UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
Schedule 14C
Information Statement Pursuant to Section 14(c)
of the Securities Exchange Act of 1934 (Amendment No. _____)
Check the appropriate box:
[ ] Preliminary Information Statement
[ ] Confidential, for use of the Commission only (as permitted by Rule 14a-
5(d)(2))
[X] Definitive Information Statement
EACO CORPORATION
(Name of Registrant as Specified in its Charter)
Payment of Filing Fee (Check the appropriate box):
[ ] No Fee Required
[ ] Fee computed on table below per Exchange Act Rules 14c-5(g) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11: (set forth the amount on
which the filing fee is calculated and state how it was
determined).
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(4) Proposed maximum aggregate value of transaction:
$31,000,000.00
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(5) Total fee paid:
$3,648.70
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
$3,648.70
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(2) Form, Schedule or Registration Statement No.:
Schedule 14C
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(3) Filing Party:
EACO Corporation
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Date Filed:
March 28, 2005
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EACO Corporation
(formerly Family Steak Houses of Florida, Inc.)
2113 Florida Boulevard
Neptune Beach Florida 32266
INFORMATION STATEMENT
WE ARE NOT ASKING YOU FOR A PROXY AND
YOU ARE REQUESTED NOT TO SEND US A PROXY
GENERAL
This Information Statement is being furnished to the
shareholders of EACO Corporation, a Florida corporation (the
"Company") in lieu of a Special Meeting of Shareholders to:
(a) approve the proposed sale of substantially all of
our ongoing restaurant assets to Banner Buffets, LLC (the "Asset
Sale") pursuant to an Asset Purchase Agreement dated as of
February 22, 2005 (the "Agreement") that is described in more
detail in the accompanying Information Statement.
This Information Statement is being sent in lieu of a
special meeting. The Company has adopted the Asset Sale by the
unanimous approval of its Board of Directors and by the written
consent of shareholders holding a majority of the voting power of
the Company.
At a meeting of the Board of Directors held on February 22,
2005, all of the members of the Company's Board of Directors
approved and recommended that the Asset Sale be accepted. The
Board reaffirmed its approval and recommendations immediately
prior to the mailing of this Information Statement. The
Company's shareholders holding a majority of the voting power of
the Company approved the Asset Sale, pursuant to a written
consent dated May 25, 2005. The Company anticipates that the
effective date of the Asset Sale will occur on or about June 27,
2005 (the "Effective Date"). If the Asset Sale were not adopted
by written consent, it would have been required to be considered
by Company's shareholders at a special or annual shareholders'
meeting convened for the specific purpose of approving the Asset
Sale.
The elimination of the need for a special or annual meeting
of the shareholders to ratify or approve the Asset Sale is
authorized by Section 607.0704 of the Florida Business
Corporation Act (the "FBCA") and the Company's Articles of
Incorporation and Bylaws which provide that the written consent
of shareholders holding at least a majority of the voting power
may be substituted for such a special or annual meeting. To
eliminate the costs and management time involved in holding a
special meeting and in order to effect or ratify the Asset Sale
as early as possible in order to accomplish the purposes of the
Company as hereafter described, the Board of Directors of the
Company voted to utilize the written consent of shareholders
holding a majority of the voting power of the Company.
Shareholders of the Company who beneficially own in the
aggregate 2,410,985 shares of common stock of the Company,
representing approximately 62.1% of the voting power of the
Company, gave their written consent to Asset Sale described in
this Information Statement on May 25, 2005. The record date
established by the Company for purposes of determining the number
of outstanding shares of common stock of the Company, and thus
the voting power, is
March 16, 2005 (the "Record Date"). It is
expected that this Information Statement will be first sent to
shareholders on or about June 1, 2005.
The Company is distributing this Information Statement to
its shareholders in full satisfaction of any notice requirements
it may have under the FBCA. No additional action will be
undertaken by the Company with respect to the receipt of the
written consents. Appraisal rights under the FBCA are afforded
to the Company's shareholders as a result of the adoption of the
Asset Sale as more particularly detailed in this Information
Statement.
SUMMARY
This summary highlights important information in this
Information Statement but does not contain all the information
that is important to you. You should carefully read this entire
Information Statement and the other documents referred to for a
complete understanding of the Asset Sale. In addition, we
incorporate by reference important business and financial
information about the Company in this Information Statement. You
may obtain the information incorporated by reference in this
Information Statement without charge by following the
instructions in the section entitled "Where You Can Find
Additional Information."
The Asset Sale (see page 8)
The Parties
EACO Corporation (formerly known as Family Steak Houses of
Florida, Inc.)
EACO Corporation is a Florida corporation which operates 16
restaurants in the State of Florida under the names of "Ryan's,"
"Whistle Junction" and "Florida Buffet."
As a result of the Asset Sale, the Company will have
conveyed 16 restaurants (the "Restaurants") constituting
substantially all of its ongoing restaurant assets to Banner
Buffets, LLC. It will retain 2 restaurant properties as well as
2 properties which it leases and then subleases to others for
restaurant operations.
The Company maintains its principal place of business at
2113 Florida Boulevard, Neptune Beach Florida 32266. Its
telephone number there is 904-249-4197.
Banner Buffets, LLC
Banner Buffets, LLC (the "Buyer") is a Delaware limited
liability company that was established specifically to acquire
the restaurant operations of the Company described in the Asset
Sale. Banner Buffets, LLC currently has no operations and,
following the Asset Sale, its principal business will be to
engage in the operation of the 16 restaurant operations acquired
from the Company.
Description of the Asset Sale
The parties entered into an Asset Purchase Agreement on
February 22, 2005 which has subsequently been amended two times
(the "Agreement"). The Asset Sale principally consists of the
sale of (a) the Restaurants, including all fixtures, equipment,
and machinery located at the Restaurants, (b) all intangible
property and goodwill of the Restaurants, (c) all real property
owned by the Company associated with the Restaurants, (d) all
real property leases associated with the Restaurants, and (e) in
general, all Company assets used or useful in connection with the
Restaurants. A copy of the Agreement is attached to this
Information Statement as Exhibit A and is described in further
detail herein.
Purchase Price
At Closing, the Buyer will pay to the Company (i)
$25,950,000 in cash, plus (ii) one-half of the aggregate sum of
certain prepaid expenses, plus (iii) an additional cash payment
of up to $250,000 for each Ryan's restaurant converted to a
Whistle Junction restaurant from
February 1, 2005 through the Closing (but not to exceed the
actual conversion costs), plus (iv) a promissory note in the
amount of $4,000,000 secured by certain Restaurant equipment
which is estimated to have a value of less than $1,000,000.
Closing
The Closing is estimated to occur on or about June 27, 2005.
Escrow Deposit
The Buyer has placed in escrow a cash deposit in the amount
of $500,000 to secure its obligations under the Agreement.
Termination Fees
If the Buyer terminates the Agreement and does not close on
the Asset Sale because it has been unable to find suitable
financing, the Company will be entitled to receive $250,000 from
the $500,000 Deposit that the Buyer has placed in escrow.
Due Diligence
The Buyer had until March 24, 2005 to complete its due
diligence review of the assets to be acquired. Until that date,
it could have terminated the Agreement and received its deposit
in return if it discovered material adverse information about the
Restaurants or the assets which could not have been cured prior
to the Closing.
Conditions to Completing the Asset Sale
The obligations of the parties to complete the Asset Sale
are subject to a number of conditions that must be satisfied or
waived before the transaction can be completed. Those Closing
conditions include the following:
(a) our receipt of a "fairness opinion";
(b) the approval of the Asset Sale by the Company's
shareholders holding more than 50% of the common stock of the
Company outstanding as of the Record Date which has been
received;
(c) the accuracy, in all material respects, of each
party's representations or warranties both as of February 22,
2005 and as of the Closing;
(d) the performance, in all material respects, of each
party's obligations under the Agreement; and
(e) the absence of any material adverse changes in the
condition of the assets being sold.
