-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, CT5ujbYm215aZnXtGSy466e41JAZuZu0TZ2ZdGNpPJbdaioQQm87dN9D6pDYINHD 5JiSXH3jPLuAvk7ica7uOg== 0000849101-98-000012.txt : 19980813 0000849101-98-000012.hdr.sgml : 19980813 ACCESSION NUMBER: 0000849101-98-000012 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 19980628 FILED AS OF DATE: 19980812 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: APPLE SOUTH INC CENTRAL INDEX KEY: 0000849101 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-EATING PLACES [5812] IRS NUMBER: 592778983 STATE OF INCORPORATION: GA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-19542 FILM NUMBER: 98683722 BUSINESS ADDRESS: STREET 1: HANCOCK AT WASHINGTON CITY: MADISON STATE: GA ZIP: 30650 BUSINESS PHONE: 7063424552 MAIL ADDRESS: STREET 1: HANCOCK AT WASHINGTON CITY: MADISON STATE: GA ZIP: 30650 10-Q 1 REGISTRANT'S QUARTERLY REPORT UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) [X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended June 28, 1998 or [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from ______ to ______ Commission File Number: 0-19542 APPLE SOUTH, INC. (Exact name of registrant as specified in its charter) Georgia 59-2778983 - --------------------------------- --------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) Hancock at Washington, Madison, GA 30650 - ----------------------------------- --------------------- (Address of principal executive offices) (Zip Code) 706-342-4552 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. X Yes No As of August 11, 1998, there were 36,372,018 shares of common stock of the Registrant outstanding. APPLE SOUTH, INC. QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED JUNE 28, 1998 INDEX Part I - Financial Information Page Item 1 - Consolidated Financial Statements: Consolidated Statements of Earnings.........................3 Consolidated Balance Sheets.................................4 Consolidated Statements of Shareholders' Equity.............5 Consolidated Statements of Cash Flows.......................6 Notes to Consolidated Financial Statements..................7 Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations..............11 Item 3 - Quantitative and Qualitative Disclosures About Market Risk................................................15 Part II - Other Information Item 4 - Submission of Matters to a Vote of Security Holders........16 Item 5 - Other Information..........................................16 Item 6 - Exhibits and Reports on Form 8-K...........................17 Signature ...........................................................18 Page 2 Apple South, Inc. Consolidated Statements of Earnings (Unaudited) (In thousands, except per share data)
Quarter Ended Six Months Ended - ------------------------------------------------------------------------------------------------------------------------------------ June 28, June 29, June 28, June 29, 1998 1997 1998 1997 - ------------------------------------------------------------------------------------------------------------------------------------ Restaurant sales: Applebee's $ 110,624 115,890 236,387 227,674 Don Pablo's 66,416 48,456 125,679 88,858 Hops 25,560 13,494 48,887 18,223 McCormick & Schmick's 25,361 19,708 46,703 27,032 Canyon Cafes 11,882 - 23,863 - Other - 5,341 - 12,555 - ------------------------------------------------------------------------------------------------------------------------------------ Total restaurant sales 239,843 202,889 481,519 374,342 - ------------------------------------------------------------------------------------------------------------------------------------ Restaurant operating expenses: Food and beverage 67,380 56,406 134,697 104,253 Payroll and benefits 77,327 60,540 155,975 112,878 Depreciation and amortization 4,184 7,785 8,388 14,630 Other operating expenses 55,899 44,599 112,357 84,157 - ------------------------------------------------------------------------------------------------------------------------------------ Total restaurant operating expenses 204,790 169,330 411,417 315,918 - ------------------------------------------------------------------------------------------------------------------------------------ General and administrative expenses 12,281 9,779 25,196 18,393 - ------------------------------------------------------------------------------------------------------------------------------------ Operating income 22,772 23,780 44,906 40,031 - ------------------------------------------------------------------------------------------------------------------------------------ Other income (expense): Interest expense, net (7,214) (4,703) (14,353) (8,579) Distributions on preferred securities (2,013) (2,013) (4,025) (2,388) Gain (loss) on disposal of assets held for sale (2,303) - 46,697 - Income from investments carried at equity 84 - 787 - Other, primarily goodwill amortization (1,901) (1,140) (3,223) (1,797) - ------------------------------------------------------------------------------------------------------------------------------------ Total other income (expense) (13,347) (7,856) 25,883 (12,764) - ------------------------------------------------------------------------------------------------------------------------------------ Earnings before income taxes and cumulative effect of change in accounting principle 9,425 15,924 70,789 27,267 Income taxes 3,100 5,700 25,925 9,775 - ------------------------------------------------------------------------------------------------------------------------------------ Earnings before cumulative effect of change in accounting principle 6,325 10,224 44,864 17,492 - ------------------------------------------------------------------------------------------------------------------------------------ Cumulative effect of change in accounting principle, net of tax benefit - - 1,461 - - ------------------------------------------------------------------------------------------------------------------------------------ Net earnings $ 6,325 10,224 43,403 17,492 ==================================================================================================================================== Basic earnings per common share: Basic earnings before cumulative effect of change in accounting principle $ 0.17 0.27 1.18 0.45 Cumulative effect of change in accounting principle - - (0.04) - - ------------------------------------------------------------------------------------------------------------------------------------ Basic earnings per common share $ 0.17 0.27 1.14 0.45 ==================================================================================================================================== Diluted earnings per common share: Diluted earnings before cumulative effect of change in accounting principle $ 0.17 0.25 1.03 0.44 Cumulative effect of change in accounting principle - - (0.03) - - ------------------------------------------------------------------------------------------------------------------------------------ Diluted earnings per common share $ 0.17 0.25 1.00 0.44 ====================================================================================================================================
See accompanying notes to consolidated financial statements. Page 3 Apple South, Inc. Consolidated Balance Sheets (Unaudited) (In thousands, except share data)
- ------------------------------------------------------------------------------------------------------------------------------------ June 28, December 28, 1998 1997 - ------------------------------------------------------------------------------------------------------------------------------------ Assets Current assets: Cash and cash equivalents $ 3,706 2,503 Proceeds due from sale of assets 69,748 - Short-term investments 27 37 Accounts receivable 14,684 8,983 Inventories 10,116 10,732 Prepaid expenses and other 8,224 9,047 Assets held for sale 252,020 331,104 - ------------------------------------------------------------------------------------------------------------------------------------ Total current assets 358,525 362,406 Premises and equipment, net 314,033 283,839 Goodwill, net 139,069 138,403 Other assets 41,271 19,641 - ------------------------------------------------------------------------------------------------------------------------------------ $ 852,898 804,289 ==================================================================================================================================== Liabilities and Shareholders' Equity Current liabilities: Accounts payable $ 30,343 24,819 Accrued liabilities 49,180 40,266 Current installments of long-term debt 19 206 Income taxes 16,043 - - ------------------------------------------------------------------------------------------------------------------------------------ Total current liabilities 95,585 65,291 Long-term debt 385,450 381,843 Deferred income taxes 16,700 14,231 Other long-term liabilities 6,782 7,142 - ------------------------------------------------------------------------------------------------------------------------------------ Total liabilities 504,517 468,507 - ------------------------------------------------------------------------------------------------------------------------------------ Company-obligated mandatorily redeemable preferred securities of Apple South Financing I, a subsidiary holding solely Apple South, Inc. 7% convertible subordinated debentures due March 1, 2027 115,000 115,000 Equity forward contract pending settlement 3,400 - Shareholders' equity: Preferred stock, $0.01 par value. Authorized 10,000,000 shares; none issued - - Common stock, $0.01 par value. Authorized 75,000,000 shares; 40,478,760 issued in 1998 and 1997 405 405 Additional paid-in capital 141,842 145,269 Retained earnings 140,462 97,905 Treasury stock at cost; 3,636,535 shares in 1998 and 1,662,812 shares in 1997 (52,728) (22,797) - ------------------------------------------------------------------------------------------------------------------------------------ Total shareholders' equity 229,981 220,782 - ------------------------------------------------------------------------------------------------------------------------------------ $ 852,898 804,289 ====================================================================================================================================
See accompanying notes to consolidated financial statements. Page 4 Apple South, Inc. Consolidated Statements of Shareholders' Equity (Unaudited) (In thousands, except per share data)
- ------------------------------------------------------------------------------------------------------------------------------------ Additional Total Common Stock Paid-in Retained Treasury Shareholders' Shares Amount Capital Earnings Stock Equity - ------------------------------------------------------------------------------------------------------------------------------------ Balance at December 28, 1997 40,479 $405 $145,269 $97,905 ($22,797) $220,782 Net earnings - - - 37,078 - 37,078 Purchase of common stock - - - - (113) (113) Common stock issued to ESOP and ESPP - - 36 - 206 242 Exercise of options - - (2) - 12 10 Foreign currency translation adjustment - - - 148 - 148 Cash dividends ($0.01 per share) - - - (405) - (405) - ------------------------------------------------------------------------------------------------------------------------------------ Balance at March 29, 1998 40,479 405 145,303 134,726 (22,692) 257,742 - ------------------------------------------------------------------------------------------------------------------------------------ Net earnings - - - 6,325 - 6,325 Purchase of common stock - - - - (30,318) (30,318) Common stock issued to ESOP and ESPP - - - - 81 81 Exercise of options - - (61) - 201 140 Foreign currency translation adjustment - - - (83) - (83) Equity forward contract pending settlement - - (3,400) - - (3,400) Cash dividends ($0.0125 per share) - - - (506) - (506) - ------------------------------------------------------------------------------------------------------------------------------------ Balance at June 28, 1998 40,479 $405 $141,842 $140,462 ($52,728) $229,981 ====================================================================================================================================
See accompanying notes to consolidated financial statements. Page 5 Apple South, Inc. Consolidated Statements of Cash Flows (Unaudited) (In thousands)
Six Months Ended - ------------------------------------------------------------------------------------------------------------------------------------ June 28, June 29, 1998 1997 - ------------------------------------------------------------------------------------------------------------------------------------ Cash flows from operating activities: Net earnings $ 43,403 17,492 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization 12,051 16,909 Deferred income taxes 2,469 1,800 Gain on sale of assets (46,697) - (Increase) in assets: Accounts receivable (5,703) (2,820) Inventories (995) (994) Prepaid expenses and other (4,124) (1,011) Increase (decrease) in liabilities: Accounts payable 5,524 (4,425) Accrued liabilities (98) (5,464) Income taxes 16,043 (120) Other long-term liabilities 954 185 - ------------------------------------------------------------------------------------------------------------------------------------ Net cash provided by operating activities 22,827 21,552 - ------------------------------------------------------------------------------------------------------------------------------------ Cash flows from investing activities: Capital expenditures (74,078) (73,186) Acquisition of businesses, net of cash acquired (2,325) (106,240) Proceeds from sale of premises and equipment 101,420 3,219 Decrease in short-term investments 10 15 Additions to franchise costs - (479) Additions to other assets (20,074) (2,233) - ------------------------------------------------------------------------------------------------------------------------------------ Net cash used in investing activities 4,953 (178,904) - ------------------------------------------------------------------------------------------------------------------------------------ Cash flows from financing activities: Net proceeds from revolving credit agreements 4,765 69,500 Proceeds from issuance of preferred securities, net of issue costs - 111,261 Proceeds from issuance of long-term debt - 510 Principal payments on long-term debt - (468) Proceeds from issuance of common stock - 1,161 Dividends declared and paid (911) (718) Purchase of treasury stock (30,431) (22,995) - ------------------------------------------------------------------------------------------------------------------------------------ Net cash provided by financing activities (26,577) 158,251 - ------------------------------------------------------------------------------------------------------------------------------------ Net increase in cash and cash equivalents 1,203 899 Cash and cash equivalents at the beginning of the period 2,503 3,923 - ------------------------------------------------------------------------------------------------------------------------------------ Cash and cash equivalents at the end of the period $ 3,706 4,822 ====================================================================================================================================
See accompanying notes to consolidated financial statements. Page 6 APPLE SOUTH, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 28, 1998 (Unaudited) NOTE 1 - BASIS OF PRESENTATION The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X promulgated by the Securities and Exchange Commission. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for annual financial statement reporting purposes. However, there has been no material change in the information disclosed in the consolidated financial statements included in the Company's Annual Report on Form 10-K for the year ended December 28, 1997, except as disclosed herein. In the opinion of management, all adjustments, consisting only of normal recurring accruals, considered necessary for a fair presentation have been included. Operating results for the six-month period ended June 28, 1998 are not necessarily indicative of the results that may be expected for the year ending January 3, 1999. NOTE 2 - ASSET DIVESTITURES As previously disclosed, in December 1997 the Company finalized its decision to sell its franchised Applebee's Neighborhood Grill & Bar ("Applebee's") restaurants. In the second quarter of 1998, the Company completed three transactions for the sale of 39 Applebee's restaurants. Total proceeds from these sales were $71.5 million. A portion of the proceeds were received subsequent to June 28, 1998 and are thus classified as "Proceeds due from sale of assets" in the accompanying consolidated balance sheet. Also in the second quarter, the Company completed the sale of a 75% interest in its Harrigans division (see Note 4). Total gains from these second quarter transactions were $30.0 million. These gains were more than offset by charges of $32.3 million, primarily related to expected losses on certain Applebee's sales contracts signed during the second quarter, resulting in a reported net loss of $2.3 million. As of June 28, 1998, the Company had sold 72 of its 279 Applebee's restaurants for total consideration of $166.2 million and a pre-tax gain of $78.0 million ($48.4 million gain after tax effect). The remaining premises and equipment, franchise costs and goodwill related to the Applebee's division are included in "Assets held for sale". Depreciation and amortization on these long-lived assets were suspended in December 1997, when management finalized the decision to dispose of the division. NOTE 3 - CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE At the beginning of fiscal 1998, the Company adopted AICPA Statement of Position 98-5, "Reporting the Cost of Start-Up Activities." This statement requires entities to expense the costs of start-up activities as incurred. As a result of the adoption of this change in accounting policy, from expensing preopening costs in the first full month of a restaurant's operations to expensing them as incurred, the Company recorded a cumulative effect charge from the change in accounting principle of $2.2 million ($1.5 million net of tax benefit) during the first quarter of 1998. Page 7 NOTE 4 - EQUITY INVESTMENTS In January 1998, the Company acquired a 20% interest in Belgo Group PLC ("Belgo"), a public restaurant company based in the United Kingdom that owned and operated two Belgo restaurants in London, for $6.1 million. In June 1998, Belgo completed the acquisition of three additional restaurants (Daphne's, The Collection, and Pasha). In connection with these acquisitions, the Company invested an additional $3.4 million to maintain its 20% equity interest. The investment in Belgo is accounted for under the equity method of accounting. Accordingly, the Company's interest in Belgo's net earnings is included in "Income from investments carried at equity" in the accompanying consolidated statement of earnings. The Company's investment is included in "Other assets" in the accompanying consolidated balance sheet. The investment is translated into U.S. dollars at the period-end exchange rate, while net earnings are translated at the average exchange rate during the period. The resulting translation adjustments are recorded as a component of shareholders' equity and comprehensive income (Note 9). In April 1998, the Company sold its Harrigans division, retaining a 25% equity interest in the ongoing business. The Company received $3.0 million in cash plus a $4.0 million note and additionally retained ownership of the real estate for two Harrigans locations which are being leased to the new entity. The transaction resulted in a $0.7 million gain with an additional $4.0 million gain, related to the note, being deferred. The investment in Harrigans is accounted for using the equity method of accounting with net earnings included in "Income from investments carried at equity". The Company's 25% equity interest is included in "Other assets" in the accompanying consolidated balance sheet. NOTE 5 - SHAREHOLDERS' EQUITY Cash dividends declared and paid in the quarter ended June 28, 1998 totaled $506,000, or $0.0125 per share. On August 5, 1998, the Company declared a cash dividend of $0.0125 per share, payable on August 31, 1998, to shareholders of record on August 14, 1998. In January 1998, the Company's Board of Directors approved the purchase of up to two million additional shares of Apple South common stock. As of June 28, 1998, the Company had completed this repurchase program. On June 18, 1998, the Company announced the approval by its Board of Directors of an additional repurchase program for the lesser of $125.0 million or 8.3 million shares. The Company also announced that it would consider the use of forward equity purchases or similar agreements to facilitate its repurchase program. To allow for the implementation of the additional program, the Company obtained consent from the holders of its 9.75% Senior Notes due 2006 to amend certain covenants and events of default provisions contained in the indenture dated May 1, 1996 relating to the notes. Bond holder consent was finalized on July 1, 1998 and the Company paid $4.2 million to the consenting holders. At quarter end, the Company had not purchased any shares pursuant to the 8.3 million share approval. To facilitate the repurchase program, however, the Company initiated an equity forward purchase arrangement with a third party. Pursuant to this arrangement, the third party purchased 250,000 shares of Apple South common stock prior to June 28, 1998 at an average price of $13.60 (or a total acquisition cost of $3.4 million). Under the terms of the arrangement, the Company has the option to (i) acquire the shares at the third party's average acquisition cost or (ii) instruct the third party to sell the stock and settle in cash any appreciation or depreciation in the market value of the stock. The acquisition price paid by the third party of $3.4 million has been reflected as "Equity forward contract pending settlement" in the consolidated balance sheet. Page 8 NOTE 6 - SUPPLEMENTAL CASH FLOW INFORMATION For the six-month periods ended June 28, 1998 and June 29, 1997, the following supplements the consolidated statements of cash flows (amounts in thousands): 1998 1997 - -------------------------------------------------------------------------------- Interest paid $ 14,580 9,976 - -------------------------------------------------------------------------------- Distributions paid on preferred securities $ 4,025 1,807 - -------------------------------------------------------------------------------- Income taxes paid $ 6,660 7,310 - -------------------------------------------------------------------------------- Business acquisitions, net of cash acquired: Fair value of assets acquired, other than cash $ 1,314 47,166 Liabilities assumed - (22,379) Merger consideration payable - (1,891) Stock issued - (16,335) Purchase price in excess of the net assets acquired 1,011 99,679 - -------------------------------------------------------------------------------- Net cash used for acquisitions $ 2,325 106,240 ================================================================================ The 1998 business acquisition reflects the buy-out of a joint venture partner in the Hops division. As discussed in Note 2, in 1998 the Company sold 72 Applebee's restaurants (a portion of the related proceeds were not received as of June 28, 1998 and, as such, these transaction had no effect on consolidated cash flows for the six months ended June 28, 1998). The accompanying consolidated balance sheet reflects changes in asset and liability accounts related to the divestiture of these restaurants as follows: decrease in assets held for sale of $76.2 million, decreases in assets not classified as held for sale of $6.2 million and increases in accrued liabilities of $5.7 million. NOTE 7 - INCOME TAXES The effective tax rate for the first six months of 1998 was 36.6% reflecting the blend of taxes on operations estimated at 34.0% and taxes on the gain on sale of assets estimated at 38.0%. The Company's effective tax rate on operations for fiscal 1998 is expected to be 34.0% compared to the prior year effective rate of 32.4%. NOTE 8 - CONTINGENCIES During 1997, two lawsuits were filed by persons seeking to represent a class of shareholders of the Company who purchased shares of the Company's common stock between May 26, 1995 and September 24, 1996. Each plaintiff named the Company and certain of its officers and directors as defendants. The complaints alleged acts of fraudulent misrepresentation by the defendants which induced the plaintiffs to purchase the Company's common stock and alleged illegal insider trading by certain of the defendants, each of which allegedly resulted in losses to the plaintiffs and similarly situated shareholders of the Company. The complaints each sought damages and other relief. During 1998, one of these suits was dismissed. Although the ultimate outcome of the remaining lawsuit cannot be determined at this time, the Company believes that the allegations therein are without merit and intends to vigorously defend itself. Page 9 NOTE 9 - COMPREHENSIVE INCOME In June 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive Income". SFAS 130, which is effective for the Company's fiscal 1998, establishes standards for reporting and display of comprehensive income and its components. Comprehensive income is defined as the change in equity of a business enterprise during a period from transactions and other events and circumstances from nonowner sources. Total comprehensive income for the six months ended June 28, 1998 of $43.5 million included net earnings as reported in the accompanying consolidated statement of earnings plus the $0.1 million after-tax effect of foreign currency translation adjustments. Comprehensive income for the six months ended June 29, 1997 was equal to net earnings as reported. Page 10 Item 2. APPLE SOUTH, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS For the Second Quarter and Six Months ended June 28, 1998 Consolidated Overview Consolidated restaurant sales for the second quarter and six months ended June 28, 1998 increased 18% and 29%, respectively, over the comparable periods of 1997. Sales increases of 58% and 83%, for the same respective periods in the Company's core brands, which include Don Pablo's, Hops, McCormick & Schmick's and Canyon Cafes, were offset by declining revenues associated with the Company's divestitures of its Applebee's and Harrigans divisions. Sales attributable to the brands acquired in 1997 as well as subsequent unit growth and increases in average unit volumes in these brands and unit growth in Don Pablo's generated gains in core brand sales. Net earnings for the second quarter were $6.3 million compared to $10.2 million for the second quarter of 1997. Earnings for the second quarter included a $2.3 million net loss on the disposal of assets held for sale which was composed of a $30.0 million gain on the sale of 39 Applebee's restaurants and a 75% interest in the Harrigans division and a $32.3 million charge related primarily to losses anticipated on certain Applebee's sales transactions which are expected to close during the third quarter. In January 1998, the Company acquired a 20% interest in Belgo Group PLC ("Belgo"), a public restaurant company based in the United Kingdom, for $6.1 million. In June 1998, Belgo completed the acquisition of three additional restaurants (Daphne's, The Collection, and Pasha). In connection with these acquisitions, the Company invested an additional $3.4 million to maintain its 20% equity interest. Also in the second quarter, the Company completed the sale of its Harrigans division, retaining a 25% equity interest in the ongoing business. The Company's pro rata share of net earnings of Belgo and Harrigans is included in "Income from investments carried at equity" in the accompanying consolidated statement of earnings. The effective tax rate for the first six months of 1998 was 36.6% reflecting the blend of taxes on operations estimated at 34.0% and taxes on the gain on sale of assets estimated at 38.0%. The Company's effective tax rate on operations for fiscal 1998 is expected to be 34.0% compared to the prior year effective rate of 32.4%. Core Brands The following table presents operating income for ongoing core brands. The table presents the quarter and six-month periods ended June 28, 1998 compared to the pro forma results for the quarter and six-month periods ended June 29, 1997 (assuming the 1997 acquisitions of Hops, McCormick & Schmick's and Canyon Cafes occurred as of the beginning of 1997). Page 11 Core Brands:
- -------------------------------------------------------------------------------------------------------------------------- Quarter Ended Six Months Ended - -------------------------------------------------------------------------------------------------------------------------- Actual Pro forma Actual Pro forma June 28, June 29, June 28, June 29, 1998 1997 1998 1997 - -------------------------------------------------------------------------------------------------------------------------- Restaurant sales: Don Pablo's $ 66,416 48,456 125,679 88,858 Hops 25,560 13,494 48,887 26,063 McCormick & Schmick's 25,361 19,708 46,703 38,177 Canyon Cafes 11,882 8,488 23,863 15,480 - -------------------------------------------------------------------------------------------------------------------------- Total restaurant sales 129,219 90,146 245,132 168,578 - -------------------------------------------------------------------------------------------------------------------------- Restaurant operating expenses: Food and beverage 35,990 24,901 68,568 46,981 Payroll and benefits 38,872 26,925 73,968 50,735 Depreciation and amortization 4,184 3,313 8,388 6,159 Other operating expenses 29,764 20,424 56,395 38,467 - -------------------------------------------------------------------------------------------------------------------------- Total restaurant operating expenses 108,810 75,563 207,319 142,342 - -------------------------------------------------------------------------------------------------------------------------- Income from restaurant operations 20,409 14,583 37,813 26,236 General and administrative expenses 8,903 7,086 17,864 13,236 ========================================================================================================================== Operating income $ 11,506 7,497 19,949 13,000 ==========================================================================================================================
Total core brand restaurant sales for the second quarter and six-month period ending June 28, 1998 increased by 43% and 45%, respectively, over the pro forma results of the comparable prior year periods while operating income increased by 53% for both the second quarter and year-to-date periods. The sales increase was a result of a year-to-date increase in operating weeks of 47% in addition to year-to-date increases in average weekly sales of 7% in both Hops and McCormick & Schmick's and 4% in Canyon Cafes. Average weekly sales in Don Pablo's were 4% negative. The gains in Hops, McCormick & Schmick's and Canyon Cafes were predominately driven by customer counts associated with an increasing awareness of these emerging brands and the positive result of new openings. An increase in average weekly sales of 2% in Don Pablo's base restaurants (those open for a full 12 months at the beginning of 1998), also associated with customer count increases, was mitigated by lower average weekly sales in restaurants opened in 1997 and 1998. Seven weaker 1997 sites and management's decision to open 1998 restaurants for dinner only, combined to reduce overall average weekly sales for all units. The strategic decision of dinner only openings (typically for the first one to two weeks of operations, although extending for several additional weeks in some units) has resulted in the desired effect of increasing both customer and employee retention as new units establish themselves. Restaurant operating expenses for the second quarter of 1998 were 84.2% of sales compared to 83.8% for the comparable prior year period. The increase is primarily attributable to an increase in the number of openings in the second quarter of 1998 as compared to 1997, coupled with the Company's policy of expensing preopening costs as incurred which was adopted at the beginning of 1998. General and administrative expenses, which include divisional and all corporate overhead, decreased from 7.9% of sales to 6.9% primarily as a result of leverage gained from absolute increases in size. Page 12 Asset Divestitures As previously disclosed, in December 1997 the Company finalized its decision to sell its franchised Applebee's Neighborhood Grill & Bar ("Applebee's") restaurants. In the second quarter of 1998, the Company completed three transactions for the sale of 39 Applebee's restaurants. Total proceeds from these sales were $71.5 million. A portion of the proceeds were received subsequent to June 28, 1998 and are thus classified as "Proceeds due from sale of assets" in the accompanying consolidated balance sheet. Also in the second quarter, the Company completed the sale of a 75% interest in its Harrigans division (see Note 4). Total gains from these second quarter transactions were $30.0 million. These gains were more than offset by charges of $32.3 million, primarily related to expected losses on certain Applebee's sales contracts signed during the second quarter, resulting in a reported net loss of $2.3 million. As of June 28, 1998, the Company had sold 72 of its 279 Applebee's restaurants for total consideration of $166.2 million and a pre-tax gain of $78.0 million ($48.4 million gain after tax effect). The Company continues to expect net proceeds from the divestiture of its Applebee's division, after selling expenses and income taxes, to approximate $400 million. Subsequent to June 28, 1998, the Company completed the sale of 51 additional Applebee's restaurants for $86.7 million. As of August 11, 1998, the Company has 8 definitive purchase contracts for 118 restaurants, and written offers for the remaining 38 Applebee's locations. Liquidity and Capital Resources The principal uses of funds during the first six months of 1998 were capital expenditures of $74.1 million, treasury stock purchases of $30.4 million pursuant to a 2 million share repurchase program announced in January 1998 and the $9.5 million investment in Belgo. Capital expenditures, which include purchases of land for new restaurants, new restaurant construction, and purchases of new and replacement furniture and equipment, are expected to approximate $55 million to $60 million for the remainder of fiscal 1998 and $195 million to $210 million for fiscal 1999. Capital requirements are expected to be funded with cash proceeds from the divestiture of the Applebee's division, cash generated from operations and remaining commitments of $14.9 million under a $30.0 million master equipment lease. Additionally, at June 28, 1998 the Company had unsecured revolving bank credit agreements aggregating $273.5 million of which $13.5 million was unused and available. The $273.5 million aggregate amount includes $110.0 million in revolving credit facilities executed in the second quarter to provide borrowing capacity until additional proceeds from the Applebee's divestiture are received. The Company anticipates reducing its revolving credit facilities as additional sales proceeds are received and expects to complete a new $150.0 million revolving credit facility by year end which will be used to fund future capital requirements. In the second quarter, Applebee's sales proceeds of $68.5 million were used to reduce the obligation under a fully utilized $200.0 million credit facility. Under the terms of the $200.0 million agreement, credit availability declines commensurate with reductions in the outstanding obligation. The Company anticipates that the remaining proceeds from the Applebee's divestiture will continue to be used to reduce obligations related to revolving credit facilities (under which $260.0 million was outstanding at June 28, 1998). Any remaining proceeds from the divestiture will be used to fund new restaurant development. Page 13 On June 18, 1998, the Company announced the approval by its Board of Directors of an additional repurchase program for the lesser of $125.0 million or 8.3 million shares. The Company also announced that it would consider the use of forward equity purchases or similar agreements to facilitate its repurchase program. To allow for the implementation of the additional program, the Company obtained consent from the holders of its 9.75% Senior Notes due 2006 to amend certain covenants and events of default provisions contained in the indenture dated May 1, 1996, relating to the notes. Bond holder consent was finalized on July 1, 1998 and the Company paid $4.2 million to the consenting holders. The $4.2 million amount will be included in deferred loan costs in the consolidated balance sheet and amortized over the remaining term of the indenture. At quarter end, the Company had not purchased any shares pursuant to the 8.3 million share approval. To facilitate the repurchase program, however, the Company initiated an equity forward purchase arrangement with a third party. Pursuant to this arrangement, the third party purchased 250,000 shares of Apple South common stock prior to June 28, 1998 at an average price of $13.60 (or a total acquisition cost of $3.4 million). Under the terms of the arrangement, the Company has the option to (i) acquire the shares at the third party's average acquisition cost or (ii) instruct the third party to sell the stock and settle in cash any appreciation or depreciation in the market value of the stock. The acquisition price paid by the third party of $3.4 million has been reflected as "Equity forward contract pending settlement" in the consolidated balance sheet. Subsequent to June 28, 1998, the Company initiated two additional equity forward purchase arrangements and through August 11, 1998, third parties had purchased a total of 4.1 million shares pursuant to these arrangements. Forward-Looking Information Certain information contained in this Form 10-Q, particularly information regarding the timing and sales price of the disposition of Applebee's restaurants, future economic performance and finances, restaurant development plans, capital requirements and objectives of management, is forward looking. In some cases, information regarding certain important factors that could cause actual results to differ materially from any such forward-looking statement appear together with such statement. In addition, the following factors, in addition to other possible factors not listed, could affect the Company's actual results and cause such results to differ materially from those expressed in forward-looking statements. These factors include competition within the casual dining restaurant industry, which remains intense; changes in economic conditions such as inflation or a recession; consumer perceptions of food safety; weather conditions; changes in consumer tastes; labor and benefit costs; legal claims; the continued ability of the Company to obtain suitable locations and financing for new restaurant development; government monetary and fiscal policies; laws and regulations; governmental initiatives such as minimum wage rates and taxes; retention of Applebee's division employees while sales are pending; the availability of qualified buyers for the Applebee's restaurants and their ability to obtain required financing; and the satisfaction of closing conditions for prospective transactions subject to outstanding contracts or letters of intent. Other factors that may cause actual results to differ from the forward-looking statements contained in this release and that may affect the Company's prospects in general are described in Exhibit 99.1 to the Company's Form 10-Q for the fiscal quarter ended June 29, 1997, and the Company's other filings with the Securities and Exchange Commission. Page 14 New Accounting Pronouncements In June 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive Income". SFAS 130, which is effective for the Company's fiscal 1998, establishes standards for reporting and display of comprehensive income and its components. Comprehensive income is defined as the change in equity of a business enterprise during a period from transactions and other events and circumstances from nonowner sources. Total comprehensive income for the six months ended June 28, 1998 of $43.5 million included net earnings as reported in the accompanying consolidated statement of earnings plus the $0.1 million after-tax effect of foreign currency translation adjustments. Comprehensive income for the six months ended June 29, 1997 was equal to net earnings as reported. Item 3. Quantitative and Qualitative Disclosures About Market Risk Not applicable. Page 15 Part II. Other Information Item 4. Submission of Matters to a Vote of Security Holders The annual meeting of shareholders was held on April 28, 1998, at which the following proposals were voted upon by shareholders: (1) the election of seven members of the Board of Directors, (2) a proposal to approve the Company's 1995 Stock Incentive Plan, as amended, (3) to consider and act upon a proposal to approve the Company's Outside Director Deferred Stock Unit Plan, and (4) ratification of the selection of KPMG Peat Marwick LLP as the Company's independent auditors. Each of the seven members of the Company's Board of Directors was elected to serve a term of one year and until his or her successor is elected, and has qualified by the following votes: Affirmative Negative ------------------------------ Tom E. DuPree, Jr. 34,293,011 62,395 S. Kirk Kinsell 34,289,708 65,698 Erich J. Booth 34,297,593 57,813 Thomas R. Williams, Sr. 34,300,214 55,192 James W. Rowe 34,293,797 61,609 Ruth G. Shaw, Ph.D. 34,290,433 64,973 John L. Moorhead 34,290,094 65,312 The remaining proposals voted on at the April 28, 1998 Annual Meeting of Shareholders were approved as follows: Affirmative Negative Abstaining -------------------------------------- 1995 Stock Incentive Plan 21,920,666 12,375,967 58,773 Outside Director Deferred Stock Unit Plan 32,735,643 1,553,339 66,424 Appointment of KPMG Peat Marwick LLP 34,298,615 31,185 25,606 Item 5. Other Information For the 1999 annual meeting of shareholders, the Company must be notified not later than February 3, 1999 of any shareholder proposal that was not submitted earlier for inclusion in the proxy materials, but is intended to be presented for action at the meeting, or else proxies solicited by the Company for that meeting may be voted on such proposal at the discretion of the person or persons holding those proxies. Page 16 Item 6. Exhibits and Reports on Form 8-K (a) Exhibits. 2.1 Asset purchase agreement dated April 23, 1998, by and among Apple South, Inc. and Whit-Mart, Inc. 2.2 Asset purchase agreement dated May 1, 1998, by and among Apple South, Inc. and T.S.S.O., Inc., and Lois Sedowicz. 2.3 Asset purchase agreement dated May 4, 1998, by and among Apple South, Inc. and Florida Apple North, LLC., Florida Apple South, LLC., Florida Apple West, LLC, and Wigel Partnership. 2.4 Asset purchase agreement dated June 19, 1998, by and among Apple South, Inc. and U.S. Restaurant Properties Operating LP. 2.5 Asset purchase agreement dated June 19, 1998, by and among Apple South, Inc. and Darrel L. Rolph. 4.1 Solicitation of Consents to Proposed Amendments to 9 3/4% Senior Notes due 2006 of Apple South, Inc. 11.1 Computation of earnings per common share 27.1 Financial Data Schedule (EDGAR version only) 99.1 Safe Harbor Under the Private Securities Litigation Reform Act of 1995* *Incorporated by reference to the corresponding exhibit to the Company's Quarterly Report on Form 10-Q for the quarter ended June 29, 1997, as amended by a Form 10-Q/A filed on August 27, 1997 (b) Reports on Form 8-K. The Company filed a Current Report on Form 8-K, dated March 29, 1998, which disclosed, pursuant to Item 2 of Form 8-K, the Company's completion of the sale of 33 of its franchised Applebee's Neighborhood Grill & Bar restaurants. Page 17 Signature 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. Apple South, Inc. (Registrant) Date: August 11, 1998 By: /s/ Erich J. Booth ------------------------- Erich J. Booth Chief Financial Officer and Treasurer /s/ Philip L. Ammons ------------------------- Philip L. Ammons Chief Accounting Officer Page 18 EXHIBIT INDEX 2.1 Asset purchase agreement dated April 23, 1998, by and among Apple South, Inc. and Whit-Mart, Inc. 2.2 Asset purchase agreement dated May 1, 1998, by and among Apple South, Inc. and T.S.S.O., Inc., and Lois Sedowicz. 2.3 Asset purchase agreement dated May 4, 1998, by and among Apple South, Inc. and Florida Apple North, LLC., Florida Apple South, LLC., Florida Apple West, LLC, and Wigel Partnership. 2.4 Asset purchase agreement dated June 19, 1998, by and among Apple South, Inc. and U.S. Restaurant Properties Operating LP. 2.5 Asset purchase agreement dated June 19, 1998, by and among Apple South, Inc. and Darrel L. Rolph. 4.1 Solicitation of Consents to Proposed Amendments to 9 3/4% Senior Notes due 2006 of Apple South, Inc. 11.1 Computation of earnings per common share 27.1 Financial Data Schedule (EDGAR version only) 99.1 Safe Harbor Under the Private Securities Litigation Reform Act of 1995* *Incorporated by reference to the corresponding exhibit to the Company's Quarterly Report on Form 10-Q for the quarter ended June 29, 1997, as amended by a Form 10-Q/A filed on August 27, 1997 Page 19 EX-2.1 2 ASSET PURCHASE AGREEMENT DATED APRIL 23, 1998 ASSET PURCHASE AGREEMENT THIS ASSET PURCHASE AGREEMENT, dated as of April 23, 1998, by and among APPLE SOUTH, INC., a Georgia corporation ("Seller") and WHIT-MART, INC. a North Carolina corporation ("Purchaser"), W I T N E S S E T H : WHEREAS, Seller owns and operates a number of Applebee's Neighborhood Grill & Bar ("Applebee's") franchise restaurants; and WHEREAS, Seller desires to sell to Purchaser certain Applebee's restaurants and related property, and Purchaser desires to purchase such assets, all on the terms and subject to the conditions set forth herein; NOW, THEREFORE, in consideration of the premises and other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, and intending to be legally bound, the parties hereby agree as follows: ARTICLE I - DEFINITIONS 1.1 Definitions. For purposes of this Agreement, the following terms shall have the meanings set forth below: "Action" shall mean any action, suit, litigation, complaint, counterclaim, claim, petition, mediation contest, or administrative proceeding, whether at law, in equity, in arbitration or otherwise, and whether conducted by or before any Government or other Person. "ADI's" shall mean Arbitron Rating Areas of Dominant Influence. "ADI Personnel" shall have the meaning set forth in Section 4.4. "Assets" shall mean all of Seller's rights and interests in, to, or under the following: (i) all tangible personal property of any kind located in the Restaurants or on the Real Property, including, but not limited to, equipment, appliances, machinery, two laptops computers utilized in the Business, tables, chairs, other furniture, bars, tableware, cookware, utensils, furnishings, signage, leasehold improvements, fixtures, uniforms, supplies, food and beverage inventory (including beer, liquor, and wine inventory), and advertising and promotional materials; (ii) $1,500 cash in each Restaurant; 1 (iii) all prepaid items relating exclusively to the Business; (iv) all assignable Permits; (v)all assignable rights under express or implied warranties of manufacturers, distributors, or retailers relating to the Assets; (vi)computer software and software licenses (subject to Seller's ability to transfer and assign such software and licenses) and related manuals, in each case used exclusively in connection with the operation of the Restaurants. (vii) all of Seller's supplier lists, demographic, statistical, and other information related exclusively to the Business; (viii) copies of Seller's employee records of those current employees of Seller who are employed by Purchaser as of the Closing (subject to execution of a release by each affected employee allowing for the disclosure of such files); (ix) the Contracts and Leases; (x) the Owned Real Property (including any claims with respect to the Summerville Condemnation if not settled prior to Closing); and (xi) All records and files related to the Real Property such as rent calculations, landlord correspondence, purchase agreements, deeds, construction documents, title reports, environmental and engineering reports, appraisals, surveys, etc. "Assets" shall not include cash in the Restaurants in excess of $1,500 per Restaurant, bank accounts, or any other property, tangible or intangible, real or personal, not described above. "Assumed Liabilities" shall mean (i) all obligations of Seller that accrue after the Closing under the terms of the Contracts and Leases, (ii) all obligations of Seller under the Contracts and Leases that accrue prior to the Closing but which are not due for payment until after the Closing and which are taken into account in computing the Purchase Price pursuant to Section 2.3, (iii) obligations arising after the Closing under any Permits which are assigned to Purchaser, (iv) all Property Taxes and all other obligations with respect to the Assets that accrue prior to the Closing but which are not due for payment until after the Closing and which are taken into account in computing the Purchase Price pursuant to Section 2.3, (v) all Property Taxes and all other obligations with respect to the Assets that accrue after the Closing, (vi) gift certificates issued by Seller prior to Closing, (vii) accrued but unvested vacation of ADI Personnel assumed by Purchaser pursuant to Section 6.3(c), and (viii) all obligations with respect to Seller's development activities under Section 4.7 not otherwise assumed hereunder or covered by an increase in the purchase price pursuant to Section 2.3. Assumed Liabilities shall not include any liability, obligation, payment, duty, or responsibility of any nature except as expressly described above and specifically shall not include (i) liabilities or obligations of Seller arising out of any breach by Seller of any of the Contracts or Leases; (ii) except as provided in clauses (ii) or (iv) above, liabilities or obligations of Seller under any of the Contracts or Leases or with respect to the Owned Real Property or other Assets that accrue in any such case prior to the Closing; (iii) any liabilities or obligations of Seller under the Franchise Agreements; (iv) any liability of Seller for product liability, personal injury, property damage, or otherwise based on any tort claim or statutory liability (including but not limited to any "dram shop" liability); (v) any federal, state, or local tax liability of Seller except to the extent expressly assumed hereunder, (vi) any contractual claim based on any lease, contract, or agreement other than the Contracts and Leases; (vii) any liability, obligation, or responsibility of Seller to Seller's employees, agents, or independent contractors with respect to wages, salaries, bonuses, or other compensation or benefits earned or accrued prior to the Closing (except for 2 accrued vacation assumed pursuant to Section 6.3(c)); and (viii) any liability or obligation of Seller arising out of the negotiation, execution, or performance of this Agreement, including fees and expenses of attorneys and accountants, except as otherwise expressly provided herein. "Bill of Sale and Assignment Agreement" shall mean an instrument in substantially the form of Exhibit A hereto pursuant to which the Assets (except for the Owned Real Property) will be transferred and assigned to Purchaser at the Closing and pursuant to which Purchaser will assume the Assumed Liabilities. "Business" shall mean the business of owning and operating the Restaurants and developing and opening new Applebee's Neighborhood Grill & Bar restaurants in the Territory, as conducted prior to the Closing by Seller pursuant to the Franchise Agreements. "Closing" shall have the meaning set forth in Section 2.6 hereof. "Closing Date" shall mean the time and date that the Closing occurs. "Code" shall mean the United States Internal Revenue Code of 1986, as amended, and all regulations thereunder. Any reference herein to a specific section or sections of the Code shall be deemed to include a reference to any corresponding provision of future law. "Consents" shall mean (i) all consents, approvals, and estoppels of others which are required to be obtained in order to effect the valid assignment, transfer, and conveyance to Purchaser of the Material Contracts and the Leases without resulting in any default thereunder and (ii) a waiver or expiration of the right of first refusal for Store #207 in North Charleston, SC. "Contracts" shall mean all contracts, agreements, and leases of equipment or other personal property that relate exclusively to the Business; provided, however, that the Franchise Agreements are not included within the meaning of "Contracts." "Deeds" shall mean special warranty deeds, limited warranty deeds or other appropriate instruments to convey good and marketable fee simple title to the Owned Real Property to Purchaser or its designee, with the warranty of title contained therein limited to the claims of Persons claiming by, through or under Seller, but not otherwise. "Development Costs" shall mean (i) all of Seller's out-of-pocket costs paid in connection with the development of the restaurants listed on Schedule 4.7 and capitalized in accordance with generally accepted accounting principles and Seller's historical practices including, but not limited to, the purchase price paid for real estate; acquisition and closing costs, such as legal fees, engineering fees, surveys, transfer taxes, title policies, and the like; costs of obtaining leases, such as legal fees, surveys, title policies, and the like; environmental investigation costs; the cost of permits, approvals, variances, or rezonings; land development costs; construction costs; the cost of equipment and other personal property acquired for the restaurants; pre-opening expenses; and construction period insurance, all as set forth on Schedule 4.7 and substantiated to the reasonable satisfaction of Purchaser; and (ii) Seller's internal costs and internal pre-opening expenses capitalized in connection with such development efforts in accordance with Seller's historic practices. The costs and expenses described in (ii) above plus external pre-opening expenses shall not exceed a total of $120,000 for each of the two restaurants under development, and any such costs in excess of such amount shall not be considered Development Costs. "Disclosure Memorandum" shall mean the set of numbered schedules referencing Sections of this Agreement delivered by Seller and dated of even date herewith, as supplemented by new or amended schedules delivered by Seller prior to the Closing. "Effective Time" shall have the meaning set forth in Section 2.5 hereof. 3 "Environmental Laws" shall mean all federal, state, municipal, and local laws, statutes, ordinances, rules, regulations, conventions, and decrees relating to the environment, including without limitation, those relating to emissions, discharges, releases, or threatened releases of pollutants, contaminants, chemicals, or industrial, toxic, or Hazardous Materials or wastes of every kind and nature into the environment (including without limitation ambient air, surface water, ground water, soil, and subsoil), or otherwise relating to the manufacture, generation, processing, distribution, application, use, treatment, storage, disposal, transport, or handling of pollutants, contaminants, chemicals, or industrial, toxic, or hazardous substances or wastes, and any and all laws, rules, regulations, codes, directives, orders, decrees, judgments, injunctions, consent agreements, stipulations, provisions, and conditions of Environmental Permits, licenses, injunctions, consent agreements, stipulations, certificates of authorization, and other operating authorizations, entered, promulgated, or approved thereunder. "Environmental Permits" shall mean all permits, licenses, certificates, approvals, authorizations, regulatory plans or compliance schedules required by applicable Environmental Laws, or issued by a Government pursuant to applicable Environmental Laws, or entered into by agreement of the party to be bound, relating to activities that affect the environment, including without limitation, permits, licenses, certificates, approvals, authorizations, regulatory plans and compliance schedules for air emissions, water discharges, pesticide and herbicide or other agricultural chemical storage, use or application, and Hazardous Material or Solid Waste generation, use, storage, treatment and disposal. "Forum" shall mean any federal, state, local, municipal, or foreign court, governmental agency, administrative body or agency, tribunal, private alternative dispute resolution system, or arbitration panel. "Financing Commitment" shall have the meaning set forth in Section 6.4. "Franchise Agreements" shall mean those development agreements, franchise agreements, and other agreements between Seller and Franchisor relating exclusively to the Territory. "Franchisor" shall mean Applebee's International, Inc. "Financial Statements" shall have the meaning set forth in Section 3.8. "Government" shall mean any federal, state, local, municipal, or foreign government or any department, commission, board, bureau, agency, instrumentality, unit, or taxing authority thereof. "Hazardous Material" shall mean all substances and materials designated as hazardous or toxic as of the date hereof pursuant to any applicable Environmental Law. "HSR Act" shall mean the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended. "Knowledge of Seller" (or words of like effect) when used to qualify a representation, warranty, or other statement shall mean the actual knowledge of Sellers' vice president of operations for the Territory and all management of Seller senior thereto. "Leases" shall mean the leases of real property and improvements described on Schedule 1.1B, including the ground lease for the Applebee's restaurant being developed pursuant to Section 4.7 in Murrell's Inlet, South Carolina. "Lease Assignments" shall mean such instruments as shall be necessary to transfer and assign all right, title, and interest of Seller in, to, and under the Leases, each of which shall be substantially in the form of Exhibit B. "Material Contracts" shall mean all Contracts that involve monetary obligations of Seller of more than $6,000 per year and that are not cancelable 4 by Seller upon thirty days notice or less. "Minor Contracts" shall mean all Contracts that are not Material Contracts. "Orders" shall mean all applicable orders, writs, judgments, decrees, rulings, consent agreements, and awards of or by any Forum or entered by consent of the party to be bound. "Owned Real Property" shall mean those tracts and parcels of land owned by Seller on which a Restaurant is now located and the tract (Hartsville, South Carolina) being held for development pursuant to Section 4.7 (all of which tracts and parcels are described in Schedule 1.1C) and all buildings, fixtures, signs, parking facilities, and other improvements located thereon and the building to be developed pursuant to Section 4.7 in Murrell's Inlet, South Carolina on property leased by Seller under a ground lease. "Permits" shall mean all rights of Seller under any liquor, alcoholic beverage, beer and wine licenses, other licenses of every kind, certificates of occupancy, and permits or approvals of any nature, from governmental and regulatory authorities which relate exclusively to the Business, the Restaurants, or the Real Property. "Permitted Encumbrances" shall mean, in the case of all Real Property, (i) such easements, restrictions, covenants, and other such encumbrances which are shown as exceptions on the Title Commitments and other encumbrances of record as of the effective date of the Title Commitments, (ii) ordinances (municipal and zoning), (iii) survey matters, and (iv) such easements, restrictions, covenants, and other encumbrances which become matters of public record after the effective date of the Title Commitments and before the Closing, in each such case, to the extent that such encumbrances could not reasonably be expected to materially interfere with or impair Purchaser's use of the Real Property for Applebee's Neighborhood Grill & Bar Restaurants or that are waived, or deemed to be waived, by Purchaser pursuant to Section 7.1(a). Permitted Encumbrances shall include in the case of both Real Property and personal property all liens for taxes not yet due and payable. "Person" shall include an individual, a partnership, a joint venture, a corporation, a limited liability company, a trust, an unincorporated organization, a government, and any other legal entity. "Property Taxes" shall mean all ad valorem, real property, and personal property taxes, all general and special private and public assessments, all other property taxes, and all similar obligations pertaining to the Assets. "Real Property" shall mean the land and improvements comprising the Owned Real Property and all land and improvements subject to Leases. "Restaurants" shall mean the ten Applebee's Neighborhood Grill & Bar restaurants operated by Seller at the locations set forth on Schedule 1.1A and two additional Applebee's restaurants to be completed prior to Closing pursuant to Section 4.7. "Schedules" shall mean the numbered sections of the Disclosure Memorandum. "Seller Plans" shall have the meaning set forth on Schedule 3.15. "Solid Waste" shall mean any garbage, refuse, sludge from a waste treatment plant, water supply treatment plant, or air pollution control facility, and other discarded material, including solid, liquid, semisolid, or contained gaseous material resulting from industrial, commercial, mining, and agricultural operations, and from community activities. "Subsequent Contracts" shall have the meaning set forth in Section 4.10. "Summerville Condemnation" shall mean the condemnation proceeding 5 pertaining to a portion of the Owned Real Property on which the Summerville, South Carolina, Restaurant is located as described in Schedule 3.7(d). "Termination Date" shall mean July 15, 1998. "Territory" shall mean a portion of the Florence, South Carolina ADI and all of the Charleston, South Carolina ADI, in each case consisting of the counties set forth on Schedule 1.1D. "Title Commitments" shall have the meaning set forth in Section 7.1(a). "Title Policies" shall mean the Owner's Title Policies and the Lessee's Title Policies as defined in Section 7.1(a). ARTICLE II - PURCHASE AND SALE 2.1 Purchase and Sale. Upon the terms and subject to the conditions set forth in this Agreement, at the Closing Seller shall sell, transfer, and assign to Purchaser all of Seller's right, title, and interest in and to the Assets free and clear of any mortgage, security interest, lien, charge, claim, or other encumbrance of any nature except the Permitted Encumbrances, and Purchaser shall purchase the Assets from Seller for the Purchase Price set forth in Section 2.3. 2.2 Assumption of Liabilities. As of the Effective Time, Purchaser shall assume all of the Assumed Liabilities. Except for the Assumed Liabilities, Purchaser does not hereby assume or agree to assume or pay any obligations, liabilities, indebtedness, duties, responsibilities, or commitments of Seller or any other Person, of any nature whatsoever, whether known or unknown, absolute or contingent, due or to become due. 2.3 Purchase Price. The purchase price for the Assets (the "Purchase Price") shall be $18,500,000 as adjusted as follows: (a) The amount of the purchase price shall be increased by (i) all Property Taxes accruing with respect to the Assets after the Closing that have been paid by Seller prior to Closing; (ii) all amounts paid by Seller under the Contracts and Leases with respect to periods after the Closing; (iii) any other prepaid expenses pertaining to the Business (such as telephone expenses, advertising expenses, utility charges, and the like) to the extent that the same cover periods after the Closing; (iv) an amount equal to Seller's cost of those Assets consisting of food, beverage (including beer, wine, and liquor), new uniforms, paper, and supplies inventory as determined by the parties' joint inventory at the close of business on the day prior to the Closing Date; (v) the amount of Seller's Development Costs, and (vi) if the Summerville Condemnation has not been settled prior to Closing, reasonable attorneys' fees and other out-of-pocket expenses incurred by Seller in connection with such matter. (b) The amount of the purchase price shall be decreased by (i) all Property Taxes accruing with respect to the Assets prior to the Closing that are due and payable after the Closing and that have not been paid as of the Closing, (ii) all amounts payable under the Contracts and Leases that pertain to periods before the Closing but are due and payable after the Closing and that have not been paid as of the Closing, (iii) the estimated cost of vacation accrued but unvested as of the Closing Date by ADI Personnel hired by Purchaser the cost of which is being assumed by Seller pursuant to Section 6.3(c), (iv) any proceeds received by Seller prior to Closing with respect to the Summerville Condemnation, net of Seller's reasonable attorneys' fees and other out-of-pocket expenses incurred solely in connection with such matter; and (v) any adjustment required by Section 7.1(b)D. (c) The amount of the purchase price shall be further adjusted to reflect any expense paid by one party which the other party has agreed to pay or share pursuant to Section 10.1 or otherwise pursuant to this Agreement. 6 The foregoing adjustments shall be calculated by the parties and set forth on a schedule which shall be signed by both parties at Closing. The Purchase Price shall be paid by Purchaser on the Closing Date by wire transfer of immediately available funds to an account designated by Seller. 