pertaining to such interest and all dividends, distributions, cash, warrants, rights, options, instruments, securities and other property or proceeds from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of such partnership interests and all rights as a partner of the related partnership.
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1.61 “Pledged Stock” shall mean all shares of capital stock owned by such Grantor, including, without limitation, all shares of capital stock described on Schedule 9.19 (as such schedule may be amended or supplemented from time to time), and the certificates, if any, representing such shares and any interest of any Loan Party in the entries on the books of the issuer of such shares or on the books of any securities intermediary pertaining to such shares, and all dividends, distributions, cash, warrants, rights, options, instruments, securities and other property or proceeds from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of such shares.
1.62 “Preferred Equity” means a direct or indirect equity ownership interest in, economic interests in, or rights with respect to, the Borrower that provide an equity owner preferred dividend, distribution, payment, or return treatment relative to other equity owners.
1.63 “Prepayment Premium” means, with respect to the prepayment of the Loan prior to the Maturity Date, whether voluntarily or mandatory, whether or not during the existence of an Event of Default and whether before or after acceleration:
(a) ten percent (10%), in the case of a prepayment prior to the first anniversary of the Closing Date; and
(b) five percent (5%), in the case of a prepayment on or after the first anniversary of the Closing Date but prior to the Maturity Date.
Loan Parties acknowledge that the Lender shall suffer damages on account of the early payment of the Loan and that the Prepayment Premium is a reasonable calculation of the lost profits of the Lender holding the Loan in view of the difficulties and impracticality of determining actual damages resulting from prepayment
1.64 “Reportable Event” shall have the meaning assigned to that term in Title IV of ERISA.
1.65 “Restricted Junior Payment” shall mean (i) any cash dividend or other distribution, direct or indirect, on account of any shares of any class of capital stock of any Loan Party or any of its subsidiaries now or hereafter outstanding (other than any such dividend or distribution from a Loan Party to another Loan Party); (ii) any redemption, retirement, sinking fund or similar payment, purchase or other acquisition for value, direct or indirect, of any shares of any class of capital stock of any Loan Party or any of its Subsidiaries now or hereafter outstanding; (iii) payments with respect to any earn-out obligation or deferred purchase price in connection with any acquisition agreement (other than working capital adjustments) and (iv) any payments of principal, interest, premium or other amounts payable with respect to Subordinate Indebtedness.
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1.66 “Sanctioned Country” shall mean any country subject to the sanctions program identified on the most current list maintained by OFAC.
1.67 “Solvent” shall mean when used with respect to any Person, such Person (a) owns property the fair value of which is greater than the amount required to pay all of such Person’s Indebtedness (including contingent debts), (b) owns property the present fair salable value of which is greater than the amount that will be required to pay the probable liabilities of such Person on its then existing Indebtedness as such become absolute and matured, (c) is able to pay all of its Indebtedness as such Indebtedness matures, and (d) has capital sufficient to carry on its then existing business.
1.68 “Subordinate Indebtedness” shall mean any Indebtedness which is subordinated or junior in right of payment to the Loan and, with respect to the Guarantors, the guarantees of the Loan hereunder.
1.69 “Subsidiary” shall mean with respect to any Person, any corporation, partnership, limited liability company, association, joint venture or other business entity of which more than 50% of the total voting power of shares of stock or other ownership interests entitled (without regard to the occurrence of any contingency) to vote in the election of the Person or Persons (whether directors, managers, trustees or other Persons performing similar functions) having the power to direct or cause the direction of the management and policies thereof is at the time owned or controlled, directly or indirectly, by that Person or one or more of the other Subsidiaries of that Person or a combination thereof.
1.70 “Term Loan Note” shall mean the promissory note, in form and substance satisfactory to Lender, to be given by Borrower to Lender to evidence the Loan.
1.71 “Trademark Licenses” shall mean any and all agreements, licenses and covenants providing for the granting of any right in or to any Trademark or otherwise providing for a covenant not to sue for infringement dilution or other violation of any Trademark or permitting co-existence with respect to a Trademark (whether any Loan Party is licensee or licensor thereunder) including, without limitation, each agreement required to be listed in Schedule 9.19 (as such schedule may be amended or supplemented from time to time).
1.72 “Trademarks” shall mean all United States, and foreign trademarks, trade names, trade dress, corporate names, company names, business names, fictitious business names, Internet domain names, service marks, certification marks, collective marks, logos, other source or business identifiers, designs and general intangibles of a like nature, whether or not registered, and with respect to any and all of the foregoing: (i) all registrations and applications therefor including, without limitation, the registrations and applications required to be listed in Schedule 9.19 (as such schedule may be amended or supplemented from time to time), (ii) all extensions or renewals of any of the foregoing, (iii) all of the goodwill of the business connected with the use of and symbolized by any of the foregoing, (iv) the right to sue or otherwise recover for any past, present and future infringement, dilution or other violation of any of the foregoing or for any injury to the related goodwill, (v) all Proceeds of the foregoing, including, without limitation, license fees, royalties, income, payments, claims, damages, and proceeds of suit now or hereafter due and/or payable with respect thereto, and (vi) all other rights of any kind accruing thereunder or pertaining thereto throughout the world.
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1.73 “Trade Secret Licenses” shall mean any and all agreements providing for the granting of any right in or to Trade Secrets (whether any Loan Party is licensee or licensor thereunder) including, without limitation, each agreement required to be listed in Schedule 9.19 (as such schedule may be amended or supplemented from time to time).
1.74 “Trade Secrets” shall mean all trade secrets and all other confidential or proprietary information and know-how whether or not the foregoing has been reduced to a writing or other tangible form, including all documents and things embodying, incorporating, or referring in any way to the foregoing, and with respect to any and all of the foregoing: (i) the right to sue or otherwise recover for any past, present and future misappropriation or other violation thereof, (ii) all Proceeds of the foregoing, including, without limitation, license fees, royalties, income, payments, claims, damages, and proceeds of suit now or hereafter due and/or payable with respect thereto; and (iii) all other rights of any kind accruing thereunder or pertaining thereto throughout the world.
1.75 “Transaction Costs” shall mean the fees, costs and expenses payable by the Borrower on or before the Closing Date in connection with the transactions contemplated by the Loan Documents.
1.76 “UCC” shall mean the Uniform Commercial Code as in effect in the State of New York from time to time; provided, however, that in the event that, by reason of mandatory provisions of law, any or all of the perfection or priority of, or remedies with respect to, any Collateral is governed by the Uniform Commercial Code as enacted and in effect in a jurisdiction other than the State of New York, the term “UCC” shall mean the Uniform Commercial Code as enacted and in effect in such other jurisdiction solely for purposes of the provisions hereof relating to such perfection, priority or remedies.
1.77 UCC Definitions. References to terms that are not defined herein, but are defined in the UCC, shall have the meanings given them in the UCC (and, if defined in more than one Article of the UCC, shall have the meaning given in Article 9 thereof), including the meanings of Commercial Tort Claims, Commodity Account, Commodity Contract, Deposit Account, Equipment, General Intangibles, Goods, Instrument, Inventory, Letter of Credit Right, Payment Intangible, Proceeds, and Securities Account.
1.78 “Warrant” means that certain Warrant, dated as of July 3, 2018, by and between the Borrower and the Lender, in the form of Exhibit C
2. THE LOAN.
2.1 Draw of Loan. Subject to the terms and conditions of this Agreement and relying upon the representations and warranties set forth in this Agreement, Lender agrees to make the Loan in a single draw to the Borrower in the amount of the Lender’s Commitment. The Loan is a term loan and once borrowed, may not be re-borrowed.
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2.2 Manner of Borrowing. The Loan shall be requested in writing sent via facsimile or electronic transmission by a Notice of Borrowing executed by an authorized officer of the Borrower not later than 4:00 p.m. Eastern Time on any Business Day. The Lender will make the Loan within one (1) Business Day after Lender’s receipt of such Notice of Borrowing, if such Notice of Borrowing has been received by the Lender no later than 3:00 P.M. the prior day, to an account specified by the Borrower.
2.3 Evidence of Borrower’s Obligations. Borrower’s obligation to pay the principal of, and interest on, the Loan made to Borrower shall be evidenced by the Term Loan Note executed by Borrower and delivered to Lender.
2.4 Payment on Maturity Date. Notwithstanding anything herein to the contrary, on the Maturity Date Borrower shall pay to Lender in full, in cash, the entire outstanding principal balance of the Loan, plus all accrued and unpaid interest thereon and all other Obligations. Any Obligations that are not paid on the Maturity Date shall bear interest at the Default Rate until paid in full.
3. LENDER’S COMPENSATION.
3.1 Interest on Loan. Borrower shall pay interest quarterly, in arrears, on the fifth day after the end of each fiscal quarter of the Borrower, on the outstanding principal amount of the Loan at the Loan Interest Rate. Notwithstanding the foregoing, if an Event of Default has occurred and is continuing, Borrower shall pay interest on the Loan at a rate which is five percent (5.0%) per annum above the Loan Interest Rate (the “Default Rate”). Notwithstanding anything contained herein to the contrary, in no event shall any interest to be paid under this Agreement or under any Loan Document exceed the maximum rate permitted by law.
3.2 Computation of Interest and Fees. All interest and fees chargeable under the Loan Documents shall be computed on the basis of a 360 day year, in each case, for the actual number of days elapsed in the period during which the interest or fees accrue.
3.3 Payments. All payments with respect to the Obligations shall be paid, without any defense, offset or counterclaim of any kind, at 1999 Avenue of the Stars, Suite 2040, Los Angeles, CA 90067, or to such other address as the Lender shall specify, in accordance with wire instructions to be provided by the Lender, and as the Lender may update such instructions from time to time. Whenever any payment to be made shall be due on a day that is not a Business Day, such payment shall be made on the next succeeding Business Day and such extension of time shall be included in computing interest in connection with any such payment.
3.4 Optional Prepayment. The Borrower may prepay the principal of the Loan, in whole or in part, at any time upon written notice to the Lender. Each such prepayment of the Loan shall be accompanied by the payment of the Prepayment Premium for the account of the Lender. Partial prepayments must be in multiples of one million dollars of principal.
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3.5 Mandatory Prepayment. Except as set forth herein, the following mandatory prepayments of the Loan shall be accompanied by the payment of the Prepayment Premium for the account of Lender:
(a) Dispositions. Within ten (10) Business Days of the date of receipt by the Loan Parties of the Net Cash Proceeds of any voluntary or involuntary sale or disposition by the Loan Parties of assets (including, the loss, destruction or damage of any thereof or any actual or threatened (in writing to any Loan Party or Subsidiary thereof) condemnation, confiscation, requisition, seizure or taking thereof), the Loan Parties shall prepay the outstanding principal amount of the Loan in an amount equal to one hundred percent (100%) of such Net Cash Proceeds received by such Person in connection with such sales or dispositions; provided, however, that no such mandatory prepayment shall be required in connection with any sale or disposition of Equipment or other assets by a Loan Party if the Net Cash Proceeds from such sale or disposition are used within 60 days of the receipt thereof to purchase other Equipment or other assets necessary for the Business and the amount of such Net Cash Proceeds so used does not exceed $1,000,000 in any fiscal year.
(b) Indebtedness. Within ten (10) Business Days of the date of incurrence by the Loan Parties of any Indebtedness (other than any Indebtedness expressly permitted under Section 10.1), the Loan Parties shall prepay the outstanding principal amount of the Loan in an amount equal to one hundred percent (100%) of the Net Cash Proceeds received by such Person in connection with such incurrence. The provisions of this Section 3.5(b) shall not be deemed to be implied consent to any such incurrence otherwise prohibited by the terms of this Agreement.
(c) Equity. Within ten (10) Business Days of the date of the issuance by any Loan Party of any Equity Interests for cash (other than the issuance of (x) Permitted Preferred Equity and (y) Equity Interests of the Borrower to directors, officers and employees of the Borrower pursuant to employee stock option plans (or other employee incentive plans or other compensation arrangements) approved by the Board), the Loan Parties shall prepay the outstanding principal amount of the Loan in an amount equal to one hundred percent (100%) of the Net Cash Proceeds received by such Person in connection with such issuance. The provisions of this Section 3.4(c) shall not be deemed to be implied consent to any such issuance otherwise prohibited by the terms of this Agreement.
(d) Change of Control. Upon the occurrence of a Change of Control, the Loan Parties shall prepay the Obligations in full.
(e) Extraordinary Receipts. As soon as reasonably practicable (but in any event within ten (10) Business Days) following with the receipt by any Loan Party or Subsidiary thereof of any Net Cash Proceeds of Extraordinary Receipts, the Loan Parties shall prepay the outstanding principal amount of the Term Loans in an amount equal to 100% of such Net Cash Proceeds.
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4. GRANT OF SECURITY INTEREST.
4.1 Grant of Security Interest. To induce Lender to make the Loan hereunder, and to secure the payment, promptly when due, and the otherwise punctual performance of all of the Obligations, (a) the Borrower hereby pledges, transfers and assigns to Lender, and grants to Lender and agrees that Lender shall have, a first priority continuing lien upon and security interest in all of the Collateral in which the Borrower has any right, title or interest; and (b) each Guarantor hereby pledges, transfers and assigns to Lender, and grants to Lender and agrees that Lender shall have, a first priority continuing lien upon and security interest in, all of the Collateral in which such Loan Party has any right, title or interest.
4.2 Authorization to File. Each Loan Party hereby authorizes Lender to file any financing statements, continuation statements or amendments thereto that indicate the Collateral as all assets of such Loan Party or words of similar effect, and contain any other information required by Part 5 of Article 9 of the UCC. Each Loan Party acknowledges that it is not authorized to file any financing statement or amendment, termination or corrective statement with respect to any financing statement without the prior written consent of the Lender and agrees that it will not do so without the prior written consent of the Lender.
4.3 Other Perfection. Each Loan Party will execute and deliver to the Lender such security agreements, assignments and other papers as the Lender may at any time or from time to time reasonably request that are required to perfect or protect the security interest granted hereby. Each Loan Party shall also cooperate with the Lender, if requested by the Lender, in obtaining appropriate waivers or subordinations of interests from such third parties in any Collateral and in obtaining control of Collateral consisting of deposit accounts, investment property, letter-of-credit rights or electronic chattel paper. Each Loan Party shall promptly, and in any event within five (5) Business Days after the same is acquired by it, notify the Lender of any commercial tort claim acquired by it and shall enter into a supplement to this Agreement granting to the Lender a security interest in such commercial tort claim.
4.4 Maintenance of Collateral. Each Loan Party shall, at its sole expense, take good care of all its Collateral and afford it suitable preventive maintenance. No Loan Party will permit anything to be done that might in any way impair the value of any of the Collateral or any of the security intended to be afforded by this Agreement. Each Loan Party shall not pledge, assign or otherwise further encumber, or permit any additional liens or security interests (other than Permitted Liens) to attach to, any of the Collateral, nor permit any of the Collateral to be levied upon under any legal process, nor permit any of the Collateral to become or be a fixture, except with the express written consent of Lender. Upon any breach of the foregoing covenant against encumbrances, Lender may, at its sole election but without obligation to do so, and without limiting Lender’s other remedies (including without limitation declaring an Event of Default), discharge the encumbrance for the account of and without notice to the relevant Loan Party, and all expenses incurred by Lender in so doing shall be added to the Obligations and shall be payable by the Loan Parties upon demand, together with, at Lender’s election, interest thereon at the Default Rate.
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4.5 Attorney in Fact. Upon the occurrence and during the continuance of an Event of Default, each Loan Party hereby appoints Lender and such Person(s) as Lender may designate as its attorney in fact to (a) execute and deliver notices of lien, financing statements, assignments, and any other documents, notices, and agreements necessary for the perfection of Lender’s security interests in the Collateral, (b) endorse the name of such Loan Party on any checks, notes, drafts or other forms of payment or security that may come into the possession of Lender or any Affiliate of Lender, (c) sign such Loan Party’s name on invoices or bills of lading, drafts against customers, notice of assignment, verifications and schedules, and with respect to invoices, sell the accounts receivable generated from such invoices, (d) continue or obtain any insurance and pay all or any part of the premiums therefor and costs thereof, and make, settle and adjust all claims under such policies of insurance, (e) pay or discharge any taxes, liens, security interests or other encumbrances levied or placed on or threatened against any Loan Party or its property, (f) instruct any third party having custody or control of any Collateral or books and records belonging or relating to any Loan Party to give Lender the same rights of access and other rights with respect thereto as Lender has under this Agreement and the Loan Documents, (g) notify the Post Office authorities to change the address of delivery of mail to an address designated by Lender, and open and dispose of mail addressed to such Loan Party, and (h) generally, to do all things necessary to carry out the terms and provisions of this Agreement. The powers granted herein, being coupled with an interest, are irrevocable, and each Loan Party approves and ratifies all acts of the attorney-in-fact. Neither Lender nor its designated Person(s) shall be liable for any act or omission, error in judgment or mistake of law so long as the same is not willful or grossly negligent. Any and all sums paid, and any and all costs, expenses, liabilities, obligations and attorneys’ fees incurred by Lender with respect to the foregoing shall be added and become part of the Obligations, shall be payable on demand, and shall bear interest at the Loan Interest Rate, except that, any sums paid by Lender as a result of any Loan Party’s breach of its covenants set forth in Section 4.4 shall, at Lender’s election, bear interest at the Default Rate. Each Loan Party agrees that Lender’s rights under the foregoing power of attorney or any of Lender’s other rights under this Agreement and the other Loan Documents shall not be construed to indicate that Lender is in control of the business, management or properties of any Loan Party.