Indemnification
We agree to indemnify the Buyer from and against losses,
damages, costs or expenses incurred prior to the Closing of the
Asset Sale. The Buyer agrees to similarly indemnify us for
liabilities occurring after the closing of the Asset Sale. In
addition, we agree to specially
indemnify the Buyer with respect to a breach of our warranty on
the condition of the Restaurant equipment being sold with a cap of
$100,000 on that liability.
Recommendations of the Board of Directors
After careful consideration, based on the factors and other
matters described elsewhere in this Information Statement, the
Company's Board of Directors believes that the Asset Sale,
consisting of the sale of substantially all the Company's ongoing
restaurant assets, subject to certain liabilities and the release
of others, is advisable and fair to and in the best interests of
the Company and our shareholders. The Board of Directors has
unanimously recommended that our shareholders vote in favor of
the Asset Sale.
Financial Advisors (see page 15)
In connection with the Asset Sale, our Board of Directors
received a written opinion from Allen C. Ewing & Co. ("Ewing") as
to the fairness of the Asset Sale to our shareholders from a
financial point of view. The full text of Ewing's written
opinion is attached to this Information Statement as Exhibit B.
We encourage you to read this opinion carefully in its entirety
for a description of the assumptions made, procedures followed,
matters considered, and limitations on the review undertaken.
Material U.S. Federal Income Tax Consequences
The Asset Sale will be a taxable transaction for the
Company, but not for our shareholders. Net operating losses will
shelter some of the gain but there is expected to be some income
tax liability generated for the Company.
Regulatory Approvals
No United States federal or state regulatory requirements
must be complied with or approvals obtained in connection with
the Asset Sale.
Appraisal Rights (see page 22)
Under Chapter XIII of the FBCA, our shareholders are
entitled to appraisal rights in connection with the Asset Sale.
If you follow the strict requirements of the FBCA as described on
page 24, you will be entitled to receive the fair value of your
shares in cash if the Asset Sale closes. Of great importance is
the requirement that you notify the Company in writing within
twenty (20) days of the date of this Information Statement of
your intent to dissent from the transaction and seek appraisal
rights. If any shareholder does not strictly comply with the
requirements of Chapter XIII of the FBCA, entitlement to
appraisal rights will be lost for that shareholder.
Interest of Directors and Management in the Asset Sale
None of our officers or directors has a personal or business
relationship with the Buyer or any of its affiliates. In
addition, none of our officers or directors has any interest in
the Asset Sale other than as shareholders of the Company.
Stock Ownership as Directors and Executive Officers
On March 16, 2005, directors and executive officers of the
Company beneficially owned and had the right to vote 2,462,324
shares of our common stock constituting 63.4% of our issued and
outstanding shares of common stock.
Operations of the Company Following the Asset Sale
Following the closing of the Asset Sale, the Company will
continue to own two restaurant properties, and lease two
additional properties which it in turn subleases to restaurant
operations. It will take the net proceeds from the Asset Sale
and invest them in short term investments while it seeks other
operating lines of business or other longer term investments.
Under the terms of the Asset Sale, the Company may not compete in
the restaurant business within a 30-mile radius of any of the
purchased Restaurants. The Company has not identified any
operating lines of business or proposed investments at this time.
CAUTION AGAINST FORWARD-LOOKING STATEMENTS
This Information Statement contains certain forward-looking
statements. We intend such forward-looking statements to be
covered by the safe harbor provisions for forward-looking
statements contained in the Private Securities Litigation Reform
Act of 1995, and are including this statement for purposes of
invoking these safe harbor provisions. Such forward-looking
statements involve known and unknown risks, uncertainties and
other important factors that could cause our actual results,
performance or achievements, to differ materially from our
expectations of future results, performance or achievements
expressed or implied by such forward-looking statements. These
factors include, among others, the risk that we may incur
additional liabilities and that our expenses may be higher than
estimated. In addition, there are many factors outside of our
control with respect to the Asset Sale including, without
limitation, the Buyer's ability to close on its financing
commitments. Although we believe that the expectations reflected
in any forward-looking statements are reasonable, we cannot
guarantee future events or results. Except as may be required
under federal law, we undertake no obligation to update publicly
any forward-looking statements for any reason, even if new
information becomes available or other events occur.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
The Company files annual, quarterly and current reports,
proxy statements and other information with the Securities and
Exchange Commission (the "SEC"). You may read and copy any
document the Company files at the SEC's public reference rooms in
Washington, D.C., New York, New York and Chicago, Illinois.
Please call the SEC at 1-800-SEC-0330 for further information on
the public reference rooms. The Company's SEC filings are also
available to the public at the SEC's website at
http://www.sec.gov.
Statements contained in this Information Statement, or in
any document incorporated in this Information Statement by
reference regarding the contents of any contract or other
document, are not necessarily complete and each such statement is
qualified in its entirety by reference to such contract or other
document filed as an exhibit with the SEC.
The SEC allows the Company to "incorporate by reference"
into this Information Statement documents it files with the SEC.
This means that the Company can disclose important information to
you by referring you to those documents. The information
incorporated by reference is considered to be a part of this
Information Statement.
THE ASSET SALE
This section of the Information Statement describes the
material provisions of the Asset Sale and the Agreement but does
not purport to describe all of the terms of the Agreement. The
following summary is qualified in its entirety by reference to
the complete text of the Agreement which is attached as Exhibit A
to this Information Statement and incorporated herein by
reference. We urge you to read the full text of the Agreement
because it is a legal document that governs the Asset Sale.
Parties to the Asset Sale
EACO Corporation is a Florida corporation which is in the
business of operating 16 buffet-style restaurants in the State of
Florida under the names of "Ryan's," "Whistle Junction" and
"Florida Buffet."
Banner Buffets, LLC is a Delaware limited liability company
especially established to engage in the Asset Sale.
The assets to be sold to the Buyer include the 16
Restaurants operated by the Company, including 6 Whistle Junction
restaurants, 6 Florida Buffet restaurants and 4 Ryan's franchise
restaurants. The 4 Ryan's franchise restaurants will be
converted to a different theme prior to the closing of the Asset
Sale. The assets also include all of the Company's right, title
and interest in and to the business, property and assets
(excepting only the assets identified as "Excluded Assets") used
in or relating to the operation of the Restaurants, including all
fixtures, equipment, machinery, trade fixtures; all intangible
personal property and good will; all real property, all of the
Company's interest in real property leases, and other related
assets.
Purchase Price
At Closing, the Buyer will pay $25,950,000 in cash. In
addition, the Buyer will (i) reimburse a portion of the prepaid
expenses to the Company, (ii) make an additional cash payment of
up to $250,000 for each Ryan's restaurant converted to a Whistle
Junction restaurant from February 1, 2005 through the Closing
(but not to exceed the actual conversion costs), and (iii) will
give to the Company a $4,000,000 promissory note payable over a
48-month period from the Closing and secured by Restaurant
equipment which has an estimated value of less than $1,000,000.
The promissory note calls for principal redistribution of
$1,500,000 on the second and third anniversaries of the Closing
with the remaining principal and interest due on the fourth
anniversary. Full payment of the promissory note will likely
depend on the ability of the Buyer to profitably operate the
Restaurants.
Escrow Deposit
Upon signing of the Agreement, the Buyer placed in escrow a
$500,000 deposit to secure its performance under the Agreement.