2.4 Deliveries at the Closing. (a) At the Closing, Seller shall deliver to Purchaser the following: (i) A certificate executed by Seller, dated as of the Closing Date, certifying in such detail as Purchaser may reasonably request that subject to the matters disclosed in the Disclosure Memorandum, as it may be supplemented by Seller from time to time, all representations and warranties of Seller in this Agreement are true in all material respects as of the Closing Date; (ii) A certificate of the Secretary or an Assistant Secretary of Seller, dated as of the Closing Date, certifying in such detail as Purchaser may reasonably request (A) that attached thereto is a true and complete copy of resolutions adopted by the Board of Directors of Seller authorizing the execution, delivery, and performance of this Agreement, the Bill of Sale and Assignment Agreement, and the Deeds, and that all such resolutions are still in full force and effect and are all the resolutions adopted in connection with the transactions contemplated by this Agreement, and (B) as to the incumbency and specimen signature of each officer of Seller executing this Agreement, the Bill of Sale and Assignment Agreement, the Deeds, and any certificate or instrument furnished pursuant hereto, and a certification by another officer of Seller as to the incumbency and signature of the officer signing such certificate; (iii) The opinion of Kilpatrick Stockton LLP, counsel to Seller, in substantially the form of Exhibit C hereto; (iv) The Bill of Sale and Assignment Agreement, duly executed by Seller; (v) The Lease Assignments, duly executed by Seller; (vi) The Consents; (vii) The Deeds, duly executed by Seller; (viii) A Cross-Receipt, duly executed by Seller; and (ix) Any other documents that Purchaser may reasonably request at least three days prior to the Closing in order to effectuate the transactions contemplated hereby. (b) At the Closing Purchaser shall deliver to Seller the following: (i) A certificate executed by Purchaser, dated as of the Closing Date, certifying in such detail as Seller may reasonably request to the fulfillment of the conditions specified in Sections 7.3(a) and (b) hereof; (ii) A certificate of the Secretary or an Assistant Secretary of Purchaser, dated as of the Closing Date, certifying in such detail as Seller may request (i) that attached thereto is a true and complete copy of resolutions adopted by the Board of Directors of Purchaser authorizing the execution, delivery and performance of this Agreement and the Bill of Sale and Assignment Agreement, and that all such resolutions are still in full force and effect and are all the resolutions adopted in connection with the transactions contemplated by this Agreement, and (ii) as to the incumbency and specimen signature of each officer of Purchaser executing this Agreement, and any certificate or instrument furnished pursuant hereto or to be furnished in connection herewith as of the Closing Date, and a certification by another officer of Purchaser as to the incumbency and signature of the officer signing such certificate; (iii) The funds constituting the Purchase Price; 7 (iv) The Bill of Sale and Assignment Agreement, duly executed by Purchaser; (v) The Lease Assignments, duly executed by Purchaser; (vi) The opinion of Ward & Smith, P.A., counsel to Purchaser, in substantially the form of Exhibit D hereto; (vii) A Cross-Receipt, duly executed by Purchaser; and (viii) Any other documents that Seller may reasonably request at least three days prior to the Closing. 2.5 Transfer of Operations. Purchaser shall be entitled to immediate possession of, and to exercise all rights arising under, the Assets from and after the time that the Restaurants open for business on the Closing Date, and operation of the Restaurants shall transfer at such time (the "Effective Time"). Except as expressly provided in this Agreement, all profits, losses, liabilities, claims, or injuries arising before the Effective Time shall be solely to the benefit or the risk of Seller. All such occurrences after the Effective Time shall be solely to the benefit or the risk of Purchaser. The risk of loss or damage by fire, storm, flood, theft, or other casualty or cause shall be in all respects upon Seller prior to the Effective Time and upon the Purchaser thereafter. 2.6 Closing. The closing of the transactions described in this Article II (the "Closing") shall take place at the offices of Kilpatrick Stockton LLP, Suite 2800, 1100 Peachtree Street, Atlanta, Georgia, at 10:00 a.m. on June 8, 1998, or on such other date and time as may be mutually agreed upon by the parties hereto. 2.7 Allocation of Purchase Price. The Purchase Price shall be allocated among the various Assets as set forth on Exhibit E hereof. Each party hereby agrees that it will not take a position on any income tax return, before any governmental agency charged with the collection of any income tax, or in any judicial proceeding that is inconsistent with the terms of this Section 2.7. 2.8 Further Assurances. From time to time after the Closing at Purchaser's request, Seller shall execute, acknowledge, and deliver to Purchaser such other instruments of conveyance and transfer and shall take such other actions and execute and deliver such other documents, certifications, and further assurances as Purchaser may reasonably require to vest more effectively in Purchaser, or to put Purchaser more fully in possession of, any of the Assets, or to better enable Purchaser to complete, perform and discharge the Assumed Liabilities. The costs and expenses attributable to the foregoing shall be shared equally by Borrower and Seller. Each party hereto will cooperate with the other and execute and deliver to the other party hereto such other instruments and documents and take such other actions as may be reasonably requested from time to time by any other party hereto as necessary to carry out, evidence, and confirm the intended purpose of this Agreement. ARTICLE III - REPRESENTATIONS AND WARRANTIES OF SELLER Subject to the limitations and exceptions set forth in the Disclosure Memorandum dated of even date hereof, as supplemented or amended from time to time by Seller prior to the Closing Date, regardless of whether any Schedule constituting a part of the Disclosure Memorandum is referenced in any specific provision below, Seller hereby represents and warrants to Purchaser as follows: 3.1 Organization, Qualifications and Corporate Power. Seller is a corporation duly incorporated and organized, validly existing, and in good standing under the laws of the State of Georgia. Seller has the corporate power and authority to execute, deliver, and perform this Agreement, the Bill of Sale and Assignment Agreement, the Deeds, and all other agreements, documents, certificates, and other papers contemplated to be delivered by Seller pursuant to this Agreement. 8 3.2 Authorization. The execution, delivery, and performance by Seller of this Agreement, the Bill of Sale and Assignment Agreement, the Deeds, and all other agreements, documents, certificates, and other papers contemplated to be delivered by Seller pursuant to this Agreement have been duly authorized by the Board of Directors of Seller. 3.3 Non-Contravention. Subject to obtaining the consents to assignment of the Leases and Material Contracts set forth on Schedule 3.3, the execution, delivery and performance of this Agreement will not violate or result in a breach of any term of Seller's Articles of Incorporation or Bylaws, result in a breach of any agreement or other instrument to which Seller is a party (except for defaults under Minor Contracts where the consent of the other party or parties to such contract to the assignment thereof will not be obtained) or violate any law or any order, rule, or regulation applicable to Seller of any court or of any regulatory body, administrative agency, or other governmental instrumentality having jurisdiction over Seller; and will not result in the creation or imposition of any lien, charge, or encumbrance of any nature whatsoever upon any of the Assets. Except as set forth on Schedule 3.3 and except for consents required under Minor Contracts, the execution, delivery and performance of this Agreement and the other documents executed in connection herewith, and the consummation of the transactions contemplated hereby and thereby do not require any filing with, notice to or consent, waiver or approval of any third party, including but not limited to, any governmental body or entity other than any filing required under the HSR Act and the expiration of any applicable waiting period thereunder. Schedule 3.3 identifies separately each notice, consent, waiver, or approval by reference to each Lease and to each Material Contract to which it is applicable. 3.4 Validity. This Agreement has been duly executed and delivered by the Seller and constitutes the legal, valid, and binding obligation of Seller, enforceable in accordance with its terms, subject to general equity principles and to applicable bankruptcy, insolvency, reorganization, moratorium, and similar laws from time to time in effect affecting the enforcement of creditors' rights. When the Bill of Sale and Assignment Agreement has been executed and delivered in accordance with this Agreement, it will constitute the legal, valid, and binding obligation of Seller, enforceable in accordance with its terms, subject to general equity principles and to applicable bankruptcy, insolvency, reorganization, moratorium, and similar laws from time to time in effect affecting the enforcement of creditors' rights. 3.5 Assets. (a) Seller has good and valid title to all of the Assets constituting personal property, free and clear of any and all mortgages, pledges, security interests, liens, charges, conditional sales agreements, and other encumbrances except Permitted Encumbrances. (b) The Assets located at each Restaurant constitute all tangible personal property required on site to operate the Restaurant in accordance with the Franchise Agreements. (c) There are no assets or property of any nature which is not being transferred to Purchaser hereunder that has been customarily used exclusively in the operation or ownership of the Restaurants other than Permits and software licenses that are not assignable. (d) Each Asset constituting tangible personal property having a fair market value of $5,000 or more is in good operating condition consistent with its age, subject to normal wear and tear. (e) Substantially all food inventories at the Effective Time will be useable by Purchaser in the ordinary course of business. (f) Schedule 3.5(f) sets forth a complete and accurate list of the Assets constituting tangible personal property including the original basis therefor and accumulated depreciation. 9 3.6 Contracts and Leases. (a) Each Material Contract and Lease is a valid and subsisting agreement, without any material default of Seller thereunder, and to the knowledge of Seller, without any default on the part of any other party thereto. To the knowledge of Seller, no event or occurrence has transpired which with the passage of time or giving of notice or both will constitute a default under any Material Contract or Lease. A true and correct list of each Material Contract and Lease and every amendment thereto or other agreement or document relating thereto is set forth as Schedule 3.6 to this Agreement. True and correct copies of the Material Contracts and Leases (and any amendments thereto) have been provided to Purchaser. At the time of Closing, Seller shall have made all payments and performed all obligations due through the Closing Date under each Contract and Lease, except to the extent that any payment due is deducted in calculating the Purchase Price pursuant to Section 2.3. (b) No Contract or Lease has been assigned by Seller or any interest granted therein by Seller to any third party, or is subject to any mortgage, pledge, hypothecation, security interest, lien, or other encumbrance or claim. (c) Seller's possession of property subject to the Leases has not been disturbed, nor has any claim been asserted against Seller adverse to its rights in such leasehold interests. (d) The Contracts have been entered into in the ordinary course of Seller's business and, to Seller's knowledge, contain commercially reasonable terms. (e) Schedule 3.6(e) sets forth a list of agreements that relate to the Business but that are not being assigned hereunder because they also cover other restaurants of Seller not being sold hereunder. 3.7 Real Property. (a) Schedule 3.7(a) sets forth with respect to each Restaurant, its location, whether it is located on Owned Real Property or is on a site subject to a Lease, and whether the improvements are owned or leased. (b) The water, electric, gas, and sewer utility services, and storm drainage facilities currently available to each parcel of Real Property are adequate for the operation of the Restaurants as presently operated, and to Seller's knowledge, there is no condition which will result in the termination of the present access from each parcel of Real Property to such utility services and other facilities. (c) Seller has obtained all authorizations and rights-of-way which are necessary to ensure vehicular and pedestrian ingress and egress to and from the site of each Restaurant, all of which are assignable and shall be assigned to Purchaser at the Closing. (d) Except as shown on Schedule 3.7(d), Seller has received no notice that any Government having the power of eminent domain over any parcel of Real Property has commenced or intends to exercise the power of eminent domain or a similar power with respect to any part of the Real Property. (e) The Real Property and the present uses thereof comply in all material respects with all material laws and regulations (including zoning laws and ordinances) of all Governments having jurisdiction over the Real Property, and Seller has received no notice from any Government alleging that the Real Property or any improvements erected or situated thereon, or the uses conducted thereon or therein, violate any regulations of any Government having jurisdiction over the Real Property. (f) To the knowledge of Seller, no work for municipal improvements has been commenced on or in connection with any parcel of Real Property or any street adjacent thereto and no such improvements are contemplated. No assessment for 10 public improvements has been made against the Real Property which remains unpaid. No notice from any Government has been served upon the Real Property or received by Sellers, or to the knowledge of Seller received by any owner of any of the Real Property subject to a Lease, requiring or calling attention to the need for any work, repair, construction, alteration, or installation on or in connection with the Real Property which has not been complied with. (g) Seller holds all Environmental Permits necessary for conducting the Business and has conducted, and is presently conducting, the Business in material compliance with all applicable Environmental Laws and Environmental Permits held by it, including, without limitation, all record keeping and filing requirements. To the Seller's knowledge, all Hazardous Materials and Solid Waste, on, in, or under Real Property have been properly removed and disposed of, and to the Seller's knowledge no past or present disposal, discharge, spill, or other release of, or treatment, transportation, or other handling of Hazardous Materials or Solid Waste on, in, under, or off-site from any Real Property will subject the Purchaser, or any subsequent owner, occupant, or operator of the Real Property to corrective or compliance action or any other liability. There are no presently pending, or to Seller's knowledge, threatened Actions or Orders against or involving Seller relating to any alleged past or ongoing violation of any Environmental Laws or Environmental Permits with respect to the Real Property, nor to Seller's knowledge is Seller subject to any liability for any such past or ongoing violation. Matters referenced above of which Seller has knowledge are referenced on Schedule 3.7(g). 3.8 Financial Statements. Schedule 3.8 contains for each Restaurant unaudited statements of operations as of the end of the 1997 fiscal year and for each fiscal month ended thereafter through the date hereof for which such statements are available, prepared in accordance with generally accepted accounting principles, except for the absence of explanatory notes and except as otherwise expressly described therein (the "Financial Statements"). The Financial Statements have been prepared in accordance with Seller's historical practices and fairly present the operations of the Restaurants for the periods presented and as of their respective dates. 3.9 Taxes. All Property Taxes relating to the Assets have been fully paid for 1997 and all prior tax years and there are no delinquent property tax liens or assessments. Seller has also timely filed (or will timely file) all other tax returns and reports of whatever kind pertaining to the Assets and required to be filed by Seller up to the Closing Date. Seller has paid (or will timely pay) all taxes of whatever kind, including any interest, penalties, governmental charges, duties, fees, and fines imposed by all governmental entities or taxing authorities, which are due and payable prior to the Closing Date or for which assessments relating to any period prior to the Closing Date have been received, the nonpayment of which would result in lien on any of the Assets. There are no audits, suits, actions, claims, investigations, inquiries, or proceedings pending or, to Seller's knowledge, threatened against Seller with respect to taxes, interest, penalties, governmental charges, duties, or fines, nor are any such matters under discussion with any governmental authority, nor have any claims for additional taxes, interest, penalties, charges, fines, fees, or duties been received by assessed against Seller that in any such case affect the Assets. 3.10 Litigation. Except as set forth on Schedule 3.10 or Schedule 3.7(d), there is no material Action or investigation pending or, to the knowledge of Seller, threatened against or affecting Seller that pertains to the Restaurants, or any of the Assets before any court or by or before any governmental body or arbitration board or tribunal. 3.11 Permits. Seller has all material Permits as are necessary to operate the Restaurants. Seller has fulfilled and performed all of its material obligations with respect to such Permits and, to the knowledge of Seller, no event has occurred which allows, nor after notice or lapse of time or both would allow, revocation or termination thereof or would result in any other impairment of the rights of the holder of any such Permits. 11 3.12 Health and Safety Requirements. To the knowledge of Seller, Seller is in compliance with all laws, governmental standards, rules and regulations applicable to Seller or to any of the Assets in respect to the Americans with Disabilities Act and similar state laws, occupational health and safety laws, and environmental laws. 3.13 Employment Contracts, Etc. Seller is not a party to any written employment agreements related to the employees at the Restaurants, (or any oral agreements providing for employment other than employment "at will") or any deferred compensation agreements. Schedule 3.13 sets forth a list of ADI Personnel as of the date shown on such schedule, along with their current compensation rate and start date. 3.14 Labor Matters. Seller is not and never has been a party to any collective bargaining or other labor agreement affecting the Business. To the knowledge of Seller, there is no pending or threatened labor dispute, strike, work stoppage, union representation, election, negotiation of collective bargaining agreement, or similar labor matter affecting the Business. Seller is not involved in any controversy with any group of its employees or any organization representing any employees involved in the Business, and to the knowledge of Seller, Seller is in compliance with all applicable federal and state laws and regulations concerning the employer/employee relationship, including but not limited to wage/hour laws, laws prohibiting discrimination, and labor laws. Seller is in compliance with all of its agreements relating to the employment of its employees, including, without limitation, provisions thereof relating to wages, bonuses, hours of work and the payment of Social Security taxes, and Seller is not liable for any unpaid wages, bonuses, or commissions or any tax, penalty, assessment, or forfeiture for failure to comply with any of the foregoing. 3.15 Employee Benefits. (a) Schedule 3.15 hereto contains a true and complete list of all the following agreements or plans of Seller which are presently in effect and which pertain to any of the employees engaged exclusively in the Business: (i) "employee welfare benefit plans" and "employee pension benefit plans," as defined in Sections 3(1) and 3(2), respectively, of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"); (ii) any other pension, profit sharing, retirement, deferred compensation, stock purchase, stock option, incentive, bonus, vacation, severance, disability, health, hospitalization, medical, life insurance, vision, dental, prescription drug, supplemental unemployment, layoff, automobile, apprenticeship and training, day care, scholarship, group legal benefits, fringe benefits, or other employee benefit plan, program, policy, or arrangement, whether written or unwritten, formal or informal, which Sellers maintains or to which Seller has any outstanding, present, or future obligation to contribute to or make payments under, whether voluntary, contingent, or otherwise (the plans, programs, policies, or arrangements described in clauses (i) or (ii) are herein collectively referred to as the "Seller Plans"). (b) Seller does not presently contributes and/or has ever contributed or been obligated to contribute to a multiemployer plan as defined in section 3(37)(A) of ERISA. (c) No Seller Plan is subject to Title IV of ERISA. (d) Seller has performed all obligations required of it, and is not in default, under any Seller Plan. 3.16 Accuracy of Schedules, Certificates and Documents. All information concerning Seller contained in any certificate furnished to Purchaser pursuant to this Agreement or in the Disclosure Memorandum is or will be when furnished both complete and accurate in all material respects; and all documents furnished 12 to Purchaser pursuant to this Agreement which are documents described in this Agreement or in the Disclosure Memorandum are true and correct copies of the documents which they purport to represent. ARTICLE IV - COVENANTS OF SELLER 4.1 Performance of Real Property Leases and Assumed Contracts. Seller shall, through the Closing Date, continue to faithfully and diligently perform each and every continuing obligation of Seller, if any, under each of the Leases and Material Contracts, where the failure to do so would have a material adverse affect on the operations of a Restaurant. 4.2 Transfer of Licenses and Permits. Seller shall use commercially reasonable efforts to cooperate in assisting Purchaser with the assumption, transfer, or reissuance of any and all Permits required for the operation of the Restaurants. 4.3 Liabilities of Seller. All liabilities of Seller related to the Assets that are not Assumed Liabilities will be promptly paid by Seller as they come due. 4.4 Agreements Respecting Employees of Seller. (a) Prior to the Effective Time without the prior written approval of Purchaser, Seller shall not transfer or reassign to operations outside the Business any employee exclusively involved in the operation or supervision of the Restaurants ("ADI Personnel") At the Effective Time, Seller shall terminate the employment of all ADI Personnel. Seller shall pay all accrued and vested vacation time for ADI Personnel along with their final paychecks. For a period of eighteen months following the Closing, Seller shall not solicit for employment any person who is an employee of Purchaser. (b) Seller shall be solely responsible for any severance amounts due or granted by Seller to any ADI Personnel. (c) Seller and Purchaser shall cooperate in the transition of coverage of ADI Personnel from Seller's health, medical, life insurance and other welfare plans to plans maintained by Purchaser. 4.5 Conduct of Business. (a) From the date hereof until Closing, Seller shall (i) operate the Restaurants as they are currently being operated and in the ordinary course of business and in compliance with all terms and conditions of the Franchise Agreements, using commercially reasonable efforts in keeping with Seller's historical practices to preserve and maintain the services of its employees and its relationships with suppliers and customers, (ii) pay all bills and debts incurred by it related to the Business promptly as they become due, and (iii) consult in advance with Purchaser on all decisions outside the ordinary course of business relating to the Assets or the Restaurants. (b) In particular, and without limiting the foregoing, with respect to the Business, Seller shall: (i) maintain the Assets consistent with past practices; (ii) continue to purchase and maintain inventories for each Restaurant in such quantities and quality as necessary to operate the Restaurants in accordance with Seller's historical practice; (iii) continue to operate the Restaurants in accordance with all material applicable local, state, and federal laws and regulations; and (c) Further, with respect to the Restaurants, Seller shall not, without the express prior written approval of Purchaser: 13 (i) change in any material manner the ownership of the Assets; (ii) increase the rate of compensation to ADI Personnel beyond the usual and customary annual merit increases or bonuses under established compensation plans, except for payments under the stay-bonus plan that Seller has adopted; (iii) mortgage, pledge, or subject to lien (except in connection with development efforts pursuant to Section 4.7 in the ordinary course of business) any of the Assets; (iv) sell or otherwise dispose of any Asset except in the ordinary course of business; (v) enter into any Material Contract except in the ordinary course of business; (vi) other than in the ordinary course of business, cancel or terminate or consent to or accept any cancellation or termination of any Material Contract or Lease, amend or otherwise modify any of its material terms or waive any breach of any of its material terms or provisions or take any other action in connection with any Material Contract or Lease that would materially impair the interests or rights of Seller to be transferred to Purchaser hereunder; or (vii) settle the Summerville Condemnation. 4.6 Access to Information. Seller shall afford Purchaser, its counsel, financial advisors, auditors, lenders, lenders' counsel and other authorized representatives reasonable access for any purpose consistent with this Agreement from the date hereof until the Closing, during normal business hours, to the offices, properties, books, and records of Seller with respect to the Assets and the Restaurants and shall furnish to Purchaser such additional financial and operating data and other information as Seller may possess and as Purchaser may reasonably request, subject to Purchaser's obligations regarding the confidentiality of such information as set forth in Section 6.2 hereof; provided, however, that such access shall be arranged in advance by Purchaser with Seller and will be scheduled in a manner and with a frequency calculated to cause the minimum disruption of the business of Seller. 4.7 Development Efforts. Seller shall use commercially reasonable efforts to complete the development of the two new Applebee's restaurants in Murrell's Inlet and Hartsville, South Carolina listed on Schedule 4.7 substantially in accordance with the timetable and budget set forth on such Schedule. The Murrell's Inlet restaurant will be built on land held by Seller pursuant to a ground lease. The Hartsville restaurant will be built on property held by Seller in fee simple. 4.8 Reporting Requirements. Through the Closing Date, Seller shall furnish to Purchaser: (a) Promptly after the occurrence, or failure to occur, of any such event, information respect to any event which has materially adversely affected the Assets or the operations of the Restaurants. (b) As soon as available and in any event within fifteen business days after the end of each fiscal month, the statement of operations of each Restaurant for such month in the Seller's regularly prepared format. (c) Promptly after the commencement of each such matter, notice of all Actions, Orders or other directives affecting the Business or any Restaurant that, if adversely determined, could materially adversely affect the Assets, the operations, business, prospects or condition (financial or otherwise) of the Restaurant or the ability of Seller to perform its obligations hereunder; (d) Such other information respecting the Assets or the operations, business prospects, or condition (financial or otherwise) of the Restaurants as 14 the Purchaser may from time to time reasonably request. 4.9 Cooperation. Insofar as such conditions are within its reasonable control or influence, Seller will use commercially reasonable efforts to cause the conditions set forth in Article VII to be satisfied and to facilitate and cause the consummation of the transactions contemplated hereby, including obtaining the Consents. The parties acknowledge that no consents will be sought with respect to any Minor Contract even if the failure to so obtain a consent to assignment may result in a default or termination thereunder; provided, however, that Seller will assist Purchaser, to the extent reasonably requested by Purchaser, in obtaining consents or transfers and assignments of the Minor Contracts. Seller will use commercially reasonable efforts to obtain required consents of landlords to the assignment of the Leases and shall bear any expenses associated with obtaining such consents; however, Seller shall not be required to make any payment to a landlord (other than reimbursement of expenses), guarantee any Lease or remain liable for the payment thereof following the Closing, or agree to any concessions or amendment to other leases or arrangements with such landlord in order to obtain such consents. 4.10 Subsequent Contracts. From the date of this Agreement to the Closing Date, Seller shall use commercially reasonable efforts (a) to include in any Material Contracts entered into by Seller ("Subsequent Contracts") a provision permitting the assignment of any such Subsequent Contract to Purchaser and providing that upon such assignment, Purchaser shall succeed to all of Seller's rights, title, and interests thereunder subject to the Purchaser's assumption of all of Seller's duties, powers, and obligations under such Subsequent Contract, and (b) to ensure that no Subsequent Contract contains any provision which would limit in any way the rights, title, and interests of Seller in the Assets. 4.11 Transition Services. (a) For a period of three months after the Closing, if and to the extent requested in writing by Purchaser, Seller agrees to provide to Purchaser restaurant accounting, POS system support, and other services related to the Restaurants as mutually agreed upon between Seller and Purchaser (the "Services"). Purchaser shall give Seller thirty (30) days advance written notice of the Services requested. The Services shall be provided promptly as requested and shall be provided in the same manner and with the same or similar personnel as Seller previously utilized. (b) Purchaser will pay for the Services on a monthly basis, after receipt of an invoice from Seller, at Seller's direct personnel cost incurred in connection with providing the requested Service, plus an amount of reasonable overhead not to exceed 85% of the base salaries of the personnel providing the Services. Seller's invoice shall detail the personnel used, the amount of time spent, and its calculation of the cost thereof. Direct personnel cost shall include only base salary and benefits normally paid to Seller employees in such capacities. (c) Seller is not required to maintain the employment of any specific personnel in connection with providing the Services; provided, however, that if requested by Purchaser, Seller shall offer to specifically designated personnel a bonus incentive to remain for the three month period. The amount of such bonus shall be at the discretion of Purchaser. Such bonus, if accepted by the employee, shall be paid by Purchaser at the end of the three-month period, or for such shorter period as Purchaser may determine. 4.12 Delivery of Real Estate Documents. Within five business days of the date hereof Seller shall provide to Purchaser legal descriptions of the Owned Real Property and copies of all surveys, title policies, and environmental reports pertaining to the Owned Real Property in Seller's possession. ARTICLE V REPRESENTATIONS AND WARRANTIES OF PURCHASER 15 Purchaser hereby represents and warrants to Sellers as follows: 5.1 Organization, Corporate Power, Authorization. Purchaser is a corporation duly organized, validly existing, and in good standing under the laws of the State of North Carolina and in each other jurisdiction in which it is lawfully required to qualify to conduct business. Purchaser has the corporate power and authority to execute and deliver this Agreement and the Bill of Sale and Assignment Agreement, and to consummate the transactions contemplated hereby. All corporate action on the part of Purchaser necessary for the authorization, execution, and delivery of this Agreement and the Bill of Sale and Assignment Agreement, and performance of all obligations of Purchaser thereunder has been duly taken. 5.2 Non-Contravention. The execution and delivery of this Agreement and the Bill of Sale and Assignment Agreement by Purchaser do not and the consummation by Purchaser of the transactions contemplated hereby and thereby will not violate any provision of its articles of incorporation or bylaws. 5.3 Validity. This Agreement has been duly executed and delivered by Purchaser, and constitutes the legal, valid, and binding obligation of Purchaser, enforceable against it in accordance with its terms, subject to general equity principles and to applicable bankruptcy, insolvency, reorganization, moratorium, and similar laws from time to time in effect affecting the enforcement of creditors' rights. When the Bill of Sale and Assignment Agreement has been executed and delivered in accordance with this Agreement, it will constitute the legal, valid, and binding obligation of Purchaser, enforceable in accordance with its terms, subject to general equity principles and to applicable bankruptcy, insolvency, reorganization, moratorium, and similar laws from time to time in effect affecting the enforcement of creditors' rights. 5.4 Litigation Relating to the Agreement. Purchaser is not a party to, or subject to any judgment, decree, or order entered in any lawsuit or proceeding brought by any governmental agency or instrumentality or other party seeking to prevent the execution of this Agreement or the consummation of the transactions contemplated hereby. ARTICLE VI - COVENANTS OF PURCHASER 6.1 Purchaser Performance. After the Closing Date, Purchaser shall promptly pay as they become due and otherwise perform all obligations of Seller under the Assumed Liabilities and otherwise perform and fulfill all other obligations with respect to the Assets pertaining to the period after the Closing Date. 6.2 Confidentiality. In connection with the negotiation of this Agreement, Seller may disclose Confidential Information, as defined below, to Purchaser. Purchaser agrees that if the transactions contemplated herein are not consummated, it will return to Seller all documents and other written information furnished to it. Purchaser further agrees to maintain the confidentiality of any and all Confidential Information of Seller and not disclose any Confidential Information to any Person other than such Person to whom Confidential Information must be disclosed to effect the transactions and who are bound by appropriate non-disclosure agreement or obligations. Purchaser shall not use such Confidential Information for financial gain or in any manner adverse to Seller. The foregoing obligations shall not apply to (i) any information which was known by Purchaser prior to its disclosure by Seller; (ii) any information which was in the public domain prior to the disclosure thereof; (iii) any information which comes into the public domain through no fault of Purchaser; (iv) any information which is disclosed to Purchaser by a third party, other than an affiliate, having the legal right to make such disclosure; or (iv) any information which is required to be disclosed by Order of any Forum. For purposes of this Section, "Confidential Information" shall mean any and all technical, business, and other information which is (a) possessed or hereafter acquired by Seller and disclosed to Purchaser and (b) derives economic value, 16 actual or potential, from not being generally known to Persons other than Seller, including, without limitation, technical or nontechnical data, compositions, devices, methods, techniques, drawings, inventions, processes, financial data, financial plans, product plans, lists of actual or potential customers or suppliers, information regarding the business plans and operations of Seller, and the existence of discussions and negotiations between the parties hereto relating to the terms hereof. The restrictions of this Section shall expire three years from the date hereof with respect to any confidential business information that does not constitute a trade secret under applicable law. 6.3 Seller Employees. (a) Purchaser intends to offer employment to all ADI Personnel employed and in good standing at the Effective Time upon terms and conditions substantially equivalent to those provided by Seller; however, Purchaser shall not be required to provide stock options or any stock purchase rights. For a period of eighteen months following the Closing, unless otherwise permitted by Seller in writing, Purchaser shall not solicit for employment any person who is an employee of Seller or any subsidiary of Seller (other than ADI Personnel). (b) Purchaser shall maintain employee records transferred to Purchaser hereunder for a period of not less than four years and during that period will afford Seller reasonable access to such records during Purchaser's normal business hours. Purchaser shall maintain the confidentiality of such records and limit access thereto in a manner consistent with Purchaser's treatment of its employee records. (c) Purchaser agrees with respect to ADI Personnel hired by Purchaser: (i) to give such employees credit under Purchaser's benefits plans, programs, and arrangements, including credit for accrued but unvested vacation which has been charged to Seller under Section 2.3, for such employees' period of service with Seller, provided that such credit shall only be taken into account under any tax-qualified plan maintained by Purchaser for purposes of determining such employees' eligibility for participation and eligibility to satisfy any hours of service requirement in order to receive an allocation of an employer contribution; (ii) to provide coverage to such employees who are eligible under Purchaser's health, medical, life insurance, and other welfare plans, to the extent such plans are in effect (A) without the need to undergo a physical examination or otherwise provide evidence of insurability; (B) any pre-existing condition or similar limitations or exclusions will be applied by taking into account the period of coverage under Seller's plan; (C) by applying and giving credit for amounts paid for the plan year in which the Closing Date occurs as deductibles, out of pocket expenses, and similar amounts paid by individuals and their beneficiaries. Seller and Purchaser acknowledge that the only employee benefit plans to be offered by Purchaser to its employees, either at the Effective Time or within twelve (12) months thereafter, are those listed on Exhibit G. 6.4 Cooperation. Insofar as such conditions are within its reasonable control or influence, Purchaser shall use commercially reasonable efforts to cause the conditions set forth in Article VII to be satisfied and to facilitate and cause the consummation of the transactions contemplated hereby. Specifically, but not by way of limitation, Purchaser will (i) use commercially reasonable efforts to obtain a commitment letter from a reputable lender for financing the transactions contemplated hereby on substantially the terms set forth on Exhibit F (the "Financing Commitment") and to close such financing, (ii) promptly provide Franchisor with all information required by Franchisor to determine whether Purchaser will be approved as a franchisee with respect to the Territory, (iii) actively pursue an agreement with Franchisor as to the principal terms of franchise and development agreements with respect to the Territory, and (iv) file all documents required to obtain approval of the transactions contemplated hereby under the HSR Act within 15 days of the date hereof. 17 ARTICLE VII - CONDITIONS PRECEDENT TO THE CLOSING 7.1 Title Examination and Property Inspection. (a) Purchaser shall have 45 days following receipt of the documents referred to in Section 4.12 (the "Title Inspection Period") to obtain and review (i) current surveys and title insurance commitments with respect to the Owned Real Property ("Owner's Title Commitments") pursuant to which the Title Company will agree to issue at Closing owner's policies of title insurance ("Owner's Title Policies") on American Land Title Association standard Form B-1990, without exceptions except as shown in the Owner's Title Commitments, to be issued by a reputable title insurance company of Sellers' choice and reasonably acceptable to Purchaser ("Title Company") in an amount in the case of each parcel equal to the purchase price allocated to such parcel of the Owned Real Property pursuant to Section 2.7, and (ii) current surveys and title insurance commitments with respect to the Real Property subject to a Lease (collectively, the "Leased Real Property") (the "Lessee Title Commitments", and collectively with the Owner's Title Commitments, the "Title Commitments") pursuant to which the Title Company will agree to issue at Closing lessee's policies of title insurance ("Lessee's Title Policies") on American Land Title Association standard form of leasehold owner's policy to insure leasehold estates, showing no exceptions except as shown in the Lessee Title Commitments. The Owner's Title Policies shall insure the Purchaser that, upon consummation of the purchase and sale herein contemplated, Purchaser will be vested with good, fee simple, marketable, and insurable title to the Owned Real Property, subject only to the Permitted Encumbrances or arising out of acts of the insured. The Lessee's Title Policies shall insure the Purchaser that, upon consummation of the transactions herein contemplated, Purchaser will be vested with a good, valid, marketable and insurable leasehold estate in and to the Leased Real Property, subject only to the Permitted Encumbrances. Purchaser shall have until the end of the Title Inspection Period (or with respect to any matter arising after the date of the Title Commitment for the affected Real Property, until the Closing has occurred) to furnish Seller a written statement of reasonable objections to exceptions which, in Purchaser's reasonable judgment, would materially interfere with or impair Purchaser's use of the Real Property for the operation of Applebee's restaurants ("Material Objections"). Seller shall have until the Termination Date to satisfy such Material Objections (but with no obligation to do so) in all material respects, and if Seller fails to satisfy all Material Objections in all material respects on or prior to the Termination Date, then Purchaser's sole right and remedy shall be to either (i) waive the objections and elect to close, or (ii) terminate this Agreement by giving written notice of such termination to Seller. If Purchaser fails to furnish Seller a written statement of Material Objections by the end of the Title Inspection Period with respect to any matter appearing as an exception on a Title Commitment (or prior to the Closing in the case of a Material Objection relating to any matter arising after the date of the relevant Title Commitment), such matter shall be deemed waived by Purchaser and shall be a Permitted Encumbrance. The parties acknowledge that some of the Leased Real Property may be located in shopping centers, and as such, unless the leased premises are a free standing building located on a separate pad with its own legal description ("Free Standing Premises") the Lessee Title Commitments for such Leased Real Property will contain encumbrances for entire shopping centers. Notwithstanding anything to the contrary contained herein, while Lessee Title Commitments will be delivered for such Leased Real Property, no surveys will be delivered and Lessee's Title Policies may or may not be issued for Leases unless such Leases are for Free Standing Premises. Purchaser may not object to title encumbrances for such Leased Real Property that do not affect the premises leased under the Leases, which such encumbrances shall be deemed to be Permitted Encumbrances. (b) (A) Between the date of this Agreement and the Closing Date, Purchaser and Purchaser's agents, employees, contractors, representatives and other designees (hereinafter collectively called "Purchaser's Designees") shall have the right to enter the Real Property for the purposes of inspecting the Real Property and the other tangible Assets, conducting soil tests, conducting surveys, mechanical and structural engineering studies, environmental studies, and conducting any other investigations, examinations, tests, and inspections as Purchaser may reasonably require to assess the condition of the Real Property 18 and the other tangible Assets; provided, however, that (i) any activities by or on behalf of Purchaser, including, without limitation, the entry by Purchaser or Purchaser's Designees onto the Real Property, or the other activities of Purchaser or Purchaser's Designees with respect to the Real Property (hereinafter called "Purchaser's Activities") shall not damage the Real Property in any manner whatsoever or disturb or interfere with the rights of any lessor of Leased Real Property; (ii) in the event the Real Property or other Assets are altered or disturbed in any manner in connection with any Purchaser's Activities, Purchaser shall immediately return the Real Property or other Assets to the condition existing prior to Purchaser's Activities; (iii) Purchaser shall in no event without Seller's prior written consent disclose the results of any of its investigations, examinations, tests, or inspections to any party (including any Government unless required by law) other than to its lenders, attorneys, consultants, and investors; and (iv) Purchaser shall indemnify, defend, and hold Seller harmless from and against any and all claims, liabilities, damages, losses, costs, and expenses of any kind or nature whatsoever (including, without limitation, attorneys' fees, and expenses and court costs) suffered, incurred or sustained by Seller as a result of, by reason of, or in connection with any Purchaser's Activities. Notwithstanding any provision of this Agreement to the contrary, Purchaser shall not have the right to undertake any environmental studies or testing beyond the scope of a standard "Phase I" evaluation without the prior written consent of Seller and, if applicable, the lessor of any Leased Real Property. (B) Purchaser shall have until the date which is 45 days after the date of this Agreement (hereinafter called the "Due Diligence Date"), to perform such investigations, examinations, tests and inspections as Purchaser shall deem necessary or desirable to determine whether the Real Property is suitable and satisfactory to Purchaser and can be used for Applebee's franchise restaurants. In the event Purchaser shall determine that the Real Property is not reasonably suitable and satisfactory to Purchaser, Purchaser shall have the right to terminate this Agreement by giving written notice to Seller on or before the Due Diligence Date If Purchaser does not terminate this Agreement in accordance with this Section 7.1(b) on or before the Due Diligence Date, Purchaser shall have no further right to terminate this Agreement pursuant to this Section 7.1(b). (C) Prior to any entry by Purchaser or any of Purchaser's Designees onto the Real Property, Purchaser shall: (i) procure a policy of commercial general liability insurance, issued by an insurer reasonably satisfactory to Seller, covering all Purchaser's Activities, with a single limit of liability (per occurrence and aggregate) of not less than $1,000,000.00; and (ii) deliver to Seller a Certificate of Insurance, evidencing that such insurance is in force and effect, and evidencing that Seller has been named as an additional insured thereunder with respect to any Purchaser's Activities. Such insurance shall be written on an "occurrence" basis, and shall be maintained in force until the earlier of (i) the termination of this Agreement and the conclusion of all Purchaser's Activities; or (ii) Closing. (D) On or before the Due Diligence Date, Purchaser shall deliver to Seller a list setting forth all repairs or replacements of Assets that under reasonable operating standards of a prudent operator would be required to be made within 60 days of the date of such list and the estimated cost of repair or replacement; provided, however, that the cost of any remedial action must exceed $10,000 per item in order for the item to be included on the list. The cost of repair or replacement for the items set forth on the list shall constitute a Purchase Price adjustment under Section 2.3 except to the extent any such item is replaced or repaired by Seller to Purchaser's reasonable satisfaction prior to Closing. (E) Purchaser acknowledges that Seller may deliver to Purchaser certain documents and information in possession of Seller or Seller's agents with regard to the Real Property (hereinafter called the "Due Diligence Materials"). The Due Diligence Materials will be provided to Purchaser without any representation or warranty of any kind or nature whatsoever and are merely provided to Purchaser for Purchaser's informational purposes. Until Closing, Purchaser and Purchaser's 19 Designees shall maintain all Due Diligence Materials as Confidential Information. 7.2 Purchaser's Conditions to Closing. The obligations of Purchaser hereunder are subject to satisfaction of each of the following conditions at or before Closing, the occurrence of which may, at the option of Purchaser, be waived: (a) Subject to the matters disclosed in the Disclosure Memorandum as supplemented by Seller from time to time, all representations and warranties of Seller in this Agreement shall be true in all material respects on and as of the Closing. (b) Any supplement to the Disclosure Memorandum delivered by Seller shall not reflect in Purchaser's reasonable judgment any material adverse change in the Assets or the Business. (c) Seller shall have performed and complied in all material respects with all of its obligations under this Agreement which are to be performed or complied with by Seller prior to or on the Closing Date. (d) Seller shall have obtained and delivered to Purchaser all consents necessary to transfer and assign the Assets (except for Minor Contracts) to Purchaser. (e) Purchaser and Franchisor shall have entered into a franchise agreement with respect to each Restaurant and development agreements with respect to each ADI in the Territory. (f) Purchaser shall have obtained, either from Seller or directly from the issuing authority, all permits, licenses, including liquor licenses, and approvals of all governmental and quasi-governmental authorities necessary for the operation of the Restaurants in accordance with franchise requirements; provided, however, that if Purchaser is unable to obtain from local municipal or county authorities a permit necessary for such operation of the Restaurants, and Purchaser reasonably believes that it will be able to obtain such a permit within two months of the Closing Date, Closing of the transactions contemplated hereunder will not be delayed if Seller delivers to Purchaser a duly executed liquor license management agreement or agreements. (g) The waiting period under the HSR Act shall have expired or a notification of early termination of the waiting period shall have been received by Purchaser. (h) Purchaser shall have obtained the financing described on Schedule 7.2(i) upon terms and conditions reasonably acceptable to Purchaser or other financing reasonably acceptable to Purchaser. (i) Seller shall have completed and opened the two Applebee's restaurants under development pursuant to Section 4.7. (j) Purchaser shall have been issued the Title Policies. (k) Seller shall have delivered the items required by Section 2.4(a). 7.3 Seller's Conditions to Closing. The obligations of Seller hereunder are subject to satisfaction of each of the following conditions at or before Closing, the occurrence of which may, at the option of Seller, be waived: (a) All representations and warranties of Purchaser in this Agreement shall be true on and as of the Closing, and Purchaser shall have delivered to Seller a certificate to such effect dated as of the Closing Date. 20 (b) Purchaser shall have performed and complied in all material respects with all of its obligations under this Agreement which are to be performed or complied with by Purchaser prior to or on the Closing Date. (c) Franchisor shall have agreed to terminate the Franchise Agreements effective as of the Closing. (d) Seller shall have obtained all the Consents. (e) The waiting period under the HSR Act shall have expired or a notification of early termination of the waiting period shall have been received by Seller. (f) Purchaser shall have delivered the items required by Section 2.4(b). ARTICLE VIII - INDEMNIFICATION 8.1 Purchaser Claims. (a) Seller shall indemnify and hold harmless Purchaser, its successors and assigns, against, and in respect of: (i) Any and all damages, losses, liabilities, costs, and expenses incurred or suffered by Purchaser that result from, relate to, or arise out of: (A) any and all liabilities and obligations of Seller of any nature whatsoever, except for the Assumed Liabilities; (B) any failure by Seller to carry out any covenant or agreement contained in this Agreement; (C) any misrepresentation or breach of warranty by Seller contained in this Agreement, the Disclosure Memorandum, or any certificate, furnished to Purchaser by Seller pursuant hereto; or (D) any claim by any Person for any brokerage or finder's fee or commission in respect of the transactions contemplated hereby as a result of Seller's dealings, agreement, or arrangement with such Person. (ii) Any and all actions, suits, claims, proceedings, investigations, demands, assessments, audits, fines, judgments, costs, and other expenses (including, without limitation, reasonable legal fees and expenses) incident to any of the foregoing including all such expenses reasonably incurred in mitigating any damages resulting to Purchaser from any matter set forth in subsection (i) above. (b) Notwithstanding the foregoing, Seller shall have no liability for indemnification or otherwise with respect to Section 8.1(a)(i)(C) (and Section 8.1(a)(ii) to the extent the items covered thereby relate back to Section 8.1(a)(i)(C)) until the aggregate liability of Seller thereunder exceeds $200,000 and then only to the extent that the aggregate liability of Seller thereunder exceeds such amount; provided, however, that liabilities arising with respect to Sections 3.1 through 3.4 hereof shall not be subject to the foregoing threshold and any liabilities arising with respect to such matters shall not be taken into account in computing aggregate liabilities for the purpose of applying such threshold amount to liabilities arising under other Sections subject thereto. In no event shall the aggregate liability of Seller under Section 8.1(a)(i)(C) (and Section 8.1(a)(ii) to the extent the items covered thereby relate back to Section 8.1(a)(i)(C)) exceed $5.0 million. (c) The amount of any liability of Seller under this Section 8.1 shall be computed net of any tax benefit to Purchaser from the matter giving rise to the claim for indemnification hereunder and net of any insurance proceeds received 21 by Purchaser with respect to the matter out of which such liability arose. (d) The representations and warranties of Seller contained in this Agreement, the Disclosure Memorandum, or any certificate delivered by or on behalf of Seller pursuant to this Agreement or in connection with the transactions contemplated herein shall survive the consummation of the transactions contemplated herein and shall continue in full force and effect for the periods specified below ("Survival Period"): (i) the representations and warranties contained in Section 3.5(d) shall be of no further force and effect after sixty days from the date of the Closing; (ii) the representations and warranties contained in Sections 3.1, through 3.4 and Section 3.7(g) shall survive until the expiration of any applicable statues of limitation provided by law; and (iii) all other representations and warranties of Seller shall be of no further force and effect after one year from the date of the Closing. Anything to the contrary notwithstanding, the Survival Period shall be extended automatically to include any time period necessary to resolve a written claim for indemnification which was made in reasonable detail before expiration of the Survival Period but not resolved prior to its expiration, and any such extension shall apply only as to the claims so asserted and not so resolved within the Survival Period. Liability for any such item shall continue until such claim shall have been finally settled, decided, or adjudicated. (e) Purchaser may not assert any claim against Seller for breach of any covenant contained in Article IV (except for Sections 4.1, 4.3, 4.4, and 4.11) and all such claims shall be deemed to be waived as a result of the Closing. The other covenants contained in Sections 4.1, 4.3, 4.4, and 4.11 and liability therefor shall survive the Closing. (f) Purchaser shall provide written notice to Seller of any claim for indemnification under this Article as soon as practicable; provided, however, that failure to provide such notice on a timely basis shall not bar Purchaser's ability to assert any such claim except to the extent that Seller is actually prejudiced thereby. Purchaser shall make commercially reasonable efforts to mitigate any damages, expenses, etc. resulting from any matter giving rise to liability of Seller under this Article. 8.2 Defense of Third Party Claims. With respect to any claim by Purchaser under Section 8.1, relating to a third party claim or demand, Purchaser shall provide Seller with prompt written notice thereof in accordance with Section 10.4 and Seller may defend, in good faith and at its expense, by legal counsel chosen by it and reasonably acceptable to Purchaser any such claim or demand, and Purchaser, at its expense, shall have the right to participate in the defense of any such third party claim. So long as Seller is defending in good faith any such third party claim, Purchaser shall not settle or compromise such third party claim. In any event Purchaser shall cooperate in the settlement or compromise of, or defense against, any such asserted claim. 8.3 Seller Claims. Purchaser shall indemnify and hold harmless Seller against, and in respect of, any and all damages, claims, losses, liabilities, and expenses, including without limitation, legal, accounting and other expenses, which may arise out of: (i) any breach or violation by Purchaser of any covenant set forth herein or any failure to fulfill any obligation set forth herein, including, but not limited to, the obligation to satisfy the Assumed Liabilities; (ii) any breach of any of the representations or warranties made in this Agreement by Purchaser; or (iii) any claim by any Person for any brokerage or finder's fee or commission in respect of the transactions contemplated hereby as a result of Purchaser's dealings, agreement, or arrangement with such Person. 8.4 Exclusive Remedies. The rights and remedies of the parties under this Article VIII shall be the sole and exclusive rights and remedies that either 22 party may seek for any misrepresentation, breach of warranty, or failure to fulfill any covenant or agreement under this Agreement, except that either party may seek specific performance or injunctive relief. 8.5 Settlement of Disputes. (a) Arbitration. All disputes with respect to any claim for indemnification under this Article VIII and all other disputes and controversies of every kind and nature between the parties hereto arising out of or in connection with this Agreement shall be submitted to arbitration pursuant to the following procedures: (i) After a dispute or controversy arises, either party may, in a written notice delivered to the other party, demand such arbitration. Such notice shall designate the name of the arbitrator appointed by such party demanding arbitration, together with a statement of the matter in controversy; (ii) Within 30 days after receipt of such demand, the other party shall, in a written notice delivered to the other party, name such party's arbitrator. If such party fails to name an arbitrator, then the second arbitrator shall be named by the American Arbitration Association ("AAA"). The two arbitrators so selected shall name a third arbitrator within 30 days, or in lieu of such agreement on a third arbitrator by the two arbitrators so appointed, the third arbitrator shall be appointed by the AAA; (iii) The arbitration hearing shall be held in Wilmington, N.C. (in the case of arbitration initiated by Seller) or in Atlanta, Georgia (in the case of arbitration initiated by Purchaser) at a location designated by a majority of the arbitrators. The Commercial Arbitration Rule of the AAA shall be used and the substantive laws of the State of Georgia (excluding conflict of laws provisions) shall apply; (iv) An award rendered by a majority of the arbitrators appointed pursuant to this Agreement shall be final and binding on all parties to the proceeding, shall deal with the question of costs of the arbitration and all related matters, and judgment on such award may be entered by either party in a court of competent jurisdiction; and (v) Except as set forth in subsection (b) below, the parties stipulate that the provisions of this Section 8.5 shall be a complete defense to any suit, action or proceeding instituted in any federal, state, or local court or before any administrative tribunal with respect to any controversy or dispute arising out of this Agreement. The arbitration provisions hereof shall, with respect to such controversy or dispute, survive the termination or expiration of this Agreement. (b) Emergency Relief. Notwithstanding anything in this Section 8.5 to the contrary, either party may seek from a court any provisional remedy that may be necessary to protect any rights or property of such party pending the establishment of the arbitral tribunal or its determination of the merits of the controversy. ARTICLE IX - TERMINATION 9.1 Termination. (a) This Agreement may be terminated as follows: (i) At any time by the mutual consent of Seller and Purchaser; (ii) By Purchaser pursuant to Section 7.1; (iii) By Seller if Purchaser shall not (i) have obtained and provided a copy of a Financing Commitment to Seller within 30 days from the date hereof, 23 (ii) been approved hereof as a franchisee with respect to the Territory by Franchisor within 45 days of the date hereof, (iii) reached agreement with Franchisor as to a development schedule and other material terms of franchise and development agreements with respect to the Territory within 45 days from the date hereof; or (iv) By either Seller or Purchaser, at its sole election, at any time after the Termination Date, if the Closing shall not have occurred on or prior to such date. (b) In the event of the termination of this Agreement pursuant to subparagraph (a)(iv) above because Seller or Purchaser, as the case may be, shall have willingly failed to fulfill its obligations hereunder, the other party shall, subject to Section 8.5, be entitled to pursue, exercise, and enforce any and all remedies, rights, powers, and privileges available to it at law or in equity. (c) Section 6.2, Article VIII, and Article X hereof shall survive the termination of this Agreement. ARTICLE X - MISCELLANEOUS 10.1 Expenses. (a) Each party hereto shall pay its own legal, accounting, and similar expenses incidental to the preparation of this Agreement, the carrying out of the provisions of this Agreement, and the consummation of the transactions contemplated hereby. (b) Purchaser shall pay all filing fees required under the HSR Act. (c) Purchaser shall pay the costs of obtaining title insurance with respect to the Real Property. Purchaser shall also pay the cost of all surveys, and all environmental investigations, studies, and reports, and all other costs of any investigation of the Assets, the Restaurants, or the Business by Purchaser. (d) Seller shall pay all transfer, intangible, recording, and documentary taxes, stamps, and fees with respect to the transfer of the Owned Real Property and the Leases. (e) Purchaser shall pay any costs associated with the transfer of any Permits and the cost of obtaining liquor licenses or other Permits that are not assignable. (f) The parties shall split equally the cost of any sales taxes, transfer taxes, documentary stamp taxes, or other taxes imposed with respect to the transfer of any Assets constituting personal property. (g) Seller shall pay the costs of obtaining any Consents. (h) Following the Closing, Seller shall pay to Purchaser on a monthly basis as billed the amount of all gift certificates issued by Seller prior to the Closing and redeemed thereafter. (i) Twelve months following the Closing, the parties shall reconcile the accrued but unvested vacation time of Seller's employees assumed by Purchaser hereunder that actually vested with the estimated amount thereof deducted from the Purchase Price pursuant to Section 2.3. If such amount was overestimated Purchaser shall pay the difference to Seller and if underestimated Seller shall pay the difference to Purchaser. 10.2 Contents of Agreement; Parties in Interest; etc. This Agreement sets forth the entire understanding of the parties hereto with respect to the transactions contemplated hereby and constitutes a complete statement of the terms of such transaction. This Agreement shall not be amended or modified except by written instrument duly executed by each of the parties hereto. Any 24 and all previous agreements and understandings between the parties regarding the subject matter hereof, whether written or oral, are superseded by this Agreement. Neither party has been induced to enter into this Agreement in reliance on, and has not relied upon, any statement, representation, or warranty of the other party not set forth in this Agreement, the Disclosure Memorandum, or any certificate delivered pursuant to this Agreement. 