5. APPLICATION OF PROCEEDS. The proceeds of the Loan shall be used solely by the Borrower as set forth in the Preamble to this Agreement.
6. INDUCING REPRESENTATIONS. In order to induce Lender to make the Loans, each Loan Party makes the following representations and warranties to Lender:
6.1 Organization and Qualifications. Each Loan Party (a) is duly organized, validly existing and in good standing under the laws of its jurisdiction of organization as identified in Schedule 6.1, (b) has all requisite power and authority to own and operate its properties, to carry on its business as now conducted and as proposed to be conducted, to enter into the Loan Documents to which it is a party and to carry out the transactions contemplated thereby, and (c) except in jurisdictions where the failure to be so qualified or in good standing has not had, and could not be reasonably expected to have, a Material Adverse Effect, is qualified to do business and in good standing in every jurisdiction wherever necessary to carry out its business and operations.
6.2 Name and Address. Except as set forth on Schedule 6.2, during the preceding five (5) years, no Loan Party has been known by, nor has used any other name, whether corporate, fictitious or otherwise. The address of each Loan Party’s chief executive office is set forth in Schedule 6.2.
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6.3 Structure. No Loan Party has any subsidiaries or Affiliates, except as set forth on Schedule 6.3 attached hereto. All of the issued and outstanding capital stock of each Loan Party is owned by the Persons and in such amounts/percentages as set forth in Schedule 6.3 attached hereto.
6.4 Legally Enforceable Agreement. The execution, delivery and performance of this Agreement, each and all of the other Loan Documents and each and all other instruments and documents to be delivered by any Loan Party under this Agreement, and the creation of all liens and security interests provided for herein, are within the relevant Loan Party’s corporate or limited liability company power, have been duly authorized by all necessary or proper corporate or limited liability company action (including the consent of members or shareholders where required), are not in contravention of any agreement or indenture to which the relevant Loan Party is a party or by which it is bound, or of the charter documents (articles/certificate of incorporation, by-laws, articles/certificate of organization/formation or operating agreement, as the case may be) of the relevant Loan Party, and are not in contravention of any provision of law and the same do not require the consent or approval of any governmental body, agency, authority or any other Person which has not been obtained and a copy thereof furnished to Lender. Each Loan Document is the legally and valid binding obligation of the Loan Parties party thereto, except as may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws relating to or limiting creditors’ rights generally or by equitable principles relating to enforceability.
6.5 Solvent Financial Condition. Each Loan Party is Solvent.
6.6 Franchise Agreements. With respect to franchise agreements of the Loan Parties:
(a) Borrower has furnished to Lender true and complete copies of all existing franchise agreements between a Loan Party and a franchisee, including all related documents and guarantees.
(b) Borrower has furnished to Lender Borrower’s current standard form of franchise agreement and related disclosure documents.
(c) Borrower’s franchise disclosure documents furnished to potential franchisees are accurate and complete in all material respects, and do not contain any untrue statements of a material fact or omit to state material facts required to make the statements included therein not misleading.
6.7 Joint Ventures. Except as set forth in Schedule 6.7, no Loan Party is engaged in any joint venture or partnership with any other Person without prior approval from Lender.
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6.8 Real Estate. Attached hereto as Schedule 6.8 is a list showing all real property owned or leased by any Loan Party, and if leased, the correct name and address of the landlord and the date and term of the applicable lease.
6.9 Intellectual Property. Each Loan Party owns, possesses or is licensed to use all the patents, trademarks, service marks, trade names, copyrights, licenses and other intellectual property and/or propriety rights necessary for the present and planned future conduct of its business without any conflict with the rights of others. All such U.S. and foreign trademark registrations, copyright registrations, and patents, and all pending U.S. and foreign trademark, patent and copyright applications, patents, trademarks, service marks, trade names, copyrights, licenses and other similar rights are listed on Schedule 9.19 attached hereto, if any.
6.10 Existing Business Relationship. There exists no actual or threatened termination, cancellation or limitation of, or any adverse modification or change in, the business relationship of any Loan Party with any supplier, customer or group of customers whose purchases individually or in the aggregate could reasonably be expected to have a Material Adverse Effect.
6.11 Investment Company Act: Federal Reserve Board Regulations. The Borrower is not an “investment company”, or an “affiliated person” of, or “promoter” or “principal underwriter” for, an “investment company”, as such terms are defined in the Investment Company Act of 1940, as amended (15 U.S.C. §§ 80(a)(1), et seq.). The making of the Loans under this Agreement by Lender, the application of the proceeds and repayment thereof by Borrower and the performance of the transactions contemplated by this Agreement will not violate any provision of such Act, or any rule, regulation or order issued by the Securities and Exchange Commission thereunder. Borrower does not own any margin security as that term is defined in Regulation U of the Board of Governors of the Federal Reserve System and the proceeds of the Loans made pursuant to this Agreement will be used only for the purposes contemplated under this Agreement. None of the proceeds will be used, directly or indirectly, for the purpose of purchasing or carrying any margin security or for the purpose of reducing or retiring any Indebtedness which was originally incurred to purchase or carry margin security or for any other purpose which might constitute any of the Loans under this Agreement a “purpose credit” within the meaning of said Regulation U or Regulations T or X of the Federal Reserve Board. Borrower will not take, or permit any agent acting on its behalf to take, any action which might cause this Agreement or any document or instrument delivered pursuant hereto to violate any regulation of the Federal Reserve Board.
6.12 Tax Returns. Each Loan Party has filed all tax returns (federal, state or local) required to be filed and paid all taxes shown thereon to be due including interest and penalties. No assessments have been made against any Loan Party by any taxing authority, nor has any penalty or deficiency been made by any such authority, which remains outstanding or unpaid. To the best of each Loan Party’s knowledge, no Federal income tax return of such Loan Party is presently being examined by the Internal Revenue Service nor are the results of any prior examination by the Internal Revenue Service or any State or local tax authority being contested by any Loan Party.
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6.13 Litigation. Except as set forth in Schedule 6.13, no action or proceeding is now pending or, to the knowledge of each Loan Party, is threatened against such Loan Party, in equity or otherwise, before any court, board, commission, agency or instrumentality of the Federal or state government or of any municipal government or any agency or subdivision thereof, or before any arbitrator or panel of arbitrators, and no Loan Party has accepted liability for any such action or proceeding. None of the pending proceedings listed on Schedule 6.13, individually or collectively, if adversely determined, could reasonably be expected to have a Material Adverse Effect.
6.14 Title/ Liens. Each Loan Party has good and marketable title to the Collateral as sole owner thereof. There are no existing liens on any Collateral of any Loan Party, except for Permitted Liens. None of the Collateral is subject to any prohibition against encumbering, pledging, hypothecating or assigning the same or requires notice or consent in connection therewith.
6.15 Existing Indebtedness. No Loan Party has any existing Indebtedness except the Indebtedness permitted under Section 10.1.
6.16 ERISA Matters. If any Loan Party maintains a Plan, the present value of all accrued vested benefits under such Plan (calculated on the basis of the actuarial valuation for the Plan) did not exceed as of the sale of the most recent actuarial valuation for such Plan the fair market value of the assets of such Plan allocable to such benefits. No Loan Party is aware of any information since the date of such valuation which would affect the information contained therein. No Plan has incurred a funding shortfall, as that term is defined in Section 302 of ERISA or Section 412 and/or 430 of the Code (whether or not waived), no liability to the Pension Benefit Guaranty Corporation (other than required premiums which have become due and payable, all of which have been paid) has been incurred with respect to the Plan and there has not been any Reportable Event. No Loan Party has engaged in any transaction which would subject such Loan Party to tax, penalty or liability for prohibited transactions imposed by ERISA or the Code. No Loan Party has incurred any withdrawal liability, as that term is used in Title IV of ERISA.
6.17 O.S.H.A. Each Loan Party has duly complied with, and its facilities, business, leaseholds, equipment and other property are in compliance in all material respects with, the provisions of the federal Occupational Safety and Health Act and all rules and regulations thereunder and all similar state and local Governmental Rules. There are no outstanding citations, notices or orders of non-compliance issued to any Loan Party or relating to its facilities, business. leaseholds, equipment or other property under any such Governmental Rules.
6.18 Environmental Matters. Each Loan Party is in compliance with all Environmental Laws.
6.19 Labor Disputes. There are no pending or, to each Loan Party’s knowledge, threatened labor disputes against such Loan Party.
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6.20 Compliance With Laws. Each Loan Party is in compliance in all material respects with all Federal, state and local governmental rules, ordinances and regulations (“Governmental Rules”) applicable to its ownership or use of properties or the conduct of its business.
6.21 Anti-Money Laundering and Terrorism Regulations. Each Loan Party (a) is familiar with all applicable Anti-Terrorism Laws; (b) acknowledges that its transactions are subject to applicable Anti-Terrorism Laws; (c) will comply in all material respects with all applicable Anti-Terrorism Laws, including, if appropriate, the USA Patriot Act; (d) acknowledges that Lender’s performance hereunder is also subject to Lender’s compliance with all applicable Anti-Terrorism Laws, including the USA Patriot Act; (e) and, to such Loan Party’s knowledge, its Affiliates are not Blocked Persons; (f) acknowledges that Lender will not conduct business with any Blocked Person; (g) will not (i) conduct any business or engage in any transaction or dealing with any Blocked Person, including, without limitation, the making or receiving of any contribution of funds, goods or services to or for the benefit of any Blocked Person, (ii) deal in, or otherwise engage in any transaction relating to, any property or interests in property blocked pursuant to Executive Order No. 13224 or other Anti-Terrorism Law, or (iii) engage in or conspire to engage in any transaction that evades or avoids, or has the purpose of evading or avoiding, or attempts to violate, any of the prohibitions set forth in Executive Order No. 13224 or other Anti-Terrorism Law; (h) shall provide to Lender all such information about such Loan Party’s ownership, officers, directors, business structure and, to the extent not prohibited by applicable law or agreement, customers, as Lender may reasonably require; and (i) will take such other action as Lender requires to identify such Loan Party in accordance with the USA Patriot Act and as Lender may otherwise reasonably request in connection with its obligations described in clause (d) above. In addition, Lender has the right to periodically conduct OFAC searches and customary background checks for senior management and key principals of each Loan Party.
6.22 No Other Violations. No Loan Party is in violation of any term of its charter documents (articles/certificate of incorporation, by-laws, articles or certificate of organization/formation or operating agreement, as the case may be) and no event or condition has occurred or is continuing which constitutes or results in (or would constitute or result in, with the giving of notice, lapse of time or other condition) (a) a material breach of, or a material default under, any material agreement, undertaking or instrument to which such Loan Party is a party or by which it or any of its Collateral may be affected, or (b) the imposition of any lien (other than a Permitted Lien) on any Collateral of any Loan Party.
6.23 Full Disclosure. No information contained in any Loan Document, the financial statements or any written statement furnished by or on behalf of any Loan Party under any Loan Document, or to induce Lender to execute the Loan Documents, contains any untrue statement of a material fact or omits to state a material fact necessary to make the statements contained herein or therein not misleading in light of the circumstances under which they were made.
6.24 Warrant. The Borrower has reserved for issuance upon exercise of the Warrant 499,000 shares of common stock. The common stock, when issued upon exercise of the Warrant, shall be duly and validly issued, fully paid and non-assessable and are not and shall not be subject to any preemptive rights or rights of first refusal that have not been properly waived or complied with and shall not be subject to any liens or other encumbrances.
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6.25 Judgment and UCC Liens.
(a) The judgment liens against Fatburger North America, Inc., as described and listed in the UCC search report dated June 15, 2018 and delivered to the Lender, have been paid in full, except for the claim of Michael Berg DBA Media Pulse Creative in the amount of $48,967.00, with whom the Borrower intends to engage in good faith settlement negotiations.
(b) The indebtedness owed by Fatburger North America, Inc. to GE Commercial Finance Business Property Corporation, GE Commercial Finance Business Property Corporation and GE Capital Franchise Finance Corporation, as shown on the UCC Search Report dated June 15, 2018 delivered to the Lender, has been settled and paid in full.
6.26 BFCI of Georgia, Inc. BFCI of Georgia, Inc., a Georgia corporation and wholly-owned subsidiary of Buffalo’s Franchise Concepts Inc., a Nevada corporation, is an inactive corporation with no assets, which does not engage in any business. Borrower will cause such corporation to be dissolved within sixty days of the date hereof and will not permit such corporation to engage in any business prior to such dissolution.
6.27 Survival of Representations and Warranties. Each Loan Party covenants, warrants and represents to Lender that all representations and warranties of such Loan Party contained in this Agreement or in any other Loan Documents shall be true at the time of such Loan Party’s execution of this Agreement and the other Loan Documents, and Lender’s right to bring an action for breach of any such representation or warranty or to exercise any remedy under this Agreement based upon the breach of such representation or warranty shall survive the execution, delivery and acceptance hereof by Lender and the closing of the transactions described herein or related hereto until the Obligations are finally and irrevocably paid in full.
7. FINANCIAL STATEMENTS AND INFORMATION; CERTAIN NOTICES TO LENDER. So long as any Loan Party shall have any Obligations to Lender under this Agreement, the Loan Parties shall deliver to Lender, or shall cause to be delivered to Lender, which may be satisfied by delivery via electronic mail to individuals who are specified from time-to-time by Lender:
7.1 Annual Financial Statements. Within ninety (90) days after the close of each Fiscal Year of Borrower, the audited consolidated balance sheet of Borrower as at the end of, and the related audited statements of income, stockholder or member equity and cash flows for, such Fiscal Year (or, if audited financial statements are not available, unaudited consolidated balance sheet and unaudited consolidated statements of income, stockholder or member equity and cash flows of Borrower), which may be satisfied by delivery of the Borrower’s Annual Report on Form 10-K filed with the Securities and Exchange Commission.
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7.2 Quarterly/Other Financial Statements. Within forty five (45) days after the end of each of the first three fiscal quarters of each Fiscal Year of Borrower, financial statements consisting of a consolidated balance sheet, statements of operations and retained earnings and statements of cash flow, prepared by management of Borrower in accordance with GAAP (subject to normal year-end audit adjustments and the absence of footnotes), which may be satisfied by delivery of the Borrower’s Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission. At its discretion, Lender may request consolidated financial statements on a monthly basis as well to the extent it is reasonably practicable for the Borrower to prepare or deliver such monthly financial statements.
7.3 Compliance Certificate. Each time the financial statements of Borrower and its subsidiaries are required to be delivered pursuant to Sections 7.1 and 7.2, Borrower shall deliver to Lender a duly executed and completed Compliance Certificate.
7.4 Notice Regarding Material Contracts. Promptly, and in any event within ten (10) Business Days (i) after any Material Contract is terminated or amended in a manner that is materially adverse to the Borrower or the applicable Subsidiary, as the case may be, (ii) the occurrence of a default under any Material Contract, to the extent that such default would have a Material Adverse Effect or (iii) any new Material Contract is entered into, the relevant Loan Party shall deliver to the Lender (x) a written statement describing such event, with copies of such material amendments or new contracts (to the extent such delivery is permitted by the terms of any such Material Contract, provided no such prohibition on delivery shall be effective if it were bargained for by a Loan Party with the intent of avoiding compliance with this Section 7.3), and an explanation of any actions being taken with respect thereto. The Borrower may deliver its Current Report on Form 8-K filed with the Securities and Exchange Commission in satisfaction of the above requirement, provided that such filing satisfies the requirements set forth above.
7.5 Insurance. Within thirty (30) days of the renewal date of each insurance policy, evidence of renewal of insurance in form and content satisfactory to Lender and otherwise in compliance with Section 9.6 of this Agreement, together with the original insurance policy.
7.6 Notice of Event of Default and Adverse Business Developments. Within three (3) Business Days after becoming aware of the existence of a Default or an Event of Default or any of the following:
(a) any material dispute that may arise between any Loan Party and any governmental regulatory body or law enforcement authority, including any action relating to any tax liability of such Loan Party;
(b) any labor controversy resulting in or threatening to result in a strike or work stoppage against any Loan Party;
(c) any proposal by any public authority to acquire the assets or business of any Loan Party;
(d) the location of any Collateral other than at any Loan Party’s place of business or as permitted under this Agreement;
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(e) any proposed or actual change of any Loan Party’s name, identity, state of organization or corporate/limited liability company structure; or
(f) any other matter which has resulted or may reasonably be expected to result in a Material Adverse Effect.
In each case, Borrower or the relevant Loan Party will provide Lender with telephonic notice followed by written notice specifying and describing the nature of such Default, Event of Default or development or information, and such anticipated effect.
7.7 Other Information. Such other information respecting the payment of payroll taxes, the financial condition of any Loan Party, or any Collateral of any Loan Party as Lender may, from time to time, reasonably request. Each Loan Party authorizes Lender to communicate directly with such Loan Party’s independent certified public accountants and authorizes those accountants to disclose to Lender any and all financial statements and other information of any kind that they may have with respect to such Loan Party and its business and financial and other affairs.
8. ACCOUNTING. Lender will account quarterly to Borrower. Each and every account shall be deemed final, binding and conclusive upon Borrower in all respects (absent manifest error), as to all matters reflected therein, unless Borrower, within sixty (60) days after the date the account was rendered, delivers to Lender written notice of any objections which Borrower may have to any such account and in that event only those items expressly objected to in such notice shall be deemed to be disputed by Borrower. If Borrower disputes the correctness of any statement, Borrower’s notice shall specify in detail the particulars of its basis for contending that such statement is incorrect.