Closing
Assuming the satisfaction or waiver of the Closing
conditions described hereinafter (see "Closing Conditions"), the
Closing of the Asset Sale is expected to take place on or about
June 27, 2005. If the Asset Sale does not close by June 30,
2005, either party may terminate the Agreement if it is not then
in default under the Agreement.
Closing Costs
In connection with the consummation the Asset Sale, the
Company will pay all applicable transfer taxes, franchise fees
and other costs, fees and expenses associated with the sale and
assignment of the assets but will not pay any other taxes
associated with Buyer's financing. The Company will pay for
title insurance on each of the sold Restaurants and will pay for
surveys of each of the Restaurants.
Other Terms
Representations and Warranties
The Company has made the following representations and
warranties in the Agreement:
(a) The Company is duly organized, validly existing
and in good standing under the laws of the State of Florida.
(b) The Company has the requisite corporate authority
to own, lease and operate the assets and carry on the business of
the Restaurants as now being conducted.
(c) The execution and delivery of the Agreement has
been duly and validly authorized. The execution of the Agreement
and the performance by the Company of its obligations thereunder
will not create a violation of any agreement or law or regulation
to which the Company is subject.
(d) The Company has good title to the real property
that underlies the owned Restaurants and that the leases for the
leased Restaurants are in full force and effect. The Company has
good and marketable title to the assets.
(e) The Company is in compliance with all material
regulations concerning its employees.
(f) No government approvals are required in order to
consummate the Asset Sale.
(e) The Company is in compliance in all material
respects with applicable laws and other regulations relating to
the operation of the Restaurants.
(f) The financial statements of the Company presented
to the Buyer have been prepared in accordance with generally
accepted accounting principles. Since the date of the financial
statements there have been no adverse changes in the financial
condition of the Company.
(g) The Company has paid all taxes when due and owing.
(h) The Company has notified the Buyer of all material
litigation.
(i) The Company has notified the Buyer of all material
environmental aspects related to the Restaurants.
The Buyer has made the following representations and
warranties:
(a) The Buyer is a limited liability company duly
organized, validly existing and in good standing under the laws
of the State of Delaware.
(b) The Buyer has the requisite corporate power and
authority to own, lease and operate the assets.
(c) The execution and delivery of the Agreement has
been duly and validly authorized. The execution of the Agreement
and the performance by the Buyer of its obligations thereunder
will not create a violation of any agreement or law or regulation
to which the Buyer is subject.
(d) No government approvals are required in order to
consummate the Asset Sale.
Covenants
The Company has agreed that, pending the Closing:
(a) The Company will conduct its business in the
ordinary course, and shall not take any actions which would
adversely affect the assets being transferred.
(b) The Company will give access to its books and
records to the Buyer.
(c) The Company will make all necessary regulatory
filings.
(d) The Company will pay its liabilities in the
ordinary course as they become due.
As of the Closing, the Company will terminate and accept the
resignations of employment from all of its Restaurant employees.
The Buyer will have the option but not the obligation to extend
offers of employment to the Restaurant employees on such terms
and conditions as Buyer shall determine in its sole discretion.
The Company and its principal shareholder will not, at any
time during the 5 years following the Closing Date, directly own,
manage, operate, and control any business that engages in any
restaurant business activity which is competitive with the
business currently engaged in by the Company or the Buyer within
30 miles of any Restaurant.
The Company will not directly or indirectly solicit,
initiate or encourage any proposal or offer from any other buyer
unless the Company's board of directors is advised by its outside
counsel in writing to the effect that there would be a material
risk of liability on the part of the members of the board of
directors for failure not to do so.
The Buyer has agreed that, pending the Closing:
(a) It had until March 24, 2005 to complete due
diligence. At any time prior to the conclusion of the due
diligence period, the Buyer had the right, in its sole
discretion, to terminate the Agreement if the review revealed any
information that would have a material adverse effect on Buyer's
ability to consummate the Asset Sale and which could not have
been reasonably cured by the Closing.
(b) The Company will make all necessary regulatory
filings.
(c) The Buyer will assist the Company in providing
information to the Company in order to complete this Information
Statement.
(d) The Buyer will take all commercially reasonable
actions to cause the conditions to its obligations to close to be
satisfied.
Closing Conditions
The Buyer's obligation to consummate the Asset Sale is
conditioned upon the following conditions on or before the
Closing:
(a) The representations and warranties of the Company
shall be true and correct in all material respects.
(b) The Company shall have performed all of the
covenants and agreements required by it to be performed.
(c) The Company shall have assigned to Buyer the
agreements and permits related to the Restaurants.
(d) The Company shall have obtained each consent or
approval necessary to operate the Restaurants.
(e) The Company's shareholders shall have approved the
Agreement.
(f) There shall be no threatened or pending litigation
that would have a material adverse effect on the transactions
contemplated by the Agreement.
(g) Buyer shall not have discovered any fact or
circumstance existing as of the date of the Agreement which had
not been disclosed to Buyer which would have a material adverse
effect on the value of the assets or the Restaurants.
(h) There shall have been no damage or destruction to
the assets not covered by insurance which have a material adverse
effect on the assets or the Restaurants.
(i) Buyer shall have received a written opinion from
the Company's counsel.
(j) By April 30, 2005, Buyer shall have received a
financing commitment in an amount sufficient to enable Buyer to
consummate the Asset Sale.
(k) On the Closing Date, the Company shall have
delivered to Buyer all necessary documents in order to consummate
the Asset Sale.
The Company's obligation to consummate the Asset Sale is
conditioned upon the following conditions on or before the
Closing:
(a) The representations and warranties of Buyer
contained in the Agreement are true and correct in all material
respects as of the Closing.
(b) Buyer shall have performed in all material
respects all the covenants and agreements required to be
performed by it under the Agreement.
(c) The Company shall have received the requisite
approval of its shareholders with respect to the Asset Sale.
(d) There shall be no threatened or pending litigation
that would have a material adverse effect on the transactions
contemplated by the Agreement.
(e) The Company shall have received a written opinion
from Buyer's counsel.
(f) On the Closing Date, Buyer shall have delivered to
the Company all necessary documents in order to consummate the
Asset Sale.
(g) The Company shall have obtained consents from each
of its landlords to the assignment of the real estate leases.
(h) The Company shall have received an opinion from
its investment advisor that the consideration to be received by
the Company in the Asset Sale is fair, from a financial point of
view, to its shareholders.
Termination
The Agreement may be terminated at any time prior to the
Closing:
(a) The mutual consent of the Company and the Buyer.
(b) By either the Buyer or the Company if there has
been a material misrepresentation on the part of the other in the
representations, warranties and covenants contained in the
Agreement.
(c) By either the Buyer or the Company if the
transaction has not been consummated by June 30, 2005, except
that a party may not terminate if its willful breach has
prevented the consummation.
(d) By the Buyer if, after the conclusion of its due
diligence review, there has been a material adverse change in the
financial condition of the Restaurants or assets, which change
was not reasonably foreseeable during the due diligence review.
(e) By the Buyer if any of the schedules delivered to
the Buyer after execution of the Agreement reveals information
not previously disclosed that would have a material adverse
effect on Buyer's ability to consummate the transaction or
operate the Restaurants.
(f) By the Company if Buyer fails to obtain a
financing commitment by the conclusion of the diligence period.
Effect of Termination
Except if there have been willful breaches of the Agreement
on behalf of either of the parties, if the Agreement is properly
terminated, the $500,000 deposit shall be returned to the Buyer
and the Agreement shall become void and there is no liability on
the part of either Buyer
or the Company. However, if Company terminates after the
diligence period because Buyer is unable to obtain a financing
commitment to consummate the Asset Sale, the Company is entitled
to receive one-half of the deposit, $250,000.