10.3 Assignment and Binding Effect. Purchaser may assign the right to receive any of the Assets at Closing to any affiliate or other third party reasonably acceptable to Seller and acceptable to Franchisor, provided that no such assignment shall affect Purchaser's liability hereunder. Subject to the foregoing, all of the terms and provisions of this Agreement shall be binding upon and inure to the benefit of and be enforceable by the successors and assigns of Seller and Purchaser. 10.4 Notices. Any notice, request, demand, waiver, consent, approval, or other communication which is required or permitted hereunder shall be in writing and shall be deemed given only if delivered personally or sent by telecopy or by first class registered or certified United States Mail, with proper postage prepaid, as follows: If to Seller, to: With a required copy to: Apple South, Inc. Kilpatrick Stockton LLP Hancock at Washington 1100 Peachtree Street, Suite 2800 Madison, Georgia 30650 Atlanta, Georgia 30309 Attention: Louis J. (Dusty) Profumo Attention: Larry D. Ledbetter, Esq. Fax: 706-343-2434 Fax: 404-815-6555 If to Purchaser: With a required copy to: Whit-Mart, Inc. Ward and Smith, P.A. 609 Pecan Lane 127 Racine Drive Whiteville, North Carolina 28473 Wilmington, North Carolina 28403 Attention: Gary P. Whitman Attention: F.D. Nelms, Jr. Fax: 910-642-3337 Fax: 910-392-2333 or to such other address or person as the addressee may have specified in a notice duly given to the sender as provided herein. Such notice, request, demand, waiver, consent, approval or other communication will be deemed to have been given as of the date actually delivered, or if mailed, four days after deposit in the U. S. Mail properly addressed with adequate postage affixed. 10.5 GEORGIA LAW TO GOVERN. THIS AGREEMENT SHALL BE GOVERNED BY AND INTERPRETED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF GEORGIA WITHOUT REGARD TO CONFLICT OF LAW PRINCIPLES. 10.6 Headings. All section headings contained in this Agreement are for convenience of reference only, do not form a part of this Agreement, and shall not affect in any way the meaning or interpretation of this Agreement. 10.7 Schedules and Exhibits. All Exhibits and Schedules referred to herein are intended to be and hereby are specifically made a part of this Agreement. 10.8 Severability. Any provision of this Agreement which is invalid or unenforceable in any jurisdiction shall be ineffective to the extent of such invalidity or unenforceability without invalidating or rendering unenforceable the remaining provisions hereof, and any such invalidity or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. 10.9 Public Announcements. Purchaser and Seller will coordinate with each other all press releases relating to the transactions contemplated by this 25 Agreement and, except to the extent required by law, refrain from issuing any press release, publicity statement, or other public notice relating to this Agreement or the transactions contemplated hereby without providing the other party reasonable opportunity to review and comment thereon. 10.10 Construction. The parties hereto have participated jointly in the negotiation and drafting of this Agreement. In the event that any ambiguity or question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the parties hereto and no presumption or burden of proof shall arise favoring or disfavoring any party hereto by virtue of the authorship of any of the provisions of this Agreement. 10.11 Disclaimer of Warranties. OTHER THAN TO THE EXTENT OF ANY EXPRESS REPRESENTATIONS AND WARRANTIES OF SELLER SET FORTH IN THIS AGREEMENT AND IN THE CLOSING CERTIFICATE REQUIRED BY SECTION 2.4(a)(i), AND, IN THE DEEDS AND IN THE LEASE ASSIGNMENTS, SELLER DOES NOT, BY THE EXECUTION AND DELIVERY OF THIS AGREEMENT, AND SELLER SHALL NOT, BY THE EXECUTION AND DELIVERY OF ANY DOCUMENT OR INSTRUMENT EXECUTED AND DELIVERED IN CONNECTION WITH THE CLOSING, MAKE ANY REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, OF ANY KIND OR NATURE WHATSOEVER, WITH RESPECT TO THE ASSETS, AND ALL SUCH WARRANTIES ARE HEREBY DISCLAIMED. PURCHASER WILL CONDUCT SUCH INSPECTIONS AND INVESTIGATIONS OF THE ASSETS (INCLUDING, BUT NOT LIMITED TO, THE PHYSICAL AND ENVIRONMENTAL CONDITION THEREOF) AND RELY UPON SAME AND, UPON CLOSING, SHALL ASSUME THE RISK THAT ADVERSE MATTERS MAY NOT HAVE BEEN REVEALED BY PURCHASER'S INSPECTIONS AND INVESTIGATIONS. SELLER SHALL SELL AND CONVEY TO PURCHASER, AND PURCHASER SHALL ACCEPT, THE ASSETS "AS IS", "WHERE IS", AND WITH ALL FAULTS, AND THERE ARE NO ORAL AGREEMENTS, WARRANTIES OR REPRESENTATIONS, COLLATERAL TO OR AFFECTING THE ASSETS BY SELLER OR ANY THIRD PARTY. WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, SELLER MAKES, AND SHALL MAKE, NO EXPRESS OR IMPLIED WARRANTY OF SUITABILITY OR FITNESS OF ANY OF THE ASSETS FOR ANY PURPOSE, OR AS TO THE MERCHANTABILITY, ENVIRONMENTAL CONDITION, TITLE, VALUE, QUALITY, QUANTITY, CONDITION OR SALABILITY OF ANY OF THE ASSETS, OR AS TO THE PRESENCE ON OR ABSENCE FROM THE ASSETS OF ANY HAZARDOUS MATERIAL, OR THAT THE USE OR SALE OF ANY OF THE ASSETS WILL NOT VIOLATE THE COPYRIGHT, TRADEMARK OR PATENT RIGHTS OF ANY PERSON. THE TERMS AND CONDITIONS OF THIS SECTION 10.11 SHALL SURVIVE THE CONSUMMATION OF THE PURCHASE AND SALE OF THE ASSETS ON THE CLOSING DATE WITHOUT REGARD TO ANY GENERAL LIMITATIONS UPON SURVIVAL SET FORTH IN THIS AGREEMENT. 10.12 Time. Time is and shall be of the essence of this Agreement. [Signatures Located on Following Pages] 26 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first written above. SELLER: APPLE SOUTH, INC. By: Name: Title: PURCHASER: WHIT-MART, INC. By: Name: Title: 27 EXHIBIT TABLE OF CONTENTS EXHIBIT TITLE A Bill of Sale and Assignment Agreement B Lease Assignment C Opinion of Seller's Counsel D Opinion of Purchaser's Counsel E Allocation of Purchase Price F Terms of Financing Commitment G Purchaser Benefit Plans Exhibits to this agreement are not filed pursuant to Item 601(b)(2) of SEC Regulation S-K. By the filling of this Form 10-Q, the Registrant hereby agrees to furnish supplementally a copy of any omitted schedule to the Commission upon request. 28 EX-2.2 3 ASSET PURCHASE AGREEMENT DATED MAY 1, 1998 ASSET PURCHASE AGREEMENT THIS ASSET PURCHASE AGREEMENT, dated as of May 1, 1998, by and among APPLE SOUTH, INC., a Georgia corporation ("Seller") and T.S.S.O., INC., a Georgia corporation ("TSSO") and LOIS SEDOWICZ ("Sedowicz") (TSSO and Sedowicz collectively constituting the "Purchaser"), W I T N E S S E T H : WHEREAS, Seller owns and operates a number of Applebee's Neighborhood Grill & Bar ("Applebee's") franchise Restaurant; and WHEREAS, Seller desires to sell to Purchaser an Applebee's restaurant and related property, and Purchaser desires to purchase such assets, all on the terms and subject to the conditions set forth herein; NOW, THEREFORE, in consideration of the premises and other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, and intending to be legally bound, the parties hereby agree as follows: ARTICLE I - DEFINITIONS 1.1 Definitions. For purposes of this Agreement, the following terms shall have the meanings set forth below: "Action" shall mean any action, suit, litigation, complaint, counterclaim, claim, petition, mediation contest, or administrative proceeding, whether at law, in equity, in arbitration or otherwise, and whether conducted by or before any Government or other Person. "ADI's" shall mean Arbitron Rating Areas of Dominant Influence. "ADI Personnel" shall have the meaning set forth in Section 4.4. "Assets" shall mean all of Seller's rights and interests in, to, or under the following: (i) all tangible personal property of any kind located in the Restaurant or on the Real Property, including, but not limited to, equipment, appliances, machinery, tables, chairs, other furniture, bars, tableware, cookware, utensils, furnishings, signage, leasehold improvements, fixtures, uniforms, supplies, food and beverage inventory (including beer, liquor, and wine inventory), and advertising and promotional materials; (ii) $1,500 cash in the Restaurant; (iii) all prepaid items relating exclusively to the Business; (iv) all assignable Permits; (v)all assignable rights under express or implied warranties of manufacturers, distributors, or retailers relating to the Assets; (vi) all of Seller's supplier lists, demographic, statistical, and other information related exclusively to the Business; (vii) copies of Seller's employee records of those current employees of Seller who are employed by Purchaser as of the Closing (subject to execution of a release by each affected employee allowing for the disclosure of such files); (viii) the Contracts; (ix) the Real Property; and 1 (x) All records and files related to the Real Property such as rent calculations, landlord correspondence, purchase agreements, deeds, construction documents, title reports, environmental and engineering reports, appraisals, surveys, etc. "Assets" shall not include cash in the Restaurant in excess of $1,500 per Restaurant, bank accounts, or any other property, tangible or intangible, real or personal, not described above. "Assumed Liabilities" shall mean (i) all obligations of Seller that accrue after the Closing under the terms of the Contracts and Leases, (ii) all obligations of Seller under the Contracts and Leases that accrue prior to the Closing but which are not due for payment until after the Closing and which are taken into account in computing the Purchase Price pursuant to Section 2.3, (iii) obligations arising after the Closing under any Permits which are assigned to Purchaser, (iv) all Property Taxes and all other obligations with respect to the Assets that accrue prior to the Closing but which are not due for payment until after the Closing and which are taken into account in computing the Purchase Price pursuant to Section 2.3, (v) all Property Taxes and all other obligations with respect to the Assets that accrue after the Closing, (vi) gift certificates issued by Seller prior to Closing, and (vii) accrued vacation of ADI Personnel assumed pursuant to Section 6.3(c). Assumed Liabilities shall not include any liability, obligation, payment, duty, or responsibility of any nature except as expressly described above and specifically shall not include (i) liabilities or obligations of Seller arising out of any breach by Seller of any of the Contracts or Leases; (ii) except as provided in clauses (ii) or (iv) above, liabilities or obligations of Seller under any of the Contracts or Leases or with respect to the Real Property or other Assets that accrue in any such case prior to the Closing; (iii) any liabilities or obligations of Seller under the Franchise Agreements; (iv) any liability of Seller for product liability, personal injury, property damage, or otherwise based on any tort claim or statutory liability (including but not limited to any "dram shop" liability); (v) any federal, state, or local tax liability of Seller except to the extent expressly assumed hereunder, (vi) any contractual claim based on any lease, contract, or agreement other than the Contracts and Leases; (vii) any liability, obligation, or responsibility of Seller to Seller's employees, agents, or independent contractors with respect to wages, salaries, bonuses, or other compensation or benefits earned or accrued prior to the Closing (except for accrued vacation assumed pursuant to Section 6.3(c)); and (viii) any liability or obligation of Seller arising out of the negotiation, execution, or performance of this Agreement, including fees and expenses of attorneys and accountants, except as otherwise expressly provided herein. "Bill of Sale and Assignment Agreement" shall mean an instrument in substantially the form of Exhibit A hereto pursuant to which the Assets (except for the Real Property) will be transferred and assigned to Purchaser at the Closing and pursuant to which Purchaser will assume the Assumed Liabilities. "Business" shall mean the business of owning and operating the Restaurant and developing and opening new Applebee's Neighborhood Grill & Bar Restaurant in the Territory, as conducted prior to the Closing by Seller pursuant to the Franchise Agreements. "Closing" shall have the meaning set forth in Section 2.6 hereof. "Closing Date" shall mean the time and date that the Closing occurs. "Code" shall mean the United States Internal Revenue Code of 1986, as amended, and all regulations thereunder. Any reference herein to a specific section or sections of the Code shall be deemed to include a reference to any corresponding provision of future law. "Consents" shall mean all consents, approvals, and estoppels of others which are required to be obtained in order to effect the valid assignment, transfer, and conveyance to Purchaser of the Material Contracts without 2 resulting in any default thereunder. "Contracts" shall mean all contracts, agreements, and leases of equipment or other personal property that relate exclusively to the Business; provided, however, that the Franchise Agreements are not included within the meaning of "Contracts." "Deeds" shall mean special warranty deeds, limited warranty deeds or other appropriate instruments to convey good and marketable fee simple title to the Real Property, with the warranty of title contained therein limited to the claims of Persons claiming by, through or under Seller, but not otherwise. "Disclosure Memorandum" shall mean the set of numbered schedules referencing Sections of this Agreement delivered by Seller and dated of even date herewith, as supplemented by new or amended schedules delivered by Seller prior to the Closing. "Effective Time" shall have the meaning set forth in Section 2.5 hereof. "Environmental Laws" shall mean all federal, state, municipal, and local laws, statutes, ordinances, rules, regulations, conventions, and decrees relating to the environment, including without limitation, those relating to emissions, discharges, releases, or threatened releases of pollutants, contaminants, chemicals, or industrial, toxic, or Hazardous Materials or wastes of every kind and nature into the environment (including without limitation ambient air, surface water, ground water, soil, and subsoil), or otherwise relating to the manufacture, generation, processing, distribution, application, use, treatment, storage, disposal, transport, or handling of pollutants, contaminants, chemicals, or industrial, toxic, or hazardous substances or wastes, and any and all laws, rules, regulations, codes, directives, orders, decrees, judgments, injunctions, consent agreements, stipulations, provisions, and conditions of Environmental Permits, licenses, injunctions, consent agreements, stipulations, certificates of authorization, and other operating authorizations, entered, promulgated, or approved thereunder. "Environmental Permits" shall mean all permits, licenses, certificates, approvals, authorizations, regulatory plans or compliance schedules required by applicable Environmental Laws, or issued by a Government pursuant to applicable Environmental Laws, or entered into by agreement of the party to be bound, relating to activities that affect the environment, including without limitation, permits, licenses, certificates, approvals, authorizations, regulatory plans and compliance schedules for air emissions, water discharges, pesticide and herbicide or other agricultural chemical storage, use or application, and Hazardous Material or Solid Waste generation, use, storage, treatment and disposal. "Forum" shall mean any federal, state, local, municipal, or foreign court, governmental agency, administrative body or agency, tribunal, private alternative dispute resolution system, or arbitration panel. "Financing Commitment" shall have the meaning set forth in Section 6.4. "Franchise Agreements" shall mean those development agreements, franchise agreements, and other agreements between Seller and Franchisor relating exclusively to the Territory. "Franchisor" shall mean Applebee's International, Inc. "Financial Statements" shall have the meaning set forth in Section 3.8. "Government" shall mean any federal, state, local, municipal, or foreign government or any department, commission, board, bureau, agency, instrumentality, unit, or taxing authority thereof. "Hazardous Material" shall mean all substances and materials designated as 3 hazardous or toxic as of the date hereof pursuant to any applicable Environmental Law. "HSR Act" shall mean the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended. "Knowledge of Seller" (or words of like effect) when used to qualify a representation, warranty, or other statement shall mean the actual knowledge of Sellers' vice president of operations for the Territory and all management of Seller senior thereto. "Material Contracts" shall mean all Contracts that involve monetary obligations of Seller of more than $12,000 per year and that are not cancelable by Seller upon thirty days notice or less, a list of which are set forth on Schedule 1.1C. "Minor Contracts" shall mean all Contracts that are not Material Contracts. "Orders" shall mean all applicable orders, writs, judgments, decrees, rulings, consent agreements, and awards of or by any Forum or entered by consent of the party to be bound. "Permits" shall mean all rights of Seller under any liquor, alcoholic beverage, beer and wine licenses, other licenses of every kind, certificates of occupancy, and permits or approvals of any nature, from governmental and regulatory authorities which relate exclusively to the Business, the Restaurant, or the Real Property. "Permitted Encumbrances" shall mean, in the case of all Real Property, (i) such easements, restrictions, covenants, and other such encumbrances which are shown as exceptions on the Title Commitments and any other encumbrances of record as of the effective date of the Title Commitments, (ii) ordinances (municipal and zoning), (iii) survey matters, and (iv) such easements, restrictions, covenants, and other encumbrances which become matters of public record after the effective date of the Title Commitments and before the Closing, in each such case, to the extent that such encumbrances could not reasonably be expected to materially interfere with or impair Purchaser's use of the Real Property for an Applebee's Neighborhood Grill & Bar Restaurant or that are waived, or deemed to be waived, by Purchaser pursuant to Section 7.1(a). Permitted Encumbrances shall include in the case of both Real Property and personal property all liens for taxes not yet due and payable. "Person" shall include an individual, a partnership, a joint venture, a corporation, a limited liability company, a trust, an unincorporated organization, a government, and any other legal entity. "Property Taxes" shall mean all ad valorem, real property, and personal property taxes, all general and special private and public assessments, all other property taxes, and all similar obligations pertaining to the Assets. "Real Property" shall mean that tract and parcel of land owned by Seller on which the Restaurant is located (all of which tract and parcel are described in Schedule 1.1B), and all buildings, fixtures, signs, parking facilities, and other improvements located thereon. "Restaurant" shall mean the Applebee's Neighborhood Grill & Bar Restaurant operated by Seller at the location set forth on Schedule 1.1A. "Schedules" shall mean the numbered sections of the Disclosure Memorandum. "Seller Plans" shall have the meaning set forth on Schedule 3.15. "Solid Waste" shall mean any garbage, refuse, sludge from a waste treatment plant, water supply treatment plant, or air pollution control facility, and other discarded material, including solid, liquid, semisolid, or contained 4 gaseous material resulting from industrial, commercial, mining, and agricultural operations, and from community activities. "Termination Date" shall mean June 12, 1998. "Territory" shall mean a portion of the Peoria/Bloomington, Illinois ADI, as described on Schedule 1.1D "Title Commitments" shall have the meaning set forth in Section 7.1(a). "Title Policies" shall mean the Title Policies as defined in Section 7.1(a). ARTICLE II - PURCHASE AND SALE 2.1 Purchase and Sale. Upon the terms and subject to the conditions set forth in this Agreement, at the Closing Seller shall sell, transfer, and assign to Purchaser all of Seller's right, title, and interest in and to the Assets free and clear of any mortgage, security interest, lien, charge, claim, or other encumbrance of any nature except the Permitted Encumbrances, and Purchaser shall purchase the Assets from Seller for the Purchase Price set forth in Section 2.3. 2.2 Assumption of Liabilities. As of the Effective Time, Purchaser shall assume all of the Assumed Liabilities. Except for the Assumed Liabilities, Purchaser does not hereby assume or agree to assume or pay any obligations, liabilities, indebtedness, duties, responsibilities, or commitments of Seller or any other Person, of any nature whatsoever, whether known or unknown, absolute or contingent, due or to become due. 2.3 Purchase Price. The purchase price for the Assets (the "Purchase Price") shall be $1,750,000 as adjusted as follows: (a) The amount of the purchase price shall be increased by (i) all Property Taxes accruing with respect to the Assets after the Closing that have been paid by Seller prior to Closing; (ii) all amounts paid by Seller under the Contracts with respect to periods after the Closing; (iii) any other prepaid expenses pertaining to the Business (such as telephone expenses, advertising expenses, utility charges, and the like) to the extent that the same will benefit Purchaser after the Closing; and (iv) an amount equal to Seller's cost of those Assets consisting of food, beverage (including beer, wine, and liquor), new uniforms, paper, and supplies inventory as determined by the parties' joint inventory at the close of business on the day prior to the Closing Date. (b) The amount of the purchase price shall be decreased by (i) all Property Taxes accruing with respect to the Assets prior to the Closing that are due and payable after the Closing and that have not been paid as of the Closing, (ii) all amounts payable under the Contracts that pertain to periods before the Closing but are due and payable after the Closing and that have not been paid as of the Closing, and (iii) the cost of unused vacation accrued as of the Closing Date by ADI Personnel hired by Purchaser the cost of which is being assumed by Seller pursuant to Section 6.3(c). (c) The amount of the purchase price shall be further adjusted to reflect any expense paid by one party which the other party has agreed to pay or share pursuant to Section 10.1 or otherwise pursuant to this Agreement. The foregoing adjustments shall be calculated by the parties and set forth on Schedule 2.3 which shall be signed by both parties at Closing. The Purchase Price shall be paid by Purchaser on the Closing Date by wire transfer of immediately available funds to an account designated by Seller. 2.4 Deliveries at the Closing. (a) At the Closing, Seller shall deliver to Purchaser the following: 5 (i) A certificate executed by Seller, dated as of the Closing Date, certifying in such detail as Purchaser may reasonably request that subject to the matters disclosed in the Disclosure Memorandum, as it may be supplemented by Seller from time to time, all representations and warranties of Seller in this Agreement are true in all material respects as of the Closing Date; (ii) A certificate of the Secretary or an Assistant Secretary of Seller, dated as of the Closing Date, certifying in such detail as Purchaser may reasonably request (A) that attached thereto is a true and complete copy of resolutions adopted by the Board of Directors of Seller authorizing the execution, delivery, and performance of this Agreement, the Bill of Sale and Assignment Agreement, and the Deeds, and that all such resolutions are still in full force and effect and are all the resolutions adopted in connection with the transactions contemplated by this Agreement, and (B) as to the incumbency and specimen signature of each officer of Seller executing this Agreement, the Bill of Sale and Assignment Agreement, the Deeds, and any certificate or instrument furnished pursuant hereto, and a certification by another officer of Seller as to the incumbency and signature of the officer signing such certificate; (iii) The opinion of Kilpatrick Stockton LLP, counsel to Seller, in substantially the form of Exhibit B hereto; (iv) The Bill of Sale and Assignment Agreement, duly executed by Seller; (v) The Consents; (vi) The Deeds, duly executed by Seller, with the assignee to be designated as Sedowicz; (vii) A Cross-Receipt, duly executed by Seller; and (viii) Any other documents that Purchaser may reasonably request at least three days prior to the Closing in order to effectuate the transactions contemplated hereby. (b) At the Closing Purchaser shall deliver to Seller the following: (i) A certificate executed by Purchaser, dated as of the Closing Date, certifying in such detail as Seller may reasonably request to the fulfillment of the conditions specified in Sections 7.3(a) and (b) hereof; (ii) A certificate of the Secretary or an Assistant Secretary of Purchaser, dated as of the Closing Date, certifying in such detail as Seller may request (i) that attached thereto is a true and complete copy of resolutions adopted by the Board of Directors of Purchaser authorizing the execution, delivery and performance of this Agreement and the Bill of Sale and Assignment Agreement, and that all such resolutions are still in full force and effect and are all the resolutions adopted in connection with the transactions contemplated by this Agreement, and (ii) as to the incumbency and specimen signature of each officer of Purchaser executing this Agreement, and any certificate or instrument furnished pursuant hereto or to be furnished in connection herewith as of the Closing Date, and a certification by another officer of Purchaser as to the incumbency and signature of the officer signing such certificate; (iii) The funds constituting the Purchase Price; (iv) The Bill of Sale and Assignment Agreement, duly executed by Purchaser; (v) The opinion of David Allen Kennedy, Esq., counsel to Purchaser, in substantially the form of Exhibit C hereto; (vi) A Cross-Receipt, duly executed by Purchaser; and (vii) Any other documents that Seller may reasonably request at least three days prior to the Closing. 6 2.5 Transfer of Operations. Purchaser shall be entitled to immediate possession of, and to exercise all rights arising under, the Assets from and after the time that the Restaurant open for business on the Closing Date, and operation of the Restaurant shall transfer at such time (the "Effective Time"). Except as expressly provided in this Agreement, all profits, losses, liabilities, claims, or injuries arising before the Effective Time shall be solely to the benefit or the risk of Seller. All such occurrences after the Effective Time shall be solely to the benefit or the risk of Purchaser. The risk of loss or damage by fire, storm, flood, theft, or other casualty or cause shall be in all respects upon Seller prior to the Effective Time and upon the Purchaser thereafter. 2.6 Closing. The closing of the transactions described in this Article II (the "Closing") shall take place at the offices of Kilpatrick Stockton LLP, Suite 2800, 1100 Peachtree Street, Atlanta, Georgia, at 10:00 a.m. on June 12, 1998, or on such other date and time as may be mutually agreed upon by the parties hereto. 2.7 Allocation of Purchase Price. The Purchase Price shall be allocated among the various Assets as set forth on Schedule 2.7 hereof. Each party hereby agrees that it will not take a position on any income tax return, before any governmental agency charged with the collection of any income tax, or in any judicial proceeding that is inconsistent with the terms of this Section 2.7. 2.8 Further Assurances. From time to time after the Closing at Purchaser's request and expense, Seller shall execute, acknowledge, and deliver to Purchaser such other instruments of conveyance and transfer and shall take such other actions and execute and deliver such other documents, certifications, and further assurances as Purchaser may reasonably require to vest more effectively in Purchaser, or to put Purchaser more fully in possession of, any of the Assets, or to better enable Purchaser to complete, perform and discharge the Assumed Liabilities. Each party hereto will cooperate with the other and execute and deliver to the other party hereto such other instruments and documents and take such other actions as may be reasonably requested from time to time by any other party hereto as necessary to carry out, evidence, and confirm the intended purpose of this Agreement. ARTICLE III - REPRESENTATIONS AND WARRANTIES OF SELLER Subject to the limitations and exceptions set forth in the Disclosure Memorandum dated of even date hereof, as supplemented or amended from time to time by Seller prior to the Closing Date, regardless of whether any Schedule constituting a part of the Disclosure Memorandum is referenced in any specific provision below, Seller hereby represents and warrants to Purchaser as follows: 3.1 Organization, Qualifications and Corporate Power. Seller is a corporation duly incorporated and organized, validly existing, and in good standing under the laws of the State of Georgia. Seller has the corporate power and authority to execute, deliver, and perform this Agreement, the Bill of Sale and Assignment Agreement, the Deeds, and all other agreements, documents, certificates, and other papers contemplated to be delivered by Seller pursuant to this Agreement. 3.2 Authorization. The execution, delivery, and performance by Seller of this Agreement, the Bill of Sale and Assignment Agreement, the Deeds, and all other agreements, documents, certificates, and other papers contemplated to be delivered by Seller pursuant to this Agreement have been duly authorized by the Board of Directors of Seller. 3.3 Non-Contravention. Subject to obtaining the consents to assignment of the Material Contracts set forth on Schedule 3.3, the execution, delivery and performance of this Agreement will not violate or result in a breach of any term of Seller's Articles of Incorporation or Bylaws, result in a breach of any agreement or other instrument to which Seller is a party (except for defaults under Minor Contracts where the consent of the other party or parties to such contract to the assignment thereof will not be obtained) or violate any law or 7 any order, rule, or regulation applicable to Seller of any court or of any regulatory body, administrative agency, or other governmental instrumentality having jurisdiction over Seller; and will not result in the creation or imposition of any lien, charge, or encumbrance of any nature whatsoever upon any of the Assets. Except as set forth on Schedule 3.3 and except for consents required under Minor Contracts, the execution, delivery and performance of this Agreement and the other documents executed in connection herewith, and the consummation of the transactions contemplated hereby and thereby do not require any filing with, notice to or consent, waiver or approval of any third party, including but not limited to, any governmental body or entity other than any filing required under the HSR Act and the expiration of any applicable waiting period thereunder. Schedule 3.3 identifies separately each notice, consent, waiver, or approval by reference to each Material Contract to which it is applicable. 3.4 Validity. This Agreement has been duly executed and delivered by the Seller and constitutes the legal, valid, and binding obligation of Seller, enforceable in accordance with its terms, subject to general equity principles and to applicable bankruptcy, insolvency, reorganization, moratorium, and similar laws from time to time in effect affecting the enforcement of creditors' rights. When the Bill of Sale and Assignment Agreement has been executed and delivered in accordance with this Agreement, it will constitute the legal, valid, and binding obligation of Seller, enforceable in accordance with its terms, subject to general equity principles and to applicable bankruptcy, insolvency, reorganization, moratorium, and similar laws from time to time in effect affecting the enforcement of creditors' rights. 3.5 Assets. (a) Seller has good and valid title to all of the Assets constituting personal property, free and clear of any and all mortgages, pledges, security interests, liens, charges, conditional sales agreements, and other encumbrances except Permitted Encumbrances. (b) The Assets located at the Restaurant constitute all tangible personal property required on site to operate the Restaurant in accordance with the Franchise Agreements. (c) There are no assets or property of any nature which is not being transferred to Purchaser hereunder that has been customarily used exclusively in the operation or ownership of the Restaurant other than Permits and software licenses that are not assignable. (d) Each Asset constituting tangible personal property having a fair market value of $5,000 or more is in good operating condition consistent with its age, subject to normal wear and tear. (e) The Assets consisting of uniforms, supplies, and advertisement and promotional materials are in material compliance with all Franchise Agreements. 3.6 Contracts and Leases. (a) Each Material Contract is a valid and subsisting agreement, without any material default of Seller thereunder, and to the knowledge of Seller, without any default on the part of any other party thereto. To the knowledge of Seller, no event or occurrence has transpired which with the passage of time or giving of notice or both will constitute a default under any Material Contract. A true and correct list of each Material Contract and every amendment thereto or other agreement or document relating thereto is set forth as Schedule 3.6 to this Agreement. True and correct copies of the Material Contracts (and any amendments thereto) have been provided to Purchaser. At the time of Closing, Seller shall have made all payments and performed all obligations due through the Closing Date under each Contract, except to the extent that any payment due is set forth on Schedule 2.3 and deducted in calculating the Purchase Price pursuant to Section 2.3. (b) No Contract has been assigned by Seller or any interest granted therein 8 by Seller to any third party, or is subject to any mortgage, pledge, hypothecation, security interest, lien, or other encumbrance or claim. (c) The Contracts have been entered into in the ordinary course of Seller's business and, to Seller's knowledge, contain commercially reasonable terms. 3.7 Real Property. (a) Schedule 3.7(a) sets forth with respect to the Restaurant, its location, and whether the improvements are owned or leased. (b) The water, electric, gas, and sewer utility services, and storm drainage facilities currently available to the Real Property are adequate for the operation of the Restaurant as presently operated, and to Seller's knowledge, there is no condition which will result in the termination of the present access from the Real Property to such utility services and other facilities. (c) Seller has obtained all authorizations and rights-of-way which are necessary to ensure vehicular and pedestrian ingress and egress to and from the site of the Restaurant, all of which are assignable and shall be assigned to Purchaser at the Closing. (d) Seller has received no notice that any governmental body having the power of eminent domain over the Real Property has commenced or intends to exercise the power of eminent domain or a similar power with respect to any part of the Real Property. (e) The Real Property and the present uses thereof comply in all material respects with all material laws and regulations (including zoning laws and ordinances) of all governmental bodies having jurisdiction over the Real Property, and Seller has received no notice from any governmental body alleging that the Real Property or any improvements erected or situated thereon, or the uses conducted thereon or therein, violate any regulations of any governmental body having jurisdiction over the Real Property. (f) To the knowledge of Seller, no work for municipal improvements has been commenced on or in connection with the Real Property or any street adjacent thereto and no such improvements are contemplated. No assessment for public improvements has been made against the Real Property which remains unpaid. No notice from any county, township, or other governmental body has been served upon the Real Property or received by Sellers, requiring or calling attention to the need for any work, repair, construction, alteration, or installation on or in connection with the Real Property which has not been complied with. (g) Seller holds all Environmental Permits necessary for conducting the Business and has conducted, and is presently conducting, the Business in material compliance with all applicable Environmental Laws and Environmental Permits held by it, including, without limitation, all record keeping and filing requirements. To the Seller's knowledge, all Hazardous Materials and Solid Waste, on, in, or under Real Property have been properly removed and disposed of, and to the Seller's knowledge no past or present disposal, discharge, spill, or other release of, or treatment, transportation, or other handling of Hazardous Materials or Solid Waste on, in, under, or off-site from any Real Property will subject the Purchaser, or any subsequent owner, occupant, or operator of the Real Property to corrective or compliance action or any other liability. There are no presently pending, or to Seller's knowledge, threatened Actions or Orders against or involving Seller relating to any alleged past or ongoing violation of any Environmental Laws or Environmental Permits with respect to the Real Property, nor to Seller's knowledge is Seller subject to any liability for any such past or ongoing violation. 3.8 Financial Statements. Schedule 3.8 contains for the Restaurant unaudited statements of operations as of the end of the 1997 fiscal year and for each fiscal month ended thereafter through the date hereof for which such 9 statements are available, prepared in accordance with generally accepted accounting principles, except for the absence of explanatory notes and except as otherwise expressly described therein (the "Financial Statements"). The Financial Statements have been prepared in accordance with Seller's historical practices and fairly present the operations of the Restaurant for the periods presented and as of their respective dates. 3.9 Taxes. All Property Taxes relating to the Assets have been fully paid for 1997 and all prior tax years and there are no delinquent property tax liens or assessments. Seller has also timely filed (or will timely file) all other tax returns and reports of whatever kind pertaining to the Assets and required to be filed by Seller up to the Closing Date. Seller has paid (or will timely pay) all taxes of whatever kind, including any interest, penalties, governmental charges, duties, fees, and fines imposed by all governmental entities or taxing authorities, which are due and payable prior to the Closing Date or for which assessments relating to any period prior to the Closing Date have been received, the nonpayment of which would result in lien on any of the Assets. There are no audits, suits, actions, claims, investigations, inquiries, or proceedings pending or, to Seller's knowledge, threatened against Seller with respect to taxes, interest, penalties, governmental charges, duties, or fines, nor are any such matters under discussion with any governmental authority, nor have any claims for additional taxes, interest, penalties, charges, fines, fees, or duties been received by assessed against Seller that in any such case affect the Assets. 3.10 Litigation. Except as set forth on Schedule 3.10, there is no material action, suit, investigation, or proceeding pending or, to the knowledge of Seller, threatened against or affecting Seller that pertains to the Restaurant, or any of the Assets before any court or by or before any governmental body or arbitration board or tribunal. 3.11 Permits. Seller has all material Permits as are necessary to operate the Restaurant. Seller has fulfilled and performed all of its material obligations with respect to such Permits and, to the knowledge of Seller, no event has occurred which allows, nor after notice or lapse of time or both would allow, revocation or termination thereof or would result in any other impairment of the rights of the holder of any such Permits. 3.12 Health and Safety Requirements. To the knowledge of Seller, Seller is in compliance with all laws, governmental standards, rules and regulations applicable to Seller or to any of the Assets in respect to the Americans with Disabilities Act and similar state laws, occupational health and safety laws, and environmental laws. 3.13 Employment Contracts, Etc. Seller is not is a party to any written employment agreements related to the employees at the Restaurant, (or any oral agreements providing for employment other than employment "at will") or any deferred compensation agreements. 3.14 Labor Matters. Seller is not and never has been a party to any collective bargaining or other labor agreement affecting the Business. To the knowledge of Seller, there is no pending or threatened labor dispute, strike, work stoppage, union representation, election, negotiation of collective bargaining agreement, or similar labor matter affecting the Business. Seller is not involved in any controversy with any group of its employees or any organization representing any employees involved in the Business, and to the knowledge of Seller, Seller is in compliance with all applicable federal and state laws and regulations concerning the employer/employee relationship, including but not limited to wage/hour laws, laws prohibiting discrimination, and labor laws. Seller is in compliance with all of its agreements relating to the employment of its employees, including, without limitation, provisions thereof relating to wages, bonuses, hours of work and the payment of Social Security taxes, and Seller is not liable for any unpaid wages, bonuses, or commissions or any tax, penalty, assessment, or forfeiture for failure to comply with any of the foregoing. 10 3.15 Employee Benefits. (a) Schedule 3.15 hereto contains a true and complete list of all the following agreements or plans of Seller which are presently in effect and which pertain to any of the employees engaged exclusively in the Business: (i) "employee welfare benefit plans" and "employee pension benefit plans," as defined in Sections 3(1) and 3(2), respectively, of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"); (ii) any other pension, profit sharing, retirement, deferred compensation, stock purchase, stock option, incentive, bonus, vacation, severance, disability, health, hospitalization, medical, life insurance, vision, dental, prescription drug, supplemental unemployment, layoff, automobile, apprenticeship and training, day care, scholarship, group legal benefits, fringe benefits, or other employee benefit plan, program, policy, or arrangement, whether written or unwritten, formal or informal, which Sellers maintains or to which Seller has any outstanding, present, or future obligation to contribute to or make payments under, whether voluntary, contingent, or otherwise (the plans, programs, policies, or arrangements described in clauses (i) or (ii) are herein collectively referred to as the "Seller Plans"). (b) Seller does not presently contributes and/or has ever contributed or been obligated to contribute to a multiemployer plan as defined in section 3(37)(A) of ERISA. (c) No Seller Plan is subject to Title IV of ERISA. 3.16 Accuracy of Schedules, Certificates and Documents. All information concerning Seller contained in any certificate furnished to Purchaser pursuant to this Agreement or in the Disclosure Memorandum is or will be when furnished both complete and accurate in all material respects; and all documents furnished to Purchaser pursuant to this Agreement which are documents described in this Agreement or in the Disclosure Memorandum are true and correct copies of the documents which they purport to represent. ARTICLE IV - COVENANTS OF SELLER 4.1 Performance of Assumed Contracts. Seller shall, through the Closing Date, continue to faithfully and diligently perform each and every continuing obligation of Seller, if any, under each of the Material Contracts, where the failure to do so would have a material adverse affect on the operations of the Restaurant. 4.2 Transfer of Licenses and Permits. Seller shall use commercially reasonable efforts to cooperate in assisting Purchaser with the assumption, transfer, or reissuance of any and all Permits required for the operation of the Restaurant. 4.3 Liabilities of Seller. All liabilities of Seller related to the Assets are not Assumed Liabilities will be promptly paid by Seller as they come due. 4.4 Agreements Respecting Employees of Seller. (a) Prior to the Effective Time without the prior written approval of Purchaser, Seller shall not transfer or reassign to operations outside the Business any employee exclusively involved in the operation or supervision of the Restaurant ("ADI Personnel") At the Effective Time, Seller shall terminate all ADI Personnel. For a period of twelve months following the Closing, Seller shall not hire any person who was an employee of Purchaser within the previous three months. For a period of eighteen months following the Closing, Seller shall not solicit for employment any person who is an employee of Purchaser. (b) Seller shall be solely responsible for any severance amounts due or 11 granted by Seller to any ADI Personnel. (c) Seller and Purchaser shall cooperate in the transition of coverage of ADI Personnel from Seller's health, medical, life insurance and other welfare plans to plans maintained by Purchaser. 4.5 Conduct of Business. (a) From the date hereof until Closing, Seller shall (i) operate the Restaurant as it is currently being operated and in the ordinary course of business and in compliance with all terms and conditions of the Franchise Agreements, using commercially reasonable efforts in keeping with Seller's historical practices to preserve and maintain the services of its employees and its relationships with suppliers and customers, (ii) pay all bills and debts incurred by it related to the Business promptly as they become due, and (iii) consult in advance with Purchaser on all decisions outside the ordinary course of business relating to the Assets or the Restaurant. (b) In particular, and without limiting the foregoing, with respect to the Business, Seller shall: (i) maintain the Assets consistent with past practices; (ii) continue to purchase and maintain inventories for the Restaurant in such quantities and quality as necessary to operate the Restaurant in accordance with Seller's historical practice; (iii) continue to operate the Restaurant in accordance with all material applicable local, state, and federal laws and regulations; and (c) Further, with respect to the Restaurant, Seller shall not, without the express prior written approval of Purchaser: (i) change in any material manner the ownership of the Assets; (ii) increase the rate of compensation to ADI Personnel beyond the usual and customary annual merit increases or bonuses under established compensation plans, except for payments under the stay-bonus plan described on Schedule 4.5, which has been approved; (iii) mortgage, pledge, or subject to lien any of the Assets; (iv) sell or otherwise dispose of any Asset except in the ordinary course of business; (v) enter into any Material Contract except in the ordinary course of business; (vi) other than in the ordinary course of business, cancel or terminate or consent to or accept any cancellation or termination of any Material Contract, amend or otherwise modify any of its material terms or waive any breach of any of its material terms or provisions or take any other action in connection with any Material Contract that would materially impair the interests or rights of Seller to be transferred to Purchaser hereunder. 4.6 Access to Information. Seller shall afford Purchaser, its counsel, financial advisors, auditors, lenders, lenders' counsel and other authorized representatives reasonable access for any purpose consistent with this Agreement from the date hereof until the Closing, during normal business hours, to the offices, properties, books, and records of Seller with respect to the Assets and the Restaurant and shall furnish to Purchaser such additional financial and operating data and other information as Seller may possess and as Purchaser may reasonably request, subject to Purchaser's obligations regarding the confidentiality of such information as set forth in Section 6.2 hereof; provided, however, that such access shall be arranged in advance by Purchaser with Seller and will be scheduled in a manner and with a frequency calculated to cause the minimum disruption of the business of Seller. 12 4.7 Intentionally Omitted. 4.8 Reporting Requirements. Through the Closing Date, Seller shall furnish to Purchaser: (a) Promptly after the occurrence, or failure to occur, of any such event, information respect to any event which has materially adversely affected the Assets or the operations of the Restaurant. (b) As soon as available and in any event within fifteen business days after the end of each fiscal month, the statement of operations of the Restaurant for such month in the Seller's regularly prepared format. (c) Promptly after the commencement of each such matter, notice of all actions, charges, orders or other directives affecting the Business or the Restaurant that, if adversely determined, could materially adversely affect the Assets, the operations, business, prospects or condition (financial or otherwise) of the Restaurant or the ability of Seller to perform its obligations hereunder; (d) Such other information respecting the Assets or the operations, business prospects, or condition (financial or otherwise) of the Restaurant as the Purchaser may from time to time reasonably request. 4.9 Cooperation. Insofar as such conditions are within its reasonable control or influence, Seller will use commercially reasonable efforts to cause the conditions set forth in Article VII to be satisfied and to facilitate and cause the consummation of the transactions contemplated hereby, including obtaining the Consents. The parties acknowledge that no consents will be sought with respect to any Minor Contract even if the failure to so obtain a consent to assignment may result in a default or termination thereunder. 4.10 Subsequent Contracts. From the date of this Agreement to the Closing Date, Seller shall use commercially reasonable efforts (a) to include in any Material Contracts entered into by Seller ("Subsequent Contracts") a provision permitting the assignment of any such Subsequent Contract to Purchaser and providing that upon such assignment, Purchaser shall succeed to all of Seller's rights, title, and interests thereunder subject to the Purchaser's assumption of all of Seller's duties, powers, and obligations under such Subsequent Contract, and (b) to ensure that no Subsequent Contract contains any provision which would limit in any way the rights, title, and interests of Seller in the Assets. 4.11 Transition Services. For a period of two weeks after the Closing, Seller agrees to provide to Purchaser the services of personnel of Seller via telephone to answer questions of Purchaser regarding the Business, provided that all such personnel shall not devote more than an aggregrate of 20 hours per week to such telephone calls and services directly related to such telephone calls. 4.12 Delivery of Real Estate Documents. Within five business days of the date hereof Seller shall provide to Purchaser legal descriptions of the Real Property and copies of all surveys, title policies, and environmental reports pertaining to the Real Property in Seller's possession. ARTICLE V REPRESENTATIONS AND WARRANTIES OF PURCHASER Purchaser hereby represents and warrants to Sellers as follows: 5.1 Organization, Corporate Power, Authorization. TSSO is a corporation duly organized, validly existing, and in good standing under the laws of the State of Georgia and in each other jurisdiction in which it is lawfully required to qualify to conduct business. TSSO and Sedowicz have the power and authority to execute and deliver this Agreement and the Bill of Sale and Assignment Agreement, and to consummate the transactions contemplated hereby. All corporate action on the part of TSSO necessary for the authorization, execution, and 13 delivery of this Agreement and the Bill of Sale and Assignment Agreement, and performance of all obligations of Purchaser thereunder has been duly taken. 5.2 Non-Contravention. The execution and delivery of this Agreement and the Bill of Sale and Assignment Agreement by TSSO do not and the consummation by TSSO of the transactions contemplated hereby and thereby will not violate any provision of its articles of incorporation or bylaws. 5.3 Validity. This Agreement has been duly executed and delivered by Purchaser, and constitutes the legal, valid, and binding obligation of Purchaser, enforceable against it in accordance with its terms, subject to general equity principles and to applicable bankruptcy, insolvency, reorganization, moratorium, and similar laws from time to time in effect affecting the enforcement of creditors' rights. When the Bill of Sale and Assignment Agreement has been executed and delivered in accordance with this Agreement, it will constitute the legal, valid, and binding obligation of Purchaser, enforceable in accordance with its terms, subject to general equity principles and to applicable bankruptcy, insolvency, reorganization, moratorium, and similar laws from time to time in effect affecting the enforcement of creditors' rights. 5.4 Litigation Relating to the Agreement. Purchaser is not a party to, or subject to any judgment, decree, or order entered in any lawsuit or proceeding brought by any governmental agency or instrumentality or other party seeking to prevent the execution of this Agreement or the consummation of the transactions contemplated hereby. ARTICLE VI - COVENANTS OF PURCHASER 6.1 Purchaser Performance. After the Closing Date, Purchaser shall promptly pay as they become due and otherwise perform all obligations of Seller under the Assumed Liabilities and otherwise perform and fulfill all other obligations with respect to the Assets pertaining to the period after the Closing Date. 6.2 Confidentiality. In connection with the negotiation of this Agreement, Seller may disclose Confidential Information, as defined below, to Purchaser. Purchaser agrees that if the transactions contemplated herein are not consummated, it will return to Seller all documents and other written information furnished to it. Purchaser further agrees to maintain the confidentiality of any and all Confidential Information of Seller and not disclose any Confidential Information to any Person other than such Person to whom Confidential Information must be disclosed to effect the transactions and who are bound by appropriate non-disclosure agreement or obligations. Purchaser shall not use such Confidential Information for financial gain or in any manner adverse to Seller. The foregoing obligations shall not apply to (i) any information which was known by Purchaser prior to its disclosure by Seller; (ii) any information which was in the public domain prior to the disclosure thereof; (iii) any information which comes into the public domain through no fault of Purchaser; (iv) any information which is disclosed to Purchaser by a third party, other than an affiliate, having the legal right to make such disclosure; or (iv) any information which is required to be disclosed by Order of any Forum. For purposes of this Section, "Confidential Information" shall mean any and all technical, business, and other information which is (a) possessed or hereafter acquired by Seller and disclosed to Purchaser and (b) derives economic value, actual or potential, from not being generally known to Persons other than Seller, including, without limitation, technical or nontechnical data, compositions, devices, methods, techniques, drawings, inventions, processes, financial data, financial plans, product plans, lists of actual or potential customers or suppliers, information regarding the business plans and operations of Seller, and the existence of discussions and negotiations between the parties hereto relating to the terms hereof. The restrictions of this Section shall expire three years from the date hereof with respect to any confidential business information that does not constitute a trade secret under applicable law. 14 6.3 Seller Employees. (a) Purchaser shall offer employment to all ADI Personnel upon terms and conditions substantially equivalent to those provided by Seller; however, Purchaser shall not be required to provide stock options or any stock purchase rights. For a period of twelve months following the Closing, Purchaser shall not hire any person who was an employee of Seller or any subsidiary of Seller within the previous three months (other than ADI Personnel) and for a period of eighteen months following the Closing. Purchaser shall not solicit for employment any person who is an employee of Seller or any subsidiary of Seller. (b) Purchaser shall maintain employee records transferred to Purchaser hereunder for a period of not less than four years and during that period will afford Seller reasonable access to such records during Purchaser's normal business hours. Purchaser shall maintain the confidentiality of such records and limit access thereto in a manner consistent with Purchaser's treatment of its employee records. (c) Purchaser agrees with respect to ADI Personnel hired by Purchaser: (i) to give such employees credit under Purchaser's benefits plans, programs, and arrangements, including credit for accrued vacation which has been charged to Seller under Section 2.3, for such employees' period of service with Seller, provided that such credit shall only be taken into account under any tax-qualified plan maintained by Purchaser for purposes of determining such employees' eligibility for participation and eligibility to satisfy any hours of service requirement in order to receive an allocation of an employer contribution; (ii) to provide coverage to such employees who are eligible under Purchaser's health, medical, life insurance, and other welfare plans (A) without the need to undergo a physical examination or otherwise provide evidence of insurability; (B) any pre-existing condition or similar limitations or exclusions will be applied by taking into account the period of coverage under Seller's plan; (C) by applying and giving credit for amounts paid for the plan year in which the Closing Date occurs as deductibles, out of pocket expenses, and similar amounts paid by individuals and their beneficiaries. 6.4 Cooperation. Insofar as such conditions are within its reasonable control or influence, Purchaser shall use commercially reasonable efforts to cause the conditions set forth in Article VII to be satisfied and to facilitate and cause the consummation of the transactions contemplated hereby. Specifically, but not by way of limitation, Purchaser will (i) use its reasonably best efforts to obtain a signed commitment letter for financing in substantially the form attached hereto as Exhibit D, (ii) promptly provide Franchisor with all information required by Franchisor to determine whether Purchaser will be approved as a franchisee with respect to the Territory, (iii) actively pursue an agreement with Franchisor as to the principal terms of franchise and development agreements with respect to the Territory, and (iv) file all documents required to obtain approval of the transactions contemplated hereby under the HSR Act within 15 days of the date hereof. ARTICLE VII - CONDITIONS PRECEDENT TO THE CLOSING 7.1 Title Examination and Property Inspection. (a) Purchaser shall have 30 days following receipt of the documents referred to in Section 4.12 (the "Title Inspection Period") to obtain and review current surveys and title insurance commitments with respect to the Real Property ("Title Commitments") pursuant to which the Title Company will agree to issue at Closing owner's policies of title insurance ("Title Policies") on American Land Title Association standard Form B-1990, without exceptions except as shown in the Title Commitments, to be issued by a reputable title insurance company of Sellers' choice and reasonably acceptable to Purchaser ("Title Company") in an amount in the case of each parcel equal to the purchase price allocated to such parcel of the Real Property pursuant to Section 2.7. The Title Policies shall insure the Purchaser that, upon consummation of the purchase and sale herein contemplated, Purchaser will be vested with good, fee simple, marketable, and insurable title to the Real 15 property, subject only to the Permitted Encumbrances or arising out of acts of the insured. Purchaser shall have until the end of the Title Inspection Period in which to furnish Seller a written statement of reasonable objections to exceptions which, in Purchaser's reasonable judgment, would materially interfere with or impair Purchaser's use of the Real Property for the operation of Applebee's Restaurant ("Material Objections"). Seller shall have until the Termination Date to satisfy such Material Objections (but with no obligation to do so) in all material respects, and if Seller fails to satisfy all Material Objections in all material respects on or prior to the Termination Date, then Purchaser's sole right and remedy shall be to either (i) waive the objections and elect to close, or (ii) terminate this Agreement by giving written notice of such termination to Seller. If Purchaser fails to furnish Seller a written statement of Material Objections by the end of the Title Inspection Period with respect to any matter appearing as an exception on a Title Commitment, such matter shall be deemed waived by Purchaser and shall be a Permitted Encumbrance. (b) Property Inspection. (A) Between the date of this Agreement and the Closing Date, Purchaser and Purchaser's agents, employees, contractors, representatives and other designees (hereinafter collectively called "Purchaser's Designees") shall have the right to enter the Real Property for the purposes of inspecting the Real Property, conducting soil tests, conducting surveys, mechanical and structural engineering studies, environmental studies, and conducting any other investigations, examinations, tests, and inspections as Purchaser may reasonably require to assess the condition of the Real Property; provided, however, that (i) any activities by or on behalf of Purchaser, including, without limitation, the entry by Purchaser or Purchaser's Designees onto the Real Property, or the other activities of Purchaser or Purchaser's Designees with respect to the Real Property (hereinafter called "Purchaser's Activities") shall not damage the Real Property in any manner whatsoever; (ii) in the event the Real Property is altered or disturbed in any manner in connection with any Purchaser's Activities, Purchaser shall immediately return the Real Property to the condition existing prior to Purchaser's Activities; (iii) Purchaser shall in no event without Seller's prior written consent disclose the results of any of its investigations, examinations, tests, or inspections to any party (including any Government unless required by law) other than to its lenders, attorneys, consultants, and investors; and (iv) Purchaser shall indemnify, defend, and hold Seller harmless from and against any and all claims, liabilities, damages, losses, costs, and expenses of any kind or nature whatsoever (including, without limitation, attorneys' fees, and expenses and court costs) suffered, incurred or sustained by Seller as a result of, by reason of, or in connection with any Purchaser's Activities. Notwithstanding any provision of this Agreement to the contrary, Purchaser shall not have the right to undertake any environmental studies or testing beyond the scope of a standard "Phase I" evaluation without the prior written consent of Seller. (B) Purchaser shall have until the date which is thirty days after the date of this Agreement (hereinafter called the "Due Diligence Date"), to perform such investigations, examinations, tests and inspections as Purchaser shall deem necessary or desirable to determine whether the Real Property is suitable and satisfactory to Purchaser and can be used for Applebee's franchise Restaurant. In the event Purchaser shall determine that the Real Property is not reasonably suitable and satisfactory to Purchaser, Purchaser shall have the right to terminate this Agreement by giving written notice to Seller on or before the Due Diligence Date If Purchaser does not terminate this Agreement in accordance with this Section 7.1(b) on or before the Due Diligence Date, Purchaser shall have no further right to terminate this Agreement pursuant to this Section 7.1(b). (C) Prior to any entry by Purchaser or any of Purchaser's Designees onto the Real Property, Purchaser shall: (i) procure a policy of commercial general liability insurance, issued by an insurer reasonably satisfactory to Seller, covering all Purchaser's Activities, with a single limit of liability (per occurrence and aggregate) of not less than $1,000,000.00; and (ii) deliver to Seller a Certificate of Insurance, evidencing that such insurance is in force 16 and effect, and evidencing that Seller has been named as an additional insured thereunder with respect to any Purchaser's Activities. Such insurance shall be written on an "occurrence" basis, and shall be maintained in force until the earlier of (i) the termination of this Agreement and the conclusion of all Purchaser's Activities; or (ii) Closing. (D) Purchaser acknowledges that Seller may deliver to Purchaser certain documents and information in possession of Seller or Seller's agents with regard to the Real Property (hereinafter called the "Due Diligence Materials"). The Due Diligence Materials will be provided to Purchaser without any representation or warranty of any kind or nature whatsoever and are merely provided to Purchaser for Purchaser's informational purposes. Until Closing, Purchaser and Purchaser's Designees shall maintain all Due Diligence Materials as Confidential Information. 