9. AFFIRMATIVE COVENANTS. Each Loan Party (unless otherwise indicated below) covenants and agrees that, so long as any Obligations to Lender are outstanding under this Agreement, such Loan Party will:
9.1 Business and Existence. Preserve and maintain such Loan Party’s separate existence and rights, privileges and franchises.
9.2 Trade Names. Transact business in such Loan Party’s own name and Borrower shall invoice all of Borrower’s receivables in Borrower’s own name.
9.3 Transactions with Affiliates. Whenever such Loan Party engages in transactions with any of its Affiliates, conduct such transactions on an arms-length basis.
9.4 Taxes. Pay and discharge all taxes, assessments, government charges and levies imposed upon such Loan Party, upon such Loan Party’s income, profits or employees or upon any Collateral belonging to such Loan Party prior to the due date thereof, unless such item is being contested by such Loan Party in good faith by appropriate proceedings being diligently conducted and reserves in accordance with GAAP have been established and maintained.
9.5 Compliance with Laws. Comply in all material respects with all Governmental Rules applicable to such Loan Party including, without limitation, all laws and regulations regarding the collection and payment of employees’ income, payroll, unemployment and Social Security taxes.
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9.6 Maintain Properties; Insurance; Compliance with Material Contracts. Safeguard and protect all Collateral used in the conduct of such Loan Party’s business and keep all of such Loan Party’s Collateral insured with insurance companies licensed to do business in the states where the Collateral is located against loss or damage by fire or other risk under extended coverage endorsement and against theft, burglary, and pilferage together with such other hazards as is customary in the case of companies engaged in businesses similar to the business of such Loan Party. Such Loan Party shall deliver the policy or policies of such insurance or certificates of insurance to Lender containing endorsements in form satisfactory to Lender naming Lender as lender loss payee and additional insured and providing that the insurance shall not be canceled, amended or terminated except upon thirty (30) days’ prior written notice to Lender. All insurance proceeds received by Lender shall be retained by Lender for application to the payment of such portion of the Obligations as Lender may determine in Lender’s sole discretion. Such Loan Party shall promptly notify Lender of any event or occurrence causing a loss or decline in the value of Collateral insured or the existence of an event justifying a claim under any insurance and the estimated amount thereof. Each Loan Party shall perform and comply with its obligations under, and enforce its rights in respect of, all Material Contracts, except where failure to perform and comply with such obligations or to enforce such rights would not reasonably have a Material Adverse Effect.
9.7 Business Records. Keep adequate records and books of account with respect to such Loan Party’s business activities in which proper entries are made in accordance with sound bookkeeping practices reflecting all financial transactions of such Loan Party.
9.8 Litigation. Give Lender prompt notice of any suit at law or in equity against such Loan Party involving money or property valued in excess of $10,000 and advise Lender in such notice as to whether the same is fully covered by insurance and the insurer has accepted liability therefor in writing.
9.9 Damage or Destruction of Collateral. Maintain or cause to be maintained the Collateral in good condition and repair at all times (normal wear and tear excepted), preserve the Collateral from loss, damage, or destruction of any nature whatsoever and provide Lender with prompt written notice of any destruction or substantial damage to any Collateral and of the occurrence of any condition or event which has caused, or would reasonably be expected to cause, material loss or depreciation in the value of any Collateral.
9.10 Name Change. Provide Lender with not fewer than thirty (30) days written notice prior to any proposed change of name or the creation of any subsidiary (subject to the prohibition on creation of subsidiaries in Section 10.15 below) and, in the case of such new subsidiary, cause such subsidiary, promptly upon request of Lender, to become a guarantor of all of the Obligations and grant to Lender a security interest in all of such subsidiary’s assets, as security for such guarantee.
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9.11 Access to Books, Records and other Collateral. During normal business hours (unless an Event of Default has occurred and is continuing in which event at any and all times), (a) provide Lender, or Lender’s designee, with such reports and with such access to such Loan Party’s books and records, and permit Lender to copy and inspect such reports and books and records, all as Lender deems necessary or desirable to enable Lender to monitor the Loan extended and the liens granted hereby, and (b) permit Lender, or Lender’s designee, to examine and inspect the inventory, equipment or other Collateral and examine, inspect and copy all books and records with respect thereto. Such Loan Party shall maintain full, accurate and complete records respecting inventory, including a perpetual inventory, and all other Collateral at all times.
9.12 Solvency. Continue to be Solvent.
9.13 Compliance With Environmental Laws. Comply in all material respects with all applicable Environmental Laws.
9.14 Compliance with ERISA and other Employment Laws. (a) Comply in all material respects with all applicable provisions of ERISA and the Code, and any other applicable laws, rules or regulations relating to the compensation of employees and funding of employee benefit plans, and (b) pay, when due, all minimum required contributions (as that term is used in Section 430 of the Code) and all amounts required to be contributed and/or paid to any Plan under such Loan Party’s collective bargaining agreement, if any.
9.15 Delivery of Control Agreement, Certificated Shares and Promissory Notes. Promptly deliver to the Lender (i) with respect to each applicable deposit account of the Borrower (other than payroll accounts) for which the balance is expected to be at any time $20,000 or more, a Control Agreement duly executed by the Borrower and the depositary bank , (ii) any certificated shares that constitute Collateral, along with corresponding stock transfer powers executed in blank and (iii) all promissory notes in favor of the Borrower, with corresponding allonges executed in blank. Each Guarantor shall promptly deliver to the Lender (i) with respect to each applicable deposit account of such Guarantor (other than payroll accounts) for which the balance is expected to be at any time $20,000 or more, a Control Agreement duly executed by such Guarantor and the depositary bank, (ii) any certificated shares that constitute Collateral of such Guarantor, along with corresponding stock transfer powers executed in blank and (iii) all promissory notes in favor of the Guarantor, with corresponding allonges executed in blank.
9.16 Notice of Defaults and Events of Default. As soon as possible and, in any event, within ten days after the occurrence of each Default and Event of Default, furnish to Lender a written notice setting forth the details of such Default or Event of Default and the action that is proposed to be taken by the relevant Loan Party with respect thereto.
9.17 Management Changes. Provide Lender with written notice within thirty (30) days of appointments to the offices of the president, chairman, chief executive officer or chief financial officer of such Loan Party.
9.18 Commercial Tort Claims. In the event that any Loan Party hereafter acquires or has any Commercial Tort Claim in excess of $250,000 individually, such Loan Party shall promptly identify such Commercial Tort Claim to the Lender in writing, and provide such supplementary and supporting information as the Lender may reasonably request to perfect its Lien in such Commercial Tort Claim.
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9.19 Collateral Identification. Schedule 9.19 (as such schedule may be amended or supplemented from time to time) sets forth under the appropriate headings all of each Loan Party’s: (1) Pledged Equity Interests, (2) Pledged Debt, (3) Securities Accounts, (4) Deposit Accounts, (5) Commodity Contracts and Commodity Accounts, (6) United States and foreign registrations and issuances of and applications for Patents, Trademarks, and Copyrights owned by each Loan Party, (7) Patent Licenses, Trademark Licenses, Trade Secret Licenses and Copyright Licenses, (8) Commercial Tort Claims other than any Commercial Tort Claims having a value of less than $250,000 individually, (9) Letter of Credit Rights for letters of credit other than any Letters of Credit Rights worth less than $100,000 individually, (10) the name and address of any warehouseman, bailee or other third party in possession of any Inventory, Equipment and other tangible personal property, and (11) Material Contracts. Each Loan Party shall supplement such schedules as necessary to ensure that such schedules are accurate at the end of each fiscal quarter of the Borrower and at such other times as the Lender may reasonably request.
9.20 General Information. Provide Lender with such other information respecting the condition or operations, financial or otherwise, of any Loan Party as Lender from time to time may reasonably request.
9.21 Board Observer. With respect to meetings of the Board of Directors of the Borrower:
(a) The Borrower shall invite a person designated by the Lender (the “Observer”) to attend and participate in meetings of the Board of Directors of the Borrower (including any meetings of committees ) in a nonvoting observer capacity; provided, however, that in no event shall the Observer (i) be deemed to be a member of the Board of Directors, (ii) without limitation of the obligations expressly set forth in this Agreement, have or be deemed to have, or otherwise be subject to, any duties (fiduciary or otherwise) to the Borrower or its stockholders; or (iii) have the right to propose or offer any motions or resolutions. The Observer shall not have any right to vote on any matter presented to the Board of Directors or any committee thereof. The Borrower shall give the Observer written notice of each meeting of the Board of Directors at the same time and in the same manner as the members of the Board of Directors, shall provide the Observer with all written materials and other information given to members of the Board of Directors at the same time such materials and information are given to such members (provided, however, that the Observer shall not be provided nor have access to any confidential supervisory information) and shall cause or, to the extent such an obligation is unenforceable, use its reasonable best efforts to cause the Observer to be permitted to attend as an observer at all meetings thereof, and in the event the Borrower proposes to take any action by written consent in lieu of a meeting, the Borrower shall give written notice thereof to the Observer prior to the effective date of such consent describing the nature and substance of such action and including the proposed text of such written consents.
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(b) The Observer shall be entitled to advancement of expenses and rights to indemnification from the Borrower to the same extent provided by the Borrower to its directors under the Borrower’s organizational documents as in effect on the date hereof. The Borrower acknowledges and agrees that the foregoing rights to indemnification and advancement of expenses constitute third-party rights extended to the Observer by the Borrower and do not constitute rights to indemnification or advancement of expenses as a result of the Observer serving as a director, officer, employee or agent of the Borrower. The Observer will agree to hold in confidence and trust all information so provided and enter into a non-disclosure agreement in customary form if requested by the Borrower. The Borrower may withhold any information and exclude the Observer from any meeting or portion thereof if access to such information or attendance at such meeting could adversely affect the attorney-client privilege between the Borrower and its legal counsel.
9.22 Post-Closing Obligations.
(a) By (and including) the thirtieth day following the Closing Date (as such period may be extended in the sole discretion of the Lender), Borrower shall have delivered to Lender copies of the Collateral Access Agreement and Control Agreements over each applicable account of the Loan Parties, in each case, duly executed by all parties thereto.
(b) By (and including) the thirtieth day following the Closing Date (as such period may be extended in the sole discretion of the Lender), Borrower shall have furnished evidence satisfactory to the Lender that the judgment liens against Fatburger North America, Inc., as shown on the UCC Search Report dated June 15, 2018 delivered to the Lender, have been paid or discharged, and shall have caused the applicable lien creditors to file satisfactions of judgments in the applicable jurisdictions.
(c) By (and including) the thirtieth day following the Closing Date (as such period may be extended in the sole discretion of the Lender), Borrower shall have delivered evidence of the settlement and payment in full of the indebtedness owed by Fatburger North America, Inc. to GE Commercial Finance Business Property Corporation, GE Commercial Finance Business Property Corporation and GE Capital Franchise Finance Corporation, as shown on the UCC Search Report dated June 15, 2018 delivered to the Lender, including the filing of appropriate UCC termination statements with respect to any effective UCC financing statements relating to such indebtedness.
(d) By (and including) the thirtieth day following the Closing Date (as such period may be extended in the sole discretion of the Lender), Borrower shall have filed or caused to be filed with the United States Patent and Trademark Office releases of the security interests and judgments described as outstanding on Schedule 9.19 and delivered evidence of such filings to the Lender.
10. NEGATIVE COVENANTS. So long as any Obligations are outstanding under this Agreement and unless Lender has first consented thereto in writing, no Loan Party shall:
10.1 Indebtedness. Create, incur, assume or suffer to exist, voluntarily or involuntarily, any Indebtedness, except (i) Obligations to Lender, (ii) trade payables incurred in the ordinary course of Borrower’s business that are not past due; and (iii) purchase money financing and equipment leases.
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10.2 Mergers; Consolidations; Acquisitions. Other than any Permitted Acquisition, enter into any merger, acquisition, consolidation, reorganization or recapitalization with any other Person; take any steps in contemplation of dissolution or liquidation; and, except for any investment permitted under Section 10.15, acquire the stock or all or any substantial part of the properties of any Person, whether by purchase of stock or assets or otherwise. No Loan Party may utilize cash assets as consideration, in whole or in part, for any acquisition or investment in any Person without the prior written consent of the Lender.
10.3 Sale or Disposition. Sell or dispose of all or any Collateral or grant any Person an option to acquire any such Collateral, provided, however, that the foregoing shall not prohibit (a) sale of Inventory or accounts in the ordinary course of Borrower’s business and (b) disposals of obsolete, worn out or surplus equipment in an amount not to exceed $250,000 in the aggregate during the term of this Agreement.
10.4 Defaults. Permit any landlord, mortgagee, trustee under deed of trust or lienholder to declare a default under any lease, mortgage, deed of trust or lien on real estate owned or leased by Borrower, which default remains uncured after any stated cure period or for a period in excess of thirty (30) days from its occurrence, whichever is less, unless such default is being contested by Borrower in good faith by appropriate proceedings being diligently conducted and reserves satisfactory to Lender have been established and maintained.
10.5 Limitations on Liens. Suffer any lien, encumbrance, mortgage or security interest on any of its property, except Permitted Liens.
10.6 Restricted Junior Payments. (x) Declare, order, pay or make any Restricted Junior Payment or set apart any sum for any Restricted Junior Payment, or (y) agree to declare, order, pay or make any Restricted Junior Payment or set apart any sum for any Restricted Junior Payment, except that so long as the cumulative Consolidated Adjusted EBITDA at the end of each quarter, beginning with the quarter ending September 30, 2018, exceeds the amounts set forth below, the Borrower may make annual dividend payments in cash, inclusive of dividends paid at the end of the quarter ending September 30, 2018, in an amount not to exceed $2,050,000 in any twelve-month period, provided, however such permitted amount shall automatically be increased to $2,250,000 if and when the Borrower issues the additional $2,000,0000 of Series A Fixed Rate Cumulative Preferred Stock which is Permitted Preferred Equity.
Quarter ending 9/30/2018 | Quarter ending 12/30/2018 | Quarter ending 3/31/2019 | Quarter ending 6/30/2019 | Quarter ending 9/29/2019 | Quarter ending 12/29/2019 | Quarter ending 3/29/2020 | Quarter Ending 6/28/2020 | |||||||||||||||||||||||
$ | 1,710,991 | $ | 3,542,032 | $ | 5,388,731 | $ | 7,302,888 | $ | 9,325,438 | $ | 11,336984 | $ | 13,445,932 | $ | 15,626,903 |
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10.7 Borrower’s Name and Offices. Change any Loan Party’s chief executive office or change its organizational name or office where it maintains its records (including computer printouts and programs) or any other Collateral.
10.8 Fiscal Year. Change its Fiscal Year.
10.9 Change of Control/Management.
(a) Cause or permit Fog Cutter Capital Group to cease to, directly or indirectly, possess the right to appoint or elect (through contract, ownership of voting securities, or otherwise) at all times the board of directors of Borrower having a majority of the voting power thereof, or cause or permit any other Change of Control.
(b) Cause or permit Borrower to cease to be the owner, directly or indirectly, of 100% of all equity interests of each Guarantor.
10.10 Guaranties; Contingent Liabilities. Assume, guarantee, endorse, contingently agree to purchase or otherwise become liable upon the obligation of any Person, except by the endorsement of negotiable instruments for deposit or collection or similar transactions, or the incurrence of surety bonds or performance bonds and other obligations of like nature, in its ordinary course of business as currently conducted.
10.11 Change of Business. Cause or permit a change in the nature of its business as conducted on the date of this Agreement, except that it may engage in any business that is reasonably related, similar, complementary or ancillary to such business or a reasonable extension, development or expansion of such business.
10.12 Change of Accounting Practices. Change its present accounting principles or practices in any respect, except, upon written notice to Lender, as may be required by changes in GAAP.
10.13 Inconsistent Agreement. Enter into any agreement containing any provision which would be violated by the performance of the Obligations or other obligations under this Agreement or any other Loan Document.
10.14 Loan or Advances. Make any loans or advances to any Person.
10.15 Investments. Make any investment in any Person including, without limitation, in any Affiliates or form any Affiliates or subsidiaries not existing on the date hereof, except for:
(a) investments by Borrower in a Guarantor;
(b) investments by Borrower in the form of Permitted Acquisitions to the extent any Person or property acquired in such Permitted Acquisition becomes part of the Borrower or becomes a Guarantor under this Agreement;
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(c) investments by Borrower in a subsidiary formed for the purpose of consummating a Permitted Acquisition to the extent such Person becomes a Guarantor under this Agreement.
10.16 Franchise Agreements. Use any form of franchise agreement materially different from the standard form furnished to the Lender on or prior to the date of this Agreement, without Lender’s prior written consent.
10.17 Preferred Equity. Issue any Preferred Equity other than Permitted Preferred Equity.
11. CONDITIONS PRECEDENT. The obligation of the Lender to make the Loan hereunder shall not become effective until the date on which each of the following conditions is satisfied (or waived) as determined by the Lender in its sole discretion:
11.1 Loan Documents. The Lender shall have received copies of this Agreement and each other Loan Document executed and delivered by each applicable Loan Party and each other Person party thereto.
11.2 Evidence of Consummation of Acquisition. Lender shall have received evidence of the concurrent completion of the acquisition of Hurricane AMT, LLC on the terms previously announced.