Indemnification
The Company agrees to indemnify and hold the Buyer harmless
from damages arising out of:
(a) material inaccuracy in any representation or any
material breach of any material warranty made by the Company;
(b) failure to perform any covenant, agreement or
condition required to be performed by it;
(c) any material inaccuracy on the books or records of
the Company which were relied upon by Buyer;
(d) any liabilities or obligations arising out the
operation of the Restaurants or the assets prior to the Closing
other than those specifically assumed by the Buyer.
However, the Company is not required to indemnify Buyer
until total indemnified damages exceed $25,000 and then only to
the extent of damages in excess of $25,000.
The Company is also required to indemnify Buyer to the
extent of the equipment is not as warranted: "good condition and
repair, ordinary wear and tear excepted." However, this
indemnity is limited to individual claims that must exceed $1,000
each and is capped at a total of $100,000.
ADDITIONAL INFORMATION RESPECTING THE ASSET SALE
Background of the Asset Sale
The Company's business is the operation of family oriented,
buffet style restaurants serving high quality, reasonably priced
food in a casual atmosphere with server-assisted service. Since
its inception, the Company has operated these restaurants under
the "Ryan's" trademark as the sole franchisee of Ryan's
Properties, Inc. The last year in which the Company showed a net
profit was 1996. The number of restaurants the Company is
operating has decreased from a high of 27 in 1994 to the current
number of 16.
The Company has long realized that it must change its
business model to achieve profitability and increased shareholder
value. One large drain on the Company's resources was the 4%
franchise fee that it had to pay to its franchisor which totaled
up to $1.5 million per year. In 2003, the Company agreed with
the franchisor that the Company would convert, sell or close all
of its Ryan's restaurants by June 30, 2005. As each restaurant
stopped using the Ryan's brand, franchise fees for that
restaurant also ceased.
In order to effect this plan, the Company developed two new
themes: Whistle Junction and Florida Buffet. Whistle Junction
would be the theme for all the Company's new restaurants and the
conversion theme for its more successful existing restaurants.
Florida Buffet is a much less dramatic change and could be
accomplished more quickly and less expensively than Whistle
Junction conversions. Florida Buffet would be the conversion
vehicle for all restaurants that were not converted to Whistle
Junction. In addition to conversions, the Company intends to
sell underperforming restaurants.
Once the Company completes the remaining four conversions,
it will then no longer be required to pay any franchise fees.
The Company believes that the Whistle Junction concept has proved
its worth. With the elimination of the franchise fees and
expected increases in revenues from the new restaurants, the
Company believes that it could possibly become profitable in 2005
or 2006.
The Company does not currently have a financing commitment
to build new restaurants. The Company estimates that each new
Whistle Junction restaurant will cost about $2.9 million to
acquire the land and build the restaurant. Once the site is
acquired it usually takes about 5 months to construct and build
each new restaurant. The point at which the restaurant becomes
profitable is never certain.
So, even though the Company believes that it has found a
format that can bring it to profitability, there are risks
involved in building shareholder value with the plan. The
Company believes that the Asset Sale will build shareholder value
more quickly without these risks.
Recognizing this, the Company has considered selling all of
its restaurants at an advantageous price to give it the financial
wherewithal to enter into a new line of business or make
investments where shareholder value could be created more quickly
than in its current restaurant business. Although it has been
able to sell individual restaurants from time to time, the
Company has never had a credible opportunity to sell
substantially all of its restaurants until now.
In late 2004, the Company was contacted by the principals of
Banner Buffets, LLC.; a group experienced in other restaurant
ventures. The Company's Chairman and the Buyer
began negotiations in late 2004 and negotiated the Asset
Purchase Agreement from then until February 22, 2005 when it was
signed. Those negotiations were extensive and covered most aspects
of the Agreement. Since then, negotiations have continued, mostly
in response to the Buyer's efforts to obtain satisfactory financing.
The Board of Directors believes that the net proceeds from
the Asset Sale can be used productively in other lines of
business or in other investments to generate shareholder value
more quickly than could occur if the Company remains in the
restaurant business. However, no lines of business or
investments have been identified at this time.
Buyer's Financing
The Buyer has entered into an agreement with Sovereign
Investment Company to provide financing for its acquisition of
the Restaurants. Sovereign is experienced in financing
restaurant acquisitions. The financing will take the form of a
sale/leaseback under which Sovereign will acquire title to the
Restaurants now owned by us and will lease them to the Buyer on
agreed upon lease terms. We now lease four of our Restaurants
and, at closing, the Buyer will assume those leases. The Company
is not a party to the agreement between the Buyer and Sovereign.
The obligation of Sovereign to provide financing is subject
to a number of contingencies which have not yet been satisfied
and which are not within our control. Accordingly, no assurances
can be given by the Company that the Buyer will be able to
eliminate the contingencies or obtain a waiver of them so as to
allow the Asset Sale to close.
Sovereign has informed the Buyer that it will not fund the
acquisition of our Restaurant No. 122 in Orlando, Florida. The
Buyer has told us that it is confident that it will be able to
obtain alternate financing. If the Buyer is unable to obtain
financing and does not close on that Restaurant, the Company
could declare a default under the Agreement or, alternatively,
lease the Restaurant to the Buyer on terms satisfactory to the
Company.
Opinion of the Company's Financial Advisors
Allen C. Ewing & Co. ("Ewing") has been retained by us to
evaluate the fairness of the Asset Sale to our shareholders from
a financial point of view. Ewing has delivered to the Board of
Directors a written opinion to the effect that, based on and in
reliance on the matters described in its opinion, the Asset Sale
is fair to our shareholders from a financial point of view. The
full text of Ewing's written opinion dated May 25, 2005 which
describes the assumptions made, procedures followed, matters
considered, and limitations on the review undertaken, is attached
to this Information Statement as Exhibit B and is incorporated
herein by reference.
Ewing's opinion and financial analyses were only one of many
factors considered by our Board of Directors in its evaluation of
the transaction and should not be viewed as determinative of the
views of the Board or management with respect to the Asset Sale
or the consideration provided for in the Asset Sale.
The description of Ewing's fairness opinion set forth below
does not purport to be complete, and is qualified in its entirety
by reference to the text of such opinion, attached as Exhibit B
to this Information Statement.
Ewing has rendered its opinion of the Asset Sale as fair to
the shareholders of the Company from a financial point of view.
The terms of the Asset Sale were determined based on negotiations
between the Company and the Buyer and were not based on any
recommendations by Ewing. For purposes of its opinion, Ewing
reviewed the Agreement and certain financial information of the
Company.
The Company engaged Ewing after the signing of the Agreement
but conditioned its obligation to consummate the Asset Sale upon
receipt of the fairness opinion. Ewing had been previously
engaged by the Company to render fairness opinions in connection
with the sale of preferred stock to the Company's majority
shareholder. For its services in rendering the opinion in
connection with the Asset Sale, Ewing will receive a fee of
$20,000 and will be reimbursed for reasonable out-of-pocket
expenses, whether or not the Asset Sale is closed. Ewing is
engaged in the valuation of businesses and their securities and
assets in connection with mergers and acquisitions, corporate
restructurings, and other purposes. Our Board of Directors
selected Ewing on the basis of such experience. Additionally,
Ewing had some familiarity with the Company by virtue of its
prior retention by the Company.