7.2 Purchaser's Conditions to Closing. The obligations of Purchaser hereunder are subject to satisfaction of each of the following conditions at or before Closing, the occurrence of which may, at the option of Purchaser, be waived: (a) Subject to the matters disclosed in the Disclosure Memorandum as supplemented by Seller from time to time, all representations and warranties of Seller in this Agreement shall be true in all material respects on and as of the Closing. (b) Any supplement to the Disclosure Memorandum delivered by Seller shall not reflect in Purchaser's reasonable judgment any material adverse change in the Assets or the Business. (c) Seller shall have performed and complied in all material respects with all of its obligations under this Agreement which are to be performed or complied with by Seller prior to or on the Closing Date. (d) Seller shall have obtained and delivered to Purchaser all consents necessary to transfer and assign the Assets (except for Minor Contracts) to Purchaser. (e) Purchaser and Franchisor shall have entered into a franchise agreement with respect to the Restaurant and a development agreement with respect to the Territory. (f) Purchaser shall have obtained, either from Seller or directly from the issuing authority, all permits, licenses, including liquor licenses, and approvals of all governmental and quasi-governmental authorities necessary for the operation of the Restaurant in accordance with franchise requirements; provided, however, that if Purchaser is unable to obtain from local municipal or county authorities a permit necessary for such operation of the Restaurant, and Purchaser reasonably believes that it will be able to obtain such a permit within two months of the Closing Date, Closing of the transactions contemplated hereunder will not be delayed if Seller delivers to Purchaser a duly executed liquor license management agreement or agreements. (g) Any applicable waiting period under the HSR Act shall have expired or a notification of early termination of such waiting period shall have been received by Purchaser. (h) Purchaser shall have obtained the financing described on Exhibit D upon terms and conditions reasonably acceptable to Purchaser or other financing reasonably acceptable to Purchaser. (i) Purchaser shall have been issued the Title Policies. (j) Seller shall have delivered the items required by Section 2.4(a). 7.3 Seller's Conditions to Closing. The obligations of Seller hereunder are 17 subject to satisfaction of each of the following conditions at or before Closing, the occurrence of which may, at the option of Seller, be waived: (a) All representations and warranties of Purchaser in this Agreement shall be true on and as of the Closing, and Purchaser shall have delivered to Seller a certificate to such effect dated as of the Closing Date. (b) Purchaser shall have performed and complied in all material respects with all of its obligations under this Agreement which are to be performed or complied with by Purchaser prior to or on the Closing Date. (c) Franchisor shall have agreed to terminate the Franchise Agreements effective as of the Closing. (d) Seller shall have obtained all the Consents. (e) Any applicable waiting period under the HSR Act shall have expired or a notification of early termination of such waiting period shall have been received by Seller. (f) Purchaser shall have delivered the items required by Section 2.4(b). ARTICLE VIII - INDEMNIFICATION 8.1 Purchaser Claims. (a) Seller shall indemnify and hold harmless Purchaser, its successors and assigns, against, and in respect of: (i) Any and all damages, losses, liabilities, costs, and expenses incurred or suffered by Purchaser that result from, relate to, or arise out of: (A) any and all liabilities and obligations of Seller of any nature whatsoever, except for the Assumed Liabilities; (B) any failure by Seller to carry out any covenant or agreement contained in this Agreement; (C) any misrepresentation or breach of warranty by Seller contained in this Agreement, the Disclosure Memorandum, or any certificate, furnished to Purchaser by Seller pursuant hereto; or (D) any claim by any Person for any brokerage or finder's fee or commission in respect of the transactions contemplated hereby as a result of Seller's dealings, agreement, or arrangement with such Person. (ii) Any and all actions, suits, claims, proceedings, investigations, demands, assessments, audits, fines, judgments, costs, and other expenses (including, without limitation, reasonable legal fees and expenses) incident to any of the foregoing including all such expenses reasonably incurred in mitigating any damages resulting to Purchaser from any matter set forth in subsection (i) above. (b) Notwithstanding the foregoing, Seller shall have no liability for indemnification or otherwise with respect to Section 8.1(a)(i)(C) (and Section 8.1(a)(ii) to the extent the items covered thereby relate back to Section 8.1(a)(i)(C)) until the aggregate liability of Seller thereunder exceeds $17,500 and then only to the extent that the aggregate liability of Seller thereunder exceeds such amount; provided, however, that liabilities arising with respect to Sections 3.1 through 3.4 hereof shall not be subject to the foregoing threshold and any liabilities arising with respect to such matters shall not be taken into account in computing aggregate liabilities for the purpose of applying such threshold amount to liabilities arising under other Sections subject thereto. In no event shall the aggregate liability of Seller under Section 8.1(a)(i)(C) (and 18 Section 8.1(a)(ii) to the extent the items covered thereby relate back to Section 8.1(a)(i)(C)) exceed $500,000. (c) The amount of any liability of Seller under this Section 8.1 shall be computed net of any tax benefit to Purchaser from the matter giving rise to the claim for indemnification hereunder and net of any insurance proceeds received by Purchaser with respect to the matter out of which such liability arose. (d) The representations and warranties of Seller contained in this Agreement, the Disclosure Memorandum, or any certificate delivered by or on behalf of Seller pursuant to this Agreement or in connection with the transactions contemplated herein shall survive the consummation of the transactions contemplated herein and shall continue in full force and effect for the periods specified below ("Survival Period"): (i) the representations and warranties contained in Section 3.5(d) shall be of no further force and effect after thirty days from the date of the Closing; (ii) the representations and warranties contained in Sections 3.1, through 3.4 and Section 3.8(g) shall survive until the expiration of any applicable statues of limitation provided by law; and (iii) all other representations and warranties of Seller shall be of no further force and effect after one year from the date of the Closing. Anything to the contrary notwithstanding, the Survival Period shall be extended automatically to include any time period necessary to resolve a written claim for indemnification which was made in reasonable detail before expiration of the Survival Period but not resolved prior to its expiration, and any such extension shall apply only as to the claims so asserted and not so resolved within the Survival Period. Liability for any such item shall continue until such claim shall have been finally settled, decided, or adjudicated. (e) Purchaser may not assert any claim against Seller for breach of any covenant contained in Article IV (except for Sections 4.1, 4.3, 4.4, and 4.11) and all such claims shall be deemed to be waived as a result of the Closing. The other covenants contained in Article IV and liability therefor shall survive the Closing. (f) Purchaser shall provide written notice to Seller of any claim for indemnification under this Article as soon as practicable; provided, however, that failure to provide such notice on a timely basis shall not bar Purchaser's ability to assert any such claim except to the extent that Seller is actually prejudiced thereby. Purchaser shall make commercially reasonable efforts to mitigate any damages, expenses, etc. resulting from any matter giving rise to liability of Seller under this Article. (g) Notwithstanding any other provision of this Article VIII, the aggregate principal amount of the obligation of Seller under this Article VIII shall not exceed the gross proceeds actually received by the Seller in connection with this Agreement and the transaction contemplated hereby. 8.2 Defense of Third Party Claims. With respect to any claim by Purchaser under Section 8.1, relating to a third party claim or demand, Purchaser shall provide Seller with prompt written notice thereof in accordance with Section 10.4 and Seller may defend, in good faith and at its expense, by legal counsel chosen by it and reasonably acceptable to Purchaser any such claim or demand, and Purchaser, at its expense, shall have the right to participate in the defense of any such third party claim. So long as Seller is defending in good faith any such third party claim, Purchaser shall not settle or compromise such third party claim. In any event Purchaser shall cooperate in the settlement or compromise of, or defense against, any such asserted claim. 8.3 Seller Claims. Purchaser shall indemnify and hold harmless Seller against, and in respect of, any and all damages, claims, losses, liabilities, 19 and expenses, including without limitation, legal, accounting and other expenses, which may arise out of: (i) any breach or violation by Purchaser of any covenant set forth herein or any failure to fulfill any obligation set forth herein, including, but not limited to, the obligation to satisfy the Assumed Liabilities; (ii) any breach of any of the representations or warranties made in this Agreement by Purchaser; or (iii) any claim by any Person for any brokerage or finder's fee or commission in respect of the transactions contemplated hereby as a result of Purchaser's dealings, agreement, or arrangement with such Person. 8.4 Exclusive Remedies. The rights and remedies of the parties under this Article VIII shall be the sole and exclusive rights and remedies that either party may seek for any misrepresentation, breach of warranty, or failure to fulfill any covenant or agreement under this Agreement, except that either party may seek specific performance or injunctive relief. 8.5 Settlement of Disputes. (a) Arbitration. All disputes with respect to any claim for indemnification under this Article VIII and all other disputes and controversies of every kind and nature between the parties hereto arising out of or in connection with this Agreement shall be submitted to arbitration pursuant to the following procedures: (i) After a dispute or controversy arises, either party may, in a written notice delivered to the other party, demand such arbitration. Such notice shall designate the name of the arbitrator appointed by such party demanding arbitration, together with a statement of the matter in controversy; (ii) Within 30 days after receipt of such demand, the other party shall, in a written notice delivered to the other party, name such party's arbitrator. If such party fails to name an arbitrator, then the second arbitrator shall be named by the American Arbitration Association ("AAA"). The two arbitrators so selected shall name a third arbitrator within 30 days, or in lieu of such agreement on a third arbitrator by the two arbitrators so appointed, the third arbitrator shall be appointed by the AAA; (iii) The arbitration hearing shall be held in Atlanta, Georgia at a location designated by a majority of the arbitrators. The Commercial Arbitration Rule of the AAA shall be used and the substantive laws of the State of Georgia (excluding conflict of laws provisions) shall apply; (iv) An award rendered by a majority of the arbitrators appointed pursuant to this Agreement shall be final and binding on all parties to the proceeding, shall deal with the question of costs of the arbitration and all related matters, and judgment on such award may be entered by either party in a court of competent jurisdiction; and (v) Except as set forth in subsection (b) below, the parties stipulate that the provisions of this Section 8.5 shall be a complete defense to any suit, action or proceeding instituted in any federal, state, or local court or before any administrative tribunal with respect to any controversy or dispute arising out of this Agreement. The arbitration provisions hereof shall, with respect to such controversy or dispute, survive the termination or expiration of this Agreement. (b) Emergency Relief. Notwithstanding anything in this Section 8.5 to the contrary, either party may seek from a court any provisional remedy that may be necessary to protect any rights or property of such party pending the establishment of the arbitral tribunal or its determination of the merits of the controversy. ARTICLE IX - TERMINATION 9.1 Termination. 20 (a) This Agreement may be terminated as follows: (i) At any time by the mutual consent of Seller and Purchaser; (ii) By Purchaser pursuant to Section 7.1; (iii) By Seller if Purchaser shall not (i) have obtained and provided a copy of a Financing Commitment to Seller within 20 days from the date hereof, (ii) been approved hereof as a franchisee with respect to the Territory by Franchisor within 30 days of the date hereof, (iii) reached agreement with Franchisor as to a development schedule and other material terms of franchise and development agreements with respect to the Territory within 30 days from the date hereof; or (iv) By either Seller or Purchaser, at its sole election, at any time after the Termination Date, if the Closing shall not have occurred on or prior to such date. (b) In the event of the termination of this Agreement pursuant to subparagraph (a)(iv) above because Seller or Purchaser, as the case may be, shall have willingly failed to fulfill its obligations hereunder, the other party shall, subject to Section 8.5, be entitled to pursue, exercise, and enforce any and all remedies, rights, powers, and privileges available to it at law or in equity. (c) Section 6.2, Article VIII, and Article X hereof shall survive the termination of this Agreement. ARTICLE X - MISCELLANEOUS 10.1 Expenses. (a) Each party hereto shall pay its own legal, accounting, and similar expenses incidental to the preparation of this Agreement, the carrying out of the provisions of this Agreement, and the consummation of the transactions contemplated hereby. (b) Purchaser shall pay all filing fees required under the HSR Act. (c) Purchaser shall pay the costs of obtaining title insurance with respect to the Real Property and all transfer, intangible, recording, and documentary taxes, stamps, and fees with respect to the transfer of the Real Property. Purchaser shall also pay the cost of all surveys, and all environmental investigations, studies, and reports, and all other costs of any investigation of the Assets, the Restaurant, or the Business by Purchaser. (d) Purchaser shall pay any costs associated with the transfer of any Permits and the cost of obtaining liquor licenses or other Permits that are not assignable. (e) The parties shall split equally the cost of any sales taxes, transfer taxes, documentary stamp taxes, or other taxes imposed with respect to the transfer of any Assets constituting personal property. (f) Seller shall pay the costs of obtaining any Consents. (g) Following the Closing, Seller shall pay to Purchaser on a monthly basis as billed the amount of all gift certificates issued by Seller prior to the Closing and redeemed thereafter. 10.2 Contents of Agreement; Parties in Interest; etc. This Agreement sets forth the entire understanding of the parties hereto with respect to the transactions contemplated hereby and constitutes a complete statement of the terms of such transaction. This Agreement shall not be amended or modified except by written instrument duly executed by each of the parties hereto. Any and all previous agreements and understandings between the parties regarding the 21 subject matter hereof, whether written or oral, are superseded by this Agreement. Neither party has been induced to enter into this Agreement in reliance on, and has not relied upon, any statement, representation, or warranty of the other party not set forth in this Agreement, the Disclosure Memorandum, or any certificate delivered pursuant to this Agreement. 10.3 Assignment and Binding Effect. Purchaser may assign the right to receive any of the Assets at Closing to any affiliate or other third party reasonably acceptable to Seller and acceptable to Franchisor, provided that no such assignment shall affect Purchaser's liability hereunder. Subject to the foregoing, all of the terms and provisions of this Agreement shall be binding upon and inure to the benefit of and be enforceable by the successors and assigns of Seller and Purchaser. 10.4 Notices. Any notice, request, demand, waiver, consent, approval, or other communication which is required or permitted hereunder shall be in writing and shall be deemed given only if delivered personally or sent by telecopy or by first class registered or certified United States Mail, with proper postage prepaid, as follows: If to Seller, to: With a required copy to: Apple South, Inc. Kilpatrick Stockton LLP Hancock at Washington 1100 Peachtree Street, Suite 2800 Madison, Georgia 30650 Atlanta, Georgia 30309 Attention: Louis J. (Dusty) Profumo Attention: Larry D. Ledbetter, Esq. Fax: 706-343-2434 Fax: 404-815-6555 If to Purchaser: With a required copy to: Lois Sedowicz David Allen Kennedy, Esq. T.S.S.O., Inc. 1864-B Independence Square 5555 Oakbrook Parkway Dunwoody, Georgia 30338 Suite 355 Fax: 770-396-5101 Norcross, Georgia 30093 Attention: Lois Sedowicz Fax: 770-242-3072 or to such other address or person as the addressee may have specified in a notice duly given to the sender as provided herein. Such notice, request, demand, waiver, consent, approval or other communication will be deemed to have been given as of the date actually delivered, or if mailed, four days after deposit in the U. S. Mail properly addressed with adequate postage affixed. 10.5 GEORGIA LAW TO GOVERN. THIS AGREEMENT SHALL BE GOVERNED BY AND INTERPRETED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF GEORGIA WITHOUT REGARD TO CONFLICT OF LAW PRINCIPLES. 10.6 Headings. All section headings contained in this Agreement are for convenience of reference only, do not form a part of this Agreement, and shall not affect in any way the meaning or interpretation of this Agreement. 10.7 Schedules and Exhibits. All Exhibits and Schedules referred to herein are intended to be and hereby are specifically made a part of this Agreement. 10.8 Severability. Any provision of this Agreement which is invalid or unenforceable in any jurisdiction shall be ineffective to the extent of such invalidity or unenforceability without invalidating or rendering unenforceable the remaining provisions hereof, and any such invalidity or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. 10.9 Public Announcements. Purchaser and Seller will coordinate with each other all press releases relating to the transactions contemplated by this 22 Agreement and, except to the extent required by law, refrain from issuing any press release, publicity statement, or other public notice relating to this Agreement or the transactions contemplated hereby without providing the other party reasonable opportunity to review and comment thereon. 10.10 Construction. The parties hereto have participated jointly in the negotiation and drafting of this Agreement. In the event that any ambiguity or question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the parties hereto and no presumption or burden of proof shall arise favoring or disfavoring any party hereto by virtue of the authorship of any of the provisions of this Agreement. 10.11 Disclaimer of Warranties. OTHER THAN TO THE EXTENT OF ANY EXPRESS REPRESENTATIONS AND WARRANTIES OF SELLER SET FORTH IN THIS AGREEMENT AND IN THE CLOSING CERTIFICATE REQUIRED BY SECTION 2.4(a)(i), SELLER DOES NOT, BY THE EXECUTION AND DELIVERY OF THIS AGREEMENT, AND SELLER SHALL NOT, BY THE EXECUTION AND DELIVERY OF ANY DOCUMENT OR INSTRUMENT EXECUTED AND DELIVERED IN CONNECTION WITH THE CLOSING, MAKE ANY REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, OF ANY KIND OR NATURE WHATSOEVER, WITH RESPECT TO THE ASSETS, AND ALL SUCH WARRANTIES ARE HEREBY DISCLAIMED. PURCHASER WILL CONDUCT SUCH INSPECTIONS AND INVESTIGATIONS OF THE ASSETS (INCLUDING, BUT NOT LIMITED TO, THE PHYSICAL AND ENVIRONMENTAL CONDITION THEREOF) AND RELY UPON SAME AND, UPON CLOSING, SHALL ASSUME THE RISK THAT ADVERSE MATTERS MAY NOT HAVE BEEN REVEALED BY PURCHASER'S INSPECTIONS AND INVESTIGATIONS. SELLER SHALL SELL AND CONVEY TO PURCHASER, AND PURCHASER SHALL ACCEPT, THE ASSETS "AS IS", "WHERE IS", AND WITH ALL FAULTS, AND THERE ARE NO ORAL AGREEMENTS, WARRANTIES OR REPRESENTATIONS, COLLATERAL TO OR AFFECTING THE ASSETS BY SELLER OR ANY THIRD PARTY. WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, SELLER MAKES, AND SHALL MAKE, NO EXPRESS OR IMPLIED WARRANTY OF SUITABILITY OR FITNESS OF ANY OF THE ASSETS FOR ANY PURPOSE, OR AS TO THE MERCHANTABILITY, ENVIRONMENTAL CONDITION, TITLE, VALUE, QUALITY, QUANTITY, CONDITION OR SALABILITY OF ANY OF THE ASSETS, OR AS TO THE PRESENCE ON OR ABSENCE FROM THE ASSETS OF ANY HAZARDOUS MATERIAL, OR THAT THE USE OR SALE OF ANY OF THE ASSETS WILL NOT VIOLATE THE COPYRIGHT, TRADEMARK OR PATENT RIGHTS OF ANY PERSON. THE TERMS AND CONDITIONS OF THIS SECTION 10.11 SHALL SURVIVE THE CONSUMMATION OF THE PURCHASE AND SALE OF THE ASSETS ON THE CLOSING DATE WITHOUT REGARD TO ANY GENERAL LIMITATIONS UPON SURVIVAL SET FORTH IN THIS AGREEMENT. 10.12 Time. Time is and shall be of the essence of this Agreement. 10.13 Purchaser. Unless otherwise specified herein, every obligation, duty, liability, representation, warranty, and covenant of Purchaser in this Agreement shall be the joint and several obligation of TSSO and Sedowicz. Unless otherwise specified herein, every benefit, obligation, duty, representation, warranty, and covenant to and in favor of Purchaser in this Agreement shall be to both TSSO and Sedowicz unless they otherwise agree between themselves and give notice of such agreement to Seller. [Signatures Located on Following Pages] 23 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first written above. SELLER: APPLE SOUTH, INC. By: Name: Title: PURCHASER: T.S.S.O., INC. By: Name: Title: LOIS SEDOWICZ 24 EXHIBIT TABLE OF CONTENTS EXHIBIT TITLE A Bill of Sale and Assignment Agreement B Opinion of Seller's Counsel C Opinion of Purchaser's Counsel D Loan Terms Exhibits to this agreement are not filed pursuant to Item 601(b)(2) of SEC Regulation S-K. By the filling of this Form 10-Q, the Registrant hereby agrees to furnish supplementally a copy of any omitted schedule to the Commission upon request. 25 EX-2.3 4 ASSET PURCHASE AGREEMENT DATED MAY 4, 1998 ASSET PURCHASE AGREEMENT THIS ASSET PURCHASE AGREEMENT, dated as of May 4, 1998, by and among APPLE SOUTH, INC., a Georgia corporation ("Seller"), FLORIDA APPLE NORTH, L.L.C., a Florida limited liability company, FLORIDA APPLE SOUTH, L.L.C., a Florida limited liability company, FLORIDA APPLE WEST, L.L.C., a Florida limited liability company, and WIGEL PARTNERSHIP, a general partnership organized under the laws of the State of New York (collectively, the "Purchasers" and individually a "Purchaser"), W I T N E S S E T H : WHEREAS, Seller owns and operates a number of Applebee's Neighborhood Grill & Bar franchise restaurants ("Applebee's");and WHEREAS, Seller desires to sell to Purchasers certain Applebee's and related property, and Purchasers desire to purchase such assets, all on the terms and subject to the conditions set forth herein; NOW, THEREFORE, in consideration of the premises and other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, and intending to be legally bound, the parties hereby agree as follows: ARTICLE I - DEFINITIONS 1.1 Definitions. For purposes of this Agreement, the following terms shall have the meanings set forth below: "Action" shall mean any action, suit, litigation, complaint, counterclaim, claim, petition, mediation contest, or administrative proceeding, whether at law, in equity, in arbitration or otherwise, and whether conducted by or before any Government or other Person. "ADI's" shall mean Arbitron Rating Areas of Dominant Influence. "ADI Personnel" shall have the meaning set forth in Section 4.4. "Assets" shall mean the following: (i) all tangible personal property of any kind located in the Restaurants or on the Real Property, including, but not limited to, equipment, appliances, machinery, tables, chairs, other furniture, bars, tableware, cookware, utensils, furnishings, signage, leasehold improvements, fixtures, uniforms, supplies, food and beverage inventory (including beer, liquor, and wine inventory), and advertising and promotional materials; (ii) $1,500 cash in each Restaurant; (iii) all prepaid items relating exclusively to the Business; (iv) all assignable Permits; (v)all assignable rights under express or implied warranties of manufacturers, distributors, or retailers relating to the Assets; (vi) all of Seller's supplier lists, demographic, statistical, and other information related exclusively to the Business; (vii) copies of Seller's employee records of those current employees of Seller who will be employed by Purchasers as of the Closing (subject to execution of a release by each affected employee allowing for the disclosure of such files). 1 (viii) the Contracts and Leases; (ix) the Owned Real Property; and (x) All records and files related to the Real Property such as rent calculations, landlord correspondence, purchase agreements, deeds, construction documents, title reports, environmental and engineering reports, appraisals, surveys, etc. "Assets" shall not include cash in the Restaurants in excess of $1,500 per Restaurant, bank accounts, or any other property, tangible or intangible, real or personal, not described above. "Assumed Liabilities" shall mean (i) all obligations of Seller that accrue after the Closing under the terms of the Contracts and Leases, (ii) all obligations of Seller under the Contracts and Leases that accrue prior to the Closing but which are not due for payment until after the Closing and which are taken into account in computing the Purchase Price pursuant to Section 2.3, (iii) obligations arising after the Closing under any Permits which are assigned to Purchasers, (iv) all Property Taxes and all other obligations with respect to the Assets that accrue prior to the Closing but which are not due for payment until after the Closing and which are taken into account in computing the Purchase Price pursuant to Section 2.3, (v) all Property Taxes and all other obligations with respect to the Assets that accrue after the Closing, (vi) gift certificates issued by Seller prior to Closing, (vii) accrued vacation of ADI Personnel assumed pursuant to Section 6.3(c), and (viii) all Development Costs with respect to Seller's development activities under Section 4.7. Assumed Liabilities shall not include any liability, obligation, payment, duty, or responsibility of any nature except as expressly described above and specifically shall not include (i) liabilities or obligations of Seller arising out of any breach by Seller of any of the Contracts or Leases; (ii) except as provided in clauses (ii) or (iv) above, liabilities or obligations of Seller under any of the Contracts or Leases or with respect to the Owned Real Property or other Assets that accrue in any such case prior to the Closing; (iii) any liabilities or obligations of Seller under the Franchise Agreements; (iv) any liability of Seller for product liability, personal injury, property damage, or otherwise based on any tort claim or statutory liability (including but not limited to any "dram shop" liability); (v) any federal, state, or local tax liability of Seller except to the extent expressly assumed hereunder, (vi) any contractual claim based on any lease, contract, or agreement other than liabilities assumed hereunder with respect to the Contracts and Leases; (vii) any liability, obligation, or responsibility of Seller to Seller's employees, agents, or independent contractors with respect to wages, salaries, bonuses, or other compensation or benefits earned or accrued prior to the Closing (except for accrued vacation assumed pursuant to Section 6.3(c)); and (viii) any liability or obligation of Seller arising out of the negotiation, execution, or performance of this Agreement, including fees and expenses of attorneys and accountants, except as otherwise expressly provided herein. "Bill of Sale and Assignment Agreement" shall mean an instrument in substantially the form of Exhibit A hereto pursuant to which the Assets (except for the Owned Real Property) will be transferred and assigned to Purchasers at the Closing and pursuant to which Purchasers will assume the Assumed Liabilities. "Business" shall mean the business of owning and operating the Restaurants and developing and opening new Applebee's in the Territory, as conducted prior to the Closing by Seller pursuant to the Franchise Agreements. "Closing" shall have the meaning set forth in Section 2.6 hereof. "Closing Date" shall mean the time and date that the Closing occurs. "Code" shall mean the United States Internal Revenue Code of 1986, as amended, and all regulations thereunder. Any reference herein to a specific 2 section or sections of the Code shall be deemed to include a reference to any corresponding provision of future law. "Consents" shall mean all consents, approvals, and estoppels of others which are required to be obtained in order to effect the valid assignment, transfer, and conveyance to Purchasers of the Material Contracts and the Leases without resulting in any default thereunder. "Contracts" shall mean all contracts, agreements, and leases of equipment or other personal property that relate exclusively to the Business; provided, however, that the Franchise Agreements and, except as otherwise expressly provided herein, contracts relating to employee benefits are not included within the meaning of "Contracts." "Deeds" shall mean special warranty deeds, limited warranty deeds or other appropriate instruments to convey good and marketable fee simple title to the Owned Real Property, with the warranty of title contained therein limited to the claims of Persons claiming by, through or under Seller, but not otherwise. "Development Costs" shall mean all of Seller's out-of-pocket costs paid in connection with the development of the restaurant listed on Schedule 4.7 and capitalized in accordance with generally accepted accounting principles including, but not limited to, the purchase price paid for real estate; acquisition and closing costs, such as legal fees, engineering fees, surveys, transfer taxes, title policies, and the like; costs of obtaining leases, such as legal fees, surveys, title policies, and the like; environmental investigation costs; the cost of permits, approvals, variances, or rezonings; land development costs; construction costs; the cost of equipment and other personal property acquired for the restaurants; and construction period insurance. Seller's internal costs and Seller's pre-opening expenses shall not constitute Development Costs. "Disclosure Memorandum" shall mean the set of numbered schedules referencing Sections of this Agreement delivered by Seller and dated of even date herewith. "Effective Time" shall have the meaning set forth in Section 2.5 hereof. "Environmental Laws" shall mean all federal, state, municipal, and local laws, statutes, ordinances, rules, regulations, conventions, and decrees relating to the environment, including without limitation, those relating to emissions, discharges, releases, or threatened releases of pollutants, contaminants, chemicals, or industrial, toxic, or Hazardous Materials or wastes of every kind and nature into the environment (including without limitation ambient air, surface water, ground water, soil, and subsoil), or otherwise relating to the manufacture, generation, processing, distribution, application, use, treatment, storage, disposal, transport, or handling of pollutants, contaminants, chemicals, or industrial, toxic, or hazardous substances or wastes, and any and all laws, rules, regulations, codes, directives, orders, decrees, judgments, injunctions, consent agreements, stipulations, provisions, and conditions of Environmental Permits, licenses, injunctions, consent agreements, stipulations, certificates of authorization, and other operating authorizations, entered, promulgated, or approved thereunder. "Environmental Permits" shall mean all permits, licenses, certificates, approvals, authorizations, regulatory plans or compliance schedules required by applicable Environmental Laws, or issued by a Government pursuant to applicable Environmental Laws, or entered into by agreement of the party to be bound, relating to activities that affect the environment, including without limitation, permits, licenses, certificates, approvals, authorizations, regulatory plans and compliance schedules for air emissions, water discharges, pesticide and herbicide or other agricultural chemical storage, use or application, and Hazardous Material or Solid Waste generation, use, storage, treatment and disposal. 3 "Excluded Restaurants" shall mean those Restaurants designated as such in accordance with Section 4.9(e), Section 7.1(a), or Section 7.1(b). "Forum" shall mean any federal, state, local, municipal, or foreign court, governmental agency, administrative body or agency, tribunal, private alternative dispute resolution system, or arbitration panel. "Financing Commitment" shall have the meaning set forth in Section 6.4. "Franchise Agreements" shall mean those development agreements, franchise agreements, and other agreements between Seller and Franchisor relating exclusively to the Territory. "Franchisor" shall mean Applebee's International, Inc. "Financial Statements" shall have the meaning set forth in Section 3.8. "Government" shall mean any federal, state, local, municipal, or foreign government or any department, commission, board, bureau, agency, instrumentality, unit, or taxing authority thereof. "Hazardous Material" shall mean all substances and materials designated as hazardous or toxic as of the date hereof or as of the Closing Date pursuant to any applicable Environmental Law. "HSR Act" shall mean the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended. "Knowledge of Seller" (or words of like effect) when used to qualify a representation, warranty, or other statement shall mean the actual knowledge of Seller's district operators in the Territory (after a diligent review with the general manager of each Restaurant of each matter herein subject to a knowledge qualifier and after obtaining a completed and signed questionnaire from each general manager relating to such matters in a form approved by Purchasers) and all management of Seller senior thereto. "Leases" shall mean the leases of real property and improvements described on Schedule 1.1B and any leases subsequently entered into and pertaining to new restaurants being developed pursuant to Section 4.7. "Material Contracts" shall mean all Contracts that involve monetary obligations of Seller of more than $12,000 per year and that are not cancelable by Seller upon sixty days notice or less. "Minor Contracts" shall mean all Contracts that are not Material Contracts. "Note" shall mean a promissory note of Purchasers in the form of Exhibit E attached hereto payable to Seller in the principal amount of $537,760 and bearing interest at the rate of 2.5% per quarter simple interest. The Note shall be payable in eight equal quarterly installments of $75,000 each, with each such installment to be applied first to accrued interest and the remainder to principal. "Orders" shall mean all applicable orders, writs, judgments, decrees, rulings, consent agreements, and awards of or by any Forum or entered by consent of the party to be bound. "Owned Real Property" shall mean those tracts and parcels of land owned by Seller on which a Restaurant is located or which is being held for development pursuant to Section 4.7 (all of which tracts and parcels are described in Schedule 1.1C) or which is acquired by Seller prior to Closing for development pursuant to Section 4.7, together with all buildings, fixtures, signs, parking facilities, and other improvements located thereon and all tenements, hereditaments, easements, rights, ways, powers, privileges, immunities, and opportunities belonging or in any way pertaining thereto. 4 "Permits" shall mean all rights of Seller under any liquor, alcoholic beverage, beer and wine licenses, other licenses of every kind, certificates of occupancy, and permits or approvals of any nature, from governmental and regulatory authorities which relate exclusively to the Business, the Restaurants, or the Real Property. "Permitted Encumbrances" shall mean, in the case of all Real Property, (i) such easements, restrictions, covenants, and other such encumbrances which are shown as exceptions on the Title Commitments and any other encumbrances of record as of the effective date of the Title Commitments, (ii) ordinances (municipal and zoning), (iii) survey matters, and (iv) such easements, restrictions, covenants, and other encumbrances which become matters of public record after the date of the Title Commitments and before the Closing, in each case of items (i) through (iii) above solely to the extent that such encumbrances would not unreasonably interfere with the marketability of such Real Property for either restaurant or any commercial use (except as limited by restrictions of record when Seller acquired the Real Property) or that are waived, or deemed to be waived, by Purchasers pursuant to Section 7.1(a). Permitted Encumbrances shall include in the case of both Real Property and personal property all pending liens for taxes not yet due and payable. In the case of Assets pertaining to Applebee's under development pursuant to Section 4.7, Permitted Encumbrances shall include all mechanic's, materialman's, and other liens relating to Assumed Liabilities. "Person" shall include an individual, a partnership, a joint venture, a corporation, a limited liability company, a trust, an unincorporated organization, a government, and any other legal entity. "Property Taxes" shall mean all ad valorem, real property, and personal property taxes, all general and special private and public assessments, all other property taxes, and all similar obligations pertaining to the Assets. "Real Property" shall mean the land and improvements comprising the Owned Real Property and all land and improvements subject to Leases. "Restaurants" shall mean the 34 Applebee's operated by Seller at the locations set forth on Schedule 1.1A and any additional Applebee's completed prior to Closing pursuant to Section 4.7. "Schedules" shall mean the numbered sections of the Disclosure Memorandum. "Seller Plans" shall have the meaning set forth on Schedule 3.15. "Solid Waste" shall mean any garbage, refuse, sludge from a waste treatment plant, water supply treatment plant, or air pollution control facility, and other discarded material, including solid, liquid, semisolid, or contained gaseous material resulting from industrial, commercial, mining, and agricultural operations, and from community activities. "Termination Date" shall mean July 31, 1998. "Territory" shall mean those ADI's consisting of (i) Ft. Myers-Naples, Florida ADI (Glades, Charlotte, Lee, Hendry, and Collier Counties), (ii) West Palm Beach - Ft. Pierce-Vero Beach, Florida ADI (Indian River, Okeechohee, St. Lucie, Martin, and Palm Beach Counties), (iii) that portion of Tampa-St. Petersburg ADI consisting of Sarasota County, Florida, and (iv) Jacksonville, Florida ADI (Hamilton, Suwanee, Columbia, Baker, Union, Bradford, Putnam, Clay, Duval, St. Johns, and Nassau Counties, Florida and Camden, Glynn, Brantley, Charlton, Ware, and Clinch Counties, Georgia). "Title Commitments" shall have the meaning set forth in Section 7.1(a). "Title Policies" shall mean the Owner's Title Policies and the Lessee's Title Policies as defined in Section 7.1(a). 5 ARTICLE II - PURCHASE AND SALE 2.1 Purchase and Sale. Upon the terms and subject to the conditions set forth in this Agreement, at the Closing Seller shall sell, transfer, and assign to Purchasers the Assets (divided among the Purchasers as they may direct Seller in writing) free and clear of any mortgage, security interest, lien, charge, claim, or other encumbrance of any nature except the Permitted Encumbrances, and Purchasers shall purchase the Assets from Seller for the Purchase Price set forth in Section 2.3. 2.2 Assumption of Liabilities. As of the Effective Time, Purchasers shall assume all of the Assumed Liabilities. Except for the Assumed Liabilities, Purchasers do not hereby assume or agree to assume or pay any obligations, liabilities, indebtedness, duties, responsibilities, or commitments of Seller or any other Person, of any nature whatsoever, whether known or unknown, absolute or contingent, due or to become due. 2.3 Purchase Price. The purchase price for the Assets (the "Purchase Price") shall be $65,006,760 adjusted as follows: (a) The amount of the purchase price shall be increased by (i) all Property Taxes accruing with respect to the Assets after the Closing that have been paid by Seller prior to Closing; (ii) all amounts paid by Seller under the Contracts and Leases with respect to periods after the Closing; (iii) any other prepaid expenses pertaining to the Business (such as telephone expenses, advertising expenses, utility charges, and the like) with respect and relating to periods after the Closing; and (iv) the amount of Seller's Development Costs for 5055 J. Turner Butler Blvd., Jacksonville, Florida. (b) The amount of the purchase price shall be decreased by (i) all Property Taxes accruing with respect to the Assets prior to the Closing that are due and payable after the Closing and that have not been paid as of the Closing, (ii) all amounts payable under the Contracts and Leases that pertain to periods before the Closing but are due and payable after the Closing and that have not been paid as of the Closing, (iii) the cost of unused vacation accrued as of the Closing Date by ADI Personnel hired by Purchasers the cost of which is being assumed by Purchasers pursuant to Section 6.3(c), and (iv) the amount of any Purchase Price adjustment for any Excluded Restaurant and attendant Assets pursuant to Section 2.8. (c) The amount of the purchase price shall be further adjusted to reflect any expense paid by one party which the other party has agreed to pay or share pursuant to Section 10.1 or otherwise pursuant to this Agreement. Schedule 2.3 sets forth the items expected to require an adjustment pursuant to subparagraphs (a) and (b) above, whether each such adjustment is expected to result in an increase or decrease in the Purchase Price, and the estimated amount of each such adjustment. At the Closing the foregoing adjustments shall be calculated by the parties and set forth on a schedule which shall be signed by both parties. To the extent that Property Taxes or other items are not known at the time of Closing, the parties shall estimate the amounts in good faith and adjust the same at such time as such amounts are finally known. The Purchase Price shall be paid by Purchasers on the Closing Date by delivery of the Note duly executed by Purchasers and by wire transfer to an account designated by Seller of immediately available funds in an amount equal to the remainder of the Purchase Price. 2.4 Deliveries at the Closing. (a) At the Closing, Seller shall deliver to Purchasers the following: (i) A certificate executed by Seller, dated as of the Closing Date, certifying in such detail as Purchasers may reasonably request that (A) subject to the matters disclosed in the Disclosure Memorandum, all representations and warranties of Seller in this Agreement are true in all material respects as of the Closing Date, and (B) Seller has performed and complied in all material 6 respects with all of its obligations under this Agreement which are to be performed or complied with by the Seller prior to or on the Closing Date; (ii) A certificate of the Secretary or an Assistant Secretary of Seller, dated as of the Closing Date, certifying in such detail as Purchasers may reasonably request (A) that attached thereto is a true and complete copy of resolutions adopted by the Board of Directors of Seller authorizing the execution, delivery, and performance of this Agreement, the Bill of Sale and Assignment Agreement, and the Deeds, and that all such resolutions are still in full force and effect and are all the resolutions adopted in connection with the transactions contemplated by this Agreement, and (B) as to the incumbency and specimen signature of each officer of Seller executing this Agreement, the Bill of Sale and Assignment Agreement, the Deeds, and any certificate or instrument furnished pursuant hereto, and a certification by another officer of Seller as to the incumbency and signature of the officer signing such certificate; (iii) The opinion of Kilpatrick Stockton LLP, counsel to Seller, in substantially the form of Exhibit B hereto; (iv) The Bill of Sale and Assignment Agreement, duly executed by Seller; (v) The Consents (except with respect to any Excluded Restaurant); (vi) The Deeds (except with respect to any Excluded Restaurant), duly executed by Seller; (vii) A Cross-Receipt, duly executed by Seller; and (viii) Any other documents that Purchasers may reasonably request prior to the Closing to effectuate the transactions contemplated hereby. (b) At the Closing Purchasers shall deliver to Seller the following: (i) A certificate executed by Purchasers, dated as of the Closing Date, certifying in such detail as Seller may reasonably request to the fulfillment of the conditions specified in Sections 7.3(a) and (b) hereof; (ii) A certificate of a manager (or in the case of WIGEL Partnership, a partner) of each Purchaser, dated as of the Closing Date, certifying in such detail as Seller may request (A) that attached thereto is a true and complete copy of resolutions adopted by the members of Purchasers authorizing the execution, delivery and performance of this Agreement, the Bill of Sale and Assignment Agreement, and the Note and that all such resolutions are still in full force and effect and are all the resolutions adopted in connection with the transactions contemplated by this Agreement, and (B) as to the incumbency and specimen signature of each manager (or in the case of WIGEL Partnership, each partner) of a Purchaser executing this Agreement, and any certificate or instrument furnished pursuant hereto or to be furnished in connection herewith as of the Closing Date, and a certification by another manager (or in the case of WIGEL Partnership, another partner) of each Purchaser as to the incumbency and signature of the officer signing such certificate; (iii) The funds constituting the cash portion of the Purchase Price; (iv) The Bill of Sale and Assignment Agreement, duly executed by Purchasers; (v) The opinion of Chopin, Miller & Yudenfreund, counsel to Purchasers, in substantially the form of Exhibit C hereto; (vi) A Cross-Receipt, duly executed by Purchasers; (vii) The Note, duly executed by Purchasers; and (viii) Any other documents that Seller may reasonably request prior to the 7 Closing to effectuate the transactions contemplated hereby. 2.5 Transfer of Operations. Purchasers shall be entitled to immediate possession of, and to exercise all rights arising under, the Assets from and after the time that the Restaurants open for business on the Closing Date, and operation of the Restaurants shall transfer at such time (the "Effective Time"). Except as expressly provided in this Agreement, all profits, losses, liabilities, claims, or injuries arising before the Effective Time shall be solely to the benefit or the risk of Seller. All such occurrences after the Effective Time shall be solely to the benefit or the risk of Purchasers. The risk of loss or damage by fire, storm, flood, theft, or other casualty or cause shall be in all respects upon Seller prior to the Effective Time and upon the Purchasers thereafter. 2.6 Closing. The closing of the transactions described in this Article II (the "Closing") shall take place at the offices of Kilpatrick Stockton LLP, Suite 2800, 1100 Peachtree Street, Atlanta, Georgia, at 10:00 a.m. on June 26, 1998, or on such other date and time as may be mutually agreed upon by the parties hereto. 2.7 Allocation of Purchase Price. The Purchase Price shall be allocated among the various Assets as set forth on Schedule 2.7 hereof. Each party hereby agrees that it will not take a position on any income tax return, before any governmental agency charged with the collection of any income tax, or in any judicial proceeding that is inconsistent with the terms of this Section 2.7. 2.8 Excluded Restaurants. If any Restaurants are designated as Excluded Restaurants in accordance with Sections 4.9(e), 7.1(a) or 7.1(b), then the Lease or the Owned Real Property and all other Assets relating exclusively to such Excluded Restaurants shall not be transferred to Purchasers hereunder, Assumed Liabilities pertaining to such Excluded Restaurants shall not be assumed by Purchasers hereunder, and the Purchase Price shall be reduced by the amounts allocated to such Excluded Restaurants and attendant Assets on Schedule 2.7. 2.9 Further Assurances. From time to time after the Closing at Purchasers' request and expense, Seller shall execute, acknowledge, and deliver to Purchasers such other instruments of conveyance and transfer and shall take such other actions and execute and deliver such other documents, certifications, and further assurances as Purchasers may reasonably require to vest more effectively in Purchasers, or to put Purchasers more fully in possession of, any of the Assets, or to better enable Purchasers to complete, perform and discharge the Assumed Liabilities. Each party hereto will cooperate with the other and execute and deliver to the other party hereto such other instruments and documents and take such other actions as may be reasonably requested from time to time by any other party hereto as necessary to carry out, evidence, and confirm the intended purpose of this Agreement. ARTICLE III - REPRESENTATIONS AND WARRANTIES OF SELLER Subject to the limitations and exceptions set forth in the Disclosure Memorandum dated of even date hereof and attached to and incorporated herein, Seller hereby represents and warrants to Purchasers as follows: 3.1 Organization, Qualifications and Corporate Power. Seller is a corporation duly incorporated and organized, validly existing, and in good standing under the laws of the State of Georgia. Seller has the corporate power and authority to execute, deliver, and perform this Agreement, the Bill of Sale and Assignment Agreement, the Deeds, and all other agreements, documents, certificates, and other papers contemplated to be delivered by Seller pursuant to this Agreement. 3.2 Authorization. The execution, delivery, and performance by Seller of this Agreement, the Bill of Sale and Assignment Agreement, the Deeds, and all other agreements, documents, certificates, and other papers contemplated to be 8 delivered by Seller pursuant to this Agreement have been duly authorized by the Board of Directors of Seller. 3.3 Non-Contravention. Subject to obtaining the consents to assignment of the Leases and Material Contracts set forth on Schedule 3.3, the execution, delivery and performance of this Agreement will not violate or result in a breach of any term of Seller's Articles of Incorporation or Bylaws, result in a breach of any agreement or other instrument to which Seller is a party (except for defaults under Minor Contracts where the consent of the other party or parties to such contract to the assignment thereof will not be obtained) or violate any law or any order, rule, or regulation applicable to Seller of any court or of any regulatory body, administrative agency, or other governmental instrumentality having jurisdiction over Seller; and will not result in the creation or imposition of any lien, charge, or encumbrance of any nature whatsoever upon any of the Assets. Except as set forth on Schedule 3.3 and except for consents required under Minor Contracts, the execution, delivery and performance of this Agreement and the other documents executed in connection herewith, and the consummation of the transactions contemplated hereby and thereby do not require any filing with, notice to or consent, waiver or approval of any third party, including but not limited to, any governmental body or entity other than any filing required under the HSR Act and the expiration of any applicable waiting period thereunder. Schedule 3.3 identifies separately each notice, consent, waiver, or approval by reference to each Lease and to each Material Contract to which it is applicable. 3.4 Validity. This Agreement has been duly executed and delivered by the Seller and constitutes the legal, valid, and binding obligation of Seller, enforceable in accordance with its terms, subject to general equity principles and to applicable bankruptcy, insolvency, reorganization, moratorium, and similar laws from time to time in effect affecting the enforcement of creditors' rights. When the Bill of Sale and Assignment Agreement has been executed and delivered in accordance with this Agreement, it will constitute the legal, valid, and binding obligation of Seller, enforceable in accordance with its terms, subject to general equity principles and to applicable bankruptcy, insolvency, reorganization, moratorium, and similar laws from time to time in effect affecting the enforcement of creditors' rights. 3.5 Assets. (a) Seller has good and valid title to all of the Assets constituting personal property, free and clear of any and all mortgages, pledges, security interests, liens, charges, conditional sales agreements, and other encumbrances except Permitted Encumbrances. (b) The Assets located at each Restaurant as of the date hereof constitute all tangible personal property required on site to operate the Restaurant generally and in accordance with the Franchise Agreements specifically. (c) There are no assets or property of any nature which is not being transferred to Purchasers hereunder that has been customarily used exclusively in the operation or ownership of the Restaurants other than Permits and software licenses that are not assignable. (d) Each Asset constituting tangible personal property having a cost or a fair market value of $2,000 or more is in good operating condition consistent with its age, subject to normal wear and tear. 3.6 Contracts and Leases. (a) Each Material Contract and Lease is a valid and subsisting agreement, without any material default of Seller thereunder, and to the knowledge of Seller, without any default on the part of any other party thereto. To the knowledge of Seller, no event or occurrence has transpired which with the passage of time or giving of notice or both will constitute a default under any Material Contract or Lease. A true and correct list of each Material Contract and Lease and every amendment thereto or other agreement or document relating thereto is set forth as Schedule 3.6 to this Agreement. True and correct copies 9 of the Material Contracts and Leases (and any amendments thereto) have been provided to Purchasers. At the time of Closing, Seller shall have made all payments and performed all obligations due through the Closing Date under each Contract and Lease, except to the extent that any payment due is set forth on Schedule 2.3 and deducted in calculating the Purchase Price pursuant to Section 2.3. (b) No Contract or Lease has been assigned by Seller or any interest granted therein by Seller to any third party, or is subject to any mortgage, pledge, hypothecation, security interest, lien, or other encumbrance or claim. (c) Seller's possession of property subject to the Leases has not been disturbed, nor has any claim been asserted against Seller's rights in such leasehold interests. (d) The Contracts have been entered into in the ordinary course of Seller's business and, to Seller's knowledge, contain commercially reasonable terms. 3.7 Real Property. (a) Schedule 3.7(a) sets forth with respect to each Restaurant, its location, whether it is located on Owned Real Property or is on a site subject to a Lease, and whether the improvements are owned or leased. (b) The water, electric, gas, and sewer utility services, and storm drainage facilities currently available to each parcel of Real Property are adequate for the operation of the Restaurants as presently operated, and there is no condition which will result in the termination of the present access from each parcel of Real Property to such utility services and other facilities. (c) Seller has obtained all authorizations and rights-of-way which are necessary to ensure vehicular and pedestrian ingress and egress to and from the site of each Restaurant, all of which are assignable and shall be assigned to Purchasers at the Closing. (d) Except as shown on Schedule 3.7(d)/(f), Seller has received no notice that any governmental body having the power of eminent domain over any parcel of Real Property has commenced or intends to exercise the power of eminent domain or a similar power with respect to any part of the Real Property. (e) The Real Property and the present uses thereof comply in all material respects with all laws and regulations (including zoning laws and ordinances) of all Governments having jurisdiction over the Real Property, and Seller has received no notice from any Government alleging that the Real Property or any improvements erected or situated thereon, or the uses conducted thereon or therein, violate any regulations of any Government having jurisdiction over the Real Property. (f) Except as shown on Schedule 3.7(d)/(f), no work for municipal improvements has been commenced on or in connection with any parcel of Real Property or any street adjacent thereto and to the knowledge of Seller, no such improvements are contemplated. No assessment for public improvements has been made against the Real Property which remains unpaid. No notice from any Government has been served upon the Real Property or the Seller, or received by any owner of any of the Real Property subject to a Lease, requiring or calling attention to the need for any work, repair, construction, alteration, or installation on or in connection with the Real Property which has not been complied with. (g) Seller holds all Environmental Permits necessary for conducting the Business and has conducted, and is presently conducting, the Business in material compliance with all applicable Environmental Laws and Environmental Permits held by it, including, without limitation, all record keeping and filing requirements. To the Seller's knowledge, all Hazardous Materials and Solid Waste, on, in, or under Real Property have been properly removed and disposed 10 of, and to the Seller's knowledge no past or present disposal, discharge, spill, or other release of, or treatment, transportation, or other handling of Hazardous Materials or Solid Waste on, in, under, or off-site from any Real Property will subject the Purchasers, or any subsequent owner, occupant, or operator of the Real Property to corrective or compliance action or any other liability. There are no presently pending, or to Seller's knowledge, threatened Actions or Orders against or involving Seller relating to any alleged past or ongoing violation of any Environmental Laws or Environmental Permits with respect to the Real Property, nor to Seller's knowledge is Seller subject to any liability for any such past or ongoing violation. The foregoing representations exclude the matters disclosed in the environmental reports referenced in Schedule 3.7(g). 3.8 Financial Statements. Schedule 3.8 contains for each Restaurant unaudited statements of operations as of the end of the 1997 fiscal year and for each fiscal month ended thereafter through the date hereof for which such statements are available, prepared in accordance with generally accepted accounting principles, except for the absence of explanatory notes and except as otherwise expressly described therein (the "Financial Statements"). The Financial Statements fairly present the operations of the Restaurants for the periods presented and as of their respective dates. 3.9 Taxes. All Property Taxes relating to the Assets have been fully paid for 1997 and all prior tax years and there are no delinquent Property Tax liens or assessments. Seller has also timely filed (or will timely file) all other tax returns and reports of whatever kind pertaining to the Assets and required to be filed by Seller up to the Closing Date. Seller has paid (or will timely pay) all taxes of whatever kind, including any interest, penalties, governmental charges, duties, fees, and fines imposed by all governmental entities or taxing authorities, which are due and payable prior to the Closing Date or which relate to any period prior to the Closing Date, the nonpayment of which would result in lien on any of the Assets. There are no audits, suits, actions, claims, investigations, inquiries, or proceedings pending or, to Seller's knowledge, threatened against Seller with respect to taxes, interest, penalties, governmental charges, duties, or fines, nor are any such matters under discussion with any governmental authority, nor have any claims for additional taxes, interest, penalties, charges, fines, fees, or duties been received by or assessed against Seller that in any such case affect the Assets. 3.10 Litigation. (a) Except as set forth on Schedule 3.10, there is no material action, suit, investigation, or proceeding pending or, to the knowledge of Seller, threatened against or affecting Seller that pertains to the Restaurants, or any of the Assets before any Forum. (b) Seller is not a party to, or subject to any Order entered in any Action brought by any Government or Person seeking to prevent the execution of this Agreement or the consummation of the transactions contemplated hereby. 3.11 Permits. Seller has all material Permits as are necessary to operate the Restaurants. Seller has fulfilled and performed all of its material obligations with respect to such Permits and no event has occurred which allows, nor after notice or lapse of time or both would allow, revocation or termination thereof or would result in any other impairment of the rights of the holder of any such Permits. 3.12 Health and Safety Requirements. To the knowledge of Seller, Seller is in compliance with all laws, governmental standards, rules and regulations applicable to Seller or to any of the Assets in respect to the Americans with Disabilities Act and similar state laws, occupational health and safety laws, and Environmental Laws except as shown on Schedule 3.12. 3.13 Employment Contracts, Etc. Seller is not a party to any written employment agreements related to the employees at the Restaurants (or any oral agreements providing for employment other than employment "at will") or any deferred compensation agreements. 11 3.14 Labor Matters. Seller is not and never has been a party to any collective bargaining or other labor agreement affecting the Business. There is no pending or threatened labor dispute, strike, work stoppage, union representation, election, negotiation of collective bargaining agreement, or similar labor matter affecting the Business. Seller is not involved in any controversy with any group of its employees or any organization representing any employees involved in the Business, and to the knowledge of Seller, Seller is in compliance with all applicable Government laws and regulations concerning the employer/employee relationship, including but not limited to wage/hour laws, laws prohibiting discrimination, and labor laws. Seller is in compliance with all laws relating to the employment of its employees, including, without limitation, provisions thereof relating to wages, bonuses, hours of work and the payment of Social Security taxes, and Seller is not liable for any unpaid wages, bonuses, or commissions or any tax, penalty, assessment, or forfeiture for failure to comply with any of the foregoing. 3.15 Employee Benefits. (a) Schedule 3.15 hereto contains a true and complete list of all the following agreements or plans of Seller which are presently in effect and which pertain to any of the employees engaged in the Business: (i) "employee welfare benefit plans" and "employee pension benefit plans," as defined in Sections 3(1) and 3(2), respectively, of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"); (ii) any other pension, profit sharing, retirement, deferred compensation, stock purchase, stock option, incentive, bonus, vacation, severance, disability, health, hospitalization, medical, life insurance, vision, dental, prescription drug, supplemental unemployment, layoff, automobile, apprenticeship and training, day care, scholarship, group legal benefits, fringe benefits, or other employee benefit plan, program, policy, or arrangement, whether written or unwritten, formal or informal, which Sellers maintains or to which Seller has any outstanding, present, or future obligation to contribute to or make payments under, whether voluntary, contingent, or otherwise (the plans, programs, policies, or arrangements described in clauses (i) or (ii) are herein collectively referred to as the "Seller Plans"). (b) Seller does not presently contribute, nor has it ever contributed or been obligated to contribute, to a multiemployer plan as defined in section 3(37)(A) of ERISA. (c) No Seller Plan is subject to Title IV of ERISA. 3.16 Accuracy of Schedules, Certificates and Documents. All information concerning Seller contained in any certificate furnished to Purchasers pursuant to this Agreement or in the Disclosure Memorandum is or will be when furnished both complete and accurate in all material respects; and all documents furnished to Purchasers pursuant to this Agreement which are documents described in this Agreement or in the Disclosure Memorandum are true and correct copies of the documents which they purport to represent. ARTICLE IV - COVENANTS OF SELLER 4.1 Performance of Real Property Leases and Assumed Contracts. Seller shall, through the Closing Date, continue to faithfully and diligently perform each and every continuing obligation of Seller, if any, under each of the Leases and Material Contracts. 4.2 Transfer of Licenses and Permits. Seller shall use its reasonable best efforts to assist Purchasers with the assumption, transfer, or reissuance of any and all Permits. 4.3 Liabilities of Seller. All liabilities of Seller related to the Assets 12 that do not constitute Assumed Liabilities will be promptly paid by Seller as they come due. 4.4 Agreements Respecting Employees of Seller. (a) Prior to the Effective Time without the prior written approval of Purchasers, Seller shall not transfer or reassign to operations outside the Business (i) any employee exclusively involved in the operation or supervision of the Restaurants or (ii) any of Seller's district operators for the Territory (collectively, "ADI Personnel"). For a period of twelve months following the Closing, Seller shall not employ any ADI Personnel (or former employee of Seller who would have been an ADI Personnel but for a transfer by Seller or termination of employment with Seller on or before April 1, 1998) or for a period of eighteen months following the Closing solicit any such person for employment. (b) Seller shall be solely responsible for any severance amounts due or granted by Seller to any ADI Personnel. (c) Seller and Purchasers shall cooperate in the transition of coverage of ADI Personnel from Seller's health, medical, life insurance and other welfare plans to plans maintained by Purchasers. 4.5 Conduct of Business. From the date hereof until Closing: (a) Seller shall (i) operate the Restaurants as they are currently being operated and in the ordinary course of business and in compliance with all terms and conditions of the Franchise Agreements, using its reasonable best efforts in keeping with Seller's historical practices to preserve and maintain the services of its employees and its relationships with suppliers and customers, (ii) pay all bills and debts incurred by it related to the Business promptly as they become due, and (iii) consult in advance with Purchasers on all decisions outside the ordinary course of business relating to the Assets or the Restaurants. (b) In particular, and without limiting the foregoing, with respect to the Business, Seller shall: (i) continue to conduct the advertising activities and efforts as set forth on Schedule 4.5; (ii) maintain the Assets consistent with past practices and in accordance with the maintenance capital expenditure budget set forth on Schedule 4.5; (iii) continue to conduct on a timely basis all Restaurant remodeling and refurbishments as set forth on Schedule 4.5, which Schedule shows the remodel and refurbishment activities for Seller with respect to the Territory as budgeted by Seller; (iv) continue to purchase and maintain inventories for each Restaurant in such quantities and quality as necessary to operate the Restaurants in accordance with Seller's historical practice; (v) continue to operate the Restaurants in accordance with all material applicable local, state, and federal laws and regulations; and (c) Further, with respect to the Restaurants, Seller shall not, without the express prior written approval of Purchasers: (i) change the ownership of the Assets; (ii) increase the rate of compensation to ADI Personnel beyond the usual and customary annual merit increases or bonuses under established compensation plans, except for payments under the stay-bonus plan described on Schedule 4.5; (iii) mortgage, pledge, or subject to lien (except in connection with 13 development efforts pursuant to Section 4.7 in the ordinary course of business) any of the Assets; (iv) sell or otherwise dispose of any Asset described in Section 3.5(d) except replacement of such Asset in the ordinary course of business; (v) enter into any Material Contract except in the ordinary course of business; (vi) other than in the ordinary course of business, cancel or terminate or consent to or accept any cancellation or termination of any Material Contract or Lease, amend or otherwise modify any of its material terms or waive any breach of any of its material terms or provisions or take any other action in connection with any Material Contract or Lease that would materially impair the interests or rights of Seller to be transferred to Purchasers hereunder. 4.6 Access to Information. Seller shall afford Purchasers, their counsel, financial advisors, auditors, lenders, lenders' counsel and other authorized representatives reasonable access for any purpose consistent with this Agreement from the date hereof until the Closing, during normal business hours, to the offices, properties, books, and records of Seller with respect to the Assets and the Restaurants and shall furnish to Purchasers such additional financial and operating data and other information as Seller may possess and as Purchasers may reasonably request, subject to Purchasers' obligations regarding the confidentiality of such information as set forth in Section 6.2 hereof; provided, however, that such access shall be arranged in advance by Purchasers with Seller and will be scheduled in a manner and with a frequency calculated to cause the minimum disruption of the business of Seller. 4.7 Development Efforts. Seller shall use its reasonable best efforts to continue up to the Closing the development of the new Applebee's listed on Schedule 4.7 in accordance with the timetable and budget set forth on such Schedule. 4.8 Reporting Requirements. Through the Closing Date, Seller shall furnish to Purchasers: (a) Promptly after the occurrence, or failure to occur, of any such event, information respect to any event which has materially affected, adversely or otherwise, the Assets or the operations of the Restaurants. (b) As soon as available and in any event within fifteen business days after the end of each fiscal month, the statement of operations of each Restaurant for such month in the Seller's regularly prepared format. (c) Promptly after the commencement of each such matter, notice of all actions, charges, orders or other directives affecting the Business or any Restaurant that could materially affect the Assets, the operations, business, prospects or condition (financial or otherwise) of the Restaurant or the ability of Seller to perform its obligations hereunder; (d) Such other information respecting the Assets or the operations, business prospects, or condition (financial or otherwise) of the Restaurants as the Purchasers may from time to time reasonably request. 4.9 Cooperation. (a) Insofar as such conditions are within its reasonable control or influence, Seller will use its reasonable best efforts to cause the conditions set forth in Article VII to be satisfied and to facilitate and cause the consummation of the transactions contemplated hereby, including obtaining the Consents. (b) The parties acknowledge that no consents will be sought with respect to any Minor Contract even if the failure to so obtain a consent to assignment may result in a default or termination thereunder. 14 (c) Seller will use its reasonable best efforts to obtain required consents of landlords to the assignment of the Leases and shall bear any expenses associated with obtaining such consents; however, Seller shall not be required to make any payment to a landlord (other than reimbursement of expenses or as provided in subparagraph (d) below) or agree to any concessions or amendment to other leases or arrangements with such landlord in order to obtain such consents. If required in order to obtain a landlord's required consent to assignment of a Lease, Seller shall agree to remain liable on the Lease (but not on any extension obtained pursuant to Section 4.13). Seller shall not be required to guarantee any Lease. (d) If necessary to obtain a landlord's required consent to the assignment of a Lease, Seller and Purchasers shall spend up to a total of $100,000 (such cost to be paid one-half by Seller and one-half by Purchasers) for payment to the landlord, to fund legal action to obtain the consent, or for other similar purposes; provided that such expenditures shall not be required for more than three Leases. (e) If Seller is unable to obtain required consents to the assignment of three or fewer Leases, then such Leases shall not be assigned hereunder and the Restaurants located on the premises subject to such Leases shall constitute Excluded Restaurants. 4.10 Subsequent Contracts. From the date of this Agreement to the Closing Date, Seller shall use its reasonable best efforts (a) to include in any Material Contracts entered into by Seller ("Subsequent Contracts") a provision permitting the assignment of any such Subsequent Contract to Purchasers and providing that upon such assignment, Purchasers shall succeed to all of Seller's rights, title, and interests thereunder subject to the Purchasers' assumption of all of Seller's duties, powers, and obligations under such Subsequent Contract, and (b) to ensure that no Subsequent Contract contains any provision which would limit in any way the rights, title, and interests of Seller or, prospectively, the Purchasers in the Assets. 4.11 Transition Services. (a) For a period of three months after the Closing, if and to the extent requested in writing by Purchasers, Seller agrees to provide to Purchasers restaurant accounting, POS system support, and other services related to the Restaurants as mutually agreed upon between Seller and Purchasers (the "Services"). Purchasers shall give Seller thirty days advance written notice of the Services requested. The Services shall be provided promptly as requested and shall be provided in the same manner and with the same or similar personnel as Seller previously utilized. (b) Purchasers will pay for the Services on a monthly basis, after receipt of an invoice from Seller. The price for the Services shall be mutually agreed upon by the parties. (c) Seller is not required to maintain the employment of any specific personnel in connection with providing the Services; provided, however, that if requested by Purchasers, Seller shall offer to specifically designated personnel a bonus incentive to remain for the three-month period. The amount of such bonus shall be at the discretion of Purchasers. Such bonus, if accepted by the employee, shall be paid by Purchasers at the end of the three-month period, or for such shorter period as Purchasers may determine. 4.12 Delivery of Real Estate Documents. Within two days of the date hereof Seller shall provide to Purchasers legal descriptions of the Owned Real Property and copies of all surveys, title policies, and environmental reports pertaining to the Owned Real Property in Seller's possession. 4.13 Leases. Seller shall use its reasonable best efforts to obtain extensions or options to extend so that each Lease (excluding the Leases for the Boynton Beach and the Sarasota Restaurants) designated by Purchasers will have a 15 remaining term after Closing (including any term for which a Purchaser shall have the right to extend) of at least fifteen years on terms acceptable to Purchasers; however, Seller shall not be required to make any payment to obtain any such extension or agree to remain liable during any such extension period. ARTICLE V REPRESENTATIONS AND WARRANTIES OF PURCHASER Purchasers hereby represent and warrant to Sellers as follows: 5.1 Organization, Corporate Power, Authorization. Each Purchaser other than WIGEL Partnership is a limited liability company duly organized, validly existing, and in good standing under the laws of the State of Florida and in each other jurisdiction in which it is lawfully required to qualify to conduct business. WIGEL Partnership is a general partnership duly organized under the laws of the State of New York. Each Purchaser has the power and authority to execute and deliver this Agreement, the Note, and the Bill of Sale and Assignment Agreement, and to consummate the transactions contemplated hereby. All company or partnership action on the part of each Purchaser necessary for the authorization, execution, and delivery of this Agreement, the Note, and the Bill of Sale and Assignment Agreement, and performance of all obligations of each Purchaser thereunder has been duly taken. 5.2 Non-Contravention. The execution and delivery of this Agreement, the Note, and the Bill of Sale and Assignment Agreement by each Purchaser does not and the consummation by each Purchaser of the transactions contemplated hereby and thereby will not violate any provision of its articles of organization or operating agreement or other organizational documents. 5.3 Validity. This Agreement has been duly executed and delivered by each Purchaser, and constitutes the legal, valid, and binding obligation of each Purchaser, enforceable against it in accordance with its terms, subject to general equity principles and to applicable bankruptcy, insolvency, reorganization, moratorium, and similar laws from time to time in effect affecting the enforcement of creditors' rights. When each of Note and the Bill of Sale and the Assignment Agreement has been executed and delivered in accordance with this Agreement, it will constitute the legal, valid, and binding obligation of each Purchaser, enforceable in accordance with its terms, subject to general equity principles and to applicable bankruptcy, insolvency, reorganization, moratorium, and similar laws from time to time in effect affecting the enforcement of creditors' rights. 5.4 Litigation Relating to the Agreement. No Purchaser is a party to, or subject to any Order entered in any Action brought by any Government or other Person seeking to prevent the execution of this Agreement or the consummation of the transactions contemplated hereby. ARTICLE VI - COVENANTS OF PURCHASER 6.1 Purchaser Performance. After the Closing Date, Purchasers shall promptly pay as they become due and otherwise perform all obligations of Seller under the Assumed Liabilities and otherwise perform and fulfill all other obligations with respect to the Assets pertaining to the period after the Closing Date. 6.2 Confidentiality. In connection with the negotiation of this Agreement, Seller may disclose Confidential Information, as defined below, to Purchasers. Purchasers agree that if the transactions contemplated herein are not consummated, they will return to Seller all documents and other written information furnished to it. Purchasers further agree to maintain the confidentiality of any and all Confidential Information of Seller and not disclose any Confidential Information to any Person other than such Person to whom Confidential Information must be disclosed to effect the transactions and who are bound by appropriate non-disclosure agreement or obligations. Purchasers shall not use such Confidential Information for financial gain or in any manner 16 adverse to Seller. The foregoing obligations shall not apply to (i) any information which was known by Purchasers prior to its disclosure by Seller; (ii) any information which was in the public domain prior to the disclosure thereof; (iii) any information which comes into the public domain through no fault of Purchasers; (iv) any information which is disclosed to Purchasers by a third party, other than an affiliate, having the legal right to make such disclosure; or (iv) any information which is required to be disclosed by Order of or legal process issued by any Forum. For purposes of this Section, "Confidential Information" shall mean any and all technical, business, and other information which (a) is possessed or hereafter acquired by Seller and disclosed to Purchasers and (b) derives economic value, actual or potential, from not being generally known to Persons other than Seller, including, without limitation, technical or nontechnical data, compositions, devices, methods, techniques, drawings, inventions, processes, financial data, financial plans, product plans, lists of actual or potential customers or suppliers, information regarding the business plans and operations of Seller, and the existence of discussions and negotiations between the parties hereto relating to the terms hereof. The restrictions of this Section shall expire three years from the date hereof with respect to any confidential business information that does not constitute a trade secret under applicable law. 6.3 Seller Employees. (a) Purchasers shall offer employment to all ADI Personnel upon terms and conditions substantially equivalent to those provided by Seller; however, Purchasers shall not be required to provide stock options or any stock purchase rights. For a period of twelve months following the Closing, Purchasers shall not employ any person who was an employee of Seller or any subsidiary of Seller on or after April 1, 1998 (other than ADI Personnel), and for a period of eighteen months following the Closing, Purchasers shall not solicit for employment any such person. (b) Purchasers shall maintain employee records transferred to Purchasers hereunder for a period of not less than four years and during that period will afford Seller reasonable access to such records during Purchasers' normal business hours. Purchasers shall maintain the confidentiality of such records and limit access thereto in a manner consistent with Purchasers' treatment of its employee records. (c) Purchasers agree with respect to ADI Personnel hired by Purchasers: (i) to give such employees credit under Purchasers' benefits plans, programs, and arrangements, including credit for accrued vacation which has been charged to Seller under Section 2.3, for such employees' period of service with Seller, provided that such credit shall only be taken into account under any tax-qualified plan maintained by Purchasers for purposes of determining such employees' eligibility for participation and eligibility to satisfy any hours of service requirement in order to receive an allocation of an employer contribution; (ii) to provide coverage to such employees who are eligible under Purchasers' health, medical, life insurance, and other welfare plans (A) without the need to undergo a physical examination or otherwise provide evidence of insurability; (B) any pre-existing condition or similar limitations or exclusions will be applied by taking into account the period of coverage under Seller's plan; (C) by applying and giving credit for amounts paid for the plan year in which the Closing Date occurs as deductibles, out of pocket expenses, and similar amounts paid by individuals and their beneficiaries. 6.4 Cooperation. Insofar as such conditions are within their reasonable control or influence, Purchasers shall use their reasonable best efforts to cause the conditions set forth in Article VII to be satisfied and to facilitate and cause the consummation of the transactions contemplated hereby. Specifically, but not by way of limitation, Purchasers will (i) use their reasonable best efforts to obtain a commitment letter for financing the transactions contemplated hereby on substantially the terms set forth in Exhibit D (the "Financing Commitment") and to obtain financing on such terms, (ii) promptly provide Franchisor with all information required by Franchisor to 17 determine whether Purchasers will be approved as franchisees with respect to the Territory, (iii) actively pursue an agreement with Franchisor as to the principal terms of franchise and development agreements with respect to the Territory, and (iv) if necessary, file all documents required to obtain approval of the transactions contemplated hereby under the HSR Act within 15 days of the date hereof. ARTICLE VII - CONDITIONS PRECEDENT TO THE CLOSING 7.1 Title Examination and Property Inspection. (a) Purchasers shall have 45 days following receipt of the documents referred to in Section 4.12 (the "Title Inspection Period") to obtain and review (i) current surveys and title insurance commitments with respect to the Owned Real Property ("Owner's Title Commitments") pursuant to which the Title Company will agree to issue at Closing owner's policies of title insurance ("Owner's Title Policies") on American Land Title Association standard Form B-1990, without exceptions except as shown in the Owner's Title Commitments, to be issued by Lawyers Title Insurance Corporation ("Title Company") in an amount in the case of each parcel equal to the purchase price allocated to such parcel of the Owned Real Property pursuant to Section 2.7, and (ii) current surveys and title insurance commitments with respect to the Real Property subject to a Lease (collectively, the "Leased Real Property") (the "Lessee Title Commitments", and collectively with the Owner's Title Commitments, the "Title Commitments") pursuant to which the Title Company will agree to issue at Closing lessee's policies of title insurance ("Lessee's Title Policies") on American Land Title Association standard form of leasehold owner's policy to insure leasehold estates, showing no exceptions except as shown in the Lessee Title Commitments. The Owner's Title Policies shall insure the Purchasers that, upon consummation of the purchase and sale herein contemplated, a Purchaser will be vested with good, fee simple, marketable and insurable title to the Owned Real Property, subject only to the Permitted Encumbrances or arising out of acts of the insured. The Lessee's Title Policies shall insure the Purchasers that, upon consummation of the transactions herein contemplated, Purchasers will be vested with a good, valid, marketable and insurable leasehold estate in and to the Leased Real Property, subject only to the Permitted Encumbrances. Purchasers shall have until the end of the Title Inspection Period in which to furnish Seller a written statement of reasonable objections to exceptions which, in Purchasers' reasonable judgment, would unreasonably interfere with the marketability of the Real Property for restaurant or any commercial use (except as limited by restrictions of record when Seller acquired the Real Property) ("Material Objections"). Seller shall have until the Termination Date to satisfy such Material Objections in all material respects, but Seller shall have no obligation to do so. Seller shall, however, be obligated to remove any liens that can be satisfied by the payment of money or to bond over any liens that can be bonded over. If Seller fails to satisfy all Material Objections in all material respects on or prior to the Termination Date, then Purchasers' sole right and remedy shall be to (i) waive the objections and elect to close, (ii) if no more than two Restaurant sites are subject to unresolved Material Objections, designate one or both of such Restaurants as Excluded Restaurants (provided that no more than two Restaurants collectively under this subsection (a) and under subsection (b) below may be designated as Excluded Restaurants), or (iii) if more than two Restaurant sites are subject to unresolved Material Objections, terminate this Agreement by giving written notice of such termination to Seller. If Purchasers fail to furnish Seller a written statement of Material Objections by the end of the Title Inspection Period with respect to any matter appearing as an exception on a Title Commitment, such matter shall be deemed waived by Purchasers and shall be a Permitted Encumbrance. The parties acknowledge that some of the Leased Real Property may be located in shopping centers, and as such, unless the leased premises are a free standing building located on a separate pad with its own legal description ("Free Standing Premises") the Lessee Title Commitments for such Leased Real Property will contain encumbrances for entire shopping centers. Notwithstanding anything to the contrary contained herein, while Lessee Title Commitments will be delivered for such Leased Real Property, no surveys will be delivered and no Lessee's Title Policies will be issued for Leases unless such 18 Leases are for Free Standing Premises. Purchasers may not object to title encumbrances for such Leased Real Property that do not affect the premises leased under the Leases, which such encumbrances shall be deemed to be Permitted Encumbrances. (b) Property Inspection. (A) Between the date of this Agreement and the Closing Date, Purchasers and Purchasers' agents, employees, contractors, representatives and other designees (hereinafter collectively called "Purchasers' Designees") shall have the right to enter the Real Property for the purposes of inspecting the Real Property, conducting soil tests, conducting surveys, mechanical and structural engineering studies, environmental studies, and conducting any other investigations, examinations, tests, and inspections as Purchasers may reasonably require to assess the condition of the Real Property; provided, however, that (i) any activities by or on behalf of Purchasers, including, without limitation, the entry by Purchasers or Purchasers' Designees onto the Real Property, or the other activities of Purchasers or Purchasers' Designees with respect to the Real Property (hereinafter called "Purchasers' Activities") shall not damage the Real Property in any manner whatsoever or disturb or interfere with the rights of any lessor of Leased Real Property; (ii) in the event the Real Property is altered or disturbed in any manner in connection with any Purchasers' Activities, Purchasers shall immediately return the Real Property to the condition existing prior to Purchasers' Activities; (iii) Purchasers shall in no event without Seller's prior written consent disclose the results of any of its investigations, examinations, tests, or inspections to any party (including any Government unless required by law) other than to its lenders, attorneys, consultants, and investors; and (iv) Purchasers shall indemnify, defend, and hold Seller harmless from and against any and all claims, liabilities, damages, losses, costs, and expenses of any kind or nature whatsoever (including, without limitation, attorneys' fees, and expenses and court costs) suffered, incurred or sustained by Seller as a result of, by reason of, or in connection with any Purchasers' Activities. Notwithstanding any provision of this Agreement to the contrary, Purchasers shall not have the right to undertake any environmental studies or testing beyond the scope of a standard "Phase I" evaluation without the prior written consent of Seller and, if applicable, the lessor of any Leased Real Property. (B) Purchasers shall have until the Closing Date to perform such investigations, examinations, tests and inspections as Purchasers shall deem necessary or desirable to determine whether the Real Property is subject to any defect that would unreasonably interfere with its use as a restaurant ("Property Defect"). In the event Purchasers shall reasonably determine that the Real Property is subject to a Property Defect, Purchasers shall give written notice to Seller on or before the 45th day following the date hereof (the "Due Diligence Date") except for Property Defects that arise after the Due Diligence Date, notice of which may be given through the Closing Date. If notice of a Property Defect is not timely given, it shall be deemed waived by Purchasers. Upon the receipt of such notice timely given, Seller shall have until the Termination Date to cure any Property Defect (but with no obligation to do so) in all material respects, and if Seller fails to do so, then Purchasers' sole right and remedy shall be to (i) waive such Property Defect and elect to close, (ii) if no more than two Restaurant sites are subject to unresolved Property Defects, designate one or both of the Restaurants located on the site as Excluded Restaurants (provided that no more than two Restaurants collectively under this subsection (b) and subsection (a) above may be designated as Excluded Restaurants), or (iii) if more than two Restaurant sites are subject to unresolved Property Defects terminate this Agreement by giving written notice to Seller. (C) Prior to any entry by Purchasers or any of Purchasers' Designees onto the Real Property, Purchasers shall: (i) procure a policy of commercial general liability insurance, issued by an insurer reasonably satisfactory to Seller, covering all Purchasers' Activities, with a single limit of liability (per occurrence and aggregate) of not less than $1,000,000.00; and (ii) deliver to 19 Seller a Certificate of Insurance, evidencing that such insurance is in force and effect, and evidencing that Seller has been named as an additional insured thereunder with respect to any Purchasers' Activities. Such insurance shall be written on an "occurrence" basis, and shall be maintained in force until the earlier of (i) the termination of this Agreement and the conclusion of all Purchasers' Activities; or (ii) Closing. (D) Purchasers acknowledge that Seller may deliver to Purchasers certain documents and information in possession of Seller or Seller's agents with regard to the Real Property (hereinafter called the "Due Diligence Materials"). The Due Diligence Materials will be provided to Purchasers without any representation or warranty of any kind or nature whatsoever and are merely provided to Purchasers for Purchasers' informational purposes. Until Closing, Purchasers and Purchasers' Designees shall maintain all Due Diligence Materials as Confidential Information. 7.2 Purchasers' Conditions to Closing. The obligations of Purchasers hereunder are subject to satisfaction of each of the following conditions at or before Closing, the occurrence of which may, at the option of Purchasers, be waived: (a) Subject to the matters disclosed in the Disclosure Memorandum, all representations and warranties of Seller in this Agreement shall be true in all material respects on and as of the Closing. (b) Seller shall have performed and complied in all material respects with all of its obligations under this Agreement which are to be performed or complied with by Seller prior to or on the Closing Date. (c) Seller shall have obtained and delivered to Purchasers all consents necessary to transfer and assign the Assets (except for Minor Contracts and those consents relating to Excluded Restaurants) to Purchasers. (d) Purchasers and Franchisor shall have entered into a franchise agreement with respect to each Restaurant and development agreements with respect to each ADI in the Territory. (e) Purchasers shall have obtained, either from Seller or directly from the issuing authority, all permits, licenses, including liquor licenses, and approvals of all governmental and quasi-governmental authorities necessary for the operation of the Restaurants in accordance with franchise requirements; provided, however, that if Purchasers are unable to obtain from local municipal or county authorities a permit necessary for such operation of the Restaurants, and Purchasers reasonably believe that they will be able to obtain such a permit within two months of the Closing Date, Closing of the transactions contemplated hereunder will not be delayed if Seller delivers to Purchasers a duly executed liquor license management agreement or agreements. (f) If applicable, the waiting period under the HSR Act shall have expired or a notification of early termination of the waiting period shall have been received by Purchasers. (g) Purchasers shall have obtained the financing described on Exhibit D upon terms and conditions reasonably acceptable to Purchasers or other financing reasonably acceptable to Purchasers. (h) Purchasers shall have been issued the Title Policies. (i) Seller shall have delivered the items required by Section 2.4(a). 7.3 Seller's Conditions to Closing. The obligations of Seller hereunder are subject to satisfaction of each of the following conditions at or before Closing, the occurrence of which may, at the option of Seller, be waived: (a) All representations and warranties of Purchasers in this Agreement 20 shall be true on and as of the Closing, and Purchasers shall have delivered to Seller a certificate to such effect dated as of the Closing Date. (b) Purchasers shall have performed and complied in all material respects with all of their obligations under this Agreement which are to be performed or complied with by Purchasers prior to or on the Closing Date. (c) Franchisor shall have agreed to terminate the Franchise Agreements, or release the Seller of all its obligations thereunder, effective as of the Closing. (d) Seller shall have obtained all the Consents (except those relating to Excluded Restaurants). (e) If applicable, the waiting period under the HSR Act shall have expired or a notification of early termination of the waiting period shall have been received by Seller. (f) Purchasers shall have delivered the items required by Section 2.4(b). ARTICLE VIII - INDEMNIFICATION 8.1 Purchaser Claims. (a) Seller shall indemnify and hold harmless Purchasers, their successors and assigns, against, and in respect of: (i) Any and all damages, claims, losses, liabilities, costs, and expenses incurred or suffered by Purchasers that result from, relate to, or arise out of: (A) any and all liabilities and obligations of Seller of any nature whatsoever, except for the Assumed Liabilities; (B) any failure by Seller to carry out any covenant or agreement contained in this Agreement; (C) except as otherwise provided in Section 9.1, any misrepresentation or breach of warranty by Seller contained in this Agreement, the Disclosure Memorandum, or any certificate, furnished to Purchasers by Seller pursuant hereto; or (D) any claim by any Person for any brokerage or finder's fee or commission in respect of the transactions contemplated hereby as a result of Seller's dealings, agreement, or arrangement with such Person. (ii) Any and all actions, suits, claims, proceedings, investigations, demands, assessments, audits, fines, judgments, costs, and other expenses (including, without limitation, reasonable legal fees and expenses) incident to any of the foregoing including all such expenses reasonably incurred in mitigating any damages resulting to Purchasers from any matter set forth in subsection (i) above. (b) Notwithstanding the foregoing, Seller shall have no liability (for indemnification or otherwise) with respect to Section 8.1(a)(i)(C) (and Section 8.1(a)(ii) to the extent the items covered thereby relate back to Section 8.1(a)(i)(C)) unless and until the aggregate liability of Seller thereunder exceeds $500,000, whereupon Seller shall have liability for such indemnification from the first dollar as if such threshold did not exist; provided, however, that liabilities arising with respect to Sections 3.1 through 3.4, 3.5(a), 3.5(b), 3.5(c), 3.7(g), and 3.8 through 3.10 hereof shall not be subject to the foregoing threshold and any liabilities arising with respect to such matters shall not be taken into account in computing aggregate liabilities for the purpose of applying such threshold amount to liabilities arising under other 21 Sections subject thereto. (c) The amount of any liability of Seller under this Section 8.1 shall be computed net of any tax benefit to Purchasers from the matter giving rise to the claim for indemnification hereunder and net of any insurance proceeds received by Purchasers with respect to the matter out of which such liability arose. (d) The representations and warranties of Seller contained in this Agreement, the Disclosure Memorandum, or any certificate delivered by or on behalf of Seller pursuant to this Agreement or in connection with the transactions contemplated herein shall survive the consummation of the transactions contemplated herein and shall continue in full force and effect for the periods specified below ("Survival Period"): (i) the representations and warranties contained in Section 3.5(d) shall be of no further force and effect after sixty days from the date of the Closing; (ii) the representations and warranties contained in Sections 3.1, through 3.4, 3.5(a), 3.5(b), and 3.5(c) and Section 3.7(g) and any obligations arising pursuant to the Deeds shall survive until the expiration of any applicable statues of limitation provided by law; and (iii) all other representations and warranties of Seller shall be of no further force and effect after two years from the date of the Closing. Anything to the contrary notwithstanding, the Survival Period shall be extended automatically to include any time period necessary to resolve a written claim for indemnification which was made in reasonable detail before expiration of the Survival Period but not resolved prior to its expiration, and any such extension shall apply only as to the claims so asserted and not so resolved within the Survival Period. Liability for any such item shall continue until such claim shall have been finally settled, decided, or adjudicated. (e) The covenants contained in Section 4.1 through 4.4 and 4.11 and liability therefor shall survive the Closing. After the Closing, Purchasers may not assert any claim against Seller for breach of any covenant contained in any other Section of Article IV and all such claims shall be deemed to be waived as a result of the Closing. (f) Purchasers shall provide written notice to Seller of any claim for indemnification under this Article as soon as practicable; provided, however, that failure to provide such notice on a timely basis shall not bar Purchasers' ability to assert any such claim except to the extent that Seller is actually prejudiced thereby. Purchasers shall use their reasonable best efforts to mitigate any damages, expenses, etc. resulting from any matter giving rise to liability of Seller under this Article. 8.2 Seller Claims. (a) Purchasers shall jointly and severally indemnify and hold harmless Seller against, and in respect of, any and all damages, claims, losses, liabilities, and expenses, including without limitation, legal accounting and other expenses, which may arise out of: (i) any breach or violation by Purchasers of any covenant set forth herein or any failure to fulfill any obligation set forth herein, including, but not limited to, the obligation to satisfy the Assumed Liabilities; (ii) except as otherwise provided in Section 9.1, any breach of any of the representations or warranties made in this Agreement by Purchasers; (iii) any claim by any Person or any brokerage or finder's fee or commission in respect of the transactions contemplated hereby as a result of Purchasers' dealings, agreement, or arrangement with such Person. (b) The amount of any liability of Purchasers under this Section 8.2 shall be computed net of any tax benefit to Seller from the matter giving rise to the claim for indemnification hereunder and net of any insurance proceeds received by Seller with respect to the matter out of which such liability arose. 8.3 Defense of Third Party Claims. With respect to any claim by Seller or 22 Purchasers under Section 8.1 or 8.2, respectively, relating to a third party claim or demand, the indemnitee shall provide the indemnitor with prompt written notice thereof in accordance with Section 10.4 and the indemnitor shall defend, in good faith and at its expense, by legal counsel chosen by it and reasonably acceptable to the indemnitee any such claim or demand, and the indemnitee, at its expense, shall have the right to participate in the defense of any such third party claim. So long as the indemnitor is defending in good faith any such third party claim, the indemnitee shall not settle or compromise such third party claim. In any event the indemnitee shall cooperate in the settlement or compromise of, or defense against, any such asserted claim. 8.4 Exclusive Remedies. The rights and remedies of the parties under this Article VIII shall be the sole and exclusive rights and remedies that either party may seek for any misrepresentation, breach of warranty, or failure to fulfill any covenant or agreement under this Agreement, except that either party may seek specific performance or injunctive relief. 8.5 Settlement of Disputes. (a) Arbitration. All disputes with respect to any claim for indemnification under this Article VIII and all other disputes and controversies of every kind and nature between the parties hereto arising out of or in connection with this Agreement shall be submitted to arbitration pursuant to the following procedures: (i) After a dispute or controversy arises, either party may, in a written notice delivered to the other party, demand such arbitration. Such notice shall designate the name of the arbitrator appointed by such party demanding arbitration, together with a statement of the matter in controversy; (ii) Within 30 days after receipt of such demand, the other party shall, in a written notice delivered to the other party, name such party's arbitrator. If such party fails to name an arbitrator, then the second arbitrator shall be named by the American Arbitration Association ("AAA"). The two arbitrators so selected shall name a third arbitrator within 30 days, or in lieu of such agreement on a third arbitrator by the two arbitrators so appointed, the third arbitrator shall be appointed by the AAA; (iii) The arbitration hearing shall be held in Orlando, Florida. The Commercial Arbitration Rule of the AAA shall be used and the substantive laws of the State of Florida (excluding conflict of laws provisions) shall apply; (iv) An award rendered by a majority of the arbitrators appointed pursuant to this Agreement shall be final and binding on all parties to the proceeding, shall deal with the question of costs of the arbitration and all related matters, including the award of attorneys' fees to the prevailing party as determined by majority decision of the arbitrators, and judgment on such award may be entered by either party in a court of competent jurisdiction; and (v) Except as set forth in subsection (b) below, the parties stipulate that the provisions of this Section 8.5 shall be a complete defense to any suit, action or proceeding instituted in any federal, state, or local court or before any administrative tribunal with respect to any controversy or dispute arising out of this Agreement. The arbitration provisions hereof shall, with respect to such controversy or dispute, survive the termination or expiration of this Agreement. (b) Emergency Relief. Notwithstanding anything in this Section 8.5 to the contrary, either party may seek from a court any provisional remedy that may be necessary to protect any rights or property of such party pending the establishment of the arbitral tribunal or its determination of the merits of the controversy. 23 ARTICLE IX - TERMINATION 9.1 Termination. (a) This Agreement may be terminated as follows: (i) At any time by the mutual consent of Seller and Purchasers; (ii) By Purchasers pursuant to Section 7.1; (iii) By Seller if Purchasers shall not have (i) obtained and provided a copy of a Financing Commitment to Seller within 30 days from the date hereof, (ii) been approved hereof as franchisees with respect to the Territory by Franchisor within 45 days of the date hereof, (iii) reached agreement with Franchisor as to a development schedule and other material terms of franchise and development agreements with respect to the Territory within 45 days from the date hereof; or (iv) By either Seller or Purchasers, at their sole election, at any time after the Termination Date, if the Closing shall not have occurred on or prior to such date. (b) In the event of the termination of this Agreement pursuant to subparagraph (a)(iv) above because Seller or any Purchaser, as the case may be, shall have willingly failed to fulfill its obligations hereunder, the other party shall, subject to Section 8.5, be entitled to pursue, exercise, and enforce any and all remedies, rights, powers, and privileges available to it at law or in equity. (c) If any of the warranties made in this Agreement: (i) will be or would be, at Closing (as if they had been given again at Closing) not complied with or otherwise untrue or inaccurate in any material respect (but was when given not so untrue or inaccurate), then the party in receipt of that warranty (the "Warrantee") shall be entitled by notice in writing to the party giving that warranty (the "Warrantor") to terminate this Agreement, but shall not be entitled to any other rights or remedies, including the right to claim damages, and failure to exercise this right shall constitute a waiver of any other rights of the Warrantee arising out of any breach of such warranty; or (ii) was, when given, untrue or inaccurate in a material respect, then the Warrantee shall be entitled by notice in writing to the Warrantor to terminate this Agreement (in addition to and without prejudice to all other rights and remedies available to it including the right to claim damages), and failure to exercise this right shall not constitute a waiver of any other rights of the Warrantee arising out of any breach of such warranty. (d) Section 6.2, Article VIII, and Article X hereof shall survive the termination of this Agreement. ARTICLE X - MISCELLANEOUS 10.1 Expenses. (a) Each party hereto shall pay its own legal, accounting, and similar expenses incidental to the preparation of this Agreement, the carrying out of the provisions of this Agreement, and the consummation of the transactions contemplated hereby. (b) Purchasers shall pay all filing fees required under the HSR Act, if applicable. (c) Seller shall pay the costs of obtaining title insurance with respect to the Real Property (provided that Florida properties are insured by a single 24 policy for an aggregate value of no more than $35,000,000) and all transfer, intangible, recording, and documentary taxes, stamps, and fees with respect to the transfer of the Owned Real Property and the Leases. Purchasers shall pay the cost of all surveys, and all environmental investigations, studies, and reports, and all other costs of any investigation of the Assets, the Restaurants, or the Business by Purchasers. (d) Purchasers shall pay any costs associated with the transfer of any Permits and the cost of obtaining liquor licenses or other Permits that are not assignable. (e) The parties shall split equally the cost of any sales taxes, transfer taxes, documentary stamp taxes, or other taxes imposed with respect to the transfer of any Assets constituting personal property. (f) Seller shall pay the cost of performing the physical inventory at Closing. (g) Seller shall pay the costs of obtaining any Consents, except as provided in Section 4.9(d). (h) Following the Closing, Seller shall pay to Purchasers on a monthly basis as billed the amount of all gift certificates issued by Seller prior to the Closing and redeemed thereafter. 10.2 Contents of Agreement; Parties in Interest; etc. This Agreement sets forth the entire understanding of the parties hereto with respect to the transactions contemplated hereby and constitutes a complete statement of the terms of such transaction. This Agreement shall not be amended or modified except by written instrument duly executed by each of the parties hereto. Any and all previous agreements and understandings between the parties regarding the subject matter hereof, whether written or oral, are superseded by this Agreement. Neither party has been induced to enter into this Agreement in reliance on, and has not relied upon, any statement, representation, or warranty of the other party not set forth in this Agreement, the Disclosure Memorandum, or any certificate delivered pursuant to this Agreement. 10.3 Assignment and Binding Effect. This Agreement may not be assigned prior to the Closing by any party hereto without the prior written consent of the other party. Subject to the foregoing, all of the terms and provisions of this Agreement shall be binding upon and inure to the benefit of and be enforceable by the successors and assigns of Seller and Purchasers. 10.4 Notices. Any notice, request, demand, waiver, consent, approval, or other communication which is required or permitted hereunder shall be in writing and shall be deemed given only if delivered personally or sent by telecopy or by first class registered or certified United States Mail, with proper postage prepaid, as follows: If to Seller, to: With a required copy to: Apple South, Inc. Kilpatrick Stockton LLP Hancock at Washington 1100 Peachtree Street, Suite 2800 Madison, Georgia 30650 Atlanta, Georgia 30309 Attention: Louis J. (Dusty) Profumo Attention: Larry D. Ledbetter, Esq. Fax: 706-343-2434 Fax: 404-815-6555 If to Purchasers: With a required copy to: Florida Apple North, L.L.C. Chopin, Miller & Yudenfreund 551 Madison Avenue 440 Royal Palm Way 2nd Floor Suite 200 New York, New York 10022 Palm Beach, Florida 33480 Attention: Gregory Georgas Attention: L. Frank Chopin Fax: 212-317-2900 Fax: 561-655-9508 25 or to such other address or person as the addressee may have specified in a notice duly given to the sender as provided herein. Such notice, request, demand, waiver, consent, approval or other communication will be deemed to have been given as of the date actually delivered, or if mailed, four days after deposit in the U. S. Mail properly addressed with adequate postage affixed. 10.5 FLORIDA LAW TO GOVERN. THIS AGREEMENT SHALL BE GOVERNED BY AND INTERPRETED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF FLORIDA WITHOUT REGARD TO CONFLICT OF LAW PRINCIPLES. 10.6 Headings. All section headings contained in this Agreement are for convenience of reference only, do not form a part of this Agreement, and shall not affect in any way the meaning or interpretation of this Agreement. 10.7 Schedules and Exhibits. All Exhibits and Schedules referred to herein are intended to be and hereby are specifically made a part of this Agreement. 10.8 Severability. Any provision of this Agreement which is invalid or unenforceable in any jurisdiction shall be ineffective to the extent of such invalidity or unenforceability without invalidating or rendering unenforceable the remaining provisions hereof, and any such invalidity or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. 10.9 Public Announcements. Seller will prepare and, subject to Purchasers' review and approval, release all press announcements relating to this Agreement and the transaction contemplated herein as Seller may find necessary. Except to the extent required by law, Purchasers shall refrain from issuing any press release, publicity statement, or other public notice relating to this Agreement or the transaction contemplated hereby without Seller's prior written approval. 10.10 Construction. The parties hereto have participated jointly in the negotiation and drafting of this Agreement. In the event that any ambiguity or question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the parties hereto and no presumption or burden of proof shall arise favoring or disfavoring any party hereto by virtue of the authorship of any of the provisions of this Agreement. 10.11 Disclaimer of Warranties. OTHER THAN TO THE EXTENT OF ANY EXPRESS REPRESENTATIONS AND WARRANTIES OF SELLER SET FORTH IN THIS AGREEMENT OR IN ANY OTHER DOCUMENTS DELIVERED PURSUANT TO SECTION 2.4(a), SELLER DOES NOT, BY THE EXECUTION AND DELIVERY OF THIS AGREEMENT, MAKE ANY REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, OF ANY KIND OR NATURE WHATSOEVER, WITH RESPECT TO THE ASSETS, AND ALL SUCH WARRANTIES ARE HEREBY DISCLAIMED. PURCHASER WILL CONDUCT SUCH INSPECTIONS AND INVESTIGATIONS OF THE ASSETS (INCLUDING, BUT NOT LIMITED TO, THE PHYSICAL AND ENVIRONMENTAL CONDITION THEREOF) AND RELY UPON SAME AND, UPON CLOSING, SHALL ASSUME THE RISK THAT ADVERSE MATTERS MAY NOT HAVE BEEN REVEALED BY PURCHASERS' INSPECTIONS AND INVESTIGATIONS EXCEPT TO THE EXTENT OF REPRESENTATIONS AND WARRANTIES MADE BY SELLER HEREIN. SELLER SHALL SELL AND CONVEY TO PURCHASERS, AND PURCHASER SHALL ACCEPT, THE ASSETS "AS IS", "WHERE IS", AND WITH ALL FAULTS EXCEPT TO THE EXTENT OF REPRESENTATIONS AND WARRANTIES MADE BY SELLER HEREIN, AND THERE ARE NO ORAL AGREEMENTS, WARRANTIES OR REPRESENTATIONS, COLLATERAL TO OR AFFECTING THE ASSETS BY SELLER. EXCEPT TO THE EXTENT OF REPRESENTATIONS AND WARRANTIES MADE BY SELLER HEREIN, SELLER MAKES, AND SHALL MAKE, NO EXPRESS OR IMPLIED WARRANTY OF SUITABILITY OR FITNESS OF ANY OF THE ASSETS FOR ANY PURPOSE, OR AS TO THE MERCHANTABILITY, ENVIRONMENTAL CONDITION, TITLE, VALUE, QUALITY, QUANTITY, CONDITION OR SALABILITY OF ANY OF THE ASSETS, OR AS TO THE PRESENCE ON OR ABSENCE FROM THE ASSETS OF ANY HAZARDOUS MATERIAL. THE TERMS AND CONDITIONS OF THIS SECTION 10.11 SHALL SURVIVE THE CONSUMMATION OF THE PURCHASE AND SALE OF THE ASSETS ON THE CLOSING DATE WITHOUT REGARD TO ANY GENERAL LIMITATIONS UPON SURVIVAL SET FORTH IN THIS AGREEMENT. THE LIMITATIONS SET FORTH IN THIS SECTION SHALL IN NO WAY LIMIT ANY WARRANTY FROM ANY THIRD PARTY. 10.12 Time. Time is and shall be of the essence of this Agreement. [Signatures Located on Following Pages] 26 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first written above. SELLER: APPLE SOUTH, INC. By: Name: Title: PURCHASERS: FLORIDA APPLE NORTH, L.L.C. By: Name: Title: FLORIDA APPLE SOUTH, L.L.C. By: Name: Title: FLORIDA APPLE WEST, L.L.C. By: Name: Title: WIGEL PARTNERSHIP By: Name: Title: 27 EXHIBIT TABLE OF CONTENTS EXHIBIT TITLE A Bill of Sale and Assignment Agreement B Opinion of Seller's Counsel C Opinion of Purchaser's Counsel D Terms of Financing Commitment E Form of Note Exhibits to this agreement are not filed pursuant to Item 601(b)(2) of SEC Regulation S-K. By the filling of this Form 10-Q, the Registrant hereby agrees to furnish supplementally a copy of any omitted schedule to the Commission upon request. 28 EX-2.4 5 ASSET PURCHASE AGREEMENT DATED JUNE 19, 1998 ASSET PURCHASE AGREEMENT THIS ASSET PURCHASE AGREEMENT, dated as of June 19, 1998, by and among APPLE SOUTH, INC., a Georgia corporation ("Seller") and U. S. RESTAURANT PROPERTIES OPERATING L.P., a Delaware limited partnership ("Purchaser"). W I T N E S S E T H : WHEREAS, Seller owns and operates a number of Applebee's Neighborhood Grill & Bar ("Applebee's") franchise restaurants; WHEREAS, on or about the date hereof, Seller entered into an agreement to sell certain Applebee's restaurants and related property (excluding real property) to Darrell L. Rolph or his permitted assign ("Rolph"). WHEREAS, Seller desires to sell to Purchaser the real property which Seller owns and transfer to Purchaser certain leases on which such restaurants are located, all on the terms and subject to the conditions set forth herein; and WHEREAS, Purchaser desires to purchase such property and accept such leases, on the terms and subject to the conditions set forth herein, and simultaneously lease such properties to Rolph; NOW, THEREFORE, in consideration of the premises and other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, and intending to be legally bound, the parties hereby agree as follows: ARTICLE I - DEFINITIONS 1.1 Definitions. For purposes of this Agreement, the following terms shall have the meanings set forth below: "Action" shall mean any action, suit, litigation, complaint, counterclaim, claim, petition, mediation contest, or administrative proceeding, whether at law, in equity, in arbitration or otherwise, and whether conducted by or before any Government or other Person. "Assets" shall mean all of Seller's rights and interests in, to, or under the following: (i) all prepaid items relating exclusively to the Real Property; (ii) all assignable Permits; (iii) all assignable rights under express or implied warranties of manufacturers, distributors, or retailers relating to the Assets; (iv) the Contracts; (v) the Owned Real Property; (vi) the Leases; and (vii)all records and files related to the Real Property such as purchase agreements, deeds, construction documents, title reports, environmental and engineering reports, appraisals, surveys, etc. "Assets" shall not include any other property, tangible or intangible, real or personal, not described above. "Assumed Liabilities" shall mean (i) all obligations of Seller that accrue after the Closing under the terms of the Contracts and Leases, (ii) all 1 obligations of Seller under the Contracts that accrue prior to the Closing and Leases but which are not due for payment until after the Closing and which are taken into account in computing the Purchase Price pursuant to Section 2.3, (iii) obligations arising after the Closing under any Permits which are assigned to Purchaser, (iv) all Property Taxes and all other obligations with respect to the Assets that accrue after the Closing. Assumed Liabilities shall not include any liability, obligation, payment, duty, or responsibility of any nature except as expressly described above and specifically shall not include (i) liabilities or obligations of Seller arising out of any breach by Seller of any of the Contracts or Leases; (ii) except as provided in clause (ii) above, liabilities or obligations of Seller under any of the Contracts or Leases or with respect to the Owned Real Property or other Assets that accrue in any such case prior to the Closing; (iii) any liability of Seller for product liability, personal injury, property damage, or otherwise based on any tort claim or statutory liability (including but not limited to any "dram shop" liability); (iv) any federal, state, or local tax liability of Seller except to the extent expressly assumed hereunder, (v) any contractual claim based on any lease, contract, or agreement other than the Contracts and Leases; (vi) any liability, obligation, or responsibility of Seller to Seller's employees, agents, or independent contractors with respect to wages, salaries, bonuses, or other compensation or benefits earned or accrued prior to the Closing; and (vii) any liability or obligation of Seller arising out of the negotiation, execution, or performance of this Agreement, including fees and expenses of attorneys and accountants, except as otherwise expressly provided herein. "Bill of Sale and Assignment Agreement" shall mean an instrument in substantially the form of Exhibit A hereto pursuant to which the Assets (except for the Owned Real Property and Leases) will be transferred and assigned to Purchaser at the Closing and pursuant to which Purchaser will assume the Assumed Liabilities. "Business" shall mean the business of owning and operating the Restaurants as conducted prior to the Closing by Seller. "Closing" shall have the meaning set forth in Section 2.6 hereof. "Closing Date" shall mean the time and date that the Closing occurs. "Code" shall mean the United States Internal Revenue Code of 1986, as amended, and all regulations thereunder. Any reference herein to a specific section or sections of the Code shall be deemed to include a reference to any corresponding provision of future law. "Consents" shall mean all consents, approvals, and estoppels of others which are required to be obtained in order to effect the valid assignment, transfer, and conveyance to Purchaser of the Material Contracts and the Leases without resulting in any default thereunder. "Contracts" shall mean all contracts and agreements that relate exclusively to the Real Property, a list of which are set forth on Schedule 1.1B-1. "Deeds" shall mean special warranty deeds, limited warranty deeds or other appropriate instruments to convey good and marketable fee simple title to the Owned Real Property, with the warranty of title contained therein limited to the claims of Persons claiming by, through or under Seller, but not otherwise. "Disclosure Memorandum" shall mean the set of numbered schedules referencing Sections of this Agreement delivered by Seller and dated of even date herewith, as supplemented by new or amended schedules delivered by Seller prior to the Closing. "Effective Time" shall have the meaning set forth in Section 2.5 hereof. "Environmental Laws" shall mean all federal, state, municipal, and local laws, statutes, ordinances, rules, regulations, conventions, and decrees 2 relating to the environment, including without limitation, those relating to emissions, discharges, releases, or threatened releases of pollutants, contaminants, chemicals, or industrial, toxic, or Hazardous Materials or wastes of every kind and nature into the environment (including without limitation ambient air, surface water, ground water, soil, and subsoil), or otherwise relating to the manufacture, generation, processing, distribution, application, use, treatment, storage, disposal, transport, or handling of pollutants, contaminants, chemicals, or industrial, toxic, or hazardous substances or wastes, and any and all laws, rules, regulations, codes, directives, orders, decrees, judgments, injunctions, consent agreements, stipulations, provisions, and conditions of Environmental Permits, licenses, injunctions, consent agreements, stipulations, certificates of authorization, and other operating authorizations, entered, promulgated, or approved thereunder. "Environmental Permits" shall mean all permits, licenses, certificates, approvals, authorizations, regulatory plans or compliance schedules required by applicable Environmental Laws, or issued by a Government pursuant to applicable Environmental Laws, or entered into by agreement of the party to be bound, relating to activities that affect the environment, including without limitation, permits, licenses, certificates, approvals, authorizations, regulatory plans and compliance schedules for air emissions, water discharges, pesticide and herbicide or other agricultural chemical storage, use or application, and Hazardous Material or Solid Waste generation, use, storage, treatment and disposal. "Financial Statements" shall have the meaning set forth in Section 3.8. "Forum" shall mean any federal, state, local, municipal, or foreign court, governmental agency, administrative body or agency, tribunal, private alternative dispute resolution system, or arbitration panel. "Government" shall mean any federal, state, local, municipal, or foreign government or any department, commission, board, bureau, agency, instrumentality, unit, or taxing authority thereof. "Hazardous Material" shall mean all substances and materials designated as hazardous or toxic as of the date hereof pursuant to any applicable Environmental Law. "Knowledge of Seller" (or words of like effect) when used to qualify a representation, warranty, or other statement shall mean the actual knowledge of Sellers' vice president of operations for the Territory and all management of Seller senior thereto. "Leases" shall mean the leases of real property and improvements described on Schedule 1.1C. "Material Contracts" shall mean all Contracts that involve monetary obligations of Seller of more than $12,000 per year and that are not cancelable by Seller upon thirty days notice or less, a list of which are set forth on Schedule 1.1B-2. "Minor Contracts" shall mean all Contracts that are not Material Contracts. "Orders" shall mean all applicable orders, writs, judgments, decrees, rulings, consent agreements, and awards of or by any Forum or entered by consent of the party to be bound. "Owned Real Property" shall mean those tracts and parcels of land owned by Seller (all of which tracts and parcels are described in Schedule 1.1A), and all buildings, fixtures, signs, parking facilities, and other improvements located thereon and appurtenances thereto. "Permits" shall mean all rights of Seller under licenses of every kind, certificates of occupancy, and permits or approvals of any nature, from 3 governmental and regulatory authorities which relate exclusively to the Real Property. "Permitted Encumbrances" shall mean (i) such easements, restrictions, covenants, and other such encumbrances which are shown as exceptions on the Title Commitments and any other encumbrances of record as of the effective date of the Title Commitments, (ii) ordinances (municipal and zoning), (iii) matters reflected on the surveys delivered in accordance with Section 4.9(a), and (iv) such easements, restrictions, covenants, and other encumbrances which become matters of public record after the effective date of the Title Commitments and before the Closing, in each such case, to the extent that such encumbrances could not reasonably be expected to materially interfere with or impair Purchaser's (or its lessee's) use of the Real Property for Applebee's Neighborhood Grill & Bar Restaurants or other reasonable commercial use and that do not represent a lien or encumbrance for money owing. Permitted Encumbrances shall include all liens for taxes not yet due and payable. "Person" shall include an individual, a partnership, a joint venture, a corporation, a limited liability company, a trust, an unincorporated organization, a government, and any other legal entity. "Property Taxes" shall mean all ad valorem, real property, and personal property taxes, all general and special private and public assessments, all other property taxes, and all similar obligations pertaining to the Assets. "Purchase Price Adjustment Schedule" shall have the meaning set forth in Section 2.3. "Real Property" shall mean the land and improvements comprising the Owned Real Property and all land and improvements subject to the Leases. "Restaurants" shall mean the Applebee's Neighborhood Grill & Bar restaurants operated by Seller on the Real Property. "Schedules" shall mean the numbered sections of the Disclosure Memorandum. "Solid Waste" shall mean any garbage, refuse, sludge from a waste treatment plant, water supply treatment plant, or air pollution control facility, and other discarded material, including solid, liquid, semisolid, or contained gaseous material resulting from industrial, commercial, mining, and agricultural operations, and from community activities. "Termination Date" shall mean August 14, 1998. "Title Commitments" shall have the meaning set forth in Section 4.9(a). "Title Policies" shall mean the Owner's Title Policies and the Lessee's Title Policies as defined in Section 4.9(a). ARTICLE II - PURCHASE AND SALE 2.1 Purchase and Sale. Upon the terms and subject to the conditions set forth in this Agreement, at the Closing Seller shall sell, transfer, and assign to Purchaser all of Seller's right, title, and interest in and to the Assets free and clear of any mortgage, security interest, lien, charge, claim, or other encumbrance of any nature except the Permitted Encumbrances, and Purchaser shall purchase the Assets from Seller for the Purchase Price set forth in Section 2.3. 2.2 Assumption of Liabilities. As of the Effective Time, Purchaser shall assume all of the Assumed Liabilities. Except for the Assumed Liabilities, Purchaser does not hereby assume or agree to assume or pay any obligations, liabilities, indebtedness, duties, responsibilities, or commitments of Seller or any other Person, of any nature whatsoever, whether known or unknown, absolute or contingent, due or to become due. 4 2.3 Purchase Price. The purchase price for the Assets (the "Purchase Price") shall be $10,500,000.00 adjusted as follows: (a) The amount of the purchase price shall be increased by (i) all amounts paid by Seller under the Contracts that pertain to periods after the Closing; and (ii) any other prepaid expenses pertaining to the Real Property to the extent that the same will benefit Purchaser after the Closing. (b) The amount of the purchase price shall be decreased by all amounts payable under the Contracts that pertain to periods before the Closing but are due and payable after the Closing and that have not been paid as of the Closing. (c) The Purchase Price shall be adjusted by prorating all Property Taxes as of the Closing Date and Purchaser will assume all obligations to pay same. (d) The amount of the purchase price shall be further adjusted to reflect any expense paid by one party which the other party has agreed to pay or share pursuant to Section 10.1 or otherwise pursuant to this Agreement. The foregoing adjustments shall be calculated by the parties and set forth on a Purchase Price adjustment schedule (the "Purchase Price Adjustment Schedule") which shall be signed by both parties at Closing. The Purchase Price shall be paid by Purchaser on the Closing Date by wire transfer of immediately available funds to an account designated by Seller. As soon as possible after the Closing (but not later than the first anniversary thereof), the parties shall reconcile the actual amount of prorations that were estimated at Closing with the estimated amounts thereof. To the extent that the actual amounts differ from the amounts estimated on the Purchase Price Adjustment Schedule or prorations or adjustments other than those reflected on the Purchase Price Adjustment Schedule are discovered after the Closing, the parties agree to remit the correct amount of such items to the appropriate party as and when same are determined. 2.4 Deliveries at the Closing. (a) At the Closing, Seller shall deliver to Purchaser the following: (i) A certificate executed by Seller, dated as of the Closing Date, certifying in such detail as Purchaser may reasonably request that subject to the matters disclosed in the Disclosure Memorandum, as it may be supplemented by Seller from time to time, all representations and warranties of Seller in this Agreement are true in all material respects as of the Closing Date; (ii) A certificate of the Secretary or an Assistant Secretary of Seller, dated as of the Closing Date, certifying in such detail as Purchaser may reasonably request (A) that attached thereto is a true and complete copy of resolutions adopted by the Board of Directors of Seller authorizing the execution, delivery, and performance of this Agreement, the Bill of Sale and Assignment Agreement, and the Deeds, and that all such resolutions are still in full force and effect and are all the resolutions adopted in connection with the transactions contemplated by this Agreement, and (B) as to the incumbency and specimen signature of each officer of Seller executing this Agreement, the Bill of Sale and Assignment Agreement, the Deeds, and any certificate or instrument furnished pursuant hereto, and a certification by another officer of Seller as to the incumbency and signature of the officer signing such certificate; (iii) The opinion of Kilpatrick Stockton LLP, counsel to Seller, in substantially the form of Exhibit B hereto; (iv) The Bill of Sale and Assignment Agreement, duly executed by Seller; (v) The Consents; (vi) The Deeds, duly executed by Seller; (vii) An Assignment and Assumption of the Leases, duly executed by Seller; 5 (viii) A Cross-Receipt, duly executed by Seller; and (ix) Any other documents that Purchaser may reasonably request at least three days prior to the Closing in order to effectuate the transactions contemplated hereby. (b) At the Closing Purchaser shall deliver to Seller the following: (i) A certificate executed by Purchaser, dated as of the Closing Date, certifying in such detail as Seller may reasonably request that all representations and warranties of Purchaser in this Agreement are true in all material respects as of the Closing Date; (ii) A certificate of the Secretary or an Assistant Secretary of the General Partner of the Purchaser, dated as of the Closing Date, certifying in such detail as Seller may request (A) that attached thereto is a true and complete copy of resolutions adopted by the Board of Directors of Purchaser authorizing the execution, delivery and performance of this Agreement and the Bill of Sale and Assignment Agreement, and that all such resolutions are still in full force and effect and are all the resolutions adopted in connection with the transactions contemplated by this Agreement, and (B) as to the incumbency and specimen signature of each officer of Purchaser executing this Agreement, and any certificate or instrument furnished pursuant hereto or to be furnished in connection herewith as of the Closing Date, and a certification by another officer of Purchaser as to the incumbency and signature of the officer signing such certificate; (iii) The funds constituting the Purchase Price; (iv) The Bill of Sale and Assignment Agreement, duly executed by Purchaser; (v) An Assignment and Assumption of the Leases, duly executed by Purchaser; (vi) The opinion of Middleberg, Riddle & Gianna, counsel to Purchaser, in substantially the form of Exhibit C hereto; (vii) A Cross-Receipt, duly executed by Purchaser; and (viii) Any other documents that Seller may reasonably request at least three days prior to the Closing. 2.5 Transfer of Operations. Purchaser shall be entitled to immediate possession of, and to exercise all rights arising under, the Assets from and after the time that the Restaurants open for business on the Closing Date (the "Effective Time"). Except as expressly provided in this Agreement, all liabilities, claims, or injuries arising before the Effective Time shall be solely to the benefit or the risk of Seller. All such occurrences after the Effective Time shall be solely to the benefit or the risk of Purchaser. The risk of loss or damage by fire, storm, flood, theft, or other casualty or cause shall be in all respects upon Seller prior to the Effective Time and upon the Purchaser thereafter. 2.6 Closing. The closing of the transactions described in this Article II (the "Closing") shall take place at the offices of Kilpatrick Stockton LLP, Suite 2800, 1100 Peachtree Street, Atlanta, Georgia, at 10:00 a.m. on July 31, 1998, or on such other date and time as may be mutually agreed upon by the parties hereto. 2.7 Allocation of Purchase Price. The Purchase Price shall be allocated among the various Assets as set forth on Exhibit D hereof. Each party hereby agrees that it will not take a position on any income tax return, before any governmental agency charged with the collection of any income tax, or in any judicial proceeding that is inconsistent with the terms of this Section 2.7. 2.8 Further Assurances. From time to time after the Closing at Purchaser's request and expense, Seller shall execute, acknowledge, and deliver to Purchaser 6 such other instruments of conveyance and transfer and shall take such other actions and execute and deliver such other documents, certifications, and further assurances as Purchaser may reasonably require to vest more effectively in Purchaser, or to put Purchaser more fully in possession of, any of the Assets, or to better enable Purchaser to complete, perform and discharge the Assumed Liabilities. Each party hereto will cooperate with the other and execute and deliver to the other party hereto such other instruments and documents and take such other actions as may be reasonably requested from time to time by any other party hereto as necessary to carry out, evidence, and confirm the intended purpose of this Agreement. In addition, Seller shall provide all documentation (at no expense to Seller other than incidental copying charges), which Purchaser may reasonably request, including providing management letters to Purchaser's auditors, in order for Purchaser to satisfy its reporting requirements under applicable securities laws. ARTICLE III - REPRESENTATIONS AND WARRANTIES OF SELLER Subject to the limitations and exceptions set forth in the Disclosure Memorandum dated of even date hereof, as supplemented or amended from time to time by Seller prior to the Closing Date, regardless of whether any Schedule constituting a part of the Disclosure Memorandum is referenced in any specific provision below, Seller hereby represents and warrants to Purchaser as follows: 3.1 Organization, Qualifications and Corporate Power. Seller is a corporation duly incorporated and organized, validly existing, and in good standing under the laws of the State of Georgia. Seller has the corporate power and authority to execute, deliver, and perform this Agreement, the Bill of Sale and Assignment Agreement, the Deeds, and all other agreements, documents, certificates, and other papers contemplated to be delivered by Seller pursuant to this Agreement. 3.2 Authorization. The execution, delivery, and performance by Seller of this Agreement, the Bill of Sale and Assignment Agreement, the Deeds, and all other agreements, documents, certificates, and other papers contemplated to be delivered by Seller pursuant to this Agreement have been duly authorized by the Board of Directors of Seller. 3.3 Non-Contravention. Subject to obtaining the consents to assignment of the Leases and Material Contracts set forth on Schedule 3.3, the execution, delivery and performance of this Agreement will not violate or result in a breach of any term of Seller's Articles of Incorporation or Bylaws, result in a breach of any agreement or other instrument to which Seller is a party (except for defaults under Minor Contracts where the consent of the other party or parties to such contract to the assignment thereof will not be obtained) or violate any law or any order, rule, or regulation applicable to Seller of any Forum having jurisdiction over Seller; and will not result in the creation or imposition of any lien, charge, or encumbrance of any nature whatsoever upon any of the Assets. Except as set forth on Schedule 3.3 and except for consents required under Minor Contracts, the execution, delivery and performance of this Agreement and the other documents executed in connection herewith, and the consummation of the transactions contemplated hereby and thereby do not require any filing with, notice to or consent, waiver or approval of any third party, including but not limited to, any Forum. Schedule 3.3 identifies separately each notice, consent, waiver, or approval by reference to each Lease and to each Material Contract to which it is applicable. 3.4 Validity. This Agreement has been duly executed and delivered by the Seller and constitutes the legal, valid, and binding obligation of Seller, enforceable in accordance with its terms, subject to general equity principles and to applicable bankruptcy, insolvency, reorganization, moratorium, and similar laws from time to time in effect affecting the enforcement of creditors' rights. When the Bill of Sale and Assignment Agreement has been executed and delivered in accordance with this Agreement, it will constitute the legal, valid, and binding obligation of Seller, enforceable in accordance with its 7 terms, subject to general equity principles and to applicable bankruptcy, insolvency, reorganization, moratorium, and similar laws from time to time in effect affecting the enforcement of creditors' rights. 3.5 Assets. Seller has good and valid title to all of the Assets constituting personal property, free and clear of any and all mortgages, pledges, security interests, liens, charges, conditional sales agreements, and other encumbrances except Permitted Encumbrances. 3.6 Contracts. Each Material Contract and Lease is a valid and subsisting agreement, without any material default of Seller thereunder, and to the knowledge of Seller, without any default on the part of any other party thereto. To the knowledge of Seller, no event or occurrence has transpired which with the passage of time or giving of notice or both will constitute a default under any Material Contract or Lease. A true and correct list of each Material Contract and Lease and every amendment thereto or other agreement or document relating thereto is set forth as Schedule 3.6 to this Agreement. True and correct copies of the Material Contracts and Leases (and any amendments thereto) have been provided to Purchaser. At the time of Closing, Seller shall have made all payments and performed all obligations due through the Closing Date under each Contract and Lease, except to the extent that any payment due is set forth on the Purchase Price Adjustment Schedule and deducted in calculating the Purchase Price pursuant to Section 2.3. 3.7 Real Property. (a) The water, electric, gas, and sewer utility services, and storm drainage facilities currently available to each parcel of Real Property are adequate for the operation of the Restaurants as presently operated, and to Seller's knowledge, there is no condition which will result in the termination of the present access from each parcel of Real Property to such utility services and other facilities. (b) Seller has obtained all authorizations and rights-of-way which are necessary to ensure vehicular and pedestrian ingress and egress to and from the site of each Restaurant, all of which are assignable and shall be assigned to Purchaser at the Closing. (c) Seller has received no notice that any Government having the power of eminent domain over any parcel of Real Property has commenced or intends to exercise the power of eminent domain or a similar power with respect to any part of the Real Property. (d) The Real Property and the present uses thereof comply in all material respects with all material laws and regulations (including zoning laws and ordinances) of each Government having jurisdiction over the Real Property, and Seller has received no notice from any Government alleging that the Real Property or any improvements erected or situated thereon, or the uses conducted thereon or therein, violate any regulations of any Government having jurisdiction over the Real Property. (e) To the knowledge of Seller, no work for municipal improvements has been commenced on or in connection with any parcel of Real Property or any street adjacent thereto and no such improvements are contemplated. No assessment for public improvements has been made against the Real Property which remains unpaid. No notice from any Government has been served upon the Real Property or received by Seller, or to the knowledge of Seller received by any owner of Real Property subject to a Lease, requiring or calling attention to the need for any work, repair, construction, alteration, or installation on or in connection with the Real Property which has not been complied with. (f) Seller holds all Environmental Permits necessary for conducting the Business and has conducted, and is presently conducting, the Business in material compliance with all applicable Environmental Laws and Environmental Permits held by it, including, without limitation, all record keeping and filing requirements. To the Seller's knowledge, all Hazardous Materials and Solid Waste, on, in, or under Real Property have been properly removed and disposed 8 of, and to the Seller's knowledge no past or present disposal, discharge, spill, or other release of, or treatment, transportation, or other handling of Hazardous Materials or Solid Waste on, in, under, or off-site from any Real Property will subject the Purchaser, or any subsequent owner, occupant, or operator of the Real Property to corrective or compliance action or any other liability. There are no presently pending, or to Seller's knowledge, threatened Actions or Orders against or involving Seller relating to any alleged past or ongoing violation of any Environmental Laws or Environmental Permits with respect to the Real Property, nor to Seller's knowledge is Seller subject to any liability for any such past or ongoing violation. Matters referenced above of which Seller has knowledge, if any, are referenced on Schedule 3.7(f). 3.8 Financial Statements. Schedule 3.8 contains for each Restaurant unaudited statements of operations as of the end of the 1997 fiscal year and for the three (3) fiscal months most recently ended prior to the date hereof for which such statements are available, prepared in accordance with generally accepted accounting principles, except for the absence of explanatory notes and except as otherwise expressly described therein (the "Financial Statements"). The Financial Statements have been prepared in accordance with Seller's historical practices and fairly present the operations of the Restaurants for the periods presented and as of their respective dates. 3.9 Taxes. All Property Taxes relating to the Assets have been fully paid for 1997 and all prior tax years and there are no delinquent property tax liens or assessments. Seller has also timely filed (or will timely file) all other tax returns and reports of whatever kind pertaining to the Assets and required to be filed by Seller up to the Closing Date. Seller has paid (or will timely pay) all taxes of whatever kind, including any interest, penalties, governmental charges, duties, fees, and fines imposed by all governmental entities or taxing authorities, which are due and payable prior to the Closing Date or for which assessments relating to any period prior to the Closing Date have been received, the nonpayment of which would result in lien on any of the Assets. There are no audits, suits, actions, claims, investigations, inquiries, or proceedings pending or, to Seller's knowledge, threatened against Seller with respect to taxes, interest, penalties, governmental charges, duties, or fines, nor are any such matters under discussion with any governmental authority, nor have any claims for additional taxes, interest, penalties, charges, fines, fees, or duties been received by assessed against Seller that in any such case affect the Assets. 3.10 Litigation. Except as set forth on Schedule 3.10, there is no material Action or Order pending or, to the knowledge of Seller, threatened against or affecting Seller that pertains to any of the Assets before any Forum. 3.11 Permits. Seller has all material Permits as are necessary to own or lease, as applicable, the Real Property. Seller has fulfilled and performed all of its material obligations with respect to such Permits and, to the knowledge of Seller, no event has occurred which allows, nor after notice or lapse of time or both would allow, revocation or termination thereof or would result in any other impairment of the rights of the holder of any such Permits. 3.12 Accuracy of Schedules, Certificates and Documents. All information concerning Seller contained in any certificate furnished to Purchaser pursuant to this Agreement or in the Disclosure Memorandum is or will be when furnished both complete and accurate in all material respects; and all documents furnished to Purchaser pursuant to this Agreement which are documents described in this Agreement or in the Disclosure Memorandum are true and correct copies of the documents which they purport to represent. ARTICLE IV - COVENANTS OF SELLER 4.1 Performance of Contracts and Leases. Seller shall, through the Closing Date, continue to faithfully and diligently perform each and every continuing obligation of Seller, if any, under each of the Contracts and Leases, where the 9 failure to do so would have a material adverse effect on the Assets. 4.2 Transfer of Licenses and Permits. Seller shall use commercially reasonable efforts to assist Purchaser with the assumption, transfer, or reissuance of any and all Permits required for the ownership or leasing by Purchaser (as applicable) of the Real Property. 4.3 Liabilities of Seller. All liabilities of Seller related to the Business or the Assets that are not Assumed Liabilities will be promptly paid by Seller as they come due. 4.4 Conduct of Business. (a) From the date hereof until Closing, Seller shall (i) operate the Restaurants as they are currently being operated and in the ordinary course of business, (ii) pay all bills and debts incurred by it related to the Assets promptly as they become due, and (iii) consult in advance with Purchaser on all decisions outside the ordinary course of business relating to the Assets. (b) In particular, and without limiting the foregoing, with respect to the Assets, Seller shall (i) maintain the Assets consistent with past practices, and (ii) continue to operate the Restaurants in accordance with all material applicable local, state, and federal laws and regulations. (c) Further, with respect to the Assets, Seller shall not, without the express prior written approval of Purchaser, (i) change in any material manner the ownership of the Assets, (ii) mortgage, pledge, or subject to lien any of the Assets, (iii) sell or otherwise dispose of any Asset, (iv) enter into, terminate, or modify any Material Contract except in the ordinary course of business, or (v) cancel or terminate or consent to or accept any cancellation or termination of any Lease, amend or otherwise modify any of its material terms or waive any breach of any of its material terms or provisions or take any other action in connection with any Lease that would materially impair the interests or rights of Seller to be transferred to Purchaser hereunder. 4.5 Access to Information. Seller shall afford Purchaser, its counsel, financial advisors, auditors, lenders, lenders' counsel and other authorized representatives reasonable access for any purpose consistent with this Agreement from the date hereof until the Closing, during normal business hours, to the offices, properties, books, and records of Seller with respect to the Assets and shall furnish to Purchaser such other information as Seller may possess and as Purchaser may reasonably request, subject to Purchaser's obligations regarding the confidentiality of such information as set forth in Section 6.2 hereof; provided, however, that such access shall be arranged in advance by Purchaser with Seller and will be scheduled in a manner and with a frequency calculated to cause the minimum disruption of the business of Seller. 4.6 Reporting Requirements. Through the Closing Date, Seller shall furnish to Purchaser: (a) Promptly after the occurrence, or failure to occur, of any such event, information with respect to any event which has materially adversely affected the Assets. (b) Promptly after the commencement of each such matter, notice of all Actions, Orders, or other directives affecting any Restaurant that, if adversely determined, could materially adversely affect the Assets (financial or otherwise) or the ability of Seller to perform its obligations hereunder; (c) Such other information respecting the Assets as the Purchaser may from time to time reasonably request. 4.7 Cooperation. Insofar as such conditions are within its reasonable control or influence, Seller will use commercially reasonable efforts to cause the conditions set forth in Article VII to be satisfied and to facilitate and cause the consummation of the transactions contemplated hereby, including 10 obtaining the Consents. The parties acknowledge that no consents will be sought with respect to any Minor Contract even if the failure to so obtain a consent to assignment may result in a default or termination thereunder. Seller shall bear any expenses associated with obtaining the Consents; however, Seller shall not be required to make any payment to any party (other than reimbursement of expenses), guarantee any Material Contract or Lease or remain liable for the payment thereof following the Closing, or agree to any concessions or amendment to other contracts, leases or arrangements with such party in order to obtain such consents. In addition, Seller shall use its reasonable best efforts to obtain estoppel certificates in favor of Purchaser from the landlords under the Leases. 4.8 Subsequent Contracts. From the date of this Agreement to the Closing Date, Seller shall use commercially reasonable efforts (a) to include in any Material Contracts entered into by Seller ("Subsequent Contracts") a provision permitting the assignment of any such Subsequent Contract to Purchaser and providing that upon such assignment, Purchaser shall succeed to all of Seller's rights, title, and interests thereunder subject to the Purchaser's assumption of all of Seller's duties, powers, and obligations under such Subsequent Contract, and (b) to ensure that no Subsequent Contract contains any provision which would limit in any way the rights, title, and interests of Seller in the Assets. 4.9 Delivery of Real Estate Documents. (a) Seller shall provide Purchaser (i) current surveys and title insurance commitments with respect to the Owned Real Property ("Owner's Title Commitments") pursuant to which the Title Company will agree to issue at Closing to Purchaser and its lender (if requested by Purchaser) owner's policies of title insurance ("Owner's Title Policies") on American Land Title Association standard Form B-1990, without exceptions except as shown in the Owner's Title Commitments, to be issued by Commonwealth Land & Title Insurance Company ("Title Company") in and amount in the case of each parcel equal to the purchase price allocated to such parcel of the Owned Real Property pursuant to Section 2.7, and (ii) current surveys (collectively with the surveys of the Owned Real Property, the "Surveys") and title insurance commitments with respect to the Real Property subject to a Lease (collectively, the "Leased Real Property") (the "Lessee Title Commitments", and collectively with the Owner's Title Commitments, the "Title Commitments") pursuant to which the Title Company will agree to issue at Closing lessee's policies of title insurance ("Lessee's Title Policies") on American Land Title Association standard form of leasehold owner's policy to insure leasehold estates, showing no exceptions except as shown in the Lessee Title Commitments. The Owner's Title Policies shall insure the Purchaser that, upon consummation of the purchase and sale herein contemplated, Purchaser will be vested with good, fee simple, marketable, and insurable title to the Owned Real Property, subject only to the Permitted Encumbrances or arising out of acts of the insured. The Lessee's Title Policies shall insure the Purchaser that, upon consummation of the transactions herein contemplated, Purchaser will be vested with a good, valid, marketable and insurable leasehold estate in and to the Leased Real Property, subject only to the Permitted Encumbrances. Notwithstanding anything to the contrary contained herein, while Lessee Title Commitments will be delivered for all Leased Real Property, no surveys will be delivered for Leases unless such Leases are for Free Standing Premises (as defined in Section 7.1). (b) No later than five business days after the date hereof, Seller shall provide to Purchaser copies of all environmental reports pertaining to the Real Property in Seller's possession. ARTICLE V - REPRESENTATIONS AND WARRANTIES OF PURCHASER Purchaser hereby represents and warrants to Seller as follows: 5.1 Organization, Corporate Power, Authorization. Purchaser is a limited partnership duly organized, validly existing, and in good standing under the laws of the State of Delaware and in each other jurisdiction in which it is lawfully required to qualify to conduct business. Purchaser has the corporate 11 power and authority to execute and deliver this Agreement and the Bill of Sale and Assignment Agreement, and to consummate the transactions contemplated hereby. All corporate action on the part of Purchaser necessary for the authorization, execution, and delivery of this Agreement and the Bill of Sale and Assignment Agreement, and performance of all obligations of Purchaser thereunder has been duly taken. 5.2 Non-Contravention. The execution and delivery of this Agreement and the Bill of Sale and Assignment Agreement by Purchaser do not and the consummation by Purchaser of the transactions contemplated hereby and thereby will not violate any provision of its certificate of limited partnership or limited partnership agreement. 5.3 Validity. This Agreement has been duly executed and delivered by Purchaser, and constitutes the legal, valid, and binding obligation of Purchaser, enforceable against it in accordance with its terms, subject to general equity principles and to applicable bankruptcy, insolvency, reorganization, moratorium, and similar laws from time to time in effect affecting the enforcement of creditors' rights. When the Bill of Sale and Assignment Agreement has been executed and delivered in accordance with this Agreement, it will constitute the legal, valid, and binding obligation of Purchaser, enforceable in accordance with its terms, subject to general equity principles and to applicable bankruptcy, insolvency, reorganization, moratorium, and similar laws from time to time in effect affecting the enforcement of creditors' rights. 5.4 Litigation Relating to the Agreement. Purchaser is not a party to, or subject to any judgment, decree, or order entered in any lawsuit or proceeding brought by any governmental agency or instrumentality or other party seeking to prevent the execution of this Agreement or the consummation of the transactions contemplated hereby. ARTICLE VI - COVENANTS OF PURCHASER 6.1 Purchaser Performance. After the Closing Date, Purchaser shall promptly pay as they become due and otherwise perform all obligations of Seller under the Assumed Liabilities and otherwise perform and fulfill all other obligations with respect to the Assets pertaining to the period after the Closing Date. 6.2 Confidentiality. In connection with the negotiation of this Agreement, Seller may disclose Confidential Information, as defined below, to Purchaser. Purchaser agrees that if the transactions contemplated herein are not consummated, it will return to Seller all documents and other written information furnished to it. Purchaser further agrees to maintain the confidentiality of any and all Confidential Information of Seller and not disclose any Confidential Information to any Person other than such Person to whom Confidential Information must be disclosed to effect the transactions and who are bound by appropriate non-disclosure agreements or obligations. Purchaser shall not use such Confidential Information for financial gain or in any manner adverse to Seller, except that Purchaser may use such Confidential Information in connection with the ordinary course of operation of the Restaurants after Closing. The foregoing obligations shall not apply to (i) any information which was known by Purchaser prior to its disclosure by Seller; (ii) any information which was in the public domain prior to the disclosure thereof; (iii) any information which comes into the public domain through no fault of Purchaser; (iv) any information which is disclosed to Purchaser by a third party, other than an affiliate, having the legal right to make such disclosure; or (iv) any information which is required to be disclosed by Order of any Forum. For purposes of this Section, "Confidential Information" shall mean any and all technical, business, and other information which is (a) possessed or hereafter acquired by Seller and disclosed to Purchaser and (b) derives economic value, actual or potential, from not being generally known to Persons other than Seller, including, without limitation, technical or nontechnical data, compositions, devices, methods, techniques, drawings, inventions, processes, 12 financial data, financial plans, product plans, lists of actual or potential customers or suppliers, information regarding the business plans and operations of Seller, and the existence of discussions and negotiations between the parties hereto relating to the terms hereof. The restrictions of this Section shall expire three years from the date hereof with respect to any confidential business information that does not constitute a trade secret under applicable law. 6.3 Cooperation. Insofar as such conditions are within its reasonable control or influence, Purchaser shall use commercially reasonable efforts to cause the conditions set forth in Article VII to be satisfied and to facilitate and cause the consummation of the transactions contemplated hereby. ARTICLE VII - CONDITIONS PRECEDENT TO THE CLOSING 7.1 Title Examination and Property Inspection. (a) Purchaser shall have 15 days following receipt of the documents referred to in Section 4.9(a) (the "Title Inspection Period") to review same and furnish Seller a written statement of reasonable objections to exceptions which, in Purchaser's reasonable judgment, would materially interfere with or impair Purchaser's use of the Owned Real Property for the operation of Applebee's restaurants or other reasonable commercial use ("Material Objections"). If Purchaser fails to furnish Seller a written statement of Material Objections by the end of the Title Inspection Period with respect to any matter appearing as an exception on a Title Commitment, such matter shall be deemed waived by Purchaser and shall be a Permitted Encumbrance. Within ten (10) days after receipt of Purchaser's notice, Seller shall provide Purchaser with a written statement of which Material Objections Seller shall use its reasonable best efforts to satisfy prior to the Termination Date, it being acknowledged that Seller is not obligated to attempt to satisfy any Material Objections. If Seller's notice indicates that Seller does not intend to satisfy all of the Material Objections, Purchaser shall have five (5) days after receipt of Seller's notice to terminate this Agreement by giving written notice of such termination to Seller; provided, however, that the failure by Purchaser to so terminate within such five (5) day period shall constitute a waiver by Purchaser of those Material Objections which Seller has declined to attempt to satisfy. If Seller fails to satisfy all Material Objections which it stated in its notice that it would use its reasonable best efforts to satisfy in all material respects on or prior to the Termination Date, then Purchaser's sole right and remedy shall be to either (i) waive the objections and elect to close, or (ii) terminate this Agreement by giving written notice of such termination to Seller. The parties acknowledge that some of the Lease Real Property may be located in shopping centers, and as such, unless the leased premises are a free standing building located on a separate pad with its own legal description ("Free Standing Premises") the Lessee Title Commitments for such Leased Real Property will contain encumbrances for entire shopping centers. Purchaser may not object to title encumbrances for such Leased Real Property that do not affect the premises leased under the Leases, which such encumbrances shall be deemed to be Permitted Encumbrances. (b) Property Inspection. (A) Between the date of this Agreement and the Closing Date, Purchaser and Purchaser's agents, employees, contractors, representatives and other designees (hereinafter collectively called "Purchaser's Designees") shall have the right to enter the Real Property for the purposes of inspecting the Real Property, conducting soil tests, conducting surveys, mechanical and structural engineering studies, environmental studies, and conducting any other investigations, examinations, tests, and inspections as Purchaser may reasonably require to assess the condition of the Real Property; provided, however, that (i) any activities by or on behalf of Purchaser, including, without limitation, the entry by Purchaser or Purchaser's Designees onto the Real Property, or the other activities of Purchaser or Purchaser's Designees with respect to the Real Property (hereinafter called "Purchaser's Activities") shall not damage the Real Property in any manner whatsoever or disturb or interfere with the rights of any 13 lessor of Leased Real Property; (ii) in the event the Real Property is altered or disturbed in any manner in connection with any Purchaser's Activities, Purchaser shall immediately return the Real Property to the condition existing prior to Purchaser's Activities; (iii) Purchaser shall in no event without Seller's prior written consent disclose the results of any of its investigations, examinations, tests, or inspections to any party (including any Government unless required by law) other than to its lenders, attorneys, consultants, and investors; and (iv) Purchaser shall indemnify, defend, and hold Seller harmless from and against any and all claims, liabilities, damages, losses, costs, and expenses of any kind or nature whatsoever (including, without limitation, attorneys' fees, and expenses and court costs) suffered, incurred or sustained by Seller as a result of, by reason of, or in connection with any Purchaser's Activities. Notwithstanding any provision of this Agreement to the contrary, Purchaser shall not have the right to undertake any environmental studies or testing beyond the scope of a standard "Phase I" evaluation without the prior written consent of Seller and, if applicable, the lessor of any Leased Real Property. (B) Purchaser shall have until the date which is forty-five (45) days after the date of this Agreement (hereinafter called the "Due Diligence Date"), to perform such investigations, examinations, tests and inspections as Purchaser shall deem necessary or desirable to determine whether the Real Property is suitable and satisfactory to Purchaser and can be used for Applebee's franchise restaurants. In the event Purchaser shall determine that the Real Property is not reasonably suitable and satisfactory to Purchaser, Purchaser shall have the right to terminate this Agreement by giving written notice to Seller on or before the Due Diligence Date. If Purchaser does not terminate this Agreement in accordance with this Section 7.1(b) on or before the Due Diligence Date, Purchaser shall have no further right to terminate this Agreement pursuant to this Section 7.1(b). (C) Prior to any entry by Purchaser or any of Purchaser's Designees onto the Real Property, Purchaser shall: (i) procure a policy of commercial general liability insurance, issued by an insurer reasonably satisfactory to Seller, covering all Purchaser's Activities, with a single limit of liability (per occurrence and aggregate) of not less than $1,000,000.00; and (ii) deliver to Seller a Certificate of Insurance, evidencing that such insurance is in force and effect, and evidencing that Seller has been named as an additional insured thereunder with respect to any Purchaser's Activities. Such insurance shall be written on an "occurrence" basis, and shall be maintained in force until the earlier of (i) the termination of this Agreement and the conclusion of all Purchaser's Activities; or (ii) Closing. (D) Purchaser acknowledges that Seller may deliver to Purchaser certain documents and information in possession of Seller or Seller's agents with regard to the Real Property (hereinafter called the "Due Diligence Materials"). The Due Diligence Materials will be provided to Purchaser without any representation or warranty of any kind or nature whatsoever and are merely provided to Purchaser for Purchaser's informational purposes. Until Closing, Purchaser and Purchaser's Designees shall maintain all Due Diligence Materials as Confidential Information. 7.2 Purchaser's Conditions to Closing. The obligations of Purchaser hereunder are subject to satisfaction of each of the following conditions at or before Closing, the occurrence of which may, at the option of Purchaser, be waived: (a) Subject to the matters disclosed in the Disclosure Memorandum as supplemented by Seller from time to time, all representations and warranties of Seller in this Agreement shall be true in all material respects on and as of the Closing. (b) Any supplement to the Disclosure Memorandum delivered by Seller shall not reflect in Purchaser's reasonable judgment any material adverse change in the Assets (taken as a whole or individually with respect to any tract of Real Property). 14 (c) Seller shall have performed and complied in all material respects with all of its obligations under this Agreement which are to be performed or complied with by Seller prior to or on the Closing Date. (d) Seller shall have obtained all the Consents. (e) The Restaurants (excluding the Real Property) shall be acquired by Rolph prior to or effective as of the Closing Date. (f) Buyer shall have been issued the Title Policies subject only to the Permitted Encumbrances. (g) Seller shall have delivered the items required by Section 2.4(a). 7.3 Seller's Conditions to Closing. The obligations of Seller hereunder are subject to satisfaction of each of the following conditions at or before Closing, the occurrence of which may, at the option of Seller, be waived: (a) All representations and warranties of Purchaser in this Agreement shall be true on and as of the Closing, and Purchaser shall have delivered to Seller a certificate to such effect dated as of the Closing Date. (b) Purchaser shall have performed and complied in all material respects with all of its obligations under this Agreement which are to be performed or complied with by Purchaser prior to or on the Closing Date. (c) Seller shall have obtained all the Consents. (d) The Restaurants (excluding the Real Property) shall be acquired by Rolph prior to or effective as of the Closing Date. (e) Purchaser shall have delivered the items required by Section 2.4(b). ARTICLE VIII - INDEMNIFICATION 8.1 Purchaser Claims. (a) Seller shall indemnify and hold harmless Purchaser, its successors and assigns, against, and in respect of: (i) Any and all damages, losses, liabilities, costs, and expenses incurred or suffered by Purchaser that result from, relate to, or arise out of: (A) any and all liabilities and obligations of Seller of any nature whatsoever, except for the Assumed Liabilities; (B) any lien, charge or encumbrance on any of the Assets (except Owned Real Property) other than the Permitted Encumbrances; (C) any failure by Seller to carry out any covenant or agreement contained in this Agreement; (D) any misrepresentation or breach of warranty by Seller contained in this Agreement, the Disclosure Memorandum, or any certificate, furnished to Purchaser by Seller pursuant hereto; or (E) any claim by any Person for any brokerage or finder's fee or commission in respect of the transactions contemplated hereby as a result of Seller's dealings, agreement, or arrangement with such Person. (ii) Any and all actions, suits, claims, proceedings, investigations, demands, assessments, audits, fines, judgments, costs, and other expenses (including, without limitation, reasonable legal fees and expenses) incident to any of the foregoing including all such expenses reasonably incurred in mitigating any damages resulting to Purchaser from any matter set forth in subsection (i) above. 15 (b) Notwithstanding the foregoing, Seller shall have no liability for indemnification or otherwise with respect to Section 8.1(a)(i)(D) (and Section 8.1(a)(ii) to the extent the items covered thereby relate back to Section 8.1(a)(i)(D)) until the aggregate liability of Seller thereunder exceeds $105,000 and then only to the extent that the aggregate liability of Seller thereunder exceeds such amount; provided, however, that liabilities arising with respect to Sections 3.1 through 3.4 hereof shall not be subject to the foregoing threshold and any liabilities arising with respect to such matters shall not be taken into account in computing aggregate liabilities for the purpose of applying such threshold amount to liabilities arising under other Sections subject thereto. In no event shall the aggregate liability of Seller under Section 8.1(a)(i)(D) (and Section 8.1(a)(ii) to the extent the items covered thereby relate back to Section 8.1(a)(i)(D)) exceed $1,050,000. (c) The amount of any liability of Seller under this Section 8.1 shall be computed net of any tax benefit to Purchaser from the matter giving rise to the claim for indemnification hereunder and net of any insurance proceeds received by Purchaser with respect to the matter out of which such liability arose. (d) The representations and warranties of Seller contained in this Agreement, the Disclosure Memorandum, or any certificate delivered by or on behalf of Seller pursuant to this Agreement or in connection with the transactions contemplated herein shall survive the consummation of the transactions contemplated herein and shall continue in full force and effect for the periods specified below ("Survival Period"): (i) the representations and warranties contained in Sections 3.1 through 3.4 and Section 3.7(f) shall survive until the expiration of any applicable statues of limitation provided by law; and (ii) all other representations and warranties of Seller shall be of no further force and effect after one year from the date of the Closing. Anything to the contrary notwithstanding, the Survival Period shall be extended automatically to include any time period necessary to resolve a written claim for indemnification which was made in reasonable detail before expiration of the Survival Period but not resolved prior to its expiration, and any such extension shall apply only as to the claims so asserted and not so resolved within the Survival Period. Liability for any such item shall continue until such claim shall have been finally settled, decided, or adjudicated. (e) Purchaser may not assert any claim against Seller for breach of any covenant contained in Article IV (except for Sections 4.1, 4.3 and 4.4(c)) and all such claims shall be deemed to be waived as a result of the Closing. The other covenants contained in Article IV and liability therefor shall survive the Closing. (f) Purchaser shall provide written notice to Seller of any claim for indemnification under this Article as soon as practicable; provided, however, that failure to provide such notice on a timely basis shall not bar Purchaser's ability to assert any such claim except to the extent that Seller is actually prejudiced thereby. Purchaser shall make commercially reasonable efforts to mitigate any damages, expenses, etc. resulting from any matter giving rise to liability of Seller under this Article. (g) Notwithstanding any other provision of this Article VIII, the aggregate principal amount of the obligation of Seller under this Article VIII shall not exceed the gross proceeds actually received by the Seller in connection with this Agreement and the transaction contemplated hereby. 8.2 Seller Claims. Purchaser shall indemnify and hold harmless Seller against, and in respect of, any and all damages, claims, losses, liabilities, and expenses, including without limitation, legal, accounting and other expenses, which may arise out of: (i) any breach or violation by Purchaser of any covenant set forth herein or any failure to fulfill any obligation set forth 16 herein, including, but not limited to, the obligation to satisfy the Assumed Liabilities; (ii) any breach of any of the representations or warranties made in this Agreement by Purchaser; or (iii) any claim by any Person for any brokerage or finder's fee or commission in respect of the transactions contemplated hereby as a result of Purchaser's dealings, agreement, or arrangement with such Person. 8.3 Defense of Third Party Claims. With respect to any claim by Purchaser under Section 8.1 or by Seller under Section 8.2, in each case relating to a third party claim or demand, the indemnified party shall provide the indemnifying party with prompt written notice thereof in accordance with Section 10.4 and the indemnifying party may defend, in good faith and at its expense, by legal counsel chosen by it and reasonably acceptable to the indemnified party any such claim or demand, and the indemnified party, at its expense, shall have the right to participate in the defense of any such third party claim. So long as the indemnifying party is defending in good faith any such third party claim, the indemnified party shall not settle or compromise such third party claim. In any event the indemnified party shall cooperate in the settlement or compromise of, or defense against, any such asserted claim. 8.4 Exclusive Remedies. The rights and remedies of the parties under this Article VIII shall be the sole and exclusive rights and remedies that either party may seek for any misrepresentation, breach of warranty, or failure to fulfill any covenant or agreement under this Agreement, except that either party may seek specific performance or injunctive relief. 8.5 Settlement of Disputes. (a) Arbitration. All disputes with respect to any claim for indemnification under this Article VIII and all other disputes and controversies of every kind and nature between the parties hereto arising out of or in connection with this Agreement shall be submitted to arbitration pursuant to the following procedures: (i) After a dispute or controversy arises, either party may, in a written notice delivered to the other party, demand such arbitration. Such notice shall designate the name of the arbitrator appointed by such party demanding arbitration, together with a statement of the matter in controversy; (ii) Within 30 days after receipt of such demand, the other party shall, in a written notice delivered to the other party, name such party's arbitrator. If such party fails to name an arbitrator, then the second arbitrator shall be named by the American Arbitration Association ("AAA"). The two arbitrators so selected shall name a third arbitrator within 30 days, or in lieu of such agreement on a third arbitrator by the two arbitrators so appointed, the third arbitrator shall be appointed by the AAA; (iii) The arbitration hearing shall be held in Dallas, Texas (in the case of arbitration initiated by Seller) or in Atlanta, Georgia (in the case of arbitration initiated by Purchaser) at a location designated by a majority of the arbitrators. The Commercial Arbitration Rule of the AAA shall be used and the substantive laws of the State of Georgia (excluding conflict of laws provisions) shall apply; (iv) An award rendered by a majority of the arbitrators appointed pursuant to this Agreement shall be final and binding on all parties to the proceeding, shall deal with the question of costs of the arbitration and all related matters, shall not award punitive damages, and judgment on such award may be entered by either party in a court of competent jurisdiction; and (v) Except as set forth in subsection (b) below, the parties stipulate that the provisions of this Section 8.5 shall be a complete defense to any suit, action or proceeding instituted in any federal, state, or local court or before any administrative tribunal with respect to any controversy or dispute arising out of this Agreement. The arbitration provisions hereof shall, with respect to such controversy or dispute, survive the termination or expiration of this Agreement. 17 (b) Emergency Relief. Notwithstanding anything in this Section 8.5 to the contrary, either party may seek from a court any provisional remedy that may be necessary to protect any rights or property of such party pending the establishment of the arbitral tribunal or its determination of the merits of the controversy. ARTICLE IX - TERMINATION 9.1 Termination. (a) This Agreement may be terminated as follows: (i) At any time by the mutual consent of Seller and Purchaser; (ii) By Purchaser pursuant to Section 7.1; or (iii) By either Seller or Purchaser, at its sole election, at any time after the Termination Date, if the Closing shall not have occurred on or prior to such date. (b) In the event of the termination of this Agreement pursuant to subparagraph (a)(iv) above because Seller or Purchaser, as the case may be, shall have willingly failed to fulfill its obligations hereunder, the other party shall, subject to Section 8.5, be entitled to pursue, exercise, and enforce any and all remedies, rights, powers, and privileges available to it at law or in equity. (c) Section 6.2, Article VIII, and Article X hereof shall survive the termination of this Agreement. ARTICLE X - MISCELLANEOUS 10.1 Expenses. (a) Each party hereto shall pay its own legal, accounting, and similar expenses incidental to the preparation of this Agreement, the carrying out of the provisions of this Agreement, and the consummation of the transactions contemplated hereby. (b) Purchaser and Seller shall share equally the costs of the Surveys, Title Commitments, Title Policies and all transfer, intangible, recording, and documentary taxes, stamps, and fees with respect to the transfer of the Real Property. Purchaser shall pay the cost of all other environmental investigations, studies, and reports, and all other costs of any investigation of the Assets by Purchaser. (c) The parties shall split equally the cost of any sales taxes, transfer taxes, documentary stamp taxes, or other taxes imposed with respect to the transfer of any Assets constituting personal property. (d) Seller shall pay the costs of obtaining any Consents subject to Section 4.8. 10.2 Contents of Agreement; Parties in Interest; etc. This Agreement sets forth the entire understanding of the parties hereto with respect to the transactions contemplated hereby and constitutes a complete statement of the terms of such transaction. This Agreement shall not be amended or modified except by written instrument duly executed by each of the parties hereto. Any and all previous agreements and understandings between the parties regarding the subject matter hereof, whether written or oral, are superseded by this Agreement. Neither party has been induced to enter into this Agreement in reliance on, and has not relied upon, any statement, representation, or warranty of the other party not set forth in this Agreement, the Disclosure Memorandum, or any certificate delivered pursuant to this Agreement. 10.3 Assignment and Binding Effect. Purchaser may assign the right to receive any of the Assets at Closing to any affiliate or other third party 18 reasonably acceptable to Seller provided that no such assignment shall affect Purchaser's liability hereunder. Subject to the foregoing, all of the terms and provisions of this Agreement shall be binding upon and inure to the benefit of and be enforceable by the successors and assigns of Seller and Purchaser. 10.4 Notices. Any notice, request, demand, waiver, consent, approval, or other communication which is required or permitted hereunder shall be in writing and shall be deemed given only if delivered personally or sent by telecopy or by first class registered or certified United States Mail, with proper postage prepaid, as follows: If to Seller, to: With a required copy to: Apple South, Inc. Kilpatrick Stockton LLP Hancock at Washington 1100 Peachtree Street, Suite 2800 Madison, Georgia 30650 Atlanta, Georgia 30309 Attention: Louis J. (Dusty) Profumo Attention: Larry D. Ledbetter, Esq. Fax: 706-343-2434 Fax: 404-815-6555 If to Purchaser: With a required copy to: _______________________ Middleberg, Riddle & Gianna 5310 Harvest Hill Road 1600 Allianz Financial Centre Suite 270 2323 Bryan Street Dallas, Texas 75230 Dallas, Texas 75201 Attention: Robert Stetson Attention: Richard S. Wilensky Fax: (972) 490-9119 Fax: 214-220-3189 or to such other address or person as the addressee may have specified in a notice duly given to the sender as provided herein. Such notice, request, demand, waiver, consent, approval or other communication will be deemed to have been given as of the date actually delivered, or if mailed, four days after deposit in the U. S. Mail properly addressed with adequate postage affixed. 10.5 GEORGIA LAW TO GOVERN. THIS AGREEMENT SHALL BE GOVERNED BY AND INTERPRETED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF GEORGIA WITHOUT REGARD TO CONFLICT OF LAW PRINCIPLES. 10.6 Headings. All section headings contained in this Agreement are for convenience of reference only, do not form a part of this Agreement, and shall not affect in any way the meaning or interpretation of this Agreement. 10.7 Schedules and Exhibits. All Exhibits and Schedules referred to herein are intended to be and hereby are specifically made a part of this Agreement. 10.8 Severability. Any provision of this Agreement which is invalid or unenforceable in any jurisdiction shall be ineffective to the extent of such invalidity or unenforceability without invalidating or rendering unenforceable the remaining provisions hereof, and any such invalidity or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. 10.9 Public Announcements. Purchaser and Seller will coordinate with each other all press releases relating to the transactions contemplated by this Agreement and, except to the extent required by law, refrain from issuing any press release, publicity statement, or other public notice relating to this Agreement or the transactions contemplated hereby without providing the other party reasonable opportunity to review and comment thereon. 10.10 Construction. The parties hereto have participated jointly in the negotiation and drafting of this Agreement. In the event that any ambiguity or question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the parties hereto and no presumption or burden of proof shall arise favoring or disfavoring any party hereto by virtue of the authorship of any of the provisions of this Agreement. 19 10.11 Disclaimer of Warranties. PURCHASER WILL CONDUCT SUCH INSPECTIONS AND INVESTIGATIONS OF THE ASSETS (INCLUDING, BUT NOT LIMITED TO, THE PHYSICAL AND ENVIRONMENTAL CONDITION THEREOF) AND RELY UPON SAME AND, UPON CLOSING, EXCEPT TO THE EXTENT OF SELLER'S EXPRESS REPRESENTATIONS AND WARRANTIES CONTAINED HEREIN, SHALL ASSUME THE RISK THAT ADVERSE MATTERS MAY NOT HAVE BEEN REVEALED BY PURCHASER'S INSPECTIONS AND INVESTIGATIONS. EXCEPT TO THE EXTENT OF SELLER'S EXPRESS REPRESENTATIONS AND WARRANTIES CONTAINED HEREIN, SELLER SHALL SELL AND CONVEY TO PURCHASER, AND PURCHASER SHALL ACCEPT, THE ASSETS "AS IS", "WHERE IS", AND WITH ALL FAULTS, AND THERE ARE NO ORAL AGREEMENTS, WARRANTIES OR REPRESENTATIONS, COLLATERAL TO OR AFFECTING THE ASSETS BY SELLER OR ANY THIRD PARTY. WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, EXCEPT TO THE EXTENT OF SELLER'S EXPRESS REPRESENTATIONS AND WARRANTIES CONTAINED HEREIN, SELLER MAKES, AND SHALL MAKE, NO EXPRESS OR IMPLIED WARRANTY OF SUITABILITY OR FITNESS OF ANY OF THE ASSETS FOR ANY PURPOSE, OR AS TO THE MERCHANTABILITY, ENVIRONMENTAL CONDITION, TITLE, VALUE, QUALITY, QUANTITY, CONDITION OR SALABILITY OF ANY OF THE ASSETS, OR AS TO THE PRESENCE ON OR ABSENCE FROM THE ASSETS OF ANY HAZARDOUS MATERIAL. THE TERMS AND CONDITIONS OF THIS SECTION 10.11 SHALL SURVIVE THE CONSUMMATION OF THE PURCHASE AND SALE OF THE ASSETS ON THE CLOSING DATE WITHOUT REGARD TO ANY GENERAL LIMITATIONS UPON SURVIVAL SET FORTH IN THIS AGREEMENT. 10.12 Time. Time is and shall be of the essence of this Agreement. [Signatures Located on Following Pages] 20 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first written above. SELLER: APPLE SOUTH, INC. By: Name: Title: PURCHASER: U.S. RESTAURANT PROPERTIES OPERATING L.P. By: Name: Title: 21 EXHIBIT TABLE OF CONTENTS EXHIBIT TITLE A Bill of Sale and Assignment Agreement B Opinion of Seller's Counsel C Opinion of Purchaser's Counsel D Allocation of Purchase Price Exhibits to this agreement are not filed pursuant to Item 601(b)(2) of SEC Regulation S-K. By the filling of this Form 10-Q, the Registrant hereby agrees to furnish supplementally a copy of any omitted schedule to the Commission upon request. 22 EX-2.5 6 ASSET PURCHASE AGREEMENT DATED JUNE 19, 1998 ASSET PURCHASE AGREEMENT THIS ASSET PURCHASE AGREEMENT, dated as of June 19, 1998, by and among APPLE SOUTH, INC., a Georgia corporation ("Seller") and DARREL L. ROLPH or his Permitted Assigns ("Purchaser"). W I T N E S S E T H : WHEREAS, Seller owns and operates a number of Applebee's Neighborhood Grill & Bar ("Applebee's") franchise restaurants; WHEREAS, Seller desires to sell to Purchaser certain Applebee's restaurants and related property (excluding real property), and Purchaser desires to purchase such assets, all on the terms and subject to the conditions set forth herein; and WHEREAS, on or about the date hereof, Seller has entered into an agreement to sell the Owned Real Property (defined below) to U.S. Restaurant Properties Operating L.P. ("USRP"), and Purchaser desires to lease such properties from USRP; NOW, THEREFORE, in consideration of the premises and other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, and intending to be legally bound, the parties hereby agree as follows: ARTICLE I - DEFINITIONS 1.1 Definitions. For purposes of this Agreement, the following terms shall have the meanings set forth below: "Action" shall mean any action, suit, litigation, complaint, counterclaim, claim, petition, mediation contest, or administrative proceeding, whether at law, in equity, in arbitration or otherwise, and whether conducted by or before any Government or other Person. "ADI's" shall mean Arbitron Rating Areas of Dominant Influence. "ADI Personnel" shall mean all employees exclusively involved in the operation or supervision of the Restaurants, including without limitation, those persons listed on Schedule 3.13. "Affiliate" means any Person that owns or controls more than a 10% interest in Seller (a "Controlling Affiliate") or in which Seller or a Controlling Affiliate owns or controls more than a 5% interest. "Assets" shall mean all of Seller's rights and interests in, to, or under the following: (i) all tangible personal property of any kind located in the Restaurants or on the Real Property including, but not limited to, equipment, appliances, machinery, ovens, refrigerators, display cases, shelves, tools, pans, lights, menus, books, cabinets, racks, towels, ornaments, cash registers, tables, chairs, other furniture, bars and bar equipment, tableware, cookware, utensils, furnishings, signage, leasehold improvements, fixtures, uniforms, supplies, food, paper and beverage inventory (including beer, liquor, and wine inventory), and advertising and promotional materials; the Assets also include any of the foregoing property currently held by Seller pursuant to equipment leases, all of which leased equipment will be purchased by Seller prior to Closing at its sole cost and expense pursuant to Section 4.16. (ii) all computer equipment, computer software and licenses of related 1 software, data transmission devices, manuals and portable computers used by ADI Personnel primarily in connection with the operation of the Restaurants; (iii) $1,500 cash in each Restaurant; (vi) all prepaid items relating exclusively to the Business; (v) all assignable Permits; (vi) all assignable rights under all express or implied warranties of manufacturers, distributors, or retailers or other third parties or other claims for damages or loss relating to the Assets; (vii) all of Seller's supplier lists, demographic, statistical, and other information related exclusively to the Business; (viii) copies of Seller's employee records and related personnel files related to those current employees of Seller who are employed by Purchaser as of the Closing (subject to execution of a release by each affected employee allowing for the disclosure of such files); (ix) the Contracts and Leases; (x) all records and files related to the Leased Real Property such as rent calculations, landlord correspondence, construction documents, title reports, environmental and engineering reports, appraisals, surveys, etc; records of all service and maintenance histories, if any, of the Assets; all records relating to warranties, service agreements, or similar agreements pertaining to the Assets; and copies of any other records and files that contain information material to the Business or the Assets, in whatever media such records or files are kept; (xi) any written information in Seller's possession related to any pending or proposed ordinance or regulation in any state, county, municipality, or other governmental unit affecting the Business; (xii) rights to existing Restaurant telephone numbers; and (xiii) all of Seller's other rights and property interests of any nature which are customarily and exclusively used in the operation of the Restaurants. "Assets" shall not include cash in the Restaurants in excess of $1,500 per Restaurant, the Owned Real Property, bank accounts, or any other property, tangible or intangible, real or personal, not described above. "Assumed Liabilities" shall mean (i) all obligations of Seller that accrue after the Closing under the terms of the Contracts and Leases, (ii) all obligations of Seller under the Contracts and Leases that accrue prior to the Closing but which are not due for payment until after the Closing and which are taken into account in computing the Purchase Price pursuant to Section 2.3, (iii) obligations arising after the Closing under any Permits which are assigned to Purchaser,, and (iv) all Property Taxes and all other obligations with respect to the Assets that accrue prior to the Closing but which are not due for payment until after the Closing and which are taken into account in computing the Purchase Price pursuant to Section 2.3, (v) all Property Taxes and all other obligations with respect to the Assets that accrue after the Closing, (vi) gift certificates issued by Seller prior to Closing, and (vii) accrued but unvested vacation of ADI Personnel assumed pursuant to Section 6.3(c). Assumed Liabilities shall not include any liability, obligation, payment, duty, or responsibility of any nature except as expressly described above and specifically shall not include (i) liabilities or obligations of Seller arising out of any breach by Seller of any of the Contracts or Leases; (ii) liabilities or obligations of Seller with respect to the Owned Real Property; (iii) except as provided in clauses (ii) or (iv) above, liabilities or obligations of Seller under any of the Contracts or Leases or other Assets that accrue in any such 2 case prior to the Closing or are attributable to the period prior to Closing, including, without limitation, base rent, percentage rent, common area maintenance or similar charges and any adjustments with respect to such items of rent and other charges; (iv) any liabilities or obligations of Seller under the Franchise Agreements; (v) any liability of Seller for product liability, personal injury, property damage, or otherwise based on any tort claim or statutory liability (including but not limited to any "dram shop" liability); (vi) any federal, state, or local tax liability of Seller except to the extent expressly assumed hereunder, (vii) any contractual claim based on any lease, contract, or agreement other than the Contracts and Leases; (viii) any liability, obligation, or responsibility of Seller to Seller's employees, agents, or independent contractors with respect to wages, salaries, bonuses, or other compensation or benefits earned or accrued prior to the Closing (except for accrued but unvested vacation assumed pursuant to Section 6.3(c)); and (ix) any liability or obligation of Seller arising out of the negotiation, execution, or performance of this Agreement, including fees and expenses of attorneys and accountants, except as otherwise expressly provided herein. "Bill of Sale and Assignment Agreement" shall mean an instrument in substantially the form of Exhibit A hereto pursuant to which the Assets will be transferred and assigned to Purchaser at the Closing and pursuant to which Purchaser will assume the Assumed Liabilities. "Business" shall mean the business of owning and operating the Restaurants and developing and opening new Applebee's Neighborhood Grill & Bar restaurants in the Territory, as conducted prior to the Closing by Seller pursuant to the Franchise Agreements. "Closing" shall have the meaning set forth in Section 2.6 hereof. "Closing Date" shall mean the time and date that the Closing occurs. "Code" shall mean the United States Internal Revenue Code of 1986, as amended, and all regulations thereunder. Any reference herein to a specific section or sections of the Code shall be deemed to include a reference to any corresponding provision of future law. "Consents" shall mean all consents, approvals, and estoppels of others which are required to be obtained in order to effect the valid assignment, transfer, and conveyance to Purchaser of the Material Contracts and the Leases without resulting in any default or penalty thereunder. "Contracts" shall mean all contracts, agreements, and leases of equipment or other personal property that relate exclusively to the Business; provided, however, that the Franchise Agreements are not included within the meaning of "Contracts." "Disclosure Memorandum" shall mean the set of numbered schedules referencing Sections of this Agreement delivered by Seller and dated of even date herewith, as supplemented by new or amended schedules delivered by Seller prior to the Closing. "Effective Time" shall have the meaning set forth in Section 2.5 hereof. "Environmental Laws" shall mean all federal, state, municipal, and local laws, statutes, ordinances, rules, regulations, conventions, and decrees relating to the environment, including without limitation, those relating to emissions, discharges, releases, or threatened releases of pollutants, contaminants, chemicals, or industrial, toxic, or Hazardous Materials or wastes of every kind and nature into the environment (including without limitation ambient air, surface water, ground water, soil, and subsoil), or otherwise relating to the manufacture, generation, processing, distribution, application, use, treatment, storage, disposal, presence, management, transport, or handling of pollutants, contaminants, chemicals, or industrial, toxic, or hazardous substances or wastes, and any and all laws, rules, regulations, codes, 3 directives, orders, decrees, judgments, injunctions, consent agreements, stipulations, provisions, and conditions of Environmental Permits, licenses, injunctions, consent agreements, stipulations, certificates of authorization, and other operating authorizations, entered, promulgated, or approved thereunder. "Environmental Permits" shall mean all permits, licenses, certificates, approvals, authorizations, regulatory plans or compliance schedules required by applicable Environmental Laws, or issued by a Government pursuant to applicable Environmental Laws, or entered into by agreement of the party to be bound, relating to activities that affect the environment, including without limitation, permits, licenses, certificates, approvals, authorizations, regulatory plans and compliance schedules for air emissions, water discharges, pesticide and herbicide or other agricultural chemical storage, use or application, and Hazardous Material or Solid Waste generation, use, storage, treatment and disposal. "Excluded Restaurant" shall mean a Restaurant designated as such in accordance with Section 2.8. "Forum" shall mean any federal, state, local, municipal, or foreign court, governmental agency, administrative body or agency, tribunal, private alternative dispute resolution system, or arbitration panel. "Franchise Agreements" shall mean those development agreements, franchise agreements, and other agreements between Seller and Franchisor relating exclusively to the Territory. "Franchisor" shall mean Applebee's International, Inc. "Financial Statements" shall have the meaning set forth in Section 3.8. "Government" shall mean any federal, state, local, municipal, or foreign government or any department, commission, board, bureau, agency, instrumentality, unit, or taxing authority thereof. "Hazardous Material" shall mean all substances and materials designated as hazardous or toxic as of the date hereof pursuant to any applicable Environmental Law. "HSR Act" shall mean the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended. "Knowledge of Seller" (or words of like effect) when used to qualify a representation, warranty, or other statement shall mean the actual knowledge of Sellers' directors of operations for the Territory and all management of Seller senior thereto. "Leased Real Property" shall mean those tracts and parcels of land leased by Seller pursuant to the Leases and all buildings, fixtures, signs, parking facilities, and other improvements located thereon and appurtenances subject to the Leases. "Leases" shall mean the leases of real property and improvements described on Schedule 1.1B. Schedule 1.1B shall include for each Lease all amounts due and payable up to the Closing Date, including without limitation, base rent, percentage rent common area maintenance and similar charges (such amounts shall be estimated if not known). "Material Contracts" shall mean all Contracts that involve (i) monetary obligations of Seller of more than $5,000 per year, or (ii) a term greater than twelve (12) months, and that are not cancelable by Seller upon thirty days notice or less, a list of which are set forth on Schedule 1.1C. "Minor Contracts" shall mean all Contracts that are not Material Contracts. 4 "Orders" shall mean all applicable orders, writs, judgments, decrees, rulings, consent agreements, and awards of or by any Forum or entered by consent of the party to be bound. "Owned Real Property" shall mean those tracts and parcels of land owned by Seller on which a Restaurant is located and all buildings, fixtures, signs, parking facilities, and other improvements located thereon and appurtenances thereto. "Permits" shall mean all rights of Seller under any liquor, alcoholic beverage, beer and wine licenses, other licenses of every kind, certificates of occupancy, and permits or approvals of any nature, from governmental and regulatory authorities which relate exclusively to the Business, the Restaurants, or the Leased Real Property. "Permitted Assigns" shall mean an entity to be formed which will be controlled by Darrel L. Rolph and David K. Rolph. "Permitted Encumbrances" shall mean (i) such easements, restrictions, covenants, and other such encumbrances which are shown as exceptions on the Title Commitments and any other encumbrances of record as of the effective date of the Title Commitments, (ii) ordinances (municipal and zoning), (iii) survey matters, and (iv) such easements, restrictions, covenants, and other encumbrances which become matters of public record after the effective date of the Title Commitments and before the Closing, in each such case, to the extent that such encumbrances could not reasonably be expected to materially interfere with or impair Purchaser's use of the Leased Real Property for Applebee's Neighborhood Grill & Bar Restaurants or that are waived, or deemed to be waived, by Purchaser pursuant to Section 7.1(a). Permitted Encumbrances shall include in the case of both Leased Real Property and personal property all liens for taxes not yet due and payable. "Person" shall include an individual, a partnership, a joint venture, a corporation, a limited liability company, a trust, an unincorporated organization, a government, and any other legal entity. "Property Taxes" shall mean all ad valorem, real property, and personal property taxes, all general and special private and public assessments, all other property taxes, and all similar obligations pertaining to the Assets. "Purchase Price Adjustment Schedule" shall have the meaning set forth in Section 2.3. "Real Property" shall mean the land and improvements comprising the Owned Real Property, the Leased Real Property and any other leased real property on which the Restaurants are located. "Remediation List" shall have the meaning set forth in Section 6.6. "Restaurants" shall mean the 16 Applebee's Neighborhood Grill & Bar restaurants operated by Seller at the locations set forth on Schedule 1.1A. "Schedules" shall mean the numbered sections of the Disclosure Memorandum. "Seller Plans" shall have the meaning set forth on Schedule 3.15. "Solid Waste" shall mean any garbage, refuse, sludge from a waste treatment plant, water supply treatment plant, or air pollution control facility, and other discarded material, including solid, liquid, semisolid, or contained gaseous material resulting from industrial, commercial, mining, and agricultural operations, and from community activities. "Taxes" shall mean all taxes, charges, fees, levies or other assessments, including without limitation, all net income, gross income, gross receipts, sales, excise and ad valorem, transfer, franchise, profits, license, 5 withholding, payroll, employment, severance, stamp, occupation, property or other taxes, customs, duties, fees, assessments or charges of any nature whatsoever together with any interest, penalties, addition to tax, or additional amounts imposed by any taxing authority, domestic or foreign. "Termination Date" shall mean the earlier of (i) August 31, 1998 or (ii) the date which is thirty (30) days after the Closing Date. "Territory" shall mean those ADI's particularly set forth on Schedule 1.1D. "Title Commitments" shall have the meaning set forth in Section 4.12. "Title Policies" shall have the meaning set forth in Section 4.12. ARTICLE II - PURCHASE AND SALE 2.1 Purchase and Sale. Upon the terms and subject to the conditions set forth in this Agreement, at the Closing Seller shall sell, transfer, assign and deliver to Purchaser all of Seller's right, title, and interest in and to the Assets free and clear of any mortgage, security interest, lien, charge, claim, or other encumbrance of any nature except the Permitted Encumbrances, and Purchaser shall purchase the Assets from Seller for the Purchase Price set forth in Section 2.3. 2.2 Assumption of Liabilities. As of the Effective Time, Purchaser shall assume all of the Assumed Liabilities. Except for the Assumed Liabilities, Purchaser does not hereby assume or agree to assume or pay any obligations, liabilities, indebtedness, duties, responsibilities, or commitments of Seller or any other Person, of any nature whatsoever, whether known or unknown, absolute or contingent, due or to become due. 2.3 Purchase Price. The purchase price for the Assets (the "Purchase Price") shall be Ten Million Dollars ($10,000,000.00) adjusted as follows: (a) The amount of the purchase price shall be increased by (i) all Property Taxes accruing with respect to the Assets after the Closing that have been paid by Seller prior to Closing; (ii) all amounts paid by Seller under the Contracts and Leases that pertain to periods after the Closing; and (iii) any other prepaid expenses pertaining to the Business (such as telephone expenses, advertising expenses (except as provided in Section 2.3(d)), utility charges, and the like) to the extent that the same will benefit Purchaser after the Closing. (b) The amount of the purchase price shall be decreased by (i) all Property Taxes accruing with respect to the Assets prior to the Closing that are due and payable after the Closing and that have not been paid as of the Closing, (ii) all amounts payable under the Contracts and Leases that pertain to periods before the Closing but are due and payable after the Closing and that have not been paid as of the Closing (including those amounts as set forth on Schedule 1.1B), (iii) the estimated cost of vacation accrued as but unvested of the Closing Date with respect to ADI Personnel hired by Purchaser the cost of which is being assumed by Purchaser pursuant to Section 6.3(c), and (iv) all amounts on the Remediation List, unless repaired to Purchaser's reasonable satisfaction prior to Closing. (c) The amount of the purchase price shall be further adjusted to reflect any expense paid by one party which the other party has agreed to pay or share pursuant to Section 10.1 or otherwise pursuant to this Agreement. (d) Notwithstanding anything contained herein to the contrary, all rebates of advertising payments made by Seller, including without limitation, amounts paid to Franchisor's national marketing fund related to the Restaurants, shall belong to Purchaser and there shall be no reduction of the Purchase Price regarding any such amounts. 6 (e) Not less than three days prior to the Closing, the parties hereto will prepare a draft of a closing statement setting forth the adjustments to the purchase price made pursuant to this Section 2.3. The foregoing adjustments shall be calculated by the parties and set forth on a Purchase Price adjustment schedule (the "Purchase Price Adjustment Schedule") which shall be signed by both parties at Closing. The Purchase Price shall be paid by Purchaser on the Closing Date by wire transfer of immediately available funds to an account designated in writing by Seller. On or about February 15, 1999, the parties shall reconcile the actual amount of prorations that were estimated at Closing as well as the accrued but unvested vacation time of Seller's employees assumed by Purchaser hereunder that has actually vested with the estimated amounts thereof. To the extent that the actual amounts differ from the amounts estimated on the Purchase Price Adjustment Schedule or prorations or adjustments other than those reflected on the Purchase Price Adjustment Schedule are discovered after the Closing, the parties agree to remit the correct amount of such items to the appropriate party as and when same are determined. 2.4 Deliveries at the Closing. (a) At the Closing, Seller shall deliver to Purchaser the following: (i) A certificate executed by Seller, dated as of the Closing Date, certifying in such detail as Purchaser may reasonably request that subject to the matters disclosed in the Disclosure Memorandum, as it may be supplemented by Seller from time to time, all representations and warranties of Seller in this Agreement are true in all material respects as of the Closing Date and will not omit to state any material fact necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. (ii) A certificate of the Secretary or an Assistant Secretary of Seller, dated as of the Closing Date, certifying in such detail as Purchaser may reasonably request (A) that attached thereto is a true and complete copy of resolutions adopted by the Board of Directors of Seller authorizing the execution, delivery, and performance of this Agreement, the Bill of Sale and Assignment Agreement, and that all such resolutions are still in full force and effect and are all the resolutions adopted in connection with the transactions contemplated by this Agreement, and (B) as to the incumbency and specimen signature of each officer of Seller executing this Agreement, the Bill of Sale and Assignment Agreement, and any certificate or instrument furnished pursuant hereto, and a certification by another officer of Seller as to the incumbency and signature of the officer signing such certificate; (iii) The opinion of Kilpatrick Stockton LLP, counsel to Seller, in substantially the form of Exhibit B hereto; (iv) The Bill of Sale and Assignment Agreement, duly executed by Seller; (v) The Consents; (vi) A Cross-Receipt, duly executed by Seller; (vii) To the extent necessary pursuant to Section 7.2(f) below, a mutually acceptable liquor license management agreement or agreements; (viii) All operating manuals and other documents provided by Franchisor; and (ix) Any other documents that Purchaser may reasonably request at least three days prior to the Closing in order to effectuate the transactions contemplated hereby. (b) At the Closing Purchaser shall deliver to Seller the following: 7 (i) A certificate executed by Purchaser, dated as of the Closing Date, certifying in such detail as Seller may reasonably request that all representations and warranties of Purchaser in this Agreement are true in all material respects as of the Closing Date; (ii) A certificate of the Secretary or an Assistant Secretary of Purchaser, dated as of the Closing Date, certifying in such detail as Seller may request (A) that attached thereto is a true and complete copy of resolutions adopted by the Board of Directors of Purchaser authorizing the execution, delivery and performance of this Agreement and the Bill of Sale and Assignment Agreement, and that all such resolutions are still in full force and effect and are all the resolutions adopted in connection with the transactions contemplated by this Agreement, and (B) as to the incumbency and specimen signature of each officer of Purchaser executing this Agreement, and any certificate or instrument furnished pursuant hereto or to be furnished in connection herewith as of the Closing Date, and a certification by another officer of Purchaser as to the incumbency and signature of the officer signing such certificate; (iii) The funds constituting the Purchase Price; (iv) The Bill of Sale and Assignment Agreement, duly executed by Purchaser; (v) The opinion of Hinkle, Eberhart & Elkouri, L.L.C., counsel to Purchaser, in substantially the form of Exhibit C hereto; (vi) A Cross-Receipt, duly executed by Purchaser; and (vii) Any other documents that Seller may reasonably request at least three days prior to the Closing. 2.5 Transfer of Operations. Purchaser shall be entitled to immediate possession of, and to exercise all rights arising under, the Assets from and after the time that the Restaurants open for business on the Closing Date, and operation of the Restaurants shall transfer at such time (the "Effective Time"). Except as expressly provided in this Agreement, all profits, losses, liabilities, claims, or injuries arising before the Effective Time shall be solely to the benefit or the risk of Seller. All such occurrences after the Effective Time shall be solely to the benefit or the risk of Purchaser. The risk of loss or damage by fire, storm, flood, theft, or other casualty or cause shall be in all respects upon Seller prior to the Effective Time and upon the Purchaser thereafter. 2.6 Closing. The closing of the transactions described in this Article II (the "Closing") shall take place at the offices of Kilpatrick Stockton LLP, Suite 2800, 1100 Peachtree Street, Atlanta, Georgia, at 10:00 a.m. on July 31, 1998, or on such other date and time as may be mutually agreed upon by the parties hereto. Purchaser may delay the Closing for up to three business days following receipt of any amendment to the Disclosure Memorandum. 2.7 Allocation of Purchase Price. The Purchase Price shall be allocated among the various Assets as set forth on Exhibit D hereof. Each party hereby agrees that it will not take a position on any income tax return or form, before any governmental agency charged with the collection of any income tax, or in any judicial proceeding that is inconsistent with the terms of this Section 2.7 or Exhibit D. 2.8 Excluded Restaurant. (a) If prior to Closing Seller is unable to obtain a required Consent to the assignment of a Lease, Purchaser may designate at Closing the affected Restaurant as an Excluded Restaurant; provided, however, that notwithstanding anything herein to the contrary, no more than one (1) Restaurant may be designated as an Excluded Restaurant. (b) If a Restaurant is designated as an Excluded Restaurant in accordance with Section 2.8(a), then the Lease and all other Assets relating exclusively to such Excluded Restaurant shall not be transferred to Purchaser hereunder, 8 Assumed Liabilities pertaining to such Excluded Restaurant shall not be assumed by Purchaser hereunder, and the Purchase Price shall be reduced by the amounts allocated to such Excluded Restaurant and attendant Assets on Schedule 2.8. 2.9 Further Assurances. From time to time after the Closing at Purchaser's request and expense, Seller shall execute, acknowledge, and deliver to Purchaser such other instruments of conveyance and transfer and shall take such other actions and execute and deliver such other documents, certifications, and further assurances as Purchaser may reasonably require to vest more effectively in Purchaser, or to put Purchaser more fully in possession of, any of the Assets, or to better enable Purchaser to complete, perform and discharge the Assumed Liabilities. Each party hereto will cooperate with the other and execute and deliver to the other party hereto such other instruments and documents and take such other actions as may be reasonably requested from time to time by any other party hereto as necessary to carry out, evidence, and confirm the intended purpose of this Agreement. ARTICLE III - REPRESENTATIONS AND WARRANTIES OF SELLER Subject to the limitations and exceptions set forth in the Disclosure Memorandum dated of even date hereof, as supplemented or amended from time to time by Seller prior to the Closing Date, regardless of whether any Schedule constituting a part of the Disclosure Memorandum is referenced in any specific provision below, Seller hereby represents and warrants to Purchaser as follows: 3.1 Organization, Qualifications and Corporate Power. Seller is a corporation duly incorporated and organized, validly existing, and in good standing under the laws of the State of Georgia and has all requisite authority to own, lease and operate its properties and assets and to carry on its business as it is now being conducted and is duly qualified or licensed as a foreign corporation, in good standing to do business in Iowa. Seller has the corporate power and authority to execute, deliver, and perform this Agreement, the Bill of Sale and Assignment Agreement, and all other agreements, documents, certificates, and other papers contemplated to be delivered by Seller pursuant to this Agreement. 3.2 Authorization. The execution, delivery, and performance by Seller of this Agreement, the Bill of Sale and Assignment Agreement, and all other agreements, documents, certificates, and other papers contemplated to be delivered by Seller pursuant to this Agreement have been duly authorized by all necessary corporate actions or proceedings on the part of Seller, including approval by the Board of Directors of Seller and no other corporate actions or proceedings on the part of Seller are necessary under its Articles of Incorporation or bylaws, by law, or otherwise to authorize the execution and delivery by the Seller of this Agreement, the performance by Seller of its obligations hereunder, and the consummation by Seller of the transactions contemplated hereby. 3.3 Non-Contravention. Subject to obtaining the consents to assignment of the Leases and Material Contracts set forth on Schedule 3.3, the execution, delivery and performance of this Agreement will not violate or result in a breach of any term of Seller's Articles of Incorporation or Bylaws, result in a breach of any agreement or other instrument to which Seller is a party (except for defaults under Minor Contracts where the consent of the other party or parties to such contract to the assignment thereof will not be obtained) or violate any law or any order, rule, or regulation applicable to Seller of any Forum having jurisdiction over Seller; and will not result in the creation or imposition of any lien, charge, or encumbrance of any nature whatsoever upon any of the Assets. Except as set forth on Schedule 3.3 and except for consents required under Minor Contracts, the execution, delivery and performance of this Agreement and the other documents executed in connection herewith, and the consummation of the transactions contemplated hereby and thereby do not require any filing with, notice to or consent, waiver or approval of any third party, including but not limited to, any Forum other than any filing required under the 9 HSR Act and the expiration of any applicable waiting period thereunder. Schedule 3.3 identifies separately each notice, consent, waiver, or approval by reference to each Lease and to each Material Contract to which it is applicable. 3.4 Validity. This Agreement has been duly executed and delivered by the Seller and constitutes the legal, valid, and binding obligation of Seller, enforceable in accordance with its terms, subject to general equity principles and to applicable bankruptcy, insolvency, reorganization, moratorium, and similar laws from time to time in effect affecting the enforcement of creditors' rights. When the Bill of Sale and Assignment Agreement has been executed and delivered in accordance with this Agreement, it will constitute the legal, valid, and binding obligation of Seller, enforceable in accordance with its terms, subject to general equity principles and to applicable bankruptcy, insolvency, reorganization, moratorium, and similar laws from time to time in effect affecting the enforcement of creditors' rights. The documents delivered by Seller at Closing will be sufficient to transfer to Purchaser all of Seller's right, title and interest in and to the Assets. 3.5 Assets. (a) Seller has good and valid title to all of the Assets constituting personal property, free and clear of any and all mortgages, pledges, security interests, liens, charges, conditional sales agreements, and other encumbrances except Permitted Encumbrances. (b) The Assets constitute all tangible personal property required to operate the Restaurant in accordance with the Franchise Agreements or necessary to operate the Restaurants in accordance with Seller's historical practices, except for assets which are not being conveyed hereunder which Seller has historically used in the operation of the Restaurants and Seller's other restaurants located outside the Territory. (c) There are no assets or property of any nature which is not being transferred to Purchaser hereunder that has been customarily used exclusively in the operation or ownership of the Restaurants other than Permits and software licenses that are not assignable. (d) Each Asset constituting tangible personal property having a fair market value of $1,000 or more is in good operating condition consistent with its age, subject to normal wear and tear. (e) Substantially all inventories located at the Restaurants, including, but not limited to, food, beverage, supplies, liquor, paper products and uniforms, are saleable or usable in the ordinary course of business for their intended use and exist in such quantity as necessary to operate the Restaurants in accordance with Seller's historical practices and the terms of the Franchise Agreements. (f) The buildings, fixtures, parking facilities, trash facilities, fences and other improvements, appurtenances and hereditaments at or on each Restaurant are in good condition, commensurate with their age, with reasonable wear and tear excepted, and in compliance in all material respects with all federal, state and local laws, rules and regulations and leases and lease provisions. 3.6 Contracts and Leases. (a) Each Material Contract and Lease is a valid and subsisting agreement, without any material default of Seller thereunder, and to the knowledge of Seller, without any default on the part of any other party thereto. To the knowledge of Seller, no event or occurrence has transpired which with the passage of time or giving of notice or both will constitute a default under any Material Contract or Lease. A true and correct list of each Material Contract and Lease and every amendment thereto or other agreement or document relating thereto is set forth as Schedule 3.6 to this Agreement. True and correct copies of the Material Contracts and Leases (and any amendments thereto) have been provided to Purchaser. At the time of Closing, Seller shall have made all payments and performed all obligations due through the Closing Date under each Contract and Lease, except to the extent that any payment due is set forth on the Purchase Price Adjustment Schedule and deducted in calculating the 10 Purchase Price pursuant to Section 2.3. (b) No Contract or Lease has been assigned by Seller or any interest granted therein by Seller to any third party, or is subject to any mortgage, pledge, hypothecation, security interest, lien, or other encumbrance or claim. (c) Seller's possession of property subject to the Leases has not been disturbed, nor has any claim been asserted against Seller adverse to its rights in such leasehold interests. (d) The Contracts have been entered into in the ordinary course of Seller's business and, to Seller's knowledge, contain commercially reasonable terms. (e) Seller is in compliance with its obligations under the Franchise Agreements with respect to remodeling of the Restaurants. 3.7 Real Property. (a) Schedule 3.7(a) sets forth with respect to each Restaurant, its location, whether it is located on Owned Real Property, Leased Real Property or other leased Real Property, and whether the improvements are owned or leased. (b) The water, electric, gas, and sewer utility services, and storm drainage facilities currently available to each parcel of Real Property are adequate for the operation of the Restaurants as presently operated, and to Seller's knowledge, there is no condition which will result in the termination of the present access from each parcel of Real Property to such utility services and other facilities. (c) Seller has obtained all authorizations and rights-of-way which are necessary to ensure vehicular and pedestrian ingress and egress to and from the site of each Restaurant, all of which are assignable and shall be assigned to Purchaser at Closing. (d) Seller has received no notice that any Government having the power of eminent domain over any parcel of Real Property has commenced or intends to exercise the power of eminent domain or a similar power with respect to any part of the Real Property. (e) The Real Property and the present uses thereof comply in all material respects with all material laws and regulations (including zoning laws and ordinances) of each Government having jurisdiction over the Real Property, and Seller has received no notice from any Government alleging that the Real Property or any improvements erected or situated thereon, or the uses conducted thereon or therein, violate any regulations of any Government having jurisdiction over the Real Property. (f) To the knowledge of Seller, no work for municipal improvements has been commenced on or in connection with any parcel of Real Property or any street adjacent thereto and no such improvements are contemplated. No assessment for public improvements has been made against the Real Property which remains unpaid. No notice from any Government has been served upon the Real Property or received by Seller, or to the knowledge of Seller after due inquiry received by any owner of any of the Leased Real Property, requiring or calling attention to the need for any work, repair, construction, alteration, or installation on or in connection with the Real Property which has not been complied with. (g) Seller holds all Environmental Permits necessary for conducting the Business and has conducted, and is presently conducting, the Business in material compliance with all applicable Environmental Laws and Environmental Permits held by it, including, without limitation, all record keeping and filing requirements. Seller has not taken or omitted to take any action relating to the Real Property that would result in any liability to Seller or any subsequent owner or lessee of the Real Property under any Environmental Law. To the Seller's knowledge, all Hazardous Materials and Solid Waste, on, in, or under Real Property have been properly removed and disposed of, and to the Seller's 11 knowledge no past or present disposal, discharge, spill, or other release of, or treatment, transportation, or other handling of Hazardous Materials or Solid Waste on, in, under, or off-site from any Real Property will subject the Purchaser, or any subsequent owner, occupant, or operator of the Real Property to corrective or compliance action or any other liability. There are no presently pending, or to Seller's knowledge, threatened Actions or Orders against or involving Seller relating to any alleged past or ongoing violation of any Environmental Laws or Environmental Permits with respect to the Real Property, nor to Seller's knowledge is Seller subject to any liability for any such past or ongoing violation. Matters referenced above of which Seller has knowledge, if any, are referenced on Schedule 3.7(g). 3.8 Financial Statements. Schedule 3.8 contains for each Restaurant unaudited statements of operations as of the end of the 1997 fiscal year and for each fiscal month ended thereafter through the date hereof for which such statements are available, prepared in accordance with generally accepted accounting principles, except for the absence of explanatory notes and except as otherwise expressly described therein (the "Financial Statements"). The Financial Statements have been prepared in accordance with Seller's historical practices and fairly present the operations of the Restaurants for the periods presented and as of their respective dates. 3.9 Taxes. All Property Taxes relating to the Assets have been fully paid for 1997 and all prior tax years and there are no delinquent property tax liens or assessments. Seller has also timely filed (or will timely file) all other tax returns and reports of whatever kind pertaining to the Assets and required to be filed by Seller up to the Closing Date. Seller has paid (or will timely pay) all Taxes of whatever kind, including any interest, penalties, governmental charges, duties, fees, and fines imposed by all governmental entities or taxing authorities, which are due and payable prior to the Closing Date or for which assessments relating to any period prior to the Closing Date have been received, the nonpayment of which would result in lien on any of the Assets. There are no audits, suits, actions, claims, investigations, inquiries, or proceedings pending or, to Seller's knowledge, threatened against Seller with respect to Taxes, interest, penalties, governmental charges, duties, or fines, nor are any such matters under discussion with any governmental authority, nor have any claims for additional Taxes, interest, penalties, charges, fines, fees, or duties been received by assessed against Seller that in any such case affect the Assets. 3.10 Litigation. Except as set forth on Schedule 3.10, there is no material Action or Order pending or, to the knowledge of Seller, threatened against or affecting Seller that pertains to the Restaurants, or any of the Assets before any Forum. 3.11 Permits. Seller has all material Permits as are necessary to operate the Restaurants. Seller has fulfilled and performed all of its material obligations with respect to such Permits and, to the knowledge of Seller, no event has occurred which allows, nor after notice or lapse of time or both would allow, revocation or termination thereof or would result in any other impairment of the rights of the holder of any such Permits. 3.12 Health and Safety Requirements. To the knowledge of Seller, Seller is in compliance with all laws, governmental standards, rules and regulations applicable to Seller or to any of the Assets in respect to the Americans with Disabilities Act and similar state laws, occupational health and safety laws, and environmental laws. 3.13 Employment Contracts, Etc. Seller is not is a party to any written employment agreements related to the employees at the Restaurants (or any oral agreements providing for employment other than employment "at will") or any deferred compensation agreements. Schedule 3.13 hereto is a true and complete list (i) of each person employed in connection with the operation of the Restaurants, from and including each assistant manager and assistant kitchen manager up through Vice President of Operations for the ADIs; and (ii) each 12 other salaried employee whose duties are primarily related to Seller's operations in the ADIs who could during the current fiscal year receive, compensation (including all bonuses, perquisites and other items of value) in excess of Thirty Thousand Dollars ($30,000). For each such person, Schedule 3.13 lists the full name, job title or duty, salary and bonus. Seller shall, as soon as possible after the date hereof, provide Purchaser with ESOP and 401(K) account balances for such employees. 3.14 Labor Matters. Seller is not and never has been a party to any collective bargaining or other labor agreement affecting the Business. To the knowledge of Seller, there is no pending or threatened labor dispute, strike, work stoppage, union representation, election, negotiation of collective bargaining agreement, or similar labor matter affecting the Business. Seller is not involved in any controversy with any group of its employees or any organization representing any employees involved in the Business, and to the knowledge of Seller, Seller is in compliance with all applicable federal and state laws and regulations concerning the employer/employee relationship, including but not limited to wage/hour laws, laws prohibiting discrimination, and labor laws. Seller is in compliance with all of its agreements relating to the employment of its employees, including, without limitation, provisions thereof relating to wages, bonuses, hours of work and the payment of Social Security taxes, and Seller is not liable for any unpaid wages, bonuses, or commissions or any tax, penalty, assessment, or forfeiture for failure to comply with any of the foregoing. 3.15 Employee Benefits. (a) Schedule 3.15 hereto contains a true and complete list of all the following agreements or plans of Seller which are presently in effect and which pertain to any of the ADI Personnel: (i) "employee welfare benefit plans" and "employee pension benefit plans," as defined in Sections 3(1) and 3(2), respectively, of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"); (ii) any other pension, profit sharing, retirement, deferred compensation, stock purchase, stock option, incentive, bonus, vacation, severance, disability, health, hospitalization, medical, life insurance, vision, dental, prescription drug, supplemental unemployment, layoff, automobile, apprenticeship and training, day care, scholarship, group legal benefits, fringe benefits, or other employee benefit plan, program, policy, or arrangement, whether written or unwritten, formal or informal, which Sellers maintains or to which Seller has any outstanding, present, or future obligation to contribute to or make payments under, whether voluntary, contingent, or otherwise (the plans, programs, policies, or arrangements described in clauses (i) or (ii) are herein collectively referred to as the "Seller Plans"). (b) Seller does not presently contribute and/or has never contributed or been obligated to contribute to a multi employer plan as defined in section 3(37)(A) of ERISA. (c) No Seller Plan is subject to Title IV of ERISA. (d) Seller has provided to Purchaser copies of all Seller Plans and with respect to each of Seller's Plans to the extent applicable (i) true and complete copies of all documents embodying or relating to each Seller Plan including without limitation, the plan and trust or other funding arrangement relating thereto, summary plan descriptions, employee handbooks or personnel manuals and all amendments thereto (ii) the most recent annual report, if any, required by ERISA and (iii) the most recent determination letter received from the Internal Revenue Service. 3.16 Accuracy of Schedules, Certificates and Documents. All information contained in any certificate furnished to Purchaser pursuant to this Agreement or in the Disclosure Memorandum is or will be when furnished both complete and accurate in all material respects and will not omit to state any material fact necessary in order to make the statements therein, in light of the circumstances 13 under which they were made, not misleading; and all documents furnished to Purchaser pursuant to this Agreement which are documents described in this Agreement or in the Disclosure Memorandum are true and correct copies of the documents which they purport to represent. 3.17 Employees. Seller has not made any statements to its employees which are inconsistent with the provisions of Section 6.3 hereof. 3.18 Insurance. Schedule 3.18 is a true and complete list and brief description of all property, fire, casualty, liability, life, worker's compensation, and other forms of insurance of any kind owned or held by Seller regarding the Assets or the Restaurants. All such policies (a) are in full force and effect, (b) are valid and outstanding policies, (c) insure against the risks of the kind customarily insured against and in the amounts customarily carried by entities similarly situated, and (d) provide that they will remain in full force and effect through the respective dates set forth in Schedule 3.18. 3.19 Affiliates. Seller has not been a party to, and there does not now exist, any transaction affecting the Restaurants or the Assets (including without limitation the purchase, sale or exchange of property or the rendering of any service) with any Affiliate of Seller or any entity in which any of them owns a beneficial interest. ARTICLE IV - COVENANTS OF SELLER 4.1 Performance of Real Property Leases and Contracts; Lease Options. Seller shall, through the Closing Date, continue to faithfully and diligently perform each and every continuing obligation of Seller, if any, under each of the Leases and Contracts, where the failure to do so would have a material adverse effect on the operations of a Restaurant. Seller shall, through the Closing Date, exercise any option becoming exercisable under a Lease to extend the term of such Lease. 4.2 Transfer of Licenses and Permits. Seller shall use commercially reasonable efforts to assist Purchaser with the assumption, transfer, or reissuance of any and all Permits required for the operation of the Restaurants. 4.3 Liabilities of Seller. All liabilities of Seller related to the Business or the Assets that are not Assumed Liabilities will be promptly paid by Seller as they come due. 4.4 Agreements Respecting Employees of Seller. (a) Prior to the Effective Time without the prior written approval of Purchaser, Seller shall not transfer or reassign to operations outside the Business any employee exclusively involved in the operation or supervision of the Restaurants ("ADI Personnel"). The parties hereto recognize that Mario Cernadas will be reassigned on or about the Closing Date and shall not be considered to be ADI Personnel for purposes of this Agreement. However, notwithstanding anything contained herein to the contrary, Purchaser may contact, solicit or hire Mario Cernadas. At the Effective Time, Seller shall terminate the employment of all ADI Personnel. For a period of twelve months following the Closing, Seller shall not solicit for employment or hire any person who is a salaried employee of Purchaser. (b) Seller shall be solely responsible for any severance amounts due or granted by Seller to any ADI Personnel. (c) Seller shall cooperate with Purchaser in the transition of coverage of ADI Personnel from Seller's health, medical, life insurance, and other welfare plans to plans maintained by Purchaser. 4.5 Conduct of Business. (a) From the date hereof until Closing, Seller shall (i) operate the Restaurants as they are currently being operated and in 14 the ordinary course of business and in compliance with all terms and conditions of the Franchise Agreements, using commercially reasonable efforts in keeping with Seller's historical practices to preserve and maintain the services of its employees and its relationships with suppliers and customers, (ii) pay all bills and debts incurred by it related to the Business promptly as they become due, and (iii) consult in advance with Purchaser on all decisions outside the ordinary course of business relating to the Assets or the Restaurants. (b) In particular, and without limiting the foregoing, with respect to the Business, Seller shall: (i) maintain the Assets consistent with past practices; (ii) continue to purchase and maintain inventories for each Restaurant in such quantities and quality as necessary to operate the Restaurants in accordance with Seller's historical practice; and (iii) continue to operate the Restaurants in accordance with all material applicable local, state, and federal laws and regulations; (iv) continue to conduct the advertising activities and efforts as set forth on Schedule 4.5A; (v) continue to conduct on a timely basis all normal period Asset maintenance; (vi) continue to conduct on a timely basis all Restaurant remodeling and refurbishing as set forth on Schedule 4.5B. (c) Further, with respect to the Restaurants, Seller shall not, without the express prior written approval of Purchaser: (i) change in any material manner the ownership of the Assets; (ii) increase the rate of compensation to ADI Personnel beyond the usual and customary annual merit increases or bonuses under established compensation plans, except for payments under the stay-bonus plan providing for payment of bonuses upon the Closing; (a copy of which is attached to Schedule 3.13). (iii) mortgage, pledge, or subject to lien any of the Assets; (iv) sell or otherwise dispose of any Asset except in the ordinary course of business; (v) enter into, terminate, or modify any Material Contract or waive any breach of any of its material terms or provisions or take any other action in connection with any Material Contract that would materially impair the interests or rights of Seller to be transferred to Purchaser hereunder except in the ordinary course of business; (vi) cancel or terminate or consent to or accept any cancellation or termination of any Lease, amend or otherwise modify any of its material terms or waive any breach of any of its material terms or provisions or take any other action in connection with any Lease that would materially impair the interests or rights of Seller to be transferred to Purchaser hereunder. (vii) establish or adopt any new "employee benefit plan" as defined in Section 3(3) of ERISA. 4.6 Access to Information. Seller shall afford Purchaser, its counsel, financial advisors, auditors, lenders, lenders' counsel and other authorized representatives reasonable access for any purpose consistent with this Agreement from the date hereof until the Closing, during normal business hours, to the offices, properties, books, and records of Seller with respect to the Assets and the Restaurants and shall furnish to Purchaser such additional financial and operating data and other information as Seller may possess and as Purchaser may 15 reasonably request, subject to Purchaser's obligations regarding the confidentiality of such information as set forth in Section 6.2 hereof; provided, however, that such access shall be arranged in advance by Purchaser with Seller and will be scheduled in a manner and with a frequency calculated to cause only a reasonable disruption of the business of Seller. 4.7 [Intentionally left blank.] 4.8 Reporting Requirements. Through the Closing Date, Seller shall furnish to Purchaser: (a) Promptly after the occurrence, or failure to occur, of any such event, information with respect to any event which (i) has materially adversely affected the Assets or the operations of the Restaurants, (ii) breached any of Seller's representations, warranties contained in Articles III or IV hereof. (b) As soon as available and in any event within fifteen business days after the end of each fiscal month, the statement of operations of each Restaurant for such month in the Seller's regularly prepared format. (c) Promptly after the commencement of each such matter, notice of all Actions, Orders, or other directives affecting the Business or any Restaurant that, if adversely determined, could materially adversely affect the Assets, the operations, business, prospects or condition (financial or otherwise) of the Restaurant or the ability of Seller to perform its obligations hereunder; (d) Such other information respecting the Assets or the operations, business prospects, or condition (financial or otherwise) of the Restaurants as the Purchaser may from time to time reasonably request. 4.9 Cooperation. Insofar as such conditions are within its reasonable control or influence, Seller will use commercially reasonable efforts to cause the conditions set forth in Article VII to be satisfied and to facilitate and cause the consummation of the transactions contemplated hereby; including obtaining the Consents. The parties acknowledge that no consents will be sought with respect to any Minor Contract even if the failure to so obtain a consent to assignment may result in a default or termination thereunder. Seller shall bear any expenses associated with obtaining the Consents; however, Seller shall not be required to make any payment to any party (other than reimbursement of expenses), guarantee any Material Contract or Lease or remain liable for the payment thereof following the Closing, or agree to any concessions or amendment to other contracts, leases or arrangements with such party in order to obtain such consents. 4.10 Subsequent Contracts. From the date of this Agreement to the Closing Date, Seller shall use commercially reasonable efforts (a) to include in any Material Contracts entered into by Seller ("Subsequent Contracts") a provision permitting the assignment of any such Subsequent Contract to Purchaser and providing that upon such assignment, Purchaser shall succeed to all of Seller's rights, title, and interests thereunder subject to the Purchaser's assumption of all of Seller's duties, powers, and obligations under such Subsequent Contract, and (b) to ensure that no Subsequent Contract contains any provision which would limit in any way the rights, title, and interests of Seller in the Assets. 4.11 Transition Services. (a) For a period of three months after the Closing, if and to the extent requested in writing by Purchaser, Seller agrees to provide to Purchaser restaurant accounting, POS system support, and other services related to the Restaurants as mutually agreed upon between Seller and Purchaser (the "Services"). Purchaser shall give Seller thirty (30) days advance written notice of the Services requested. The Services shall be provided promptly as requested and shall be provided in substantially the same manner and with the same or similar personnel as Seller previously utilized; provided, however, that the Seller no longer has the personnel to provide such Services, Seller may outsource such Services to a third party. 16 (b) Purchaser will pay for the Services on a monthly basis, after receipt of an invoice from Seller, at Seller's direct personnel cost incurred in connection with providing the requested Service or Seller's out-of-pocket cost (if the Services are outsourced), plus an amount of reasonable overhead not to exceed 85% of the base salaries of the personnel providing the Services or overseeing such Services (if the Services are outsourced). Seller's invoice shall detail the personnel used, the amount of time spent, and its calculation of the cost thereof. Direct personnel cost shall include only base salary and benefits normally paid to Seller employees in such capacities. (c) Seller is not required to maintain the employment of any specific personnel in connection with providing the Services; provided, however, that if requested by Purchaser, Seller shall offer to specifically designated personnel a bonus incentive to remain for the six (6) month period. The amount of such bonus shall be at the discretion of Purchaser. Such bonus, if accepted by the employee, shall be paid by Purchaser at the end of the three-month period, or for such shorter period as Purchaser may determine. 4.12 Delivery of Real Estate Documents. As soon as possible, Seller shall provide Purchaser copies of all surveys, title abstracts with respect to the Leased Real Property updated through the date on which Seller acquired a leasehold interest therein, and all environmental reports pertaining to the Leased Real Property, and current ALTA surveys (the "Surveys") and title insurance commitments with respect to the Leased Real Property (the "Title Commitments") pursuant to which Commonwealth Land & Title Company (the "Title Company") will agree to issue at Closing Lessee's policies of title insurance ("Title Policies") on American Land Title Association standard form of Leaseholder owner's policy to insure leasehold estates, showing no exceptions except as shown in the Lessee Title Commitments. The Title Policies shall insure the Purchaser that, upon consummation of the transactions herein contemplated, Purchaser will be vested with a good, valid, marketable and insurable Leasehold estate in and to the Leased Real Property, subject only to the Permitted Encumbrances. 4.13 Employee Benefits. Seller agrees to indemnify and hold harmless Purchaser from and against all losses, expenses and liabilities, arising under Section 4980B of the Code arising from Seller's failure to comply with the continuation requirements of Section 4980B of the Code and sections 601 through 608 of ERISA with respect to ADI Personnel for events occurring on or prior to the date of Closing. 4.14 No Sale Negotiations. Seller and its representatives and agents shall not solicit, entertain or undertake any negotiations, discussions or contact any party other than Purchaser and its representatives with respect to the sale, transfer or other disposition of any of the Assets (other than in the ordinary course of Restaurant operations), the Restaurants, or any interest, legal, equitable or beneficial, in any of the above. 4.15 Equipment Leases. Prior to or at the Closing, Seller shall purchase all equipment and other tangible personal property customarily located in the Restaurants or on the Real Property or used exclusively with respect to the Business that is subject to any equipment or other personal property lease. Title to all such property so acquired shall be transferred to Purchaser at Closing free and clear of any lien, security interest, Claim or other encumbrance. ARTICLE V - REPRESENTATIONS AND WARRANTIES OF PURCHASER Purchaser hereby represents and warrants to Seller as follows: 5.1 Organization, Corporate Power, Authorization. Assuming Purchaser assigns this Agreement to a Permitted Assign which is a corporation, the Permitted Assign will be a corporation duly organized, validly existing, and in good standing under the laws of its state of organization and in each other 17 jurisdiction in which it is lawfully required to qualify to conduct business. Purchaser has the power and authority to execute and deliver this Agreement, and Purchaser has or its Permitted Assign will have the power and authority to execute and deliver the Bill and Sale and Assignment Agreement, and to consummate the transactions contemplated hereby. All action on the part of Purchaser necessary for the authorization, execution, and delivery of this Agreement and the Bill of Sale and Assignment Agreement, and performance of all obligations of Purchaser thereunder has been duly taken. 5.2 Non-Contravention. The consummation by Purchaser's Permitted Assign (if any) of the transactions contemplated hereby and thereby will not violate any provision of its articles of organization or bylaws, as applicable. 5.3 Validity. This Agreement has been duly executed and delivered by Purchaser, and constitutes the legal, valid, and binding obligation of Purchaser, enforceable against Purchaser in accordance with its terms, subject to general equity principles and to applicable bankruptcy, insolvency, reorganization, moratorium, and similar laws from time to time in effect affecting the enforcement of creditors' rights. When the Bill of Sale and Assignment Agreement has been executed and delivered in accordance with this Agreement, it will constitute the legal, valid, and binding obligation of Purchaser or Purchaser's Permitted Assign, enforceable in accordance with its terms, subject to general equity principles and to applicable bankruptcy, insolvency, reorganization, moratorium, and similar laws from time to time in effect affecting the enforcement of creditors' rights. 5.4 Litigation Relating to the Agreement. Purchaser is not a party to, or subject to any judgment, decree, or order entered in any lawsuit or proceeding brought by any governmental agency or instrumentality or other party seeking to prevent the execution of this Agreement or the consummation of the transactions contemplated hereby. 5.5 Ability. Purchaser has arranged for the financing of the Purchase Price, and all material terms related thereto are finalized. Purchaser has arranged for the leasing of the Owned Real Properties from USRP, and all material terms related thereto are finalized. ARTICLE VI - COVENANTS OF PURCHASER 6.1 Purchaser Performance. After the Closing Date, Purchaser shall promptly pay as they become due and otherwise perform all obligations of Seller subject to Purchaser's right, in good faith, to contest the amount or validity of such obligation, under the Assumed Liabilities and otherwise perform and fulfill all other obligations with respect to the Assets pertaining to the period after the Closing Date; provided, however, that this Agreement is intended only for the benefit of the parties hereto and neither this Agreement, nor any of the rights, interests, or obligations hereunder, is intended for the benefit of any other Person. 6.2 Confidentiality. In connection with the negotiation of this Agreement, Seller may disclose Confidential Information, as defined below, to Purchaser. Purchaser agrees that if the transactions contemplated herein are not consummated, it will return to Seller all documents and other written information furnished to it. Purchaser further agrees to maintain the confidentiality of any and all Confidential Information of Seller and not disclose any Confidential Information to any Person other than its employees, agents, attorneys, lenders and accountants in connection with the transactions contemplated hereby and other than such Person to whom Confidential Information must be disclosed to effect the transactions and who are bound by appropriate non-disclosure agreements or obligations. Purchaser shall not use such Confidential Information for financial gain or in any manner adverse to Seller, except that Purchaser may use such Confidential Information in connection with the ordinary course of operation of the Restaurants after Closing. The foregoing 18 obligations shall not apply to (i) any information which was known by Purchaser prior to its disclosure by Seller; (ii) any information which was in the public domain prior to the disclosure thereof; (iii) any information which comes into the public domain through no fault of Purchaser; (iv) any information which is disclosed to Purchaser by a third party, other than an affiliate, having the legal right to make such disclosure; or (iv) any information which is required to be disclosed by Order of any Forum. For purposes of this Section, "Confidential Information" shall mean any and all technical, business, and other information which is (a) possessed or hereafter acquired by Seller and disclosed to Purchaser and (b) derives economic value, actual or potential, from not being generally known to Persons other than Seller, including, without limitation, technical or nontechnical data, compositions, devices, methods, techniques, drawings, inventions, processes, financial data, financial plans, product plans, lists of actual or potential customers or suppliers, information regarding the business plans and operations of Seller, and the existence of discussions and negotiations between the parties hereto relating to the terms hereof. The restrictions of this Section shall expire three years from the date hereof with respect to any confidential business information that does not constitute a trade secret under applicable law. 6.3 Seller Employees. (a) Purchaser shall offer employment to all ADI Personnel as to whom Purchaser has been furnished all employment records at Closing, upon terms and conditions substantially equivalent to those provided by Seller; however, Purchaser shall not be required to provide stock options or any stock purchase rights. For a period of twelve months following the Closing, Purchaser shall not solicit for employment any person who is a salaried employee of Seller or any subsidiary of Seller. (b) Purchaser shall maintain employee records transferred to Purchaser hereunder for a period of not less than four years and during that period will afford Seller reasonable access to such records during Purchaser's normal business hours. Purchaser shall maintain the confidentiality of such records and limit access thereto in a manner consistent with Purchaser's treatment of its employee records. (c) Purchaser agrees with respect to ADI Personnel hired by Purchaser within six (6) months of the Closing Date: (i) to give such employees credit under Purchaser's benefits plans, programs, and arrangements (including credit for accrued vacation which has been charged to Seller under Section 2.3) for such employees' period of service with Seller, provided that such credit shall only be taken into account under any tax-qualified plan maintained by Purchaser for purposes of determining such employees' eligibility for participation and eligibility to satisfy any hours of service requirement in order to receive an allocation of an employer contribution; (ii) to provide coverage to such employees who are eligible under Purchaser's health, medical, life insurance, and other welfare plans (A) without the need to undergo a physical examination or otherwise provide evidence of insurability; (B) any pre-existing condition or similar limitations or exclusions will be applied by taking into account the period of coverage under Seller's plan; (C) by applying and giving credit for amounts paid for the plan year in which the Closing Date occurs as deductibles, out of pocket expenses, and similar amounts paid by individuals and their beneficiaries. (d) Each of the ADI Personnel offered employment pursuant to Section 6.3(a) shall be offered employment by Purchaser as an "at will" employee of Purchaser to perform such duties as Purchaser may assign to such employee from time to time. Each such employee shall be subject to the same rules and policies applicable to Purchaser's current employees with respect to all employment related matters including retention, disciplinary action, termination, promotion, compensation, and except as otherwise provided in this Agreement, benefits. (e) The covenants of Purchaser contained in this Section are made solely to Seller. Nothing contained in this Section gives or shall be construed as giving any employee of Seller, including ADI Personnel, any right to be employed by 19 Purchaser in any capacity, for any rate of compensation or for any period of time. No employee of Seller, including ADI Personnel, shall be considered a third party beneficiary of the covenants of Purchaser contained in this Section and Purchaser shall have no liability to any employee on account of its breach of any such covenant. 6.4 Cooperation. Insofar as such conditions are within its reasonable control or influence, Purchaser shall use commercially reasonable efforts to cause the conditions set forth in Article VII to be satisfied and to facilitate and cause the consummation of the transactions contemplated hereby. Specifically, but not by way of limitation, Purchaser will (i) promptly provide Franchisor with all information required by Franchisor to determine whether Purchaser will be approved as a franchisee with respect to the Territory, (ii) actively pursue an agreement with Franchisor as to the principal terms of franchise and development agreements with respect to the Territory, and (iii) file all documents required, if any, to obtain approval of the transactions contemplated hereby under the HSR Act within 15 days of the date hereof. 6.5 Remediation List. Purchaser shall deliver to Seller a list setting forth all remedial actions that would require repair and replacement within sixty (60) days of the date thereof with respect to any of the Assets under reasonable operating standards of a prudent operator and the estimated cost of each such action (the "Remediation List"); provided, however, that each remedial action with respect to any Restaurant must be in excess of $10,000 per item. The aggregate amount set forth on the Remediation List shall be a Purchase Price adjustment pursuant to Section 2.3 of this Agreement, unless repaired by Seller to Purchaser's satisfaction prior to Closing. Purchaser shall use its best efforts to deliver the Remediation List within one (1) month of the date of this Agreement. ARTICLE VII - CONDITIONS PRECEDENT TO THE CLOSING 7.1 Title Examination and Property Inspection. (a) Purchaser shall have fifteen (15) days following receipt of the documents referred to in Section 4.12 (the "Title Inspection Period") in which to furnish Seller a written statement of reasonable objections to exceptions which, in Purchaser's sole judgment, would materially interfere with or impair Purchaser's use of the Leased Real Property for the operation of Applebee's restaurants ("Material Objections"). Seller shall have fifteen (15) days after the receipt of Purchaser's statement of Material Objections to notify Purchaser which Material Objections it shall use its reasonably best efforts to satisfy (but with no obligation to do so) in all material respects. If Seller's notice indicates that Seller does not intend to satisfy all of the Material Objections, Purchaser shall have five (5) days after receipt of Seller's notice to terminate this Agreement by giving written notice of termination to Seller; provided, however, that the failure of Purchaser to so terminate within such five (5) day period shall constitute a waiver by Purchaser of those Material Objections which Seller has declined to attempt to satisfy. If Seller fails to satisfy all Material Objections (which it stated in its notice that it would attempt to satisfy) in all material respects or prior to the Termination Date, then Purchaser's sole right and remedy shall be to either (i) waive the remaining objections and elect to close, or (ii) terminate this Agreement by giving written notice of such termination to Seller. If Purchaser fails to furnish Seller a written statement of Material Objections by the end of the Title Inspection Period with respect to any matter appearing as an exception on a Title Commitment, such matter shall be deemed waived by Purchaser and shall be a Permitted Encumbrance. The parties acknowledge that some of the Leased Real Property may be located in shopping centers, and as such, unless the leased premises are a free standing building located on a separate pad with its own legal description ("Free Standing Premises") the Title Commitments for such Leased Real Property will contain encumbrances for entire shopping centers. Notwithstanding anything to the contrary contained herein, while Title Commitments will be delivered for such Leased Real Property, no surveys will be delivered and no Title Policies will be issued for Leases unless such Leases are for Free Standing Premises. Purchaser may not object to title encumbrances for such Leased Real Property that do not affect the premises 20 leased under the Leases, which such encumbrances shall be deemed to be Permitted Encumbrances. (b) Property Inspection. (A) Between the date of this Agreement and the Closing Date, Purchaser and Purchaser's agents, employees, contractors, representatives and other designees (hereinafter collectively called "Purchaser's Designees") shall have the right to enter the Leased Real Property for the purposes of inspecting the Leased Real Property, conducting soil tests, conducting surveys, mechanical and structural engineering studies, environmental studies, and conducting any other investigations, examinations, tests, and inspections as Purchaser may reasonably require to assess the condition of the Leased Real Property; provided, however, that (i) any activities by or on behalf of Purchaser, including, without limitation, the entry by Purchaser or Purchaser's Designees onto the Leased Real Property, or the other activities of Purchaser or Purchaser's Designees with respect to the Leased Real Property (hereinafter called "Purchaser's Activities") shall not damage the Leased Real Property in any manner whatsoever or disturb or interfere with the rights of any lessor; (ii) in the event the Leased Real Property is altered or disturbed in any manner in connection with any Purchaser's Activities, Purchaser shall immediately return the Leased Real Property to the condition existing prior to Purchaser's Activities; (iii) Purchaser shall in no event without Seller's prior written consent disclose the results of any of its investigations, examinations, tests, or inspections to any party (including any Government unless required by law) other than to its lenders, attorneys, consultants, and investors; and (iv) Purchaser shall indemnify, defend, and hold Seller harmless from and against any and all claims, liabilities, damages, losses, costs, and expenses of any kind or nature whatsoever (including, without limitation, attorneys' fees, and expenses and court costs) suffered, incurred or sustained by Seller as a result of, by reason of, or in connection with any Purchaser's Activities. Notwithstanding any provision of this Agreement to the contrary, Purchaser shall not have the right to undertake any environmental studies or testing beyond the scope of a standard "Phase I" evaluation without the prior written consent of Seller and the lessor of any Leased Real Property. (B) Purchaser shall have until the date which is the later of (i) thirty days after the date of this Agreement or (ii) fifteen days following receipt of the documents referred to in Section 4.12 (hereinafter called the "Due Diligence Date"), to perform such investigations, examinations, tests and inspections as Purchaser shall deem necessary or desirable to determine whether the Assets are suitable and satisfactory to Purchaser and can be used for Applebee's franchise restaurants. In the event Purchaser shall determine that the Assets are not reasonably suitable and satisfactory to Purchaser, Purchaser shall have the right to terminate this Agreement by giving written notice to Seller on or before the Due Diligence Date. If Purchaser does not terminate this Agreement in accordance with this Section 7.1(b) on or before the Due Diligence Date, Purchaser shall have no further right to terminate this Agreement pursuant to this Section 7.1(b). (C) Prior to any entry by Purchaser or any of Purchaser's Designees onto the Leased Real Property, Purchaser shall: (i) procure a policy of commercial general liability insurance, issued by an insurer reasonably satisfactory to Seller, covering all Purchaser's Activities, with a single limit of liability (per occurrence and aggregate) of not less than $1,000,000.00; and (ii) deliver to Seller a Certificate of Insurance, evidencing that such insurance is in force and effect, and evidencing that Seller has been named as an additional insured thereunder with respect to any Purchaser's Activities. Such insurance shall be written on an "occurrence" basis, and shall be maintained in force until the earlier of (i) the termination of this Agreement and the conclusion of all Purchaser's Activities; or (ii) Closing. (D) Purchaser acknowledges that Seller may deliver to Purchaser certain documents and information in possession of Seller or Seller's agents with regard to the Real Property (hereinafter called the "Due Diligence Materials"). The Due 21 Diligence Materials will be provided to Purchaser without any representation or warranty of any kind or nature whatsoever and are merely provided to Purchaser for Purchaser's informational purposes. Until Closing, Purchaser and Purchaser's Designees shall maintain all Due Diligence Materials as Confidential Information. 7.2 Purchaser's Conditions to Closing. The obligations of Purchaser hereunder are subject to satisfaction of each of the following conditions at or before Closing, the occurrence of which may, at the option of Purchaser, be waived: (a) Subject to the matters disclosed in the Disclosure Memorandum as supplemented by Seller from time to time to reflect any event or occurrence after the date hereof, all representations and warranties of Seller in this Agreement shall be true in all material respects on and as of the Closing. (b) Any supplement to the Disclosure Memorandum delivered by Seller shall not reflect in Purchaser's reasonable judgment any material adverse change in the Assets or the Business. (c) Seller shall have performed and complied in all material respects with all of its obligations under this Agreement which are to be performed or complied with by Seller prior to or on the Closing Date. (d) Seller shall have obtained and delivered to Purchaser all consents necessary to transfer and assign the Assets (except for Minor Contracts) to Purchaser. (e) Purchaser and Franchisor shall have entered into a franchise agreement with respect to each Restaurant and development agreements with respect to each ADI in the Territory. (f) Purchaser shall have obtained, either from Seller or directly from the issuing authority, all permits, licenses, including liquor licenses, and approvals of all governmental and quasi-governmental authorities necessary for the operation of the Restaurants in accordance with franchise requirements or otherwise as reasonably indicated by Purchaser; provided, however, that if Purchaser is unable to obtain from local municipal or county authorities a permit necessary for such operation of the Restaurants, and Purchaser reasonably believes that it will be able to obtain such a permit within two months of the Closing Date, Closing of the transactions contemplated hereunder will not be delayed if Seller delivers to Purchaser a duly executed and mutually acceptable liquor license management agreement or agreements. (g) The waiting period under the HSR Act shall have expired or a notification of early termination of the waiting period shall have been received by Purchaser. (h) The Owned Real Property and any leases of real property on which a Restaurant is located (other than the Leases) shall be acquired by USRP, an affiliated entity of USRP or by Purchaser, prior to or effective as of the Closing Date. (i) Purchaser shall have been issued the Title Policies. (j) Seller shall have delivered the items required by Section 2.4(a). (k) There shall be no Material Adverse Change in the financial condition of the Restaurants. As used herein, the term "Material Adverse Change" shall mean a decrease in sales of all Restaurants in the aggregate in an amount equal or more than 10% during the period from the date hereof through the Closing Date relative to the same period during 1997. 7.3 Seller's Conditions to Closing. The obligations of Seller hereunder are subject to satisfaction of each of the following conditions at or before 22 Closing, the occurrence of which may, at the option of Seller, be waived: (a) All representations and warranties of Purchaser in this Agreement shall be true on and as of the Closing, and Purchaser shall have delivered to Seller a certificate to such effect dated as of the Closing Date. (b) Purchaser shall have performed and complied in all material respects with all of its obligations under this Agreement which are to be performed or complied with by Purchaser prior to or on the Closing Date. (c) Franchisor shall have agreed to terminate the Franchise Agreements effective as of the Closing. (d) The Owned Real Property and any leases of real property on which a Restaurant is located (other than the Leases) shall be acquired by USRP, an affiliated entity of USRP or by Purchaser, prior to or effective as of the Closing Date. (e) Seller shall have obtained all the Consents. (f) The waiting period under the HSR Act shall have expired or a notification of early termination of the waiting period shall have been received by Seller. (g) Purchaser shall have delivered the items required by Section 2.4(b). ARTICLE VIII - INDEMNIFICATION 8.1 Purchaser Claims. (a) Seller shall defend, indemnify and hold harmless Purchaser and its officers, directors, agents, employees and Affiliates and Purchaser's successors and assigns ("Purchaser Parties"), against, and in respect of: (i) Any and all damages, losses, liabilities, costs, and expenses incurred or suffered by Purchaser Parties that result from, relate to, or arise out of: (A) any and all liabilities and obligations of Seller of any nature whatsoever, except for the Assumed Liabilities; (B) any failure by Seller to carry out any covenant or agreement contained in this Agreement or liability related to noncompliance with any bulk sales laws; (C) any misrepresentation or breach of warranty by Seller contained in this Agreement, the Disclosure Memorandum, or any certificate, furnished to Purchaser by Seller pursuant hereto; or (D) any claim by any Person for any brokerage or finder's fee or commission in respect of the transactions contemplated hereby as a result of Seller's dealings, agreement, or arrangement with such Person. (ii) Any and all actions, suits, claims, proceedings, investigations, demands, assessments, audits, fines, judgments, costs, and other expenses (including, without limitation, reasonable legal fees and expenses) incident to any of the foregoing including all such expenses reasonably incurred in mitigating any damages resulting to Purchaser Parties from any matter set forth in subsection (i) above. (b) Notwithstanding the foregoing, Seller shall have no liability for indemnification or otherwise with respect to Section 8.1(a)(i)(C) (and Section 8.1(a)(ii) to the extent the items covered thereby relate back to Section 8.1(a)(i)(C)) until the aggregate liability of Seller thereunder exceeds $100,000 (at which point the Seller will be obligated to indemnify the Purchaser Parties from and against all such liabilities relating back to the first 23 dollar). In no event shall the aggregate liability of Seller under Section 8.1(a)(i)(C) (and Section 8.1(a)(ii) to the extent the items covered thereby relate back to Section 8.1(a)(i)(C)) exceed $2,500,000. (c) The amount of any liability of Seller under this Section 8.1 shall be computed net of any tax benefit to Purchaser from the matter giving rise to the claim for indemnification hereunder and net of any insurance proceeds received by Purchaser with respect to the matter out of which such liability arose. (d) The representations and warranties of Seller contained in this Agreement, the Disclosure Memorandum, or any certificate delivered by or on behalf of Seller pursuant to this Agreement or in connection with the transactions contemplated herein shall survive the consummation of the transactions contemplated herein (even if Purchaser knew or had reason to know of any misrepresentation or breach of warranty at the time of Closing) and shall continue in full force and effect for the periods specified below (the "Survival Period"). (i) the representations and warranties contained in Section 3.5(d) shall be of no further force and effect after thirty days from the date of the Closing. (ii) the representations and warranties contained in Sections 3.1 through 3.4 and Section 3.7(g) shall survive until the expiration of any applicable statutes of limitation provided by law (if there is no applicable statute of limitations, such representations and warranties shall survive indefinitely); and (iii) all other representations and warranties of Seller shall be of no further force and effect after eighteen months from the date of the Closing. Anything to the contrary notwithstanding, the Survival Period shall be extended automatically to include any time period necessary to resolve a written claim for indemnification which was made in reasonable detail before expiration of the Survival Period but not resolved prior to its expiration, and any such extension shall apply only as to the claims so asserted and not so resolved within the Survival Period. Liability for any such item shall continue until such claim shall have been finally settled, decided, or adjudicated. (e) Except for claims arising under Sections 4.1, 4.3, 4.4 and 4.11 which shall survive the Closing, Purchaser may not assert any claim against Seller for breach of any covenant contained in Article IV (following the Closing) and all such claims shall be deemed to be waived as a result of the Closing. (f) Purchaser shall provide written notice to Seller of any claim for indemnification under this Article as soon as practicable; provided, however, that failure to provide such notice on a timely basis shall not bar Purchaser's ability to assert any such claim except to the extent that Seller is actually prejudiced thereby. Purchaser shall make commercially reasonable efforts to mitigate any damages, expenses, etc. resulting from any matter giving rise to liability of Seller under this Article. (g) Notwithstanding any other provision of this Article VIII, the aggregate principal amount of the obligation of Seller under this Article VIII shall not exceed the gross proceeds actually received by the Seller in connection with this Agreement and the transaction contemplated hereby. 8.2 Defense of Third Party Claims. With respect to any claim by Purchaser under Section 8.1, relating to a third party claim or demand, Purchaser shall provide Seller with prompt written notice thereof in accordance with Section 10.4 and Seller may defend, in good faith and at its expense, by legal counsel chosen by it and reasonably acceptable to Purchaser any such claim or demand, and Purchaser, at its expense, shall have the right to participate in the defense of any such third party claim. So long as Seller is defending in good faith any such third party claim, Purchaser shall not settle or compromise such third party claim. In any event Purchaser shall cooperate in the settlement or compromise of, or defense against, any such asserted claim. 24 8.3 Seller Claims. Purchaser shall indemnify and hold harmless Seller against, and in respect of, any and all damages, claims, losses, liabilities, and expenses, including without limitation, legal, accounting and other expenses, which may arise out of: (i) any breach or violation by Purchaser of any covenant set forth herein or any failure to fulfill any obligation set forth herein, including, but not limited to, the obligation to satisfy the Assumed Liabilities; (ii) any breach of any of the representations or warranties made in this Agreement by Purchaser (provided that such representations and warranties shall be of no further force and effect after eighteen months after the Closing Date); or (iii) any claim by any Person for any brokerage or finder's fee or commission in respect of the transactions contemplated hereby as a result of Purchaser's dealings, agreement, or arrangement with such Person. 8.4 Exclusive Remedies. The rights and remedies of the parties under this Article VIII shall be the sole and exclusive rights and remedies that either party may seek for any misrepresentation, breach of warranty, or failure to fulfill any covenant or agreement under this Agreement, except that either party may seek specific performance or injunctive relief. 8.5 Settlement of Disputes. (a) Arbitration. All disputes with respect to any claim for indemnification under this Article VIII and all other disputes and controversies of every kind and nature between the parties hereto arising out of or in connection with this Agreement shall be submitted to arbitration pursuant to the following procedures: (i) After a dispute or controversy arises, either party may, in a written notice delivered to the other party, demand such arbitration. Such notice shall designate the name of the arbitrator appointed by such party demanding arbitration, together with a statement of the matter in controversy; (ii) Within 30 days after receipt of such demand, the other party shall, in a written notice delivered to the other party, name such party's arbitrator. If such party fails to name an arbitrator, then the second arbitrator shall be named by the American Arbitration Association ("AAA"). The two arbitrators so selected shall name a third arbitrator within 30 days, or in lieu of such agreement on a third arbitrator by the two arbitrators so appointed, the third arbitrator shall be appointed by the AAA; (iii) The arbitration hearing shall be held in Wichita, Kansas (in the case of arbitration initiated by Seller) or in Atlanta, Georgia (in the case of arbitration initiated by Purchaser) at a location designated by a majority of the arbitrators. The Commercial Arbitration Rule of the AAA shall be used and the substantive laws of the State of Georgia (excluding conflict of laws provisions) shall apply; (iv) An award rendered by a majority of the arbitrators appointed pursuant to this Agreement shall be final and binding on all parties to the proceeding, shall deal with the question of costs of the arbitration and all related matters, and judgment on such award may be entered by either party in a court of competent jurisdiction; and (v) Except as set forth in subsection (b) below, the parties stipulate that the provisions of this Section 8.5 shall be a complete defense to any suit, action or proceeding instituted in any federal, state, or local court or before any administrative tribunal with respect to any controversy or dispute arising out of this Agreement. The arbitration provisions hereof shall, with respect to such controversy or dispute, survive the termination or expiration of this Agreement. (b) Emergency Relief. Notwithstanding anything in this Section 8.5 to the contrary, either party may seek from a court any provisional remedy that may be necessary to protect any rights or property of such party pending the establishment of the arbitral tribunal or its determination of the merits of the controversy. 25 ARTICLE IX - TERMINATION 9.1 Termination. (a) This Agreement may be terminated as follows: (i) At any time by the mutual consent of Seller and Purchaser; (ii) By Purchaser pursuant to Section 7.1; (iii) By Seller if Purchaser shall not (i) have obtained and provided Seller a copy of a commitment letter for the financing of the transactions contemplated hereby within fifteen (15) days from the date hereof; (ii) been approved hereof as a franchisee with respect to the Territory by Franchisor within forty five (45) days of the date hereof, (iii) reached agreement with Franchisor as to a development schedule and other material terms of franchise and development agreements with respect to the Territory within forty five (45) days from the date hereof; or (iv) By either Seller or Purchaser, at its sole election, at any time after the Termination Date, if the Closing shall not have occurred on or prior to such date. (b) In the event of the termination of this Agreement pursuant to subparagraph (a)(iv) above because Seller or Purchaser, as the case may be, shall have willingly failed to fulfill its obligations hereunder, the other party shall, subject to Section 8.5, be entitled to pursue, exercise, and enforce any and all remedies, rights, powers, and privileges available to it at law or in equity. (c) Section 6.2, Article VIII, and Article X hereof shall survive the termination of this Agreement. ARTICLE X - MISCELLANEOUS 10.1 Expenses. (a) Each party hereto shall pay its own legal, accounting, and similar expenses incidental to the preparation of this Agreement, the carrying out of the provisions of this Agreement, and the consummation of the transactions contemplated hereby. (b) Purchaser and Seller shall split equally all filing fees, if any, required under the HSR Act. (c) Purchaser and Seller shall split equally the costs of obtaining the Title Commitments, the Surveys and Title Policies and all transfer, intangible, recording, and documentary taxes, stamps, and fees with respect to the transfer of the Leases. Purchaser shall pay the cost of all environmental investigations, studies, and reports, and all other costs of any investigation of the Assets, the Restaurants, or the Business by Purchaser. (d) Purchaser shall pay any costs associated with the transfer of any Permits and the cost of obtaining liquor licenses or other Permits that are not assignable. (e) The parties shall split equally the cost of any sales taxes, transfer taxes, documentary stamp taxes, or other taxes imposed with respect to the transfer of any Assets constituting personal property. (f) Seller shall pay the costs of obtaining any Consents subject to Section 4.9. (g) Following the Closing, Seller shall pay to Purchaser on a monthly basis as billed the amount of all gift certificates issued by Seller prior to the Closing and redeemed thereafter. 26 10.2 Contents of Agreement; Parties in Interest; etc. This Agreement sets forth the entire understanding of the parties hereto with respect to the transactions contemplated hereby and constitutes a complete statement of the terms of such transaction. This Agreement shall not be amended or modified except by written instrument duly executed by each of the parties hereto. Any and all previous agreements and understandings between the parties regarding the subject matter hereof, whether written or oral, are superseded by this Agreement. Neither party has been induced to enter into this Agreement in reliance on, and has not relied upon, any statement, representation, or warranty of the other party not set forth in this Agreement, the Disclosure Memorandum, or any certificate delivered pursuant to this Agreement. 10.3 Assignment and Binding Effect. Purchaser may assign the right to receive any of the Assets at Closing to any affiliate or other third party reasonably acceptable to Seller and acceptable to Franchisor, provided that no such assignment shall affect Purchaser's liability hereunder. Subject to the foregoing, all of the terms and provisions of this Agreement shall be binding upon and inure to the benefit of and be enforceable by the successors and assigns of Seller and Purchaser. 10.4 Notices. Any notice, request, demand, waiver, consent, approval, or other communication which is required or permitted hereunder shall be in writing and shall be deemed given only if delivered personally or sent by telecopy or by first class registered or certified United States Mail, with proper postage prepaid, as follows: If to Seller, to: With a required copy to: Apple South, Inc. Hancock Kilpatrick Stockton LLP at Washington Madison, Georgia 30650 1100 Peachtree Street, Suite 2800 Attention: Louis J. (Dusty) Profumo Atlanta, Georgia 30309 Fax: 706-343-2434 Attention: Larry D. Ledbetter, Esq. Fax: 404-815-6555 If to purchaser: With a required copy to: Darrel Rolph Hinkle, Eberhart & Elkouri, L.L.C. 1877 N. Rock Road Suite 2000, Epic Center Wichita, Kansas 67206 301 North Main Street Attention: Darrel L. Rolph Wichita, Kansas 67202 Fax: 316-681-2481 Attention: Winton M. Hinkle Fax: 316-264-1518 or to such other address or person as the addressee may have specified in a notice duly given to the sender as provided herein. Such notice, request, demand, waiver, consent, approval or other communication will be deemed to have been given as of the date actually delivered, or if mailed, four days after deposit in the U. S. Mail properly addressed with adequate postage affixed. 10.5 GEORGIA LAW TO GOVERN. THIS AGREEMENT SHALL BE GOVERNED BY AND INTERPRETED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF GEORGIA. 10.6 Headings. All section headings contained in this Agreement are for convenience of reference only, do not form a part of this Agreement, and shall not affect in any way the meaning or interpretation of this Agreement. 10.7 Schedules and Exhibits. All Exhibits and Schedules referred to herein are intended to be and hereby are specifically made a part of this Agreement. 10.8 Severability. Any provision of this Agreement which is invalid or unenforceable in any jurisdiction shall be ineffective to the extent of such invalidity or unenforceability without invalidating or rendering unenforceable the remaining provisions hereof, and any such invalidity or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. 27 10.9 Public Announcements. Purchaser and Seller will coordinate with each other all press releases relating to the transactions contemplated by this Agreement and, except to the extent required by law, refrain from issuing any press release, publicity statement, or other public notice relating to this Agreement or the transactions contemplated hereby without providing the other party reasonable opportunity to review and comment thereon. 10.10 Construction. The parties hereto have participated jointly in the negotiation and drafting of this Agreement. In the event that any ambiguity or question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the parties hereto and no presumption or burden of proof shall arise favoring or disfavoring any party hereto by virtue of the authorship of any of the provisions of this Agreement. 10.11 Disclaimer of Warranties. PURCHASER WILL CONDUCT SUCH INSPECTIONS AND INVESTIGATIONS OF THE ASSETS (INCLUDING, BUT NOT LIMITED TO, THE PHYSICAL AND ENVIRONMENTAL CONDITION THEREOF) AND RELY UPON SAME AND, UPON CLOSING, EXCEPT TO THE EXTENT OF SELLER'S EXPRESS REPRESENTATIONS AND WARRANTIES CONTAINED HEREIN, AND IN THE CLOSING CERTIFICATE REQUIRED BY SECTION 2.4(a)(i) SHALL ASSUME THE RISK THAT ADVERSE MATTERS MAY NOT HAVE BEEN REVEALED BY PURCHASER'S INSPECTIONS AND INVESTIGATIONS. EXCEPT TO THE EXTENT OF SELLER'S EXPRESS REPRESENTATIONS AND WARRANTIES CONTAINED HEREIN, AND IN THE CLOSING CERTIFICATE REQUIRED BY SECTION 2.4(a)(i) SELLER SHALL SELL AND CONVEY TO PURCHASER, AND PURCHASER SHALL ACCEPT, THE ASSETS "AS IS", "WHERE IS", AND WITH ALL FAULTS, AND THERE ARE NO ORAL AGREEMENTS, WARRANTIES OR REPRESENTATIONS, COLLATERAL TO OR AFFECTING THE ASSETS BY SELLER OR ANY THIRD PARTY. WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, EXCEPT TO THE EXTENT OF SELLER'S EXPRESS REPRESENTATIONS AND WARRANTIES CONTAINED HEREIN, AND IN THE CLOSING CERTIFICATE REQUIRED BY SECTION 2.4(a)(i) SELLER MAKES, AND SHALL MAKE, NO EXPRESS OR IMPLIED WARRANTY OF SUITABILITY OR FITNESS OF ANY OF THE ASSETS FOR ANY PURPOSE, OR AS TO THE MERCHANTABILITY, ENVIRONMENTAL CONDITION, TITLE, VALUE, QUALITY, QUANTITY, CONDITION OR SALABILITY OF ANY OF THE ASSETS, OR AS TO THE PRESENCE ON OR ABSENCE FROM THE ASSETS OF ANY HAZARDOUS MATERIAL. THE TERMS AND CONDITIONS OF THIS SECTION 10.11 SHALL SURVIVE THE CONSUMMATION OF THE PURCHASE AND SALE OF THE ASSETS ON THE CLOSING DATE WITHOUT REGARD TO ANY GENERAL LIMITATIONS UPON SURVIVAL SET FORTH IN THIS AGREEMENT AND IN THE CLOSING CERTIFICATE REQUIRED BY SECTION 2.4(a)(i). 10.12 Purchaser's Right to Rely. NOTWITHSTANDING ANYTHING IN THE FOREGOING TO THE CONTRARY, PURCHASER'S INSPECTIONS AND INVESTIGATIONS OF THE ASSETS SHALL NOT IN ANY WAY OBVIATE OR HAVE ANY EFFECT ON SELLER'S REPRESENTATIONS, WARRANTIES, AND COVENANTS MADE HEREIN. FURTHER, ANY DISCLOSURE BY SELLER OR SELLER'S EMPLOYEES OR AGENTS, OTHER THAN A DISCLOSURE APPEARING ON THE DISCLOSURE MEMORANDUM SHALL NOT IN ANY WAY OBVIATE OR HAVE ANY EFFECT ON SELLER'S REPRESENTATIONS, WARRANTIES AND COVENANTS MADE HEREIN. 10.13 Time. Time is and shall be of the essence of this Agreement. 10.14 Guarantee. Darrel L. Rolph and David K. Rolph each agrees to guarantee the performance and obligations of Purchaser hereunder; provided that such guarantee shall terminate immediately after the Closing, and Seller has relied upon such guarantee in entering into this Agreement. 28 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first written above. SELLER: APPLE SOUTH, INC. By: Name: Title: PURCHASER: DARREL L. ROLPH GUARANTORS: Darrel L. Rolph David K. Rolph 29 EXHIBIT TABLE OF CONTENTS EXHIBIT TITLE A Bill of Sale and Assignment Agreement B Opinion of Seller's Counsel C Opinion of Purchaser's Counsel D Allocation of Purchase Price Exhibits to this agreement are not filed pursuant to Item 601(b)(2) of SEC Regulation S-K. By the filling of this Form 10-Q, the Registrant hereby agrees to furnish supplementally a copy of any omitted schedule to the Commission upon request. 30 EX-4.1 7 9 3/4% SENIOR NOTE AMENDMENT Solicitation of Consents to Proposed Amendments to: 9 3/4% Senior Notes due 2006 of Apple South, Inc. Apple South, Inc., a Georgia corporation (the "Company"), is seeking your consent (the "Consent") to the amendments (the "Proposed Amendments") of the covenants contained in the indenture dated as of May 1, 1996 (the "Indenture") governing its 9 3/4% Senior Notes due 2006 (the "Notes"). If the Requisite Consents (as defined herein) are received, the Company will pay each Holder (as defined herein) who has given and has not revoked its Consent as of the Expiration Date (as defined herein) with respect to any portion of the Notes of such Holder $35 per $1,000 of principal amount (the "Consent Price") of such portion of such Holder's Notes. - -------------------------------------------------------------------------------- THE CONSENT SOLICITATION WILL EXPIRE ON THE EXPIRATION DATE. CONSENTS MAY BE REVOKED AT ANY TIME PRIOR TO THE EXPIRATION DATE. THE CONSENT SOLICITATION AND THE ACCOMPANYING CONSENT CONTAIN IMPORTANT INFORMATION THAT SHOULD BE READ BEFORE ANY DECISION IS MADE WITH RESPECT TO THE CONSENT SOLICITATION. - -------------------------------------------------------------------------------- General The Company is seeking Consents from persons beneficially holding ("Holders") the Notes to the Proposed Amendments to the Indenture relating to the Notes. The Proposed Amendments The execution and delivery of a Consent by a Holder will constitute the consent of such Holder to the Proposed Amendments. The Proposed Amendments would amend certain provisions contained in the Indenture. The Proposed Amendments are contained in a first supplemental indenture (the "Supplemental Indenture") as set forth on Annex A hereto. Below is a brief description of the Proposed Amendments (unless otherwise defined herein, capitalized terms below have the meanings ascribed to them in the Indenture): Limitation on Restricted Payments. A new exception will be added to the "Limitation on Restricted Payments" covenant that would allow the Company to purchase, redeem, acquire, cancel or retire for value shares of the Company's common stock for an aggregate amount not to exceed $100 million without violating the "Limitation on Restricted Payments" covenant, provided that no Default or Event of Default shall have occurred and be continuing or would occur as a consequence of such action. Limitation on Guarantees by Restricted Subsidiaries. A new covenant will be added that would require each Restricted Subsidiary that guarantees any Indebtedness of the Company also to provide a guarantee (a "Subsidiary Guaranty") of the Notes. Limitation on Incurrence of Indebtedness. The "Limitation on Incurrence of Indebtedness" covenant will be amended to permit Restricted Subsidiaries to provide guarantees of (i) the Indebtedness of the Company under its Credit Agreement and (ii) the Notes. 1 Events of Default. The Events of Default provision will be amended to add that an Event of Default will occur if any Subsidiary Guaranty ceases to be in full force and effect or is declared null and void or any Restricted Subsidiary denies that it has any further liability under any Subsidiary Guaranty. The Proposed Amendments will be set forth in a Supplemental Indenture that will be executed by the Company and the Trustee promptly after receipt of the Requisite Consents. The foregoing is qualified in its entirety by reference to the Indenture and the form of Supplemental Indenture, copies of which can be obtained without charge from the Trustee. Principal Terms of the Consent Solicitation and Payment for Consents The Consents of the Holders of not less than a majority of the outstanding principal amount of the Notes is required to effect the Proposed Amendments (the "Requisite Consents"). If the Requisite Consents are received, the Company will pay each Holder of the Notes who has given and has not revoked its Consent as of the Expiration Date with respect to any portion of the Notes of such Holder $35 per $1,000 principal amount of such portion of such Holder's Notes. Record Date; Expiration Date; Revocation of Consents This Solicitation of Consents (the "Consent Solicitation") is being delivered to Holders of record of Notes on June 17, 1998 (the "Record Date"). The Consent Solicitation will expire at 5:00 PM, New York City time, on June 29, 1998 or at any later time and date to which the Consent Solicitation may be extended from time to time by the Company (the "Expiration Date"). Consents may be revoked at any time prior to the expiration date. Procedures for Delivering Consents; Additional Information For a Holder to validly consent, a properly completed and duly executed Consent must be received by the SunTrust Bank, Atlanta, as Trustee (the "Trustee"), at the address or facsimile number set forth below on or prior to the Expiration Date. Beneficial owners whose Notes are registered in the name of a broker, dealer, commercial bank, trust company or other nominee must contact such entity promptly if they desire to consent. A signed copy of a facsimile of the Consent will be accepted. The Consent should be sent by each Holder or his or her broker, dealer, commercial bank, trust company or other nominee to the Trustee at the address or facsimile number set forth below: By Facsimile: By Hand, Mail or Overnight Confirm by Telephone: (404) 240-2030 Courier: Philip DeMouey SunTrust Bank, Atlanta (404) 240-1936 Attention: 3495 Piedmont Road Philip DeMouey Building 10, Suite 810 Atlanta, Georgia 30305 Attention: Philip DeMouey Any requests for assistance with respect to completing the attached form or for additional copies of the Consent Solicitation and Consent may be directed to the Trustee at its telephone number or address set forth above. You may also contact your broker, dealer, commercial bank or trust company or other nominee for assistance concerning the Consent Solicitation. Effectiveness of Proposed Amendments 2 The Proposed Amendments with respect to the Indenture will become effective upon execution by the Company and the Trustee of the Supplemental Indenture. It is expected that the Supplemental Indenture will be executed as promptly as practicable after receipt of the Requisite Consents. Upon execution, the First Supplemental Indenture will be modified as provided in the Proposed Amendments. Payment to Consenting Holders If the Requisite Consents are received, the Company will pay, promptly after the Expiration Date, to each Holder of the Notes who has given and has not revoked its Consent as of the Expiration Date, with respect to any portion of the Notes of such Holder, the Consent Price of such portion of such Holder's Notes at the address of such Holder appearing in the records of the Company. Important Tax Information HOLDERS OF NOTES SHOULD CONSULT THEIR TAX ADVISORS WITH REGARD TO THE APPLICATION OF THE UNITED STATES FEDERAL INCOME TAX LAWS TO THEIR PARTICULAR SITUATIONS AS WELL AS ANY TAX CONSEQUENCES ARISING UNDER THE LAWS OF ANY STATE, LOCAL OR FOREIGN TAXING JURISDICTION. Certain Tax Consequences to United States Holders Payments made pursuant to the Consent Solicitation will be treated as fees for consenting to the Proposed Amendments and will constitute ordinary income to consenting recipient United States Holders. The modification of the Indentures by the Proposed Amendments will not trigger a taxable sale or exchange of the Notes for federal income tax purposes. As used herein, the term "United States Holder" means an owner of any Notes that is, for United States federal income tax purposes (i) a citizen or resident of the United States, (ii) a corporation, partnership or other entity created or organized in or under the laws of the United States or of any political subdivision thereof, or (iii) an estate or trust the income of which is subject to United States federal income taxation regardless of its source. Form W-9 Under federal income tax law, the Company may be required to withhold 31% of the amount of any payment made to certain Holders pursuant to the Consent Solicitation. In order to avoid such backup withholding, each consenting Holder must provide such Holder's correct taxpayer identification number ("TIN") by completing the Form W-9 enclosed herewith, or otherwise establish, in the manner prescribed by applicable Treasury regulations, an exemption from backup withholding. In general, the TIN of a Holder who is an individual is his or her Social Security number. In addition, if a Holder required to supply a correct TIN fails to do so, such Holder may also be subject to a penalty imposed by the Internal Revenue Service. Certain Holders (including, among others, all corporations) are exempt from these backup withholding requirements. For further information regarding backup withholding and instructions for completing the Form W-9 (including how to obtain a TIN if the Holder does not have one), the Holder should consult the Form W-9 or the Holder's tax advisor. Consequences of Failure to File Form W-9 The failure of a Holder to complete Form W-9 will not, by itself, cause the Consent to be invalidly delivered but may require the Company to withhold 31% of the amount of any payment made to such Holder pursuant to the Consent Solicitation. Backup withholding is not an additional federal income tax. Rather, the federal income tax liability of a person subject to backup withholding will be reduced by the amount of tax withheld. If backup withholding results in an overpayment of taxes, a refund or credit may be obtained, provided the required information is furnished to the Internal Revenue Service. 3 NOTE: FAILURE TO COMPLETE AND RETURN THE FORM W-9 MAY RESULT IN BACKUP WITHHOLDING OF 31% OF ANY PAYMENTS MADE TO THE HOLDER PURSUANT TO THE CONSENT SOLICITATION. PLEASE REVIEW THE FORM W-9 FOR ADDITIONAL DETAILS. Certain Tax Consequences to United States Alien Holders Although it is not entirely clear that United States federal withholding tax is applicable to payments made pursuant to the Consent Solicitation, such tax will be withheld from such payments paid to a United States Alien Holder at a 30% rate or such lower rate as may be specified by an applicable income tax treaty. United States Alien Holders of Notes should consult their own tax advisors regarding the availability of a refund of such withholding tax. As used herein, the term "United States Alien Holder" means an owner of any Notes that is, for United States federal income tax purposes, (i) a nonresident alien individual, (ii) a foreign corporation, (iii) a nonresident alien fiduciary of a foreign estate or trust or (iv) a foreign partnership one or more of the members of which is, for United States federal income tax purposes, a nonresident alien individual, a foreign corporation or a nonresident alien fiduciary of a foreign estate or trust. If a United States Alien Holder of the Notes is engaged in a trade or business in the United States, and if the receipt of the Consent Price is effectively connected with such trade or business, such Holder will generally be subject to regular United States income tax on the Consent Price (and, if the Holder is a foreign corporation, a branch profit tax, unless an applicable treaty provides otherwise). Such Holder, however, will not be subject to the 30% withholding tax, provided that it furnishes to the Company properly executed Internal Revenue Service Form 4224. Miscellaneous By executing the Consent and returning it to the Trustee as instructed below, the undersigned hereby acknowledges receipt of this form of Consent Solicitation and hereby consents to (i) the procedures set forth in the Consent Solicitation as to the amendment of the Indenture, and (ii) the Proposed Amendments, which shall be adopted by the Company with respect to the Indenture promptly following receipt of the Requisite Consents, and which shall be deemed to have been received by each Holder following such adoption in accordance with the terms of the Notes. The undersigned, by consenting to the Proposed Amendments as herein provided, hereby waives his or her right (and the right of his or her transferees) to revoke such consent after the Expiration Date. This solicitation is not being made to, nor will the Company accept Consents from, Holders of Notes in any jurisdiction in which solicitation would not be in compliance with the securities laws of such jurisdiction. J.P. Morgan Securities Inc. ("JPMSI") will participate in the solicitation of Consents. JPMSI has provided and is currently retained to provide certain investment banking services to the Company for which it has received and is entitled to receive usual and customary fees. In addition, JPMSI was the lead manager for the offering of the Notes. JPMSI is, from time to time, a holder of Notes and will tender its consent with respect to any Notes held by it on the Record Date. Available Information The Company is subject to the informational requirements of the Securities Exchange Act of 1934, as amended, and in accordance therewith file reports, proxy statements and other information with the Securities and Exchange Commission (the "Commission"). Such reports, proxy statements and other information can be inspected and copied at the public reference facilities maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the Commission's regional offices at Room 3190, Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and 7 World Trade Center, 13th Floor, New York, New York 10048. Copies of 4 such material may be obtained from the Public Reference Section of the Commission at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. In addition, material filed by the Company can be inspected at the offices of the National Association of Securities Dealers, Inc., 33 Whitehall Street, 10th Floor, New York, NY 10004. Such material also may be accessed electronically by means of the Commission's home page on the Internet (http://www.sec.gov). APPLE SOUTH, INC. The undersigned holder of record on June 17, 1998 of the 9 3/4% Senior Notes due 2006 (the "Notes"), of Apple South, Inc. (the "Company"), hereby Consents Does Not Consent to the Proposed Amendments as defined in the Consent Solicitation dated June 18, 1998 of the Company. The undersigned acknowledges receipt of the Consent Solicitation. Unless otherwise specified by the undersigned, this form relates to the total principal amount of Notes held by the undersigned on the date hereof, as indicated below. Notes Held: Principal Amount Held: Principal Amount as to Which Consent is Given: If forms of Consent are signed by trustees, executors, administrators, guardians, attorneys-in-fact, officers of corporations or other persons acting in a fiduciary or representative capacity, such persons should so indicate when signing. Name of Signer (Please Print): Telephone No. of Signer: Date: -------------------------------- Signature 5 EXHIBIT A FORM OF SUBSIDIARY GUARANTY SUBSIDIARY GUARANTY This Subsidiary Guaranty (the "Guaranty") is made and entered into as of by , a (the "Guarantor"), having its principal office at in favor of SunTrust Bank, Atlanta, as Trustee (in such capacity, together with its successors and assigns, the "Trustee") for the holders (the "Holders") of the Notes (as defined herein) issued by Apple South, Inc. (the "Company") under the Indenture referred to below. W I T N E S S E T H WHEREAS, the Company and SunTrust Bank, Atlanta, as Trustee, have entered into that certain Indenture dated as of May 1, 1996 (as amended, restated, supplemented or otherwise modified from time to time, the "Indenture"), pursuant to which the Company issued $125,000,000 in original aggregate principal amount of 9 3/4% Senior Notes due 2006 (the "Notes"). Capitalized terms used herein and not otherwise defined herein shall have the meanings given to such terms in the Indenture which shall be a part of this Guaranty as if fully set forth in this place; and WHEREAS, the Company agreed, pursuant to the terms of the Notes, not to permit any Restricted Subsidiary, directly or indirectly, to Guarantee any indebtedness of the Company which is pari passu with or subordinate in right of payment to the Notes unless such Restricted Subsidiary simultaneously executes and delivers a Subsidiary Guaranty of payment of the Notes by such Restricted Subsidiary; and WHEREAS, the Guarantor is a Restricted Subsidiary and intends to incur a Guarantee of Indebtedness of the Company which is [pari passu with] [subordinate in right of payment to] the Notes. AGREEMENT NOW, THEREFORE, in consideration of the premises, the Guarantor hereby agrees with the Trustee for its benefit and for the ratable benefit of the Holders of Notes as follows: SECTION 1. Guarantee. The Guarantor hereby unconditionally and irrevocably guarantees, to each Holder and the Trustee and their respective successors and assigns (a) the full and punctual payment within applicable grace periods of principal of, interest on and the redemption or repurchase prices with respect to, the Notes when due, whether at maturity, by acceleration, by Offer to Purchase or otherwise, and all other monetary obligations of the Company under the Indenture and the Notes and (b) the full and punctual performance within applicable grace periods of all other obligations of the Company under the Indenture and the Notes (all the foregoing being hereinafter collectively called the "Obligations"). The Guarantor further agrees that the Obligations may be extended or renewed, in whole or in part, without notice or further assent from the Guarantor and that the Guarantor will remain bound under this Guaranty notwithstanding any extension or renewal of any Obligation. The Guarantor consents that, at any time, and from time to time, either with or without consideration, the whole or any part of any security now or hereafter held for any Obligations may be exchanged, compromised or surrendered by the Trustee or any of the Holders; the time or place of payment of any Obligations or of any security thereof may be changed or extended, in whole or in part, to a time certain or otherwise, and may be renewed or accelerated, in whole or in part by the Trustee or any of the Holders; the Company may be granted indulgences generally by the Trustee or any of the Holders; any of the provisions of any Note or any other instrument evidencing any Obligations or any 1 security therefor may be modified or waived by the Trustee or any of the Holders; any party liable for the payment thereof (including but not being limited to any co-guarantor) may be granted indulgences or released by the Trustee or any of the Holders; neither the termination of existence, bankruptcy, lack of authority nor disability of the Company or the Guarantor, shall affect the continuing obligation of Guarantor, and that no claim need be asserted by the Trustee or any of the Holders against the custodian, trustee or debtor in bankruptcy or receiver of any bankrupt or insolvent guarantor; any deposit balance to the credit of the Company or any other party liable for the payment of the Obligations or liable upon any security therefor may be released, in whole or in part, by the Trustee or any of the Holders at, before and/or after the stated, extended or accelerated maturity of any Obligations; and the Trustee or any of the Holders may release, discharge, compromise or enter into any accord and satisfaction with respect to any collateral for the Obligations, or the liability of the Company or Guarantor, or any liability of any other person primarily or secondarily liable on any of the Obligations, all without notice to or further assent by the Guarantor, who shall remain bound hereon, notwithstanding any such exchange, compromise, surrender, extension, renewal, acceleration, modification, indulgence, release, discharge or accord and satisfaction. In the event of dissolution or insolvency (as defined by the Georgia Uniform Commercial Code as in effect at the time) of the Company, or if a petition in bankruptcy be filed by or against the Company, or if a receiver be appointed for any part of the property or assets of the Company, the Guarantor agrees to pay to the Trustee on behalf of the Holders upon demand the full amount which would be payable hereunder by the Guarantor if all such Obligations were then due and payable. The Guarantor expressly waives: (a) notice of acceptance of this Guaranty and of all extensions or renewals of credit or other financial accommodations to the Company made by the Trustee or any of the Holders pursuant to the Indenture or the Notes ; (b) presentment and demand for payment of any of the Obligations; (c) protest and notice of dishonor or of default to the Guarantor or to any other party with respect to any of the Obligations or with respect to any security therefor; (d) any invalidity or disability in whole or in part at the time of the acceptance of, at any time with respect to, any security for the Obligations or with respect to any party primarily or secondarily liable for the payment of the Obligations; (e) the fact that any security for the Obligations may at any time, or from time to time, be in default or be inaccurately estimated or may deteriorate in value for any cause whatsoever; (f) any diligence in the creation or perfection of a security interest or collection or protection of or realization upon the Obligations or any security therefor, any liability hereunder, or in respect of any party primarily or secondarily liable for the payment of the Obligations or any lack of commercial reasonableness in dealing with any security for the Obligations; (g) any duty or obligation on the part of the Trustee or any of the Holders to ascertain the extent or nature of any security for the Obligations, or any insurance or other rights respecting such security, or the liability of any party primarily or secondarily liable for the Obligations, or to take any steps or action to safeguard, protect, handle, obtain or convey information respecting, or otherwise follow in any manner, any such security, insurance or other right; (h) any duty or obligation on the Trustee or any of the Holders to proceed to collect the Obligations from, or to commence an action against, the Company, any other guarantor, or any other Person, or to resort to any security or to any balance of any deposit account or credit on the books of the Holders in favor of the Company or any other Person, despite any notice or request of the Guarantor to do so; (i) any rights of the Guarantor pursuant to Official Code of Georgia Section 10-7-24 or any similar or subsequent law; (j) all other notices to which the Guarantor might otherwise be entitled; and (k) demand for payment under this Guaranty. This is a guaranty of payment and not of collection. The liability of the Guarantor on this Guaranty shall be continuing, direct and immediate and not conditional or contingent upon either the pursuit of any remedies against the Company or any other Person or foreclosure of any security interest or liens 2 available to the Trustee or any of the Holders. The Trustee or any of the Holders may accept any payment, plan for adjustment of debts, plan for reorganization or liquidation, or plan of composition or extension proposed by, or on behalf of, the Company or any other guarantor without in any way affecting or discharging the liability of the Guarantor hereunder. If the Obligations are partially paid, the Guarantor shall remain liable for any balance of such Obligations. The Guaranty shall be revived and reinstated in the event any payment received by the Trustee or any of the Holders on any Obligations is required to be repaid or rescinded under present or future federal or state law or regulation relating to bankruptcy, insolvency or other relief of debtors. The Holders or the Trustee, acting on their behalf, may, without notice to the Guarantor, sell, assign or transfer all or any of the Obligations, and in such event each and every immediate and successive assignee, transferee, or holder of all or any of the Obligations shall have the right to enforce this Guaranty, by suit or otherwise, for the benefit of such assignee, transferee or holder, as fully as if such assignee, transferee or holder were herein by name specifically given such rights, powers and benefits, but the Trustee shall have an unimpaired right, prior and superior to that of any such assignee, transferee or holder, to enforce this Guaranty for the benefit of the Holders, as to so much of the Obligations as has not been sold, assigned or transferred. No delay or failure on the part of the Trustee or any of the Holders in the exercise of any right or remedy shall operate as a waiver thereof, and no single or partial exercise by the Trustee or any of the Holders of any right or remedy shall preclude other or further exercise thereof or the exercise of any other right or remedy. For the purpose of this Guaranty, the Obligations shall include all debts, liabilities and obligations of the Company to the Trustee or any of the Holders of the Notes under the Indenture, notwithstanding any right or power of the Company or anyone else to assert any claim or defense as to the invalidity or unenforceability thereof, and no such claim or defense shall impair or affect the obligations and liabilities of the Guarantor hereunder. Any amount received by the Trustee or any of the Holders from whatever source and applied by it toward the payment of the Obligations shall be applied in such order of application as the Trustee may from time to time elect in accordance with the applicable terms of the Indenture. This Guaranty shall bind and inure to the benefit of the Trustee and the Holders, and their respective successors and assigns, and likewise shall bind the Guarantor and its successors and assigns. If more than one Person shall execute this Guaranty, the term "Guarantor" shall mean, as used herein, all parties executing this Guaranty and all such parties shall be liable jointly and severally, one with the other and with the Company, for each of the undertakings, agreements, obligations, covenants and liabilities provided for herein with respect to the Guarantor. This Guaranty contains the entire agreement and there is no understanding that any Person, other than the Guarantor shall execute this or a similar Guaranty as a condition to its effectiveness. Furthermore, no course of prior dealing between the parties, no usage of trade, and no parol or extrinsic evidence shall be used to supplement or modify any terms of this Guaranty; nor are there any conditions to the complete effectiveness of this Guaranty. This Guaranty shall be deemed accepted by the Trustee on behalf of the Holders in the State of New York. The parties agree that this Guaranty shall be deemed, made, delivered, performed and accepted by the Trustee on behalf of the Holders in the State of New York and shall be governed by the laws of the State of New York. Wherever possible, each provision of this Guaranty shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Guaranty shall be prohibited by or invalid under such law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Guaranty. 3 The Guarantor (a) submits to personal jurisdiction in the State of New York, the courts thereof and the United States District Courts sitting therein, for the enforcement of this Guaranty, (b) waives any and all personal rights under the law of any jurisdiction to object on any basis (including, without limitation, inconvenience of forum) to jurisdiction or venue within the State of New York for the purpose of litigation to enforce this Guaranty, and (c) agrees that service of process may be made upon the Guarantor by first class postage prepaid mail, addressed to the Guarantor at the latest address of the Guarantor known to the Trustee (or at such other address as the Guarantor may specify for the purpose by written notice to such effect to the Trustee). Nothing herein contained, however, shall prevent the Trustee or any Holder from bringing any action or exercising any rights against any security and against the Guarantor personally, and against any assets of the Guarantor, within any other state or jurisdiction. The Guarantor expressly waives, for the Trustee's and the Holders' collective benefit and the benefit of the Company and any other guarantor, maker or endorser of the Obligations, any and all claims or actions against the Company, any other guarantor, maker or endorser of the Obligations and any and all rights of recourse against any property or assets of the Company, any other guarantor, maker or endorser of the Obligations (including without limitation, any security for the Obligations) arising out of or related to any payment made by the Guarantor under this Guaranty, including, without limitation, any claim of the Guarantor for subrogation, reimbursement, exoneration, contribution or indemnity that the Guarantor may have against the Company, any other guarantor, maker or endorser of the Obligations, and any benefit of, and any other right to participate in, any security for the Obligations or any guaranty of the Obligations now or hereafter held by the Trustee or any Holders. The waiver contained in this paragraph shall continue and survive until the termination of this Guaranty and the full payment and satisfaction of the Obligations. Notwithstanding any term of this Guaranty which is, or may be construed to be, to the contrary, it is the mutual intent of the Guarantor, the Trustee and the Holders that the Guarantor's maximum liability arising hereunder in respect of the obligations shall not, in any event, exceed the maximum amount permitted by applicable federal bankruptcy, state insolvency, or similar laws affecting the enforcement of creditors' rights generally ("Applicable Law"). To that end, but only to the extent that the obligations of the Guarantor hereunder, or any portion thereof, would otherwise be subject to avoidance under Applicable Law if the Guarantor is not deemed to have received valuable consideration, fair value or reasonably equivalent value for the incurrence thereof, the Guarantor's obligations hereunder shall be reduced to that amount which, after giving effect thereto, would not render the Guarantor insolvent, or leave the Guarantor with an unreasonably small capital to conduct its business, or cause the Guarantor to have incurred debts (or intended to have incurred debts) beyond its ability to pay such debts as they mature, at the time such obligations are deemed to have been incurred under Applicable Law. As used herein, the terms "insolvent" and "unreasonably small capital" shall likewise be determined in accordance with Applicable Law. This section is intended solely to preserve the rights of the Trustee and the Holders hereunder to the maximum extent permitted by Applicable Law, and neither the Guarantor nor any other persons shall have any right or claim under this paragraph that would not otherwise be available under Applicable Law. SECTION 2. Amendments, Waivers and Consents. The Guarantor and the Trustee may amend or agree to waive any of the provisions of this Guaranty; provided however, that without the consent of the Required Holders, no such amendment or waiver shall be made which adversely affects the interests of the Holders in any material respect. Any amendment or waiver of any provision of this Guaranty and any consent to any departure by the Guarantor from any provision of this Guaranty shall be effective only if made or duly given in compliance with all of the terms and provisions of this Section 2 and neither the Trustee nor any Holder shall be deemed, by any act, delay, indulgence, omission or otherwise to have waived any right or remedy hereunder or to have acquiesced in any default hereunder or in any breach of any of the terms and conditions hereof. Failure of 4 the Trustee or any Holder to exercise, or delay in exercising, any right, power or privilege hereunder shall not preclude any other or further exercise thereof or the exercise of any other right, power or privilege. A waiver by the Trustee or any Holder of any right or remedy hereunder on any one occasion shall not be construed as a bar to any right or remedy that the Trustee or such Holder would otherwise have on any future occasion. The rights and remedies herein provided are cumulative, may be exercised singly or concurrently and are not exclusive of any rights or remedies provided by law. SECTION 3. Waivers. The Guarantor waives presentment and demand for payment of any of the Obligations, protest and notice of dishonor or default with respect to any of the Obligations, and all other notices to which the Guarantor might otherwise be entitled, except as otherwise expressly provided herein. SECTION 4. Successors and Assigns. This Guaranty and all obligations of the Guarantor hereunder shall be binding upon the successors of the Guarantor, and shall, together with the rights and remedies of the Trustee hereunder, inure to the benefit of the Trustee and the Holders, and their respective successors and assigns. The obligations of the Guarantor hereunder are not assignable and any attempt to assign all or any portion of such obligations shall be null and void. SECTION 5. Termination of Guaranty. This Guaranty shall be automatically and unconditionally released and discharged upon (i) any sale, exchange or transfer, to any Person not an Affiliate of the Company, of all of the Company's and each Restricted Subsidiary's Capital Stock in, or all or substantially all the assets of, the Guarantor (which sale, exchange or transfer is not prohibited by the Indenture) or (ii) the release or discharge of the Guarantee which resulted in the creation of this Subsidiary Guaranty, except a discharge or release by, or as a result of, payment under such Guarantee. IN WITNESS WHEREOF, the Guarantor has caused this Guaranty to be executed under seal as of ____________________, 19__. [NAME OF GUARANTOR] By: Title: Attest: Title: 5 EX-11.1 8 COMPUTATION OF EARNINGS PER SHARE Exhibit 11.1 Computation of Earnings Per Common Share (In thousands, except per share data)
Quarter Ended Six Months Ended - ------------------------------------------------------------------------------------------------------------------------------------ June 28, June 29, June 28, June 29, 1998 1997 1998 1997 - ------------------------------------------------------------------------------------------------------------------------------------ Average number of common shares used in basic calculation 37,513 38,325 38,167 38,566 Net additional shares issuable pursuant to employee stock option plans at period-end market price 80 109 34 138 Shares issuable on assumed conversion of convertible preferred securities 7,774 7,774 7,774 4,357 ==================================================================================================================================== Average number of common shares used in diluted calculation 45,367 46,208 45,975 43,061 ==================================================================================================================================== Earnings before cumulative effect of change in accounting principle $ 6,325 10,224 44,864 17,492 Cumulative effect of change in accounting principle, net of tax benefit - - 1,461 - - ------------------------------------------------------------------------------------------------------------------------------------ Net earnings 6,325 10,224 43,403 17,492 Distribution savings on assumed conversion of convertible preferred securities, net of income taxes 1,328 1,288 2,656 1,528 ==================================================================================================================================== Net earnings for computation of diluted earnings per common share $ 7,653 11,512 46,059 19,020 ==================================================================================================================================== Basic earnings before cumulative effect of change in accounting principle $ 0.17 0.27 1.18 0.45 Cumulative effect of change in accounting principle - - (0.04) - ==================================================================================================================================== Basic earnings per common share $ 0.17 0.27 1.14 0.45 ==================================================================================================================================== Diluted earnings before cumulative effect of change in accounting principle $ 0.17 0.25 1.03 0.44 Cumulative effect of change in accounting principle - - (0.03) - ==================================================================================================================================== Diluted earnings per common share $ 0.17 0.25 1.00 0.44 ====================================================================================================================================
EX-27 9 FDS
5 (THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q FOR THE PERIOD ENDING JUNE 28, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS). 0000849101 Apple South, Inc. 1,000 12-mos Jan-03-1999 Dec-29-1997 Jun-28-1998 3,706 27 14,684 0 10,116 358,525 314,033 0 852,898 95,585 385,450 115,000 0 405 229,576 852,898 481,519 481,519 134,697 411,417 0 0 14,353 70,789 25,925 44,864 0 0 1,461 43,403 0.17 0.17
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