11.3 Evidence of Conversion of Fog Cutter Capital Group Indebtedness. Lender shall have received (i) evidence of the conversion of all outstanding Indebtedness of the Borrower to Fog Cutter Capital Group Inc., currently in the amount of approximately $17,468,000 (the “Fog Cutter Indebtedness”), to common equity of the Borrower or preferred stock featuring dividends that are not payable in cash while the Loan is outstanding or which comply with the limits set forth herein on Restricted Junior Payments, provided that any such non-cash dividends shall not exceed $2,000,000, (ii) UCC-3 financing statements, in proper form for filing, (iii) fully executed copies of terminations of any deposit account control agreements, intellectual property security agreements or third party subordination and/or landlord access agreements) and (iv) evidence that arrangements satisfactory to Lender have been made with respect to the cancellation of any letters of credit outstanding under such Fog Cutter Indebtedness for the account of any Loan Party
11.4 Evidence of Payoff of Certain Existing Indebtedness and Termination of Liens. The Lender shall have received (i) evidence that all Indebtedness under the TCA Global Credit Master Fund, LP loan facility owed by the Loan Parties has been paid in full or will be paid in full from the proceeds of the Loan, (ii) all documents or instruments requested by the Lender or necessary to release all Liens securing such Indebtedness or other obligations of the Loan Parties thereunder (including, without limitation, (A) a fully executed copy of a payoff letter in respect of such Indebtedness in form and substance reasonably acceptable to the Lender, (B) UCC-3 financing statements in each case, in proper form for filing, and (C) fully executed copies of terminations of any deposit account control agreements, intellectual property security agreements or third party subordination and/or landlord access agreements) and (iii) evidence that arrangements satisfactory to Lender have been made with respect to the cancellation of any letters of credit outstanding under such Indebtedness for the account of any Loan Party.
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11.5 Warrant. The Lender shall have received a Warrant in the form attached hereto as Exhibit C to purchase 499,000 shares of common stock of the Borrower, at an exercise price of $7.35 per share of common stock (subject to adjustment as set forth therein), exercisable at any time or times beginning on the Closing Date and ending on the five (5) year anniversary of the Closing Date, subject to the terms and conditions set forth in the Warrant.
11.6 Notice of Borrowing. The Lender shall have received a fully executed Notice of Borrowing.
11.7 Organizational Documents; Incumbency. The Lender shall have received (i) copies of each Organizational Document of each Loan Party and, to the extent applicable, certified as of a recent date by the appropriate governmental official, each dated the Closing Date or a recent date prior thereto; (ii) signature and incumbency certificates of the officers of each Person executing any Loan Documents; (iii) resolutions of the Board of Directors or similar governing body of each Loan Party approving and authorizing the execution, delivery and performance of this Agreement and the other Loan Documents to which it is a party or by which it or its assets may be bound as of the Closing Date, certified as of the Closing Date by such Loan Party’s secretary or an assistant secretary or other authorized officer as being in full force and effect without modification or amendment; (iv) a good standing certificate from the applicable governmental authority (x) of each Loan Party’s jurisdiction of incorporation, organization or formation and (y) in each jurisdiction in which it is qualified as a foreign corporation or other entity to do business, each dated a recent date prior to the Closing Date, except, in the case of subclause (y) where failure to so qualify would not reasonably be expected to result in a Material Adverse Effect.
11.8 Governmental Authorizations and Consents. Each Loan Party shall have obtained all governmental authorizations and all consents of other Persons, in each case that are necessary or reasonably advisable in connection with the transactions contemplated by the Loan Documents and each of the foregoing shall be in full force and effect and in form and substance satisfactory to the Lender.
11.9 Personal Property Collateral. In order to create in favor of the Lender a valid, perfected and continuing first priority security interest in the Collateral of the Borrower and a first priority security interest in the Collateral of each Guarantor, the Lender shall have received:
(a) a completed Collateral Questionnaire dated the Closing Date and executed by an authorized officer of each Loan Party, together with all attachments contemplated thereby;
(b) copies of UCC-1 financing statements to be filed against each Loan Party in the applicable filing office immediately after the effectiveness of this Agreement;
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(c) tax and judgment lien searches, bankruptcy and pending lawsuit searches or equivalent reports or searches, each of a recent date listing all effective financing statements, lien notices or comparable documents that name any Loan Party as debtor and that are filed in those state and county jurisdictions in which any Loan Party is organized or maintains its chief executive office and such other searches that are required by the Collateral Questionnaire or that the Lender deems necessary or appropriate, none of which encumber the Collateral covered or intended to be covered by the Loan Documents (other than Permitted Liens or any other Liens acceptable to the Lender); and
(d) (i) all promissory notes in favor of any Guarantor, with corresponding allonges executed in blank and (ii) in the event that any Guarantor owns capital stock of a Subsidiary and such stock constitutes Collateral, any certificated shares of such Subsidiary, with corresponding stock transfer powers.
11.10 IP Collateral. Lender shall have received (x) a duly executed IP Security Agreement with respect to all U.S. Patents and patent applications owned by the Borrower or the Guarantors, with evidence that the same has been filed by the Borrower or the Guarantor(s), as the case may be, with the United States Patent and Trademark Office; (y) a duly executed IP Security Agreement with respect to all federally registered U.S. trademarks and trademark applications owned by the Borrower or the Guarantors, with evidence that the same has been filed by the Borrower with the United States Patent and Trademark Office; and (z) a duly executed IP Security Agreement with respect to U.S. registered copyrights and copyright applications owned by the Borrower or Guarantor(s), as the case may be,, with evidence that the same has been filed in the United States Copyright Office.
11.11 Evidence of Insurance. The Lender shall have received a certificate from the insurance broker of the Loan Parties or other evidence satisfactory to the Lender that all insurance required to be maintained pursuant to this Agreement is in full force and effect, in each case, in form and substance satisfactory to the Lender, and each of which shall be endorsed or otherwise amended to include a loss payable or mortgagee endorsement (as applicable) and shall name the Lender as additional insured or loss payee, in form and substance satisfactory to the Lender.
11.12 No Litigation. There shall not exist any action, suit, investigation, litigation or proceeding or other legal or regulatory developments, pending or, to the knowledge of any Loan Party, threatened in writing in any court or before any arbitrator or governmental authority that, in the reasonable discretion of the Lender, singly or in the aggregate: (i) prohibits, limits, restrains or impairs the making of the Loan or the rights of the Lender under this Agreement or any of the other transactions contemplated by the Loan Documents, (ii) prohibits, limits, retains or impairs the grant by the Loan Parties of a first priority Lien on the Collateral in favor of the Lenders, or (iii) that could have a Material Adverse Effect.
11.13 No Material Adverse Effect. Since December 31, 2017, no event, circumstance or change shall have occurred that has caused or evidences, either in any case or in the aggregate, a Material Adverse Effect.
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11.14 Representations and Warranties. Immediately before and immediately after giving effect to the Loan, the representations and warranties contained herein and in the other Loan Documents shall be true and correct in all material respects (except that such materiality qualifier shall not be applicable to any representation or warranty that is already qualified or modified as to “materiality” or “Material Adverse Effect” in the text thereof, which representations and warranties shall be true and correct in all respects subject to such qualification) on and as of the Closing Date to the same extent as though made on and as of that date, except to the extent such representations and warranties specifically relate to an earlier date, in which case such representations and warranties shall have been true and correct in all material respects (except that such materiality qualifier shall not be applicable to any representation or warranty that is already qualified or modified as to “materiality” or “Material Adverse Effect” in the text thereof, which representations and warranties shall be true and correct in all respects subject to such qualification) on and as of such earlier date.
11.15 No Default. As of the Closing Date, no event shall have occurred and be continuing or would immediately result from the consummation of the Loan that would constitute an Event of Default or a Default.
11.16 Expenses. Borrower shall have paid or reimbursed the Lender for its reasonable due diligence expenses, including the fees and disbursements of its legal counsel, incurred in connection with preparation, execution and delivery of this Agreement. Lender acknowledges that Borrower has paid to Lender a $50,000 work fee, which amount shall be applied to such expenses of the Lender.
11.17 Cash. Lender shall have received a proforma unaudited consolidated balance sheet of the Borrower showing cash assets of not less than $5,000,000 as of the Closing Date.
12. EVENTS OF DEFAULT.
12.1 Defaults. The occurrence of any one or more of the following events shall constitute an “Event of Default” hereunder:
(a) if Borrower shall fail to make any payment when due on any Obligation under this Agreement or any other Loan Document; or
(b) if any Loan Party shall fail to comply with any term, condition, covenant or agreement contained in Article 7 or Article 10 of this Agreement; or
(c) if any Loan Party shall fail to comply with any term, condition, covenant or agreement contained in this Agreement other than in Articles 7 or 10 of this Agreement, or in any other Loan Document, and such failure continues for a period of fifteen (15) days after the earlier to occur of (i) the date on which such failure to comply is known or reasonably should have become known to any officer of the relevant Loan Party, or (ii) the date on which Lender shall have notified the relevant Loan Party of such failure; provided, however, that such fifteen (15) day period shall not apply in the case of any failure which is not capable of being cured at all or within such fifteen (15) day period or which has been the subject of a prior failure within a six (6) month period; or
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(d) if any Loan Party shall cease to be Solvent, make an assignment for the benefit of its creditors, call a meeting of its creditors to obtain any general financial accommodation, or suspend business or if any case under any provision of the Bankruptcy Codes including provisions for reorganizations, shall be commenced by or against Borrower (and, in the case of any such case commenced against such Loan Party, such case shall not have been dismissed within sixty (60) days) or if a receiver, trustee or equivalent officer shall be appointed for all or any substantial part of the Collateral of such Loan Party; or
(e) if any representation or warranty contained in this Agreement or any Loan Document, or in any written statement pursuant hereto or thereto, or in any report, financial statement or certificate delivered by any Loan Party to Lender shall be false, in any material respect, when made; or
(f) if any federal or state tax lien is filed of record against any Loan Party, and is not bonded or discharged within fifteen (15) days of filing; or
(g) if Borrower’s independent public accountants shall refuse to deliver any financial statement required by this Agreement; or
(h) if a judgment for $100,000 or more shall be entered against any Loan Party in any action or proceeding and shall not be stayed, vacated, bonded, paid or discharged within fifteen (15) days of entry, except a judgment where the claim is fully covered by insurance (other than the deductible) and the insurance company has accepted liability therefor in writing; or
(i) if any obligation of any Loan Party in respect of any Indebtedness with a then-outstanding principal balance of one hundred thousand dollars ($100,000) or more shall be declared to be or shall become due and payable prior to its stated maturity or such obligation shall not be paid as and when the same becomes due and payable; or there shall occur any event or condition which constitutes an event of default under any note, mortgage, indenture, instrument, agreement or evidence of such Indebtedness relating to any obligation of any Loan Party in respect of any such Indebtedness the effect of which is to permit the holder or the holders of such note, mortgage, indenture, instrument, agreement or evidence of such Indebtedness, or a trustee, agent or other representative on behalf of such holder or holders, to cause the Indebtedness evidenced thereby to become due prior to its stated maturity; or
(j) upon the happening of any Reportable Event, or if Borrower terminates or withdraws (full or partial) from any Plan, or if a trustee shall be appointed by an appropriate United States District Court or other court or administrative tribunal to administer any Plan, or if the Pension Benefit Guaranty Corporation shall institute proceedings to terminate any Plan or to appoint a trustee to administer any Plan; or
(k) upon the occurrence and continuance of any Material Adverse Effect, which in the sole discretion of the Lender, impairs the Lender’s security, increases the Lender’s risks, or impairs any Loan Party’s ability to perform under this Agreement or under any of the other Loan Documents; or
(l) if any Guarantor purports to terminate its guaranty.
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12.2 Remedies. If an Event of Default has occurred, and is continuing, the Lender may, without notice or demand, (a) declare all of the Obligations to be immediately due and payable, and (b) exercise any rights and remedies provided to the Lender under this Agreement, the other Loan Documents, or at law or equity, including all remedies provided under the UCC; provided, that upon the occurrence of any Event of Default specified in Section 12.1(d), all Obligations shall become immediately due and payable without declaration, notice or demand by the Lender. Without limiting the foregoing, the Lender may (a) accelerate the payment of all Obligations and demand immediate payment thereof to the Lender, (b) with or without judicial process or the aid or assistance of others, enter upon any premises on or in which any of the Collateral may be located and take possession of the Collateral or complete processing, manufacturing and repair of all or any portion of the Collateral, (c) require the Loan Parties, at their expense, to assemble and make available to Lender any part or all of the Collateral at any place and time designated by Lender, (d) collect, foreclose, receive, appropriate, setoff and realize upon any and all Collateral, and (e) sell, lease, transfer, assign, deliver or otherwise dispose of any and all Collateral (including, without limitation, entering into contracts with respect thereto, by public or private sales at any exchange, broker’s board, any office of Lender or elsewhere) at such prices or terms as the Lender may deem reasonable, for cash, upon credit or for future delivery, with the Lender having the right to purchase the whole or any part of the Collateral at any such public sale, all of the foregoing being free from any right or equity of redemption of the Loan Parties, which right or equity of redemption is hereby expressly waived and released by the Loan Parties. If any of the Collateral is sold or leased by the Lender upon credit terms or for future delivery, the Obligations shall not be reduced as a result thereof until payment therefor is finally collected by the Lender. If notice of disposition of Collateral is required by law, ten (10) days prior notice by the Lender to the Loan Parties designating the time and place of any public sale or the time after which any private sale or other intended disposition of Collateral is to be made, shall be deemed to be reasonable notice thereof and shall constitute “authenticated notice of disposition” within the meaning of Section 9-611 of the UCC, and the Loan Parties waive any other notice. In the event the Lender institutes an action to recover any Collateral or seeks recovery of any Collateral by way of prejudgment remedy, the Loan Parties waive the posting of any bond which might otherwise be required. Upon the occurrence and continuation of an Event of Default, the Lender may without, notice, demand or legal process of any kind, take possession of any or all of the Collateral, wherever it may be found, and for that purpose may pursue the same wherever it may be found, and may at any time enter into any premises of any Loan Party where any of the Collateral may be or is supposed to be, and search for, take possession of, remove, keep and store any of the Collateral until the same shall be sold or otherwise disposed of, and the Lender shall have the right to store and conduct a sale of the same in any premises of any Loan Party without cost or charge to the Lender.
12.3 Remedies Cumulative. All rights and remedies granted to the Lender under this or any other agreement between any Loan Party and the Lender will be deemed concurrent and cumulative and not alternative, and the Lender may proceed with any number of remedies at the same time or at different times until all Obligations are fully satisfied. Each Loan Party hereby waives all rights of notice or dishonor, any other rights of notice or the right to require the Lender to marshal assets. The Loan Parties shall pay to the Lender on demand any and all expenses, including reasonable attorneys’ fees and legal expenses which may have been incurred by the Lender, with interest at the Default Rate: (a) in the prosecution or defense of any action growing out of or connected with the subject matter of this Agreement, the Obligations, the Collateral or any of the Lender’s rights therein, and (b) in connection with the custody, preservation, protection, use, operation, preparation for sale or sale of any Collateral, and enforcement of any and all of Lender’s rights and remedies under this Agreement or any other Loan Document, the incurring of all of which are hereby authorized to the extent Lender deems the same advisable.
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12.4 Prepayment Premium Payable upon Acceleration of Obligations. If the Obligations are accelerated due to the occurrence and continuation of an Event of Default (including, but not limited to, upon the occurrence of a bankruptcy or insolvency event (including the acceleration of claims by operation of law)), the Prepayment Premium shall be due and payable and shall constitute part of the Obligations, in view of the impracticability and extreme difficulty of ascertaining actual damages and by mutual agreement of the parties as to a reasonable calculation of the Lender’s lost profits as a result thereof. Such Prepayment Premium shall be presumed to be the liquidated damages sustained by the Lender as the result of the early payment of the Obligations and the Borrower agrees that it is reasonable under the circumstances currently existing.
12.5 Continuation of Security Interests. Notwithstanding any termination of this Agreement, until all Obligations shall have been fully paid and satisfied (other than any contingent indemnification obligations not due and owing), the Lender shall retain all security in and title to all existing and future Collateral held by the Lender hereunder or under any other Loan Document. At such time after the Maturity Date as all Obligations have been fully paid and satisfied (other than any contingent indemnification obligations not due and owing), the security interest granted hereunder shall automatically terminate and the Lender shall promptly deliver to the relevant Loan Party any Collateral delivered by such Loan Party to Lender pursuant to this Agreement and execute and deliver all UCC termination statements and/or other documents reasonably requested by such Loan Party to evidence such termination.
13. GENERAL PROVISIONS.
13.1 Rights Cumulative. The Lender’s rights and remedies under this Agreement shall be cumulative and non-exclusive of any other rights or remedies which the Lender may have under any other agreement or instrument, by operation of law or otherwise.
13.2 Governing Law; Consent to Jurisdiction. This Agreement shall be governed by and construed in accordance with the internal laws of the State of New York, without giving effect to conflicts of law principles of such state. Any judicial proceeding brought by or against Borrower with respect to any of the Obligations, this Agreement or any related agreement may be brought in any court of competent jurisdiction in the State of New York; provided that any judicial proceeding by Borrower against the Lender involving, directly or indirectly, any matter or claim in any way arising out of, related to or connected with this Agreement or any related agreement, shall be brought only in a federal or state court located in the County of New York, State of New York. By execution and delivery of this Agreement, Borrower accepts for itself and in connection with its properties, generally and unconditionally, the non-exclusive jurisdiction of the aforesaid courts, and irrevocably agrees to be bound by any judgment rendered thereby in connection with this Agreement. Borrower hereby waives personal service of any and all process upon it and consents that all such service of process may be made by registered mail (return receipt requested) directed to Borrower at its address set forth in Section 13.4 and service so made shall be deemed completed five (5) days after the same shall have been so deposited in the mails of the United States of America. Nothing herein shall affect the right to serve process in any manner permitted by law or shall limit the right of the Lender to bring proceedings against Borrower in the courts of any other jurisdiction. Borrower waives any objection to jurisdiction and venue of any action instituted hereunder and shall not assert any defense based on lack of jurisdiction or venue or based upon forum non conveniens.
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13.3 Successors and Assigns. This Agreement is entered into for the benefit of the parties hereto and their successors and assigns. It shall be binding upon and shall inure to the benefit of the parties, their successors and assigns. The Lender shall have the right, without the necessity of any further consent or authorization by any Loan Party, to sell, assign, securitize or grant participation in all, or a portion of, the Lender’s interest in the Loan, to other financial institutions and to any Person (whether a corporation, partnership, trust or otherwise) that is engaged in the business of making, purchasing, holding or otherwise investing in loans and extensions of credit in the ordinary course of its business, in each case, of the Lender’s choice and on such terms as are acceptable to the Lender in its sole discretion.
13.4 Notice. Wherever this Agreement provides for notice to any party (except as expressly provided to the contrary), it shall be given by messenger, certified U.S. mail with return receipt requested, or nationally recognized overnight courier with receipt requested, effective when either received or receipt rejected by the party to whom addressed, and shall be addressed as follows, or to such other address as the party affected may hereafter designate:
If to Lender:
FB Lending, LLC
1999 Avenue of the Stars, Suite 2040
Los Angeles, CA 90067
Attn: Vikas Tandon
Telephone:
Facsimile:
Email:
With a copy (that shall not constitute notice) to:
Arent Fox LLP
1301 Avenue of the Americas, Floor 42
New York, NY 10019
Telephone:
Facsimile:
Attn: Robert M. Hirsh
Attn: Dennis Henderson
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If to any Borrower:
FAT Brands, Inc.
9720 Wilshire Blvd., Suite 500
Beverly Hills, CA 90212
Attention: Andrew A. Wiederhorn
Facsimile:
Email:
With a copy (that shall not constitute notice) to:
Loeb & Loeb LLP
10100 Santa Monica Blvd., Suite 2200
Los Angeles, CA 90067
Attention: Allen Z. Sussman, Esq.
Facsimile:
Email:
13.5 Strict Performance. The failure, at any time or times hereafter, to require strict performance by any Loan Party of any provision of this Agreement shall not waive, affect or diminish any right of the Lender thereafter to demand strict compliance and performance therewith. Any suspension or waiver by the Lender of any Default or Event of Default by any Loan Party under this Agreement or any other Loan Document shall not suspend, waive or affect any other Default or Event of Default by such Loan Party under this Agreement or any other Loan Document, whether the same is prior or subsequent thereto and whether of the same or a different type.
13.6 Waiver. Each Loan Party waives presentment, protest, notice of dishonor and notice of protest upon any instrument on which it may be liable to Lender as maker, endorser, guarantor or otherwise.
13.7 Construction of Agreement. The parties hereto agree that the terms and language of this Agreement were the result of negotiations between the parties, and, as a result, there shall be no presumption that any ambiguities in this Agreement shall be resolved against either party. Any controversy over the construction of this Agreement shall be decided mutually without regard to events of authorship or negotiation.
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13.8 Expenses. If, at any time or times prior or subsequent to the date hereof, regardless of whether or not a Default or an Event of Default then exists or any of the transactions contemplated under this Agreement are concluded, Lender employs counsel for advice or other representation, or incurs legal expenses, or consulting fees and expenses, or other costs or out-of-pocket expenses in connection with: (a) (i) the negotiation and preparation of this Agreement and the other Loan Documents or (ii) any amendment of or modification of this Agreement or any other Loan Document; (b) the administration of this Agreement or any of the other Loan Documents and the transactions contemplated hereby or thereby; (c) periodic audits and appraisals performed by Lender as permitted hereunder; (d) any litigation, contest, dispute, suit, proceeding or action (whether instituted by the Lender, any Loan Party or any other Person) in any way relating to the Collateral, this Agreement or any other Loan Document; (e) the perfection of any lien on the Collateral; (f) any attempt to enforce any rights or remedies of Lender against Borrower or any other Person which may be obligated to Lender by virtue of this Agreement or any other Loan Document; or (g) any attempt to inspect, verify, protect, preserve, restore, collect, sell, liquidate or otherwise dispose of or realize upon the Collateral; then, in any such event, the reasonable attorneys’ fees and actual expenses arising from such services and all expenses, costs, charges and other fees of such counsel of the Lender or relating to any of the events or actions described in this Section 13.8 shall be payable by the Borrower to the Lender, and shall be additional Obligations under this Agreement secured by the Collateral. Additionally, if any taxes (excluding taxes imposed upon or measured by the net income of the Lender, but including any intangibles tax, stamp tax or recording tax) shall be payable on account of the execution or delivery of this Agreement, or the execution, delivery, issuance or recording of any other Loan Document, or the creation of any of the Obligations under this Agreement, by reason of any existing or hereafter enacted federal or state statute, the Borrower will pay (or will promptly reimburse the Lender for the payment of) all such taxes including, but not limited to, any interest and penalties thereon, and will indemnify, defend and hold the Lender harmless from and against any liability in connection therewith. The Borrower shall also reimburse the Lender for all other expenses incurred by the Lender in connection with the transactions contemplated under this Agreement or the other Loan Documents, including, without limitation, all UCC filing fees and all other filing fees in connection with perfection of the Lender’s security interests in the Collateral, fees in connection with any bank account, wire charges, automatic clearing house fees and other similar costs and expenses.
13.9 Waiver of Right to Jury Trial.
(a) The Loan Parties and the Lender recognize that in matters related to the Loan and this Agreement, and as it may be subsequently modified and/or amended, any such party may be entitled to a trial in which matters of fact are determined by a jury (as opposed to a trial in which such matters are determined by a federal or state judge). By execution of this Agreement, the Lender and the Loan Parties will give up their respective right to a trial by jury. Each Loan Party and the Lender each hereby expressly acknowledges that this waiver is entered into to avoid delays, minimize trial expenses, and streamline the legal proceedings in order to accomplish a quick resolution of claims arising under or in connection with the Note and this Agreement.
(b) WAIVER OF JURY TRIAL. TO THE MAXIMUM EXTENT NOT PROHIBITED BY LAW, EACH LOAN PARTY AND LENDER EACH HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES ANY RIGHT THAT SUCH LOAN PARTY OR LENDER MAY HAVE TO A TRIAL BY JURY IN RESPECT TO ANY LITIGATION, DIRECTLY OR INDIRECTLY, AT ANY TIME ARISING OUT OF, UNDER, OR IN CONNECTION WITH THE LOAN, THIS AGREEMENT, THE OTHER LOAN DOCUMENTS, OR ANY TRANSACTION CONTEMPLATED THEREBY OR HEREBY, BEFORE OR AFTER MATURITY.
C. CERTIFICATIONS. EACH LOAN PARTY HEREBY CERTIFIES THAT NEITHER ANY REPRESENTATIVE NOR AGENT OF LENDER NOR LENDER’S COUNSEL HAS REPRESENTED, EXPRESSLY OR OTHERWISE, OR IMPLIED THAT LENDER WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER. EACH LOAN PARTY ACKNOWLEDGES THAT THE LENDER HAS BEEN INDUCED TO ENTER INTO THE TRANSACTION BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATION HEREIN.
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13.10 Indemnification by Borrower/Waiver of Claims. The Borrower hereby covenants and agrees to indemnify, defend (with counsel selected by Lender) and hold harmless Lender and its officers, partners, employees, consultants, attorneys and agents from and against any and all claims, damages, liabilities, costs and expenses (including, without limitation, the actual fees and expenses of counsel) which may be incurred by or asserted against the Lender or any such other Person in connection with:
(a) any investigation, action or proceeding arising out of or in any way relating to this Agreement, the Loan, any of the other Loan Documents, any other agreement relating to any of the Obligations, any of the Collateral, or any act or omission relating to any of the foregoing; or
(b) any taxes, liabilities, claims or damages in connection with the Loan or this Agreement and relating to any Loan Party, its employees, the Collateral or Lender’s liens thereon; or
(c) the correctness, validity or genuineness of any instrument or document that may be released or endorsed to any Loan Party by the Lender (which shall automatically be deemed to be without recourse to Lender in any event), or the existence, character, quantity, quality, condition, value or delivery of any goods purporting to be represented by any such documents; or
(d) any broker’s commission, finder’s fee or similar charge or fee in connection with the Loan and the transactions contemplated in this Agreement.
Notwithstanding anything contained herein to the contrary, the Borrower’s indemnification obligations under this Section 13.10 shall not apply to any claims, damages, liabilities, costs and expenses solely attributable to the Lender’s gross negligence or willful misconduct, and (ii) shall survive repayment of the Obligations and the termination of this Agreement and the other Loan Documents.
13.11 Savings Clause for Indemnification. To the extent that the undertaking to indemnify, pay and hold harmless set forth in Section 13.10 above may be unenforceable because it violates any law or public policy, the Borrower shall contribute the maximum portion which it is permitted to pay and satisfy under applicable law to the payment and satisfaction of all matters referred to under Section 13.10.
13.12 Waiver. To the extent permitted by applicable law, no claim may be made by any Loan Party or any other Person against the Lender or any of its Affiliates, partners, officers, employees, agents, attorneys or consultants for any special, indirect, consequential or punitive damages in respect of any claim for breach of contract, tort or any other theory of liability arising out of or related to the transactions contemplated by this Agreement or the other Loan Documents or any act, omission or event occurring in connection therewith; and each Loan Party hereby waives, releases and agrees not to sue upon any claim for any such damages, whether or not accrued and whether or not known or suspected to exist in its favor. Neither Lender nor any of its Affiliates, partners, officers, employees, agents, attorneys or consultants shall be liable for any action taken or omitted to be taken by it or them under or in connection with this Agreement or the transactions contemplated hereby, except for its or their own gross negligence or willful misconduct.
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13.13 Entire Agreement; Waiver/Lender’s Consent; Amendment. This Agreement (including the Exhibits and Schedules thereto) and the other Loan Documents supersede, with respect to their subject matter, all prior and contemporaneous agreements, understandings, inducements or conditions between the respective parties, whether express or implied, oral or written. No waiver of any provision of this Agreement or any other Loan Document, nor consent to any departure by any Loan Party therefrom, shall in any event be effective unless the same shall be in writing by the Lender, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. No amendment of any provision of this Agreement or any other Loan Document shall in any event be effective unless the same shall be in a writing signed by the Lender and the Loan Parties.
13.14 Cross Default; Cross Collateral. The Borrower hereby agrees that (a) all other agreements between the Borrower and the Lender are hereby amended so that a Default or an Event of Default under this Agreement is a default under all such other agreements and a default under any one of the other agreements is a Default or an Event of Default under this Agreement, and (b) the Collateral under this Agreement secures the Obligations now or hereafter outstanding under all other agreements between the Borrower and Lender and the Collateral pledged under any other agreement with Lender secures the Obligations under this Agreement.
13.15 Execution in Counterparts. This Agreement and any other Loan Document may be executed in any number of counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute but one and the same agreement. Delivery of an executed counterpart of a signature page to this Agreement or and any other Loan Document by telecopier, facsimile machine, portable document format or other electronic means shall be as effective as delivery of a manually executed counterpart thereof.
13.16 Severability of Provisions. Any provision of this Agreement or any of the other Loan Documents that is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions of this Agreement or the other Loan Documents or affecting the validity or enforceability of such provision in any other jurisdiction.
13.17 Headings. The headings preceding the text of this Agreement are inserted solely for convenience of reference and shall not constitute a part of this Agreement or affect its meaning, construction or effect.
13.18 Exhibits and Schedules. All of the Exhibits and Schedules to this Agreement are hereby incorporated by reference herein and made a part hereof.
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13.19 No Broker’s Fee. Notwithstanding anything contained herein or in any Loan Documents, the Borrower shall be solely responsible for any broker’s commission, finder’s fee or similar charge or fee in connection with the Loans and the transactions contemplated in this Agreement.
13.20 Marketing and Advertising. Each Loan Party hereby authorizes and gives permission for the Lender and its Affiliates to use the legal or fictional company name, logo, trademark and/or personal quotes in connection with promotional materials that Lender may disseminate to the public relating to Lender’s relationship with the Loan Parties. Promotional materials may include, but are not limited to, brochures, video tapes, emails, internet websites, advertising in newspapers and/or other periodicals, lucites, pictures and photographs. Lender shall provide each Loan Party with a copy of promotional materials prepared by the Lender or its Affiliates prior to making such promotional materials available to the public.
[Signatures Continued on Next Page]
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their officers thereunto duly authorized on the day and year first above written.
BORROWER: | ||
Fat Brands Inc., a Delaware corporation | ||
By: | /s/ Andrew A. Wiederhorn | |
Name: | Andrew A. Wiederhorn | |
Title: | Chef Executive Officer | |
GUARANTORS: | ||
Fatburger North America, Inc., a Delaware corporation | ||
By: | /s/ Andrew A. Wiederhorn | |
Name: | Andrew A. Wiederhorn | |
Title: | Chef Executive Officer | |
Ponderosa Franchising Company LLC, a Delaware limited liability company | ||
By: | /s/ Andrew A. Wiederhorn | |
Name: | Andrew A. Wiederhorn | |
Title: | Manager | |
Bonanza Restaurant Company LLC, a Delaware limited liability company | ||
By: | /s/ Andrew A. Wiederhorn | |
Name: | Andrew A. Wiederhorn | |
Title: | Manager |
[Signature Page to Loan and Security Agreement]
Ponderosa International Development, Inc., a Delaware corporation | ||
By: | /s/ Andrew A. Wiederhorn | |
Name: | Andrew A. Wiederhorn | |
Title: | Chef Executive Officer | |
Puerto Rico Ponderosa, Inc., a Delaware corporation | ||
By: | /s/ Andrew A. Wiederhorn | |
Name: | Andrew A. Wiederhorn | |
Title: | Chef Executive Officer | |
Buffalo’s Franchise Concepts, Inc., a Nevada corporation | ||
By: | /s/ Andrew A. Wiederhorn | |
Name: | Andrew A. Wiederhorn | |
Title: | Chef Executive Officer | |
Buffalo’s Franchise Concepts Inc., a Georgia corporation | ||
By: | /s/ Andrew A. Wiederhorn | |
Name: | Andrew A. Wiederhorn | |
Title: | Chef Executive Officer |
[Signature Page to Loan and Security Agreement]
Fatburger Corporation, a Delaware corporation | ||
By: | /s/ Andrew A. Wiederhorn | |
Name: | Andrew A. Wiederhorn | |
Title: | Chef Executive Officer | |
Homestyle Dining LLC, a Delaware limited liability company | ||
By: | /s/ Andrew A. Wiederhorn | |
Name: | Andrew A. Wiederhorn | |
Title: | Manager |
[Signature Page to Loan and Security Agreement]
LENDER: | ||
FB Lending, LLC | ||
By: | /s/ Vikas Tandon | |
Name: | Vikas Tandon | |
Title: | Authorized Signatory |
[Signature Page to Loan and Security Agreement]
EXHIBIT A
FORM OF NOTICE OF BORROWING
VIA EMAIL
FB Lending, LLC
1999 Avenue of the Stars, Suite 2040
Los Angeles, CA 90067
Attn: Vikas Tandon
July 3, 2018
Re: Request for loan
Reference is made to that certain Loan and Security Agreement, dated as of July 3, 2018 (the “Loan Agreement”), by and among, inter alia, FAT Brands Inc., a Delaware corporation (the “Borrower”) and FB Lending, LLC, a California limited liability corporation (the “Lender”). Capitalized terms used herein and not otherwise defined herein shall have the meanings given to them in the Loan Agreement.
1. | The undersigned requests a $16,000,000 Loan pursuant to Section 2.1 of the Loan Agreement. | |
2. | The requested date of funding of the Loan shall be July 3, 2018 (the “Funding Date”). | |
3. | Borrower hereby authorizes and directs Lender to disburse the proceeds of the $16,000,000 Loan on the Funding Date [in the amounts and] to the account(s) indicated below: |
Amount: | _____________________ | |
Name of Bank: | _____________________ | |
ABA Routing No.: | _____________________ | |
Account #: | _____________________ | |
Account Name: | _____________________ | |
Reference: | _____________________ | |
Amount: | _____________________ | |
Name of Bank: | _____________________ | |
ABA Routing No.: | _____________________ | |
Account #: | _____________________ | |
Account Name: | _____________________ | |
Reference: | _____________________ |
[Signature Page Follows]
IN WITNESS WHEREOF, the Borrower has executed this Notice of Borrowing on the date set forth above.
FAT Brands, Inc. | ||
By: | ||
Name: | ||
Title: |
EXHIBIT B
COMPLIANCE CERTIFICATE
The Borrower hereby certifies to the Lender, in accordance with the provisions of that certain Loan and Security Agreement dated as of July 3, 2018 by and among the Borrower, the Guarantors party thereto and the Lender, as the same from time to time may be amended, supplemented or otherwise modified (the “Agreement”; all capitalized terms used and not defined herein have the meanings set forth in the Agreement) that:
(i) the Loan Parties have complied in all material respects with all the terms, covenants and conditions of the Agreement which are binding upon it;
(ii) there exists no Event of Default or Default as defined in the Agreement;
(iii) the representations and warranties contained in the Agreement are true in all material respects with the same effect as though such representations and warranties had been made on the date hereof; and
(iv) the financial statements to which this Compliance Certificate is attached present fairly in all material respects the financial condition and results of operation of the Loan Parties as of the dates and for the periods indicated in accordance with GAAP applied on a consistent basis, subject to normal year-end audit adjustments and the absence of footnotes in quarterly financial statements.
WITNESS the signature of the undersigned duly authorized officer of Borrower on _______________, 20___.
FAT Brands Inc. | ||
By: | ||
Name: | ||
Title: |
EXHIBIT C
WARRANT
EXHIBIT D
FORM OF COLLATERAL ACCESS AGREEMENT
GUARANTY
This Guaranty, dated as of July 3, 2018 (this “Guaranty”) is made by FATBURGER NORTH AMERICA, INC., a Delaware corporation, PONDEROSA FRANCHISING COMPANY LLC, a Delaware limited liability company, BONANZA RESTAURANT COMPANY LLC, a Delaware limited liability company, PONDEROSA INTERNATIONAL DEVELOPMENT, INC., a Delaware corporation, PUERTO RICO PONDEROSA, INC., a Delaware corporation, BUFFALO’S FRANCHISE CONCEPTS, INC., a Nevada corporation, BUFFALO’S FRANCHISE CONCEPTS INC., a Georgia corporation, FATBURGER CORPORATION, a Delaware corporation and HOMESTYLE DINING LLC, a Delaware limited liability company ( together each other entity that becomes a guarantor hereunder, the “Guarantors”) in favor of FB LENDING, LLC (the “Lender”).
RECITALS:
WHEREAS, FAT Brands Inc., a Delaware corporation (the “Company”) and Guarantors have entered into that certain Loan and Security Agreement, dated as of the date hereof (as amended, amended and restated, supplemented or otherwise modified from time to time, the “Loan Agreement”) with the Lender;
WHEREAS, the Guarantors will derive substantial direct and indirect benefit from the transactions contemplated by the Loan Agreement and the other Loan Documents; and
WHEREAS, it is a condition to the Lender making any loans or otherwise extending credit or other financial accommodations under the Loan Agreement that the Guarantors shall guarantee the due payment and performance of all Guaranteed Obligations (as hereinafter defined) by entering into this Guaranty.
NOW, THEREFORE, in consideration of the premises and the agreements, provisions and covenants herein contained, each Guarantor hereby agrees with the Lender, for the benefit of the Lender, as follows:
Section 1. Definitions. All capitalized terms not otherwise defined in this Guaranty that are defined in the Loan Agreement shall have the meanings assigned to such terms by the Loan Agreement.
Section 2. Guaranty of the Obligations. Each Guarantor hereby irrevocably and unconditionally guarantees to the Lender for the benefit of the Lender the due and punctual payment in full of all Obligations when the same shall become due, whether at stated maturity, by required prepayment, declaration, acceleration, demand or otherwise (including amounts that would become due but for the operation of the automatic stay under Section 362(a) of the United States Bankruptcy Code (the “Bankruptcy Code”, 11 U.S.C. § 362(a)) (collectively, the “Guaranteed Obligations”). Without limiting the generality of the foregoing, each Guarantor’s liability shall extend to all amounts that constitute part of the Guaranteed Obligations and would be owed by the Borrower to the Lender under the Loan Documents but for the fact that they are unenforceable or not allowable due to insolvency or the existence of a bankruptcy, reorganization or similar proceeding involving the Borrower.
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Section 3. Payment by Guarantors. Each Guarantor hereby agrees, in furtherance of the foregoing and not in limitation of any other right which the Lender may have at law or in equity against such Guarantor by virtue hereof, that upon the failure of the Borrower to pay any of the Guaranteed Obligations when and as the same shall become due, whether at stated maturity, by required prepayment, declaration, acceleration, demand or otherwise (including amounts that would become due but for the operation of the automatic stay under Section 362(a) of the Bankruptcy Code, 11 U.S.C. § 362(a)), such Guarantor will upon demand pay, or cause to be paid, in immediately available funds, to the Lender, an amount equal to the sum of the unpaid principal amount of all Guaranteed Obligations then due as aforesaid, all accrued and unpaid interest on such Guaranteed Obligations (including interest which, but for a Borrower becoming the subject of a case under the Bankruptcy Code, would have accrued on such Guaranteed Obligations, whether or not a claim is allowed against such Borrower for such interest in the related bankruptcy case) and all other Guaranteed Obligations then owed to the Lender as aforesaid. Each Guarantor hereby agrees that all payments under this Agreement will be paid to the Lender, without setoff, deduction or counterclaim at the office of the Lender located at the address specified in the Loan Agreement in U.S. dollars and in immediately available funds.
Section 4. Liability of Guarantors Absolute. Each Guarantor agrees that its obligations hereunder are irrevocable, absolute, independent and unconditional and shall not be affected by any circumstance which constitutes a legal or equitable discharge of a guarantor or surety other than the indefeasible payment in full in cash of the Obligations (other than contingent indemnification obligations not yet due and owing) or the termination or expiration of the Loan Agreement (“Payment in Full”). In furtherance of the foregoing and without limiting the generality thereof, each Guarantor agrees as follows:
(a) This Guaranty is a guaranty of payment when due and not of collectability. This Guaranty is a primary obligation of each Guarantor and not merely a contract of surety.
(b) The Lender may enforce this Guaranty upon the occurrence of an Event of Default notwithstanding the existence of any dispute between the Borrower and the Lender with respect to the existence of such Event of Default.
(c) The obligations of each Guarantor hereunder are independent of the obligations of the Borrower and the obligations of any other Guarantor, and a separate action or actions may be brought and prosecuted against each Guarantor whether or not any action is brought against the Borrower or any of such other Guarantors and whether or not the Borrower is joined in any such action or actions.
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(d) The Lender, upon such terms as it deems appropriate, without notice or demand and without affecting the validity or enforceability hereof or giving rise to any reduction, limitation, impairment, discharge or termination of any Guarantor’s liability hereunder, from time to time may (i) renew, extend, accelerate, increase the rate of interest on, or otherwise change the time, place, manner or terms of payment of the Guaranteed Obligations in accordance with the Loan Agreement; (ii) settle, compromise, release or discharge, or accept or refuse any offer of performance with respect to, or substitutions for, the Guaranteed Obligations or any agreement relating thereto, or subordinate the payment of the same to the payment of any other obligations; (iii) request and accept other guaranties of the Guaranteed Obligations and take and hold security for the payment hereof or the Guaranteed Obligations; (iv) release, surrender, exchange, substitute, compromise, settle, rescind, waive, alter, subordinate or modify, with or without consideration, any security for payment of the Guaranteed Obligations, any other guaranties of the Guaranteed Obligations, or any other obligation of any other Person with respect to the Guaranteed Obligations; (v) enforce and apply any security now or hereafter held by or for the benefit of the Lender in respect hereof or the Guaranteed Obligations and direct the order or manner of sale thereof, or exercise any other right or remedy that the Lender may have against any such security, in each case as the Lender in its discretion may determine consistent herewith and any applicable security agreement, including foreclosure on any such security pursuant to one or more judicial or nonjudicial sales, whether or not every aspect of any such sale is commercially reasonable, and even though such action operates to impair or extinguish any right of reimbursement or subrogation or other right or remedy of any Guarantor against the Borrower or any security for the Guaranteed Obligations; and (vi) exercise any other rights available to it under the Loan Documents.
(e) This Guaranty and the obligations of each Guarantor hereunder shall be valid and enforceable and shall not be subject to any reduction, limitation, impairment, discharge or termination for any reason (other than Payment in Full), including the occurrence of any of the following, whether or not such Guarantor shall have had notice or knowledge of any of them: (i) any failure or omission to assert or enforce, or agreement or election not to assert or enforce, or the stay or enjoining, by order of court, by operation of law or otherwise, of the exercise or enforcement of, any claim or demand or any right, power or remedy (whether arising under the Loan Documents, at law, in equity or otherwise) with respect to the Guaranteed Obligations or any agreement relating thereto, or with respect to any other guaranty of or security for the payment of the Guaranteed Obligations; (ii) any rescission, waiver, amendment or modification of, or any consent to departure from, any of the terms or provisions (including provisions relating to events of default) of any of the other Loan Documents or any agreement or instrument executed pursuant thereto, or of any other guaranty or security for the Guaranteed Obligations; including, without limitation, any increase in the Guaranteed Obligations resulting from the extension of additional credit to the Borrower or otherwise; (iii) the Guaranteed Obligations, or any agreement relating thereto other than this Guaranty, at any time being found to be illegal, invalid or unenforceable in any respect; (iv) the application of payments received from any source (other than payments received pursuant to the other Loan Documents or from the proceeds of any security for the Guaranteed Obligations, except to the extent such security also serves as collateral for indebtedness other than the Guaranteed Obligations) to the payment of indebtedness other than the Guaranteed Obligations, even though the Lender might have elected to apply such payment to any part or all of the Guaranteed Obligations; (v) any change, restructuring or termination of the corporate structure or existence of any Loan Party, including without limitation as a result of the Lender’s consent to the change, reorganization or termination of the corporate structure or existence of any Loan Party and to any corresponding restructuring of the Guaranteed Obligations; (vi) any failure to perfect or continue perfection of a security interest in any collateral which secures any of the Guaranteed Obligations; (vii) any taking, exchange, release or non-perfection of any collateral for all or any of the Guaranteed Obligations; (viii) any manner of application of collateral, or proceeds thereof, to all or any of the Guaranteed Obligations, or any manner of sale or other disposition of any collateral for all or any of the Guaranteed Obligations or any other obligations of any other Person under the Loan Documents or any other assets of Borrower or any of its Affiliates; (ix) any failure of the Lender to disclose to any Loan Party any information relating to the business, condition (financial or otherwise), operations, properties or prospects of any Person now or in the future known to the Lender (and each Guarantor hereby irrevocably waives any duty on the part of the Lender to disclose such information); (x) any defenses, set-offs or counterclaims which Borrower may allege or assert against the Lender in respect of the Guaranteed Obligations, other than Payment in Full, including failure of consideration, breach of warranty, payment, statute of frauds, statute of limitations, accord and satisfaction and usury; (xi) any other act or thing or omission, or delay to do any other act or thing, which may or might in any manner or to any extent vary the risk of such Guarantor as an obligor in respect of the Guaranteed Obligations; and (xii) any other circumstance or any existence of or reliance on any representation by the Lender that might otherwise constitute a defense available to, or a discharge of, the Borrower, such Guarantor or any other Guarantor, surety or other Person.
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Section 5. Waivers by Guarantors. Each Guarantor hereby waives, for the benefit of the Lender: (a) any right to require the Lender, as a condition of payment or performance by such Guarantor, to (i) proceed against the Borrower, any other Guarantor or any other Person, (ii) proceed against or exhaust any security held from the Borrower, any such other Guarantor or any other Person, (iii) proceed against or have resort to any balance of any deposit account or credit on the books of the Lender in favor of the Borrower or any other Person, or (iv) pursue any other remedy in the power of the Lender whatsoever; (b) any defense arising by reason of the incapacity, lack of authority or any disability or other defense of the Borrower or any other Guarantor, including any defense based on or arising out of the lack of validity or the unenforceability of the Guaranteed Obligations or any agreement or instrument relating thereto or by reason of the cessation of the liability of the Borrower or any other Guarantor from any cause other than Payment in Full; (c) any defense based upon any statute or rule of law which provides that the obligation of a surety must be neither larger in amount nor in other respects more burdensome than that of the principal; (d) any defense based upon the Lender’s errors or omissions in the administration of the Guaranteed Obligations, except behavior which is determined by a final nonappealable judgment by a court of competent jurisdiction to have resulted from bad faith or gross negligence; (e) (i) any principles or provisions of law, statutory or otherwise, which are or might be in conflict with the terms hereof and any legal or equitable discharge of such Guarantor’s obligations hereunder, (ii) the benefit of any statute of limitations affecting such Guarantor’s liability hereunder or the enforcement hereof, (iii) any rights to set-offs, recoupments and counterclaims, and (iv) promptness, diligence and any requirement that the Lender protect, secure, perfect or insure any security interest or lien or any property subject thereto; (f) notices, demands, presentments, protests, notices of protest, notices of dishonor and notices of any action or inaction, including acceptance hereof, notices of default hereunder, notices of any renewal, extension or modification of the Guaranteed Obligations or any agreement related thereto, notices of any extension of credit to the Borrower and notices of any of the matters referred to in Section 4 and any right to consent to any thereof; and (g) any defenses or benefits that may be derived from or afforded by law which limit the liability of or exonerate guarantors or sureties, or which may conflict with the terms hereof.
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Section 6. Waiver of Subrogation, Contribution, etc. Subject to Section 11, each Guarantor hereby waives any claim, right or remedy, direct or indirect, that such Guarantor now has or may hereafter have against the Borrower or any other Guarantor or any of its assets in connection with this Guaranty or the performance by such Guarantor of its obligations hereunder, in each case whether such claim, right or remedy arises in equity, under contract, by statute, under common law or otherwise and including without limitation (a) any right of subrogation, reimbursement or indemnification that such Guarantor now has or may hereafter have against the Borrower with respect to the Guaranteed Obligations, (b) any right to enforce, or to participate in, any claim, right or remedy that the Lender now has or may hereafter have against the Borrower, and (c) any benefit of, and any right to participate in, any collateral or security now or hereafter held by the Lender. In addition, until Payment in Full, each Guarantor shall withhold exercise of any right of contribution such Guarantor may have against any other guarantor of the Guaranteed Obligations. Each Guarantor further agrees that, to the extent the waiver or agreement to withhold the exercise of its rights of subrogation, reimbursement, indemnification and contribution as set forth herein is found by a court of competent jurisdiction to be void or voidable for any reason, any rights of subrogation, reimbursement or indemnification such Guarantor may have against the Borrower or against any collateral or security, and any rights of contribution such Guarantor may have against any such other guarantor, shall be junior and subordinate to any rights the Lender may have against the Borrower, to all right, title and interest the Lender may have in any such collateral or security, and to any right the Lender may have against such other guarantor. If any amount shall be paid to any Guarantor on account of any such subrogation, reimbursement, indemnification or contribution rights at any time before Payment in Full, such amount shall be held in trust for the Lender and shall forthwith be paid over to the Lender to be credited and applied against the Guaranteed Obligations, whether matured or unmatured, in accordance with the terms hereof.
Section 7. Subordination of Other Obligations. Any Indebtedness of the Borrower or any Guarantor now or hereafter held by any Guarantor is hereby subordinated in right of payment to the Guaranteed Obligations, and any such Indebtedness collected or received by any Guarantor after an Event of Default has occurred and is continuing shall be held in trust for the Lender and shall forthwith be paid over to the Lender to be credited and applied against the Guaranteed Obligations but without affecting, impairing or limiting in any manner the liability of such Guarantor under any other provision hereof.
Section 8. Authority of Guarantors or Borrower. It is not necessary for the Lender to inquire into the capacity or powers of the Guarantors or the Borrower or the officers, directors or any agents acting or purporting to act on behalf of any of them.
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Section 9. Financial Condition of Borrower. The Loan may be made to the Borrower or continued from time to time without notice to or authorization from any Guarantor, regardless of the financial or other condition of the Borrower at the time of any such grant or continuation. The Lender shall have no obligation to disclose or discuss with any Guarantor its assessment, or any Guarantor’s assessment, of the financial condition of the Borrower. Each Guarantor acknowledges that it has adequate means to obtain information from the Borrower on a continuing basis concerning the financial condition of the Borrower and its ability to perform its obligations under the Loan Documents, and each Guarantor assumes the responsibility for being and keeping informed of the financial condition of the Borrower and of all circumstances bearing upon the risk of nonpayment of the Guaranteed Obligations. Each Guarantor hereby waives and relinquishes any duty on the part of the Lender to disclose any matter, fact or thing relating to the business, operations or conditions of the Borrower now known or hereafter known by the Lender.
Section 10. Bankruptcy, etc.
(a) So long as any Guaranteed Obligations remain outstanding, no Guarantor shall, without the prior written consent of the Lender, commence or join with any other Person in commencing any bankruptcy, reorganization or insolvency case or proceeding of or against the Borrower or any other Guarantor. The obligations of each Guarantor hereunder shall not be reduced, limited, impaired, discharged, deferred, suspended or terminated by any case or proceeding, voluntary or involuntary, involving the bankruptcy, insolvency, receivership, reorganization, liquidation or arrangement of the Borrower or any other Guarantor or by any defense which the Borrower or any other Guarantor may have by reason of the order, decree or decision of any court or administrative body resulting from any such proceeding.
(b) Each Guarantor acknowledges and agrees that any interest on any portion of the Guaranteed Obligations which accrues after the commencement of any case or proceeding referred to in clause (a) above (or, if interest on any portion of the Guaranteed Obligations ceases to accrue by operation of law by reason of the commencement of such case or proceeding, such interest as would have accrued on such portion of the Guaranteed Obligations if such case or proceeding had not been commenced) shall be included in the Guaranteed Obligations because it is the intention of such Guarantor and the Lender that the Guaranteed Obligations which are guaranteed by each Guarantor pursuant hereto should be determined without regard to any rule of law or order which may relieve the Borrower of any portion of such Guaranteed Obligations as a result of its bankruptcy, insolvency receivership, reorganization, liquidation or arrangement. Each Guarantor will permit any trustee in bankruptcy, receiver, debtor in possession, assignee for the benefit of creditors or similar person to pay the Lender, or allow the claim of the Lender in respect of, any such interest accruing after the date on which such case or proceeding is commenced.
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(c) In the event that all or any portion of the Guaranteed Obligations are paid, the obligations of each Guarantor hereunder shall continue and remain in full force and effect or be reinstated, as the case may be, in the event that all or any part of such payment(s) are rescinded or recovered directly or indirectly from the Lender as a preference, fraudulent transfer or otherwise, and any such payments which are so rescinded or recovered shall constitute Guaranteed Obligations for all purposes hereunder. EACH GUARANTOR SHALL DEFEND AND INDEMNIFY THE LENDER FROM AND AGAINST ANY CLAIM, DAMAGE, LOSS, LIABILITY, COST OR EXPENSE UNDER THIS SECTION 10(c) (INCLUDING REASONABLE ATTORNEYS’ FEES AND EXPENSES) IN THE DEFENSE OF ANY SUCH ACTION OR SUIT INCLUDING SUCH CLAIM, DAMAGE, LOSS, LIABILITY, COST, OR EXPENSE ARISING AS A RESULT OF THE INDEMNIFIED LENDER’S OWN NEGLIGENCE BUT EXCLUDING SUCH CLAIM, DAMAGE, LOSS, LIABILITY, COST, OR EXPENSE THAT IS FOUND IN A FINAL, NON-APPEALABLE JUDGMENT BY A COURT OF COMPETENT JURISDICTION TO HAVE RESULTED FROM SUCH INDEMNIFIED LENDER’S GROSS NEGLIGENCE OR WILLFUL MISCONDUCT.
Section 11. Contribution and Subrogation. In order to provide for just and equitable contribution among the Guarantors, the Guarantors agree that in the event a payment shall be made on any date under this Guaranty by any Guarantor (the “Funding Guarantor”), each other Guarantor (each a “Contributing Guarantor”) shall indemnify the Funding Guarantor in an amount equal to the amount of such payment, in each case multiplied by a fraction the numerator of which shall be the net worth of the Contributing Guarantor as of such date and the denominator of which shall be the aggregate net worth of all the Contributing Guarantors together with the net worth of the Funding Guarantor as of such date. Any Contributing Guarantor making any payment to a Funding Guarantor pursuant to this Section 11 shall be subrogated to the rights of such Funding Guarantor to the extent of such payment.
Section 12. Fraudulent Transfer Laws. Anything contained in this Guaranty to the contrary notwithstanding, the obligations of each Guarantor under this Guaranty on any date shall be limited to a maximum aggregate amount equal to the largest amount that would not, on such date, render its obligations hereunder subject to avoidance as a fraudulent transfer or conveyance under Section 548 of the Bankruptcy Code of the United States or any applicable provisions of comparable laws relating to bankruptcy, insolvency, or reorganization, or relief of debtors (collectively, the “Fraudulent Transfer Laws”), but only to the extent that any Fraudulent Transfer Law has been found in a final non-appealable judgment of a court of competent jurisdiction to be applicable to such obligations as of such date, in each case
(a) after giving effect to all liabilities of such Guarantor, contingent or otherwise, that are relevant under the Fraudulent Transfer Laws, but specifically excluding
(i) any liabilities of such Guarantor in respect of intercompany indebtedness to the Borrower or other affiliates of the Borrower to the extent that such indebtedness would be discharged in an amount equal to the amount paid by such Guarantor hereunder;
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(ii) any liabilities of such Guarantor under this Guaranty; and
(iii) any liabilities of such Guarantor under other guarantees of and joint and several co-borrowings of Indebtedness, entered into on the date this Guaranty becomes effective, which contain a limitation as to maximum amount substantially similar to that set forth in this Section 12 (each such other guarantee and joint and several co-borrowing entered into on the date this Guaranty becomes effective, a “Competing Guaranty”) to the extent such Guarantor’s liabilities under such Competing Guaranty exceed an amount equal to (x) the aggregate principal amount of such Guarantor’s obligations under such Competing Guaranty (notwithstanding the operation of that limitation contained in such Competing Guaranty that is substantially similar to this Section 12), multiplied by (y) a fraction (I) the numerator of which is the aggregate principal amount of such Guarantor’s obligations under such Competing Guaranty (notwithstanding the operation of that limitation contained in such Competing Guaranty that is substantially similar to this Section 12), and (II) the denominator of which is the sum of (A) the aggregate principal amount of the obligations of such Guarantor under all other Competing Guaranties (notwithstanding the operation of those limitations contained in such other Competing Guaranties that are substantially similar to this Section 12), (B) the aggregate principal amount of the obligations of such Guarantor under this Guaranty (notwithstanding the operation of this Section 12, and (C) the aggregate principal amount of the obligations of such Guarantor under such Competing Guaranty (notwithstanding the operation of that limitation contained in such Competing Guaranty that is substantially similar to this Section 12)); and
(b) after giving effect as assets to the value (as determined under the applicable provisions of the Fraudulent Transfer Laws) of any rights to subrogation, reimbursement, indemnification or contribution of such Guarantor pursuant to applicable law or pursuant to the terms of any agreement (including any such right of contribution under Section 11).
Section 13. Representations and Warranties. Each Guarantor hereby represents and warrants as follows:
(a) There are no conditions precedent to the effectiveness of this Guaranty. Such Guarantor acknowledges that it will receive substantial direct and indirect benefits from the financing arrangements involving the Borrower contemplated by the Loan Documents and that the waivers set forth in this Guaranty are knowingly made in contemplation of such benefits.
(b) Such Guarantor has, independently and without reliance upon the Lender and based on such documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Guaranty.
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(c) The obligations of such Guarantor under this Guaranty are the valid, binding and legally enforceable obligations of such Guarantor, and this Guaranty has been duly and validly executed and delivered by such Guarantor.
Section 14. Right of Set-Off. If an Event of Default shall have occurred and be continuing, the Lender is hereby authorized at any time and from time to time, to the fullest extent permitted by applicable law, to set off and apply any and all deposits (general or special, time or demand, provisional or final, in whatever currency) at any time held and other obligations (in whatever currency) at any time owing by the Lender to or for the credit or the account of any Guarantor against any and all of the obligations of such Guarantor now or hereafter existing under this Guaranty to the Lender, irrespective of whether or not the Lender shall have made any demand under this Guaranty and although such obligations of such Guarantor may be contingent or unmatured or are owed to a branch or office of the Lender different from the branch or office holding such deposit or obligated on such indebtedness. The rights of the Lender under this Section are in addition to other rights and remedies (including other rights of setoff) that the Lender may have. The Lender agrees to notify such Guarantor promptly after any such setoff and application, provided that the failure to give such notice shall not affect the validity of such setoff and application.
Section 15. Amendments, Joinder, Etc. No amendment or waiver of any provision of this Guaranty and no consent to any departure by any Guarantor therefrom shall in any event be effective unless the same shall be in writing and signed by such Guarantor and the Lender, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. This Guaranty may be supplemented to add additional Guarantors by means of a joinder in the form of Annex I signed by the entity to be added and the Lender, upon the execution of which such additional Guarantor shall become a Guarantor hereunder with the same force and effect as if originally named as a Guarantor herein. The execution and delivery of any instrument adding an additional Guarantor as a party to this Guaranty shall not require the consent of any other Guarantor hereunder. The rights and obligations of each Guarantor hereunder shall remain in full force and effect notwithstanding the addition of any new Guarantor as a party to this Guaranty.
Section 16. Notices, Etc. All notices and other communications provided for hereunder shall be sent to the addresses and in the manner provided for in Section 13.4 of the Loan Agreement. All such notices and communications shall be effective as provided in Section 13.4 of the Loan Agreement.
Section 17. Continuing Guaranty: Assignments under the Loan Agreement. This Guaranty is a continuing guaranty and applies to all Guaranteed Obligations, whether existing now or in the future and shall (a) remain in full force and effect until Payment in Full, (b) be binding upon each Guarantor and its successors and assigns, and (c) inure to the benefit of and be enforceable by the Lender and its successors and permitted transferees and assigns. Without limiting the generality of the foregoing clause, when the Lender assigns or otherwise transfers any interest held by it under the Loan Agreement or other Loan Document to any other Person pursuant to the terms of the Loan Agreement or such other Loan Document, that other Person shall thereupon become vested with all the benefits held by the Lender under this Guaranty.
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Section 18. INDEMNITY. EACH GUARANTOR SHALL (AND HEREBY DOES) INDEMNIFY THE LENDER AND EACH RELATED PARTY OF THE LENDER (EACH SUCH PERSON BEING CALLED AN “INDEMNITEE”) AGAINST, AND HOLD EACH INDEMNITEE HARMLESS FROM, ANY AND ALL LIABILITIES, OBLIGATIONS, LOSSES, DAMAGES, PENALTIES, CLAIMS, DEMANDS, ACTIONS, JUDGMENTS, SUITS, COSTS, EXPENSES, OR DISBURSEMENTS (INCLUDING ALL REASONABLE FEES, EXPENSES AND DISBURSEMENTS OF ANY LAW FIRM) OF ANY KIND OR NATURE WHATSOEVER WHICH MAY BE IMPOSED ON, INCURRED BY, OR ASSERTED AGAINST ANY INDEMNITEE IN ANY WAY RELATING TO OR ARISING OUT OF OR IN CONNECTION WITH THE EXECUTION, DELIVERY, ENFORCEMENT, PERFORMANCE, OR ADMINISTRATION OF THIS GUARANTY; PROVIDED THAT SUCH INDEMNITY SHALL NOT, AS TO ANY INDEMNITEE, BE AVAILABLE TO THE EXTENT THAT SUCH LIABILITIES, OBLIGATIONS, LOSSES, DAMAGES, PENALTIES, CLAIMS, DEMANDS, ACTIONS, JUDGMENTS, SUITS, COSTS, EXPENSES OR DISBURSEMENTS ARE DETERMINED BY A COURT OF COMPETENT JURISDICTION BY FINAL AND NONAPPEALABLE JUDGMENT TO HAVE RESULTED FROM THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF SUCH INDEMNITEE (ALL THE FOREGOING, COLLECTIVELY, THE “INDEMNIFIED LIABILITIES”).
TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, EACH GUARANTOR SHALL NOT ASSERT, AND HEREBY WAIVES, ANY CLAIM AGAINST ANY INDEMNITEE, ON ANY THEORY OF LIABILITY, FOR SPECIAL, INDIRECT, CONSEQUENTIAL OR PUNITIVE DAMAGES (AS OPPOSED TO DIRECT OR ACTUAL DAMAGES) ARISING OUT OF, IN CONNECTION WITH, OR AS A RESULT OF, THIS GUARANTY OR ANY AGREEMENT OR INSTRUMENT CONTEMPLATED HEREBY, THE TRANSACTIONS CONTEMPLATED HEREBY, ANY ADVANCE OR THE USE OF THE PROCEEDS THEREOF. NO INDEMNITEE SHALL BE LIABLE FOR ANY DAMAGES ARISING FROM THE USE BY UNINTENDED RECIPIENTS OF ANY INFORMATION OR OTHER MATERIALS DISTRIBUTED BY IT THROUGH TELECOMMUNICATIONS, ELECTRONIC OR OTHER INFORMATION TRANSMISSION SYSTEMS IN CONNECTION WITH THIS GUARANTY OR THE TRANSACTIONS CONTEMPLATED HEREBY UNLESS DUE TO ITS GROSS NEGLIGENCE OR WILLFUL MISCONDUCT AS DETERMINED IN A FINAL, NONAPPEALABLE JUDGMENT BY A COURT OF COMPETENT JURISDICTION.
ALL AMOUNTS DUE UNDER THIS SECTION 18 SHALL BE PAYABLE WITHIN TEN (10) BUSINESS DAYS AFTER DEMAND THEREFOR. THE AGREEMENTS IN THIS SECTION SHALL SURVIVE THE TERMINATION OF THE LOAN DOCUMENTS AND THE REPAYMENT, SATISFACTION OR DISCHARGE OF ALL THE OTHER OBLIGATIONS.
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Section 19. Survival of Representations, Warranties and Agreements; Termination. All representations, warranties and agreements made hereunder or other documents delivered pursuant hereto or in connection herewith shall survive the execution and delivery hereof and thereof. Such representations and warranties have been or will be relied upon by the Lender, regardless of any investigation made by the Lender or on its behalf and notwithstanding that the Lender may have had notice or knowledge of any Default at the time of any Loan under the Loan Agreement, and shall continue in full force and effect until Payment in Full. Notwithstanding anything herein or implied by law to the contrary, the agreements of the Guarantors set forth in Section 19 shall survive Payment in Full.
Section 20. No Waiver; Remedies Cumulative. No failure on the part of the Lender to exercise, and no delay by any such Person in exercising, any right, remedy, power or privilege hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any such right preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege. The rights, remedies, powers and privileges herein provided in this Guaranty are cumulative and not exclusive of any rights, remedies, powers and privileges provided by law.
Section 21. Severability. If any provision of this Guaranty is held to be illegal, invalid or unenforceable, (a) the legality, validity and enforceability of the remaining provisions of this Guaranty shall not be affected or impaired thereby and (b) the parties hereto shall endeavor in good faith negotiations to replace the illegal, invalid or unenforceable provisions with valid provisions, the economic effect of which comes as close as possible to that of the illegal, invalid or unenforceable provisions. The invalidity of a provision in a particular jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction.
Section 22. Headings. Section headings herein are included herein for convenience of reference only and shall not constitute a part hereof for any other purpose or be given any substantive effect.
Section 23. APPLICABLE LAW. THIS GUARANTY shall be governed by and construed in accordance with the laws of the State of New York, WITHOUT REGARD TO CONFLICT OF LAWS PRINCIPLES.
Section 24. CONSENT TO JURISDICTION.
(a) ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS GUARANTY MAY BE BROUGHT IN THE COURTS OF THE STATE OF NEW YORK SITTING IN NEW YORK CITY OR OF THE UNITED STATES FOR THE SOUTHERN DISTRICT OF SUCH STATE, AND BY EXECUTION AND DELIVERY OF THIS GUARANTY, EACH GUARANTOR CONSENTS, FOR ITSELF AND IN RESPECT OF ITS PROPERTY, TO THE NON-EXCLUSIVE JURISDICTION OF THOSE COURTS. EACH GUARANTOR IRREVOCABLY WAIVES ANY OBJECTION, INCLUDING ANY OBJECTION TO THE LAYING OF VENUE BASED ON THE GROUNDS OF FORUM NON CONVENIENS, WHICH IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY ACTION OR PROCEEDING IN SUCH JURISDICTION IN RESPECT OF THIS GUARANTY OR OTHER DOCUMENT RELATED HERETO. EACH GUARANTOR WAIVES PERSONAL SERVICE OF ANY SUMMONS, COMPLAINT OR OTHER PROCESS, WHICH MAY BE MADE BY ANY OTHER MEANS PERMITTED BY THE LAW OF SUCH STATE.
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(b) Nothing in this Section 24 shall affect the right of the Lender to serve legal process in any other manner permitted by law or affect the right of the Lender to bring any action or proceeding against any Guarantor in the courts of any other jurisdiction.
Section 25. WAIVER OF JURY TRIAL. EACH PARTY TO THIS GUARANTY HEREBY EXPRESSLY AND IRREVOCABLY WAIVES ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION ARISING UNDER THIS GUARANTY OR IN ANY WAY CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF THE PARTIES HERETO OR ANY OF THEM WITH RESPECT TO THIS GUARANTY, OR THE TRANSACTIONS RELATED HERETO, WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER FOUNDED IN CONTRACT OR TORT OR OTHERWISE; AND EACH PARTY HEREBY AGREES AND CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY, AND THAT ANY PARTY TO THIS AGREEMENT MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS SECTION WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE SIGNATORIES HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY.
Section 26. Usury Savings Clause. Notwithstanding any other provision herein, the aggregate interest rate charged with respect to any of the Guaranteed Obligations, including all charges or fees in connection therewith deemed in the nature of interest under applicable law, shall not exceed the maximum rate permitted by law (the “Maximum Rate”). If the rate of interest (determined without regard to the preceding sentence) under the Loan Agreement at any time exceeds the Maximum Rate, the outstanding amount of the Loan made thereunder shall bear interest at the Maximum Rate until the total amount of interest due hereunder equals the amount of interest which would have been due hereunder if the stated rates of interest set forth in the Loan Agreement had at all times been in effect. In addition, if when the Loan made thereunder is repaid in full the total interest due hereunder (taking into account the increase provided for above) is less than the total amount of interest which would have been due hereunder if the stated rates of interest set forth in the Loan Agreement had at all times been in effect, then to the extent permitted by law, the Guarantors shall pay to the Lender an amount equal to the difference between the amount of interest paid and the amount of interest which would have been paid if the Maximum Rate had at all times been in effect. Notwithstanding the foregoing, it is the intention of the Lender and each Guarantor to conform strictly to any applicable usury laws. Accordingly, if the Lender contracts for, charges, or receives any consideration which constitutes interest in excess of the Maximum Rate, then any such excess shall be cancelled automatically and, if previously paid, shall at the Lender’s option be applied to the outstanding amount of the Obligations under the Loan Agreement or be refunded to the Borrower.
Section 27. Payments Free of Taxes. Any and all payments by or on account of any Guaranteed Obligation hereunder shall be made free and clear of and without reduction or withholding for any taxes.
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Section 28. Counterparts. This Guaranty may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. Delivery of an executed counterpart signature page by electronic mail or facsimile is as effective as executing and delivering this Guaranty in the presence of the other parties to this Guaranty.
Section 29. USA Patriot Act Notice. The Lender, subject to the USA Patriot Act (Title III of Pub. L. 107-56 (signed into law October 26, 2001)) (the “Act”), hereby notifies each Guarantor that pursuant to the requirements of the Act, it is required to obtain, verify and record information and documentation that identifies each Guarantor, which information includes the name and address of such Persons and other information that will allow the Lender to identify such Persons in accordance with the Act.
Section 30. Entire Agreement.
(a) THIS GUARANTY AND THE OTHER LOAN DOCUMENTS ARE THE FINAL EXPRESSION OF THE AGREEMENT BETWEEN THE PARTIES. THIS GUARANTY MAY NOT BE CONTRADICTED BY EVIDENCE OF ANY PRIOR ORAL AGREEMENT OR OF ANY CONTEMPORANEOUS ORAL AGREEMENT BETWEEN THE PARTIES. ANY AND ALL SUCH PRIOR OR CONTEMPORANEOUS ORAL AGREEMENTS ARE EXPRESSLY SUPERSEDED BY THIS GUARANTY.
(b) THE PARTIES TO THIS GUARANTY HEREBY ACKNOWLEDGE AND AFFIRM THAT NO UNWRITTEN ORAL AGREEMENT BETWEEN THE PARTIES EXISTS.
[Signature Page Follows]
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Each Guarantor has caused this Guaranty to be duly executed as of the date first above written.
GUARANTORS: | ||
Fatburger North America, Inc., a Delaware corporation | ||
By: | /s/ Andrew A. Wiederhorn | |
Name: | Andrew A. Wiederhorn | |
Title: | Chief Executive Officer | |
Ponderosa Franchising Company LLC, a Delaware limited liability company | ||
By: | /s/ Andrew A. Wiederhorn | |
Name: | Andrew A. Wiederhorn | |
Title: | Manager | |
Bonanza Restaurant Company LLC, a Delaware limited liability company | ||
By: | /s/ Andrew A. Wiederhorn | |
Name: | Andrew A. Wiederhorn | |
Title: | Manager | |
Ponderosa International Development, Inc., a Delaware corporation | ||
By: | /s/ Andrew A. Wiederhorn | |
Name: | Andrew A. Wiederhorn | |
Title: | Chief Executive Officer | |
Puerto Rico Ponderosa, Inc., a Delaware corporation | ||
By: | /s/ Andrew A. Wiederhorn | |
Name: | Andrew A. Wiederhorn | |
Title: | Chief Executive Officer |
[Signature Page to Guaranty]
Buffalo’s Franchise Concepts, Inc., a Nevada corporation | ||
By: | /s/ Andrew A. Wiederhorn | |
Name: | Andrew A. Wiederhorn | |
Title: | Chief Executive Officer | |
Buffalo’s Franchise Concepts Inc., a Georgia corporation | ||
By: | /s/ Andrew A. Wiederhorn | |
Name: | Andrew A. Wiederhorn | |
Title: | Chief Executive Officer | |
Fatburger Corporation, a Delaware corporation | ||
By: | /s/ Andrew A. Wiederhorn | |
Name: | Andrew A. Wiederhorn | |
Title: | Chief Executive Officer | |
Homestyle Dining LLC, a Delaware limited liability company | ||
By: | /s/ Andrew A. Wiederhorn | |
Name: | Andrew A. Wiederhorn | |
Title: | Manager |
Annex 1 to the Guaranty
SUPPLEMENT NO. ____ dated as of ______________(the “Supplement”), to the Guaranty dated as of July 3, 2018 (as amended, amended and restated, supplemented or otherwise modified from time to time, the “Guaranty”), made by Fatburger North America, Inc., a Delaware corporation, Ponderosa Franchising Company LLC, a Delaware limited liability company, Bonanza Restaurant Company LLC, a Delaware limited liability company, Ponderosa International Development, Inc., a Delaware corporation, Puerto Rico Ponderosa, Inc., a Delaware corporation, Buffalo’s Franchise Concepts, Inc., a Nevada corporation, and Buffalo’s Franchise Concepts Inc., a Georgia corporation (together each other entity that becomes a guarantor hereunder, the “Guarantors”) in favor of FB Lending, LLC (the “Lender”).
A. Reference is made to the Loan and Security Agreement, dated as of July 3, 2018 (as amended, supplemented or otherwise modified from time to time, the “Loan Agreement”), by and among FAT Brands Inc., a Delaware corporation (the “Borrower”), the Guarantors and the Lender.
B. Capitalized terms used herein and not otherwise defined herein shall have the meanings assigned to such terms in the Guaranty and the Loan Agreement.
C. Section 15 of the Guaranty provides that additional Persons may become Guarantors under the Guaranty by execution and delivery of an instrument in the form of this Supplement. The undersigned Subsidiary or Affiliate of the Borrower (the “New Guarantor”) is executing this Supplement to become a Guarantor under the Guaranty.
D. Each New Guarantor is a Subsidiary or Affiliate of the Borrower and will derive substantial direct and indirect benefit from the transactions contemplated by the Loan Agreement and the other Loan Documents.
Accordingly, the Lender and the New Guarantor agree as follows:
SECTION 1. In accordance with Section 15 of the Guaranty, the New Guarantor by its signature below becomes a Guarantor under the Guaranty with the same force and effect as if originally named therein as a Guarantor and the New Guarantor hereby (a) agrees to all the terms and provisions of the Guaranty applicable to it as a Guarantor thereunder, including without limitation, the indemnification obligations, waiver of damages, consent to jurisdiction and waiver of jury trial set forth in Sections 18, 24, and 25 of the Guaranty, and (b) represents and warrants that the representations and warranties made by it as a Guarantor thereunder are true and correct in all material respects on and as of the date hereof. Each reference to a “Guarantor” in the Guaranty shall be deemed to include the New Guarantor. The Guaranty is hereby incorporated herein by reference.
SECTION 2. The New Guarantor represents and warrants to the Lender that this Supplement has been duly authorized, executed and delivered by it and constitutes its legal, valid and binding obligation, enforceable against it in accordance with its terms (subject to applicable bankruptcy, reorganization, insolvency, moratorium or similar laws affecting creditors’ rights generally and subject, as to enforceability, to equitable principles of general application (regardless of whether enforcement is sought in a proceeding in equity or at law)).
SECTION 3. This Supplement may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. This Supplement shall become effective when the Lender shall have received counterparts of this Supplement that, when taken together, bear the signatures of the New Guarantor and the Lender. Delivery of an executed signature page to this Supplement by electronic mail or fax transmission or by electronic mail shall be as effective as delivery of a manually executed counterpart of this Supplement.
SECTION 4. Except as expressly supplemented hereby, the Guaranty shall remain in full force and effect.
SECTION 5. This supplement shall be governed by and construed in accordance with the laws of the State of New York, WITHOUT REGARD TO CONFLICT OF LAWS PRINCIPLES.
SECTION 6. If any provision of this Supplement is held to be illegal, invalid or unenforceable, (a) the legality, validity and enforceability of the remaining provisions of this Supplement shall not be affected or impaired thereby and (b) the parties hereto shall endeavor in good faith negotiations to replace the illegal, invalid or unenforceable provisions with valid provisions, the economic effect of which comes as close as possible to that of the illegal, invalid or unenforceable provisions. The invalidity of a provision in a particular jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction.
SECTION 7. All communications and notices hereunder shall be in writing and given as provided in Section 16 of the Guaranty. All communications and notices hereunder to the New Guarantor shall be given to it at the address set forth under its signature below.
SECTION 8. The New Guarantor agrees to reimburse the Lender for its costs and expenses in connection with this Supplement, including the fees, disbursements and other charges of counsel for the Lender.
SECTION 9. THIS SUPPLEMENT, THE GUARANTY, AND THE OTHER LOAN DOCUMENTS ARE THE FINAL EXPRESSION OF THE AGREEMENT BETWEEN THE PARTIES. THIS SUPPLEMENT MAY NOT BE CONTRADICTED BY EVIDENCE OF ANY PRIOR ORAL AGREEMENT OR OF ANY CONTEMPORANEOUS ORAL AGREEMENT BETWEEN THE PARTIES. ANY AND ALL SUCH PRIOR OR CONTEMPORANEOUS ORAL AGREEMENTS ARE EXPRESSLY SUPERSEDED BY THIS SUPPLEMENT.
THE PARTIES TO THIS SUPPLEMENT HEREBY ACKNOWLEDGE AND AFFIRM THAT NO UNWRITTEN ORAL AGREEMENT BETWEEN THE PARTIES EXISTS.
IN WITNESS WHEREOF, the New Guarantor and the Lender have duly executed this Supplement to the Guaranty as of the day and year first above written.
[Name of New Guarantor] | ||
By: | ||
Name: | ||
Title: | ||
Address: | ||
FB Lending, LLC as the Lender | ||
By: | ||
Name: | ||
Title: |
FAT BRANDS COMPLETES ACQUISITION OF HURRICANE GRILL AND WINGS
Rapidly Growing West Coast Franchisor Adds Flavorful Grill and Wings Franchise to its Portfolio of Brands
LOS ANGELES (July 5, 2018) – FAT (Fresh. Authentic. Tasty.) Brands Inc. (NASDAQ: FAT) (“FAT Brands” or the “Company”) announced that it has successfully completed the previously announced acquisition of Hurricane Grill & Wings (“Hurricane”) for $12.5 million, which was funded through a combination of $8.0 million of cash and $4.5 million of preferred stock. With the acquisition of Hurricane, FAT Brands now franchises more than 325 restaurants around the world with annual system-wide sales exceeding $350 million.
Founded in 1995, Hurricane Grill & Wings offers jumbo, fresh wings paired with over 35 signature sauces, rubs, and glazes with a diverse menu featuring flavorful fan-favorites including fries, tacos and burgers. Hurricane franchises more than 50 locations across the U.S. The Company plans to utilize Hurricane’s trademark tropical, laid-back American atmosphere to drive new store growth globally. The Hurricane brand is complementary to the Company’s existing portfolio brands, including Buffalo’s Cafe and Buffalo’s Express, each known for serving world-famous chicken wings. The acquisition of Hurricane creates both significant synergies and the opportunity for continued expansion of the FAT Brands portfolio.
Andy Wiederhorn, President and CEO of FAT Brands, commented, “Hurricane Grill & Wings’ mission strongly aligns with FAT Brands’ commitment to providing guests with all-American food experiences and high-quality, made-to-order meals, paired with an easygoing ambiance. The completion of this acquisition will allow our management team to expand Hurricane’s footprint in both existing markets and new international markets through the Company’s extensive network of franchise partners.”
“We are excited to complete our first acquisition since our IPO, and we remain committed to asset-light growth through a combination of accretive acquisitions of franchise brands and organic new store growth of existing brands. We are ready to embark on this next phase of growth, which we believe will create value for all of our shareholders,” Wiederhorn concluded.
Hurricane Grill & Wings President & CEO John Metz stated, “We are honored to officially join the FAT Brands family. This partnership will enable our team to leverage FAT Brands’ proven expertise and robust infrastructure to realize our brand potential and grow our presence around the world.”
For more information, please visit www.fatbrands.com.
Fresh. Authentic. Tasty. Brands
FAT Brands (NASDAQ: FAT) is a leading global franchising company that strategically acquires, markets and develops fast casual and casual dining restaurant concepts around the world. The Company currently owns five restaurant brands, Fatburger, Buffalo’s Cafe, Buffalo’s Express and Ponderosa and Bonanza Steakhouses, that have approximately 300 locations open and 300 under development in 32 countries.
About Hurricane Grill and Wings
With over 50 restaurants open or under construction in eight states, Florida-based Hurricane Grill & Wings® is known for its jumbo fresh wings, more than 35 signature sauces and rubs and tropical, laid-back vibe. Named by USA Today as one of “10 Great Places to Wing It;” selected as one of the “Future 50” by Restaurant Business as well as one of Franchise Times “Top 40 Fast and Serious,” Hurricane Grill & Wings’ menu includes crave-able Hurricane’s Garlic & Parm fries, tasty salads, seafood entrees and fresh ½ pound burgers. The brand’s signature Rum Bar with over 21 premium rums leads its tropical drinks menu, along with a wide selection of craft beers and wines. The original Hurricane Grill & Wings opened in Fort Pierce, Fla., in 1995 and has expanded to locations in Alabama, Arizona, Colorado, Florida, Georgia, Kansas, New York, and Texas. For more information, visit www.hurricanewings.com.
Forward-Looking Statements
This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements relating to the future financial performance and growth of FAT Brands and Hurricane, the Company’s ability to successfully integrate Hurricane and exploit the synergies of the acquisition, the Company’s ability to conduct future accretive acquisitions and achieve new store growth, and Hurricane’s ability to leverage FAT Brands’ expertise and infrastructure. Forward-looking statements generally use words such as “will,” “expect,” “foresee,” “anticipate,” “believe,” “project,” “should,” “estimate,” “plans,” “forecast,” and similar expressions, and reflect the Company’s expectations concerning the future. It is possible that the Company’s future results may differ materially from its current expectations or those expressed or implied in these forward-looking statements. We refer you to the documents that we file from time to time with the Securities and Exchange Commission, including our reports on Form 10-K, Form 10-Q and Form 8-K, for a discussion of the risks and uncertainties that could cause our actual results to differ materially from our current expectations or forward-looking statements contained in this press release. We undertake no obligation to update any forward-looking statement to reflect events or circumstances occurring after the date of this press release.
Contacts:
Investor Relations:
ICR
Alexis Tessier
IR-FATBrands@icrinc.com
203-682-8286
Media Relations:
Konnect Agency
Shelby Robinson/Rebecca Campbell
srobinson@konnectagency.com
rcampbell@konnectagency.com
213-988-8344
###
FAT BRANDS INC. ANNOUNCES $16 MILLION DEBT FINANCING
WITH FB LENDING, LLC
LOS ANGELES (July 5, 2018) – FAT (Fresh. Authentic. Tasty.) Brands Inc. (NASDAQ: FAT) (“FAT Brands” or the “Company”), a leading global restaurant franchising company, today announced that it has entered into a $16 million senior credit facility. The Company will use a portion of the loan proceeds to complete its previously announced acquisition of Hurricane Grill & Wings (“Hurricane”), with the remaining proceeds to be used to repay existing indebtedness and for future acquisitions.
“This financing enables the completion of our acquisition of Hurricane, while strengthening our balance sheet and providing the capacity to pursue additional accretive acquisitions. As we continue to execute our asset-light growth strategy, we are pleased to partner with the FB Lending, LLC team, who, through their affiliate companies, have a long and successful track record of investing in credit,” said Andy Wiederhorn, President and Chief Executive Officer of FAT Brands.
The financing consists of a $16 million term loan with a 15% coupon and a maturity date of June 30, 2020. Additionally, FB Lending, LLC will receive five year warrants to purchase 499,000 shares of common stock, with a strike price of $7.35. In conjunction with the financing, Fog Cutter Capital Group Inc. (“FCCG”), FAT Brands’ parent company, converted the remaining outstanding indebtedness due FCCG from FAT to common equity at $7.35/share.
TriPoint Global Equities, LLC, working with R.W. Pressprich & Co., acted as the selling agents for the Offering.
About FAT (Fresh. Authentic. Tasty.) Brands
FAT Brands (NASDAQ: FAT) is a leading global franchising company that strategically acquires, markets and develops fast casual and casual dining restaurant concepts around the world. The Company currently owns five restaurant brands, Fatburger, Buffalo’s Cafe, Buffalo’s Express and Ponderosa & Bonanza Steakhouses, that have approximately 300 locations open and 300 under development in 32 countries. For more information, please visit www.fatbrands.com.
Forward Looking Statements
This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements relating to the timing and ability of the Company to consummate additional closings of Preferred Shares and Warrants, its ability to negotiate and complete other debt and equity financing transactions, its future growth, and its ability to pay dividends to investors. Forward-looking statements generally use words such as “expect,” “foresee,” “anticipate,” “believe,” “project,” “should,” “estimate,” “will,” “plans,” “forecast,” and similar expressions, and reflect the Company’s expectations concerning the future. It is possible that the Company’s future results may differ materially from its current expectations or those expressed or implied in these forward-looking statements. We refer you to the documents that we file from time to time with the Securities and Exchange Commission, including our reports on Form 10-K, Form 10-Q and Form 8-K, for a discussion of the risks and uncertainties that could cause our actual results to differ materially from our current expectations or forward-looking statements contained in this press release. We undertake no obligation to update any forward-looking statement to reflect events or circumstances occurring after the date of this press release.
Investor Relations:
ICR
Alexis Tessier
IR-FATBrands@icrinc.com
203-682-8286
Media Relations:
Konnect Agency
Shelby Robinson/Rebecca Campbell
srobinson@konnectagency.com
rcampbell@konnectagency.com
213-988-8344
###
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