Ewing's engagement was not in any way limited in the scope
of its investigation. A summary of materials reviewed by Ewing
follows:
(a) the Agreement;
(b) the Company's consolidated financial statements
for the fiscal year ended December 29, 2004 and the quarter ended
March 30, 2005;
(c) certain other historical financial information
relating to the Company that we deemed relevant;
(d) the Company's business plan for 2005;
(e) the Company's internally prepared consolidated
financial projections for the fiscal year ending December 28,
2005;
(f) certain publicly available information with
respect to historical market prices and trading activity of the
Company's common stock;
(g) real estate appraisals of the Company's restaurant
properties prepared in connection with the Transaction;
(h) the financial terms of recent sales of restaurant
properties considered by us to be reasonably similar to the
Company's restaurant properties;
(i) the current market environment generally and the
restaurant industry environment in particular; and
(j) such other information, financial studies,
analyses, inquiries and other matters that we deemed relevant.
Interest of the Company's Directors and Management in the Asset
Sale
None of our officers or directors has a personal or business
relationship with Buyer or any of its principals. In addition,
none of our officers or directors has any interest in the Asset
Sale, other than as shareholders of the Company.
Regulatory Matters
No United States federal or state regulatory requirements
must be complied with or approvals obtained as a condition of the
proposed Asset Sale other than the federal securities laws.
Federal Income Tax Consequences of the Asset Sale
The Asset Sale will be a taxable transaction for the Company
but not for our shareholders. The resulting gain will be
substantially offset by the Company's current and prior losses
but it is expected that some taxable gain will be realized.
Appraisal Rights
Our shareholders have appraisal rights in connection with
the Asset Sale. See page 22.
OUR BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE ASSET
SALE AND UNANIMOUSLY RECOMMENDS TO THE SHAREHOLDERS THAT THE
ASSET SALE BE APPROVED.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
The following unaudited pro forma condensed consolidated
balance sheets and related notes are presented to show the
effects of the Asset Sale. The pro forma condensed consolidated
balance sheets are based on the assumption that the Asset Sale
occurred effective March 30, 2005.
Pro forma data are based on assumptions and include
adjustments as explained in the notes. The pro forma data are
not necessarily indicative of the financial results that would
have been obtained had the sale occurred on the date referenced
above.
EACO Corporation
Condensed Consolidated Balance Sheets
As of March 30, 2005
Pro Forma
(Unaudited) EACO Adjustments EACO Corporation
Corporation for the Proposed (Pro Forma for
Historical Transaction the Transaction)
------------ ------------ ----------------
ASSETS
Current assets:
Cash and cash equivalents $1,369,000 $25,709,100 (A)
(12,558,500)(B) 14,519,600
Receivables 290,400 (7,500)(A) 282,900
Inventories 259,700 (216,400)(A) 43,300
Prepaid and other current assets 516,100 (215,300)(A) 300,800
---------- ----------- -----------
Total current assets 2,435,200 15,146,600
Certificate of deposit 369,500 369,500
Note Receivable 4,000,000 (A) 4,000,000
Property and equipment:
Land 6,371,600 (5,783,300)(A) 588,300
Buildings and improvements 25,058,000 (22,116,000)(A) 2,942,000
Equipment 11,987,300 (8,931,100)(A) 3,056,200
Construction in progress 41,700 (41,700)(A) 0
----------- ----------- -----------
43,458,600 6,586,500
Accumulated depreciation (18,138,900) 13,487,500 (A) (4,651,400)
----------- -----------
Net property and equipment 25,319,700 1,935,100
Other assets, principally deferred charges,
net of accumulated amortization 675,700 (544,600)(B) 131,100
----------- ----------- -----------
$28,800,100 ($7,217,800) $21,582,300
=========== =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $1,546,000 $1,546,000
Accrued liabilities 1,498,800 (90,200)(A) 1,408,600
Current portion of workers compensation
benefit liability 600,000 600,000
Current portion of long-term debt 887,500 (771,900)(B) 115,600
Current portion of obligation under capital lease 50,100 (50,100)(A) 0
Income taxes payable 1,163,000 (C) 1,163,000
----------- ----------- -----------
Total current liabilities 4,582,400 4,833,200
Deferred rent 87,100 (87,000)(A) 0
Deposit liability 24,100 24,100
Workers compensation benefit liability 615,200 615,200
Long-term debt 13,552,300 (11,786,600)(B) 1,765,700
Deferred gain 1,514,600 (1,514,600)(A) 454,638
454,638 (D) 0
Obligation under capital lease 5,433,600 (5,433,600)(A) 0
----------- ----------- -----------
Total liabilities 25,809,300 7,692,838
Shareholders' equity:
Preferred stock of $.01 par; authorized
10,000,000 shares; outstanding 36,000
shares at March 30, 2005 (liquidation
value $900,000) 400 400
Common stock of $.01 par; authorized
8,000,000 shares; outstanding 3,881,899
shares at March 30, 2005 and December 29, 2004 38,800 38,800
Additional paid-in capital 10,884,300 10,884,300
Accumulated deficit (7,932,700) 9,060,900 (A)
(544,600)(B)
(1,163,000)(C) 2,965,962
Accumulated other comprehensive income 0 3,545,362 (D) 0
----------- ----------- ----------
Total shareholders' equity 2,990,800 13,889,462
----------- ----------- -----------
$28,800,100 ($7,217,800) $21,582,300
=========== =========== ===========
See Notes to the pro forma statements on the following page.
Notes to Pro Forma Balance Sheet
A) Represents the sale of sixteen restaurants to Banner
Buffets, LLC for $25,950,000 cash, a $4 million promissory note
and certain purchase price adjustments detailed below. The
purchase also includes the assumption of operating and capital
lease obligations. Capital lease obligations totaled $5,433,600
at March 30, 2005. The Buyer receives property and equipment,
plus certain other assets related to the restaurants, which are
detailed in the cash summary below. Assumes an estimated
$600,000 closing costs, which includes $400,000 in estimated
broker commission.
Cash Summary:
Contract cash purchase price $25,950,000
Purchase price adjustments for
capital improvements:
Remodel completed 250,000
Construction in process
benefiting buyer 41,700
Closing costs (600,000)
Store cash transferred to Buyer (24,000)
Adjustments for deposits
assigned to Buyer 91,400
-----------
Total cash proceeds 25,709,100
===========
Other items from the sale agreement, all simultaneous with
the sale closing:
Deferred gain on prior sale-leaseback recognized upon
the Buyer's assumption of leases:
Long term portion 1,514,600
Current portion 90,200
Recognition of deferred rent on
sale leaseback properties 87,000
Inventories purchased at closing
by Buyer 216,400
Customer receivables purchased
by Buyer 7,500
Certain prepaid expenses purchased
by Buyer 215,300
Obligations under capital lease
assumed by Buyer 5,433,600
Current portion of lease
obligations assumed 50,100
B) Payment of GE Capital mortgages for twelve stores upon
closing of sale. Loan fee assets and franchise fee assets
totaling $544,600 associated with the transaction are written
off.
C) Estimated income tax liability from the transaction, after
use of NOL and capital loss carryforwards.
D) Recognition of gain on sale transaction. The portion of
gain related to the $4 million promissory note is deferred until
payment of the note is received.
EACO Corporation
Unaudited Pro Forma Consolidated Results of Operations
Three Months Ended March 30, 2005
-----------------------------------------------
Pro Forma
EACO Adjustments EACO Corporation
Corporation for the Proposed (Pro Forma for
Historical Transaction the Transaction)
-----------------------------------------------
Revenues:
Sales $10,026,600 ($9,767,100)(E) 259,500
Vending revenue 48,800 (48,600)(E) 200
----------- ----------- -------------
Total revenues 10,075,400 (9,815,700) 259,700
----------- ----------- -------------
Cost and expenses:
Food and beverage 3,747,400 (3,640,200)(E) 107,200
Payroll and benefits 2,810,100 (2,708,100)(E) 102,000
Depreciation and amortization 500,400 (430,000)(E) 70,400
Other operating expenses 1,560,100 (1,482,900)(E) 77,200
General and administrative expenses 610,800 (188,400)(F) 442,400
Franchise fees 174,200 (174,200)(E) 0
Asset valuation charge 0 0 0
Loss on disposition of equipment 19,200 (19,200)(E) 0
----------- ----------- -------------
Total costs and expenses 9,422,200 (8,643,000) 779,200
----------- ----------- -------------
Earnings from operations 653,200 (1,172,700) (519,500)
Investment gain (loss) 0 0 0
Interest and other income 56,200 0 56,200
Interest expense (451,200) 413,500(G) (37,700)
----------- ----------- -------------
Earnings (loss) before
income taxes 258,200 (759,200) (501,000)
Provision for income taxes -- -- --
----------- ----------- -------------
Net earnings (loss) $258,200 ($759,200) ($501,000)
Undeclared cumulative preferred
stock dividend (19,100) -- (19,100)
----------- ----------- -------------
Net earnings (loss) available for basic
and diluted loss per share 239,100 (759,200) (520,100)
=========== =========== =============
Basic earnings (loss) per share $0.06 ($0.20) ($0.14)
=========== =========== =============
Basic weighted average common
shares outstanding 3,882,000 3,882,000 3,813,000
=========== =========== =============
Diluted earnings (loss) per share $0.06 ($0.20) ($0.14)
=========== =========== =============
Diluted weighted average common
shares outstanding 3,882,000 3,882,000 3,813,000
=========== =========== =============
E) Represents the elimination of operations of sixteen
restaurants sold to Banner Buffets, LLC.
F) Represents elimination of costs included under general and
administrative expenses which are directly attributable to the
operations of the sixteen sold stores.
G) Represents the reduction in interest expense
attributable to the sixteen sold stores.
APPRAISAL RIGHTS OF COMPANY SHAREHOLDERS
Under Chapter XIII of the Florida Business Corporation Act,
Company shareholders have the right to object to the Asset Sale
and demand in writing that the Company pay the fair value of
their shares. Fair value means the value of the Company's shares
determined (a) immediately before the effectuation of the
corporate action to which the shareholder objects; (b) using
customary and current valuation concepts and techniques generally
employed for similar business, excluding any appreciation or
depreciation in anticipation of the corporate action unless
exclusion would be inequitable to the corporation and its
remaining shareholders. Shareholders who elect to exercise
appraisal rights must comply with all of the procedures set in
Chapter XIII to preserve those rights. These procedures are
complicated and must be followed completely. Failure to comply
with Chapter XIII may cause a termination of your appraisal
rights. The following information is only a summary of the
required procedures and is qualified in its entirety by reference
to the provisions of Chapter XIII. Please review Chapter XIII, a
copy of which is attached to this Information Statement as
Exhibit C for the complete procedures. Neither the Company nor
the Buyer will give you any notice other than as described in
this document and is required by the Florida Business Corporation
Act.
Notice of Appraisal Rights
Chapter XIII requires that we notify our shareholders that
appraisal rights will be available not less than 20 days before
the action is taken that requires shareholder approval. This
Information Statement constitutes the Company's notice to our
shareholders of the availability of appraisal rights.
Written Demand for Appraisal
You must deliver a written demand for appraisal to the
Company within 20 days from the date of mailing of this
Information Statement. A shareholder who does not timely submit
this notice is not entitled to receive payment under
Chapter XIII.
Continuous Ownership of Shares
You must continuously hold your shares of Company stock from
the date you make the demand for appraisal through the closing of
the Asset Sale.
Requirements for Written Demand for Appraisal
A written demand for appraisal must be signed by, or in the
name of, the shareholder of record who owns the shares at the
time the demand is made. If you are the beneficial owner of
stock but not the shareholder of record, you must have the
shareholder of record submit the demand for appraisal. If you
are a record owner, such as a broker, who owns Company stock as
nominee for others, you may exercise appraisal rights with
respect to shares held for one or more beneficial owners while
not exercising appraisal rights for other beneficial owners. In
this case, you should specify in the written demand for appraisal
the number of shares as to which you wish to demand appraisal and
the names and addresses of each beneficial owner on whose behalf
appraisal rights are being asserted.
Address
If you elect to exercise your appraisal rights, you should
address the written demand to EACO Corporation, Attention: Edward
Alexander, 2113 Florida Boulevard, Neptune Beach, Florida 32266.
As noted above, we must receive this demand within 20 days after
the mailing of this Information Statement.
Appraisal Notice and Form
If the Asset Sale closes, the Company will send a written
appraisal notice to each shareholder who timely sends the
required demand to the Company. The notice will contain the
Company's estimation of the fair value of the shareholder's
shares immediately prior to the sale and its offer to pay that
estimated value in cash. That notice will be sent no later than
10 days from the effective date of the Asset Sale and will
include a form that provides for the shareholder to state:
(a) The shareholder's name and address.
(b) The number, classes and series of shares as to
which the shareholder asserts the appraisal rights.
(c) That the shareholder did not vote for the
transaction.
(d) Whether the shareholder accepts the Company's
offer to pay its estimation of the fair value of the shares.
(e) If that offer is not accepted, the shareholder's
estimated fair value of the shares and a demand for payment of
the shareholder's estimated value plus interest.
The appraisal notice will say where the form must be sent and
where certificates for certificated shares must be deposited and
the date by which those certificates must be deposited. It will
include a date by which the Company must receive the form, which
date may be not fewer than 40 days nor more than 60 days after
the date that the appraisal notice and form are sent. The notice
will also give information on the shareholder's rights to
withdraw the demand for appraisal. The notice will be
accompanied by financial statements of the Company including a
balance sheet, an income statement, and a cash flow statement for
the last fiscal year together with interim financial information,
if any.
Perfection of Rights
A shareholder who wishes to exercise appraisal rights must
execute and return the form together with certificated shares in
accordance with the terms of the notice or the demand for
appraisal is void. Once the shareholder returns the executed
form and the certificated shares, that shareholder loses all
rights as a shareholder unless the shareholder withdraws the
demand. The shareholder who has timely filed the form and the
certificated shares may nevertheless decline to exercise
appraisal rights and withdraw from the appraisal proceedings by
notifying the Company in writing by date set forth in the
appraisal notice.
Shareholder's Acceptance
If the shareholder states on the appraisal form that the
shareholder accepts the offer of the Company to pay its estimated
fair value of the shares, the Company will make the payment to
the shareholder within 90 days after the Company's receipt of the
form. Upon payment of the agreed value, the shareholder shall
cease to have any interest in the shares.
Procedure if Shareholder is Dissatisfied with Offer
A shareholder who is dissatisfied with the Company's offer
to pay its estimated value of the shares must notify the Company
on the appraisal form and give that shareholder's estimate of the
fair value of the shares and demand payment of that estimate plus
interest. The shareholder who fails to notify the Company in
writing of the shareholder's demand to be paid the shareholder's
stated estimate of the fair value waives the right to demand
payment and is entitled only to the payment offered by the
Company.
Court Action
If the shareholder makes demand for payment which remains
unsettled, the Company shall commence a proceeding within 60 days
in the Circuit Court in Duval County, Florida and petition the
court to determine the fair value of the shares immediately prior
to the sale and accrued interest. If the Company does not
commence the proceeding within the 60 day period, any shareholder
who has made a demand may do so in the name of the Company. All
shareholders whose demand remains unsettled shall be made parties
to the proceeding.
Court Costs and Counsel Fees
The court in an appraisal proceeding determines all costs of
the proceeding including reasonable compensation and expenses of
appraisers appointed by the court. The court will assess the
costs against the Company except that the court may assess costs
against all or some of the shareholders demanding appraisal in
amounts that the court finds equitable to the extent the court
finds such shareholders acted arbitrarily, vexatiously, or not in
good faith with respect to the rights provided by Chapter XIII.
The court may also assess fees and expenses of counsel and
experts for the respective parties in amounts the court finds
equitable. In making its determination as to the fair value of
the Company's shares, the court may find that the value is more
than, the same as or less than the estimate of fair value offered
by the Company.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND OF MANAGEMENT
The table set forth below presents certain information
regarding beneficial ownership of the Company's common stock (the
Company's only voting security), as of March 16, 2005, by
(i) each shareholder known to the Company to own, or have the
right to acquire within sixty (60) days, more than five percent
(5%) of the common stock outstanding, (ii) each named executive
officer and director of the Company, and (iii) all officers and
directors of the Company as a group.
Amount of Common Percent
Name of Beneficial Owner Stock Beneficially Owned (1) of Class (2)
------------------------ ---------------------------- ------------
Edward B. Alexander 21,600 .6%
Stephen Catanzaro 19,113 .5%
Glen F. Ceiley (3) 2,410,985 62.1%
Jay Conzen 41,113 1.1%
William L. Means 16,113 .4%
All Executive Officers 2,508,924 64.6%
and Directors as a Group
(1) Included in such beneficial ownership are shares of common
stock which may be acquired immediately or within sixty (60)
days upon the exercise of certain options; Edward B.
Alexander, 21,600 shares; Jay Conzen, 25,000 shares; and all
executive officers and directors as a group, 46,600 shares.
(2) The percentages represent the total of the shares listed in
the adjacent column divided by the issued and outstanding
shares of common stock as of March 16, 2005, plus any stock
options or warrants exercisable by such person within sixty
(60) days of March 16, 2005.
(3) Based on information set forth by Mr. Ceiley in response to
a questionnaire from the Company as of March 16, 2005;
Glen F. Ceiley, owns 1,913,443 shares, individually; Zachary
Ceiley, Mr. Ceiley's son, owns 1,300 shares; and the Bisco
Industries Profit Sharing and Savings Plan (the "Bisco
Plan") owns 496,242 shares. Mr. Ceiley has the sole power
to vote and dispose of the shares of common stock he owns
individually and the power to vote and to dispose of the
shares owned by his son, and the Bisco Plan. The address
for Mr. Ceiley and the Bisco Plan is 1500 North Lakeview
Avenue, Anaheim, CA 92807.
By Order of the Board of Directors
/S/ Eward Alexander
-----------------------------
Edward Alexander
President
Dated: June 1, 2005
EXHIBIT A
ASSET PURCHASE AGREEMENT
BETWEEN
BANNER BUFFETS, LLC
as Buyer
and
EACO CORPORATION
as Seller
* * * * * * * * * * * * * * * *
February 22, 2005
ASSET PURCHASE AGREEMENT
This Asset Purchase Agreement (this "Agreement") is entered
into as of the 22nd day of February, 2005, by and between Banner
Buffets, LLC, a Delaware limited liability company (the "Buyer"),
and EACO Corporation, a Florida corporation, (the "Seller").
WHEREAS, Seller presently owns and operates six (6) Ryan's
franchise restaurants (the "Ryan's Restaurants"), four (4)
Whistle Junction restaurants (the "WJ Restaurants") and six (6)
Florida Buffet restaurants (the "FB Restaurants") (the Ryan's
Restaurants, WJ Restaurants and FB Restaurants are collectively
referred to as "Restaurants" and individually as a "Restaurant"),
as further identified on Schedule 1 attached hereto;
WHEREAS, Seller desires to sell, transfer and assign to
Buyer, and Buyer desires to purchase and acquire from Seller, the
Restaurants together with all rights and interests of Seller in,
to and under all agreements, contracts and other assets relating
to the business of owning and operating the Restaurants (the
"Business") on the terms and subject to the conditions set forth
in this Agreement (the "Acquisition").
NOW, THEREFORE, in consideration of the mutual covenants,
representations, warranties and agreements hereinafter set forth,
and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties agree as
follows:
ARTICLE I. PURCHASE AND SALE OF ASSETS
---------------------------------------
Section 1.1 Assets to be Transferred. Upon the terms and
subject to the conditions set forth in this Agreement, on the
Closing Date Seller shall sell, transfer and assign to the Buyer
all of Seller's right, title, and interest in and to the
business, property, and assets (excepting only the assets
specifically identified as "Excluded Assets" in Section 1.2
hereof) used in or relating to the operation of the Restaurants
(the "Assets"), including, but not limited to:
(a) All fixtures, equipment, machinery, trade
fixtures, leasehold improvements, point of sale hardware and
software, telephone equipment, service, replacement and spare
parts, and service and replacement equipment located at the
Restaurants or stored off site for use at any of the Restaurants,
and all other personal property not included in Inventory (as
hereinafter defined) owned, utilized or held for use by Seller on
the Closing Date located at the Restaurants and all dishes,
glassware, utensils and other smallwares located at the
Restaurants (the "Equipment"), all of which are set forth on
Schedule 1.1(a) attached hereto;
(b) All intangible personal property, business records
(including pictures, historical records and archived business
records related to the Restaurants and their respective brands),
customer lists (to the extent of their existence) and all
goodwill of the Restaurants (the "Intangible Property");
(c) All of the real property owned by the Seller,
which real property includes all buildings, fixtures, parking
facilities and other improvements located thereon and easements
and appurtenances thereto (the "Real Property"), which properties
are identified and legally described in Schedule 1.1(c) attached
hereto;
(d) All of Seller's interest in all real property
leases to which Seller is party that are used by or associated
with the Restaurants (the "Real Property Leases"), all of which
leases are set forth in Schedule 1.1(d) attached hereto, which
shall be assumed in accordance with Section 1.3 hereof;
(e) All rights under leases affecting any personal
property with Seller as lessee, and all contracts, advertisement
contracts, books of account, files, papers, and all records
located at the Restaurants, in each case listed on Schedule
1.1(e) attached hereto (the "Contracts"), which shall be assumed
at the option of Buyer in accordance with Section 1.3 hereof;
(f) All cash in the cash drawers and safes of each
Restaurant (the "Cash Drawers") at the close of business on the
Closing Date, not to exceed $1,500 per Restaurant;
(g) [RESERVED]
(h) All rights and benefits of Seller under and
pursuant to all licenses, permits, and approvals of Seller
relating to the Restaurants or the operation thereof, to the
extent transferable with or without consent of a third party;
(i) All Seller's inventory for the Restaurants which
shall include food and beverage inventory, uniforms, supplies,
paper goods and products, and promotional items that are
marketable and useable as of the Closing Date (the "Inventory");
(j) All deposits, receivables and prepaid expenses
related to the Restaurants agreed to be acquired by Purchaser
(collectively, the "Prepaid Expenses") all of which expenses are
set forth in Schedule 1.1(j) attached hereto;
(k) All trademarks, service marks, trade names,
copyrights, trade secrets, know-how associated with the
Restaurants, (including, but not limited to, the names "Whistle
Junction" and "Florida Buffet," any prototype plans, memos, other
work products of consultants or architects and trade secrets such
as recipes (including such recipes or formulas currently in the
name of the Seller used exclusively in the Restaurants),
operating systems and manuals or other tangible materials
embodying technology, proprietary information or other
intellectual property rights of Seller and used in connection
with the Restaurants) and other proprietary confidential
information related to the Restaurants ("Intellectual Property"),
except that Seller does not have the right to and will not
transfer any Intellectual Property relating to the trademark
"Ryan's" or any Intellectual Property related to the operation of
the Ryan's Restaurants;
(l) Any memorabilia used for decor in the Restaurants
owned by Seller and located in the Restaurants;
(m) The current telephone listings of the Restaurants
and the right to use the telephone and facsimile numbers
currently being used at the Restaurants; and
(n) All of Seller's books, records and other documents
and information relating to the Assets or the business of the
Restaurants, including, without limitation, inventory records,
purchase orders and invoices, sale orders and sales order log
books, customer and marketing information and records,
correspondence, employee payroll and personnel records, and
product and merchandise data, all floor plans and construction
and architectural drawings and conversion plans, and material
lists in the possession of Seller which relate to the FB
Restaurants and WJ Restaurants to the extent transferable.
Section 1.2 Excluded Assets. Notwithstanding any
provision of this Agreement to the contrary, Buyer does not
purchase, and the Seller does not sell, any of the following
assets (i) all bank balances, sales and income tax reserves and
store receipts up to (but not including) the Closing Date; (ii)
all contracts, arrangements and understandings which are not
capable of being transferred or assigned; (iii) tax and insurance
refunds relating to actions or time periods prior to the Closing
Date, and (iv) assets of the Seller unrelated to the Restaurants
or the business conducted at the Restaurants (collectively, the
"Excluded Assets").
Section 1.3 Assumption of Liabilities. Buyer will
assume, pay, perform in accordance with their terms or otherwise
satisfy, from and after the Closing Date: (i) the Real Property
Leases, (ii) all utility, telephone, yellow page and advertising
expenses, taxes, and other fees and costs, (collectively, the
"Expenses" or singularly, an "Expense"), whether prepaid or yet
to be charged, related to obligations and time periods subsequent
to the Closing Date; and (iii) the Contracts, to the extent that
Buyer elects to assume such Contracts in its sole discretion and
(iv) all obligations that relate to ownership or tenancy of the
Real Property.
Section 1.4 Excluded Liabilities.
(a) Other than as set forth in Section 1.3, Seller
shall retain, and Buyer shall not assume, and nothing contained
in this Agreement shall be construed as an assumption by Buyer
of, any liabilities, obligations or undertakings of Seller of any
nature whatsoever, whether accrued, absolute, fixed or
contingent, known or unknown due or to become due, unliquidated
or otherwise. Seller shall be responsible for all of the
liabilities, obligations and undertakings of Seller not assumed
by Buyer pursuant to Section 1.3 hereof.
(b) Seller shall be responsible for all Expenses
incurred prior to the Closing Date and Buyer shall be responsible
for all Expenses incurred from and after the Closing Date. Seller
shall use reasonable efforts to determine Expenses as of the
Closing Date and shall submit its estimation of such Expenses to
the Buyer not less than five (5) days prior to the Closing Date.
If any Expense cannot be determined as of the Closing Date,
Buyer and Seller agree to prorate such Expense based on the
number of days of Buyer's and Seller's respective occupation of
the Restaurants during the month in which the Closing occurs
compared to the total number of days in the month. Any party
required to pay an adjustment amount for prorated Expenses shall
pay such amount not later than fifteen (15) days after
presentation to such party of a statement prepared by the party
to whom the adjustment amount is owed. Seller further agrees to
execute any document required to transfer any account related to
any Expense to Buyer, including the transfer of any deposits in
connection with such Expenses.
(c) Seller shall be responsible for and shall pay when
due all sales and use taxes, any applicable transfer taxes,
franchise fees and any other costs, fees and expenses associated
with the sale, transfer and assignment of the Assets or any
portion of the same to Buyer, but not any other taxes associated
with Buyer's financing.
Section 1.5 Purchase Price and Payment.
Purchase Price. The purchase price (the "Purchase Price")
for the Restaurants and the Assets shall be the amount set forth
below plus the value of the liabilities assumed by Buyer pursuant
to Section 1.3.
Payment of Purchase Price. The Purchase Price shall be paid
at the Closing as follows:
(i) Twenty-Five Million Four Hundred Fifty
Thousand Dollars and No/100 ($25,450,000.00) in cash;
plus
(ii) The Deposit in cash; plus
(iii) One-half of the aggregate sum of the
Prepaid Expenses set forth on Schedule 1.1(j) attached
hereto; plus
(iv) An additional cash payment of up to Two
Hundred Fifty Thousand Dollars and No/100 ($250,000.00)
for each Ryan's Restaurant converted to a WJ Restaurant
from February 1, 2005, through the Closing (such actual
amount to be equal to all out-of-pocket costs incurred
by Seller in connection with the conversion based on
documentation reasonably required by Buyer to support
such expenditures;
(v) Four Million Dollars and No/100
($4,000,000.00) paid by delivery of a secured
promissory note (the "Note") in form and substance
identical to the form attached hereto as Exhibit 1.5
which contains the following terms:
The principal balance of the Note shall be secured by the
assets identified on Schedule 1.5 attached hereto and shall bear
simple interest at the fixed rate of eight (8.0%) per annum and
shall be payable in monthly installments of interest only, with
principal payments in accordance with the following schedule:
(a) Seller shall have received the sum of
$1,500,000.00 twenty-four (24) months following the Closing Date;
(b) Seller shall have received the sum of
$1,500,000.00 thirty-six (36) months following the Closing Date;
and
(c) All principal and accrued but unpaid interest
thereon shall be due forty-eight (48) months following the
Closing Date.
The principal amount of the Note will be credited with
$173,333.00 if Buyer exercises its right to purchase the DeLand
Restaurant within 30 days following the Closing and consummates
the purchase within 9 months from the Closing.
The additional consideration, if any, described on Schedule
1.5 attached hereto.
Section 1.5 Escrow Deposit. Concurrently with Buyer's
execution of this Agreement, Buyer shall deliver to Lawyers Title
Insurance Corporation (the "Title Company") in cash by wire
transfer, the sum of Five Hundred Thousand Dollars and No/100
($500,000.00) as the escrow deposit ("Deposit") pursuant to the
Escrow Agreement attached hereto as Exhibit 1.5(c).
Section 1.6 Allocation of Purchase Price. On or before
the Closing Date, the parties shall mutually agree on the
allocation of the Purchase Price among the Assets. Seller and
Buyer shall execute and file any of their respective tax returns
and other tax information on a basis that is consistent with the
allocations made pursuant to this Section 1.6. Seller shall
provide Buyer with any information reasonably required by Buyer
to prepare its tax return or to otherwise comply with any
federal, state or local tax rules or regulations. Each party
shall duly and timely file Form 8594 with its appropriate tax
returns.
ARTICLE II. REPRESENTATIONS AND WARRANTIES OF SELLER
-----------------------------------------------------
As an inducement to Buyer to enter into this Agreement and
to consummate the transactions contemplated hereby, Seller
represents and warrants to Buyer as follows, which
representations and warranties are true and correct on the date
hereof and shall remain true and correct on the Closing Date:
Section 2.1 Organization and Qualification. EACO
Corporation is a corporation duly organized, validly existing and
in good standing under the laws of the State of Florida. The
nature of the Restaurants' business or the Assets does not
require Seller to be licensed or qualified in any other
jurisdiction.
Section 2.2 Subsidiaries. The Assets do not include any
stock, partnership interest, joint venture interest or any other
security or ownership interest issued by any other corporation,
organization or entity. Seller has no subsidiaries.
Section 2.3 Power and Authority. Seller has the
requisite corporate power and authority and all authorizations,
permits, licenses and certifications necessary to own, lease and
operate the Assets and to carry on the business of the
Restaurants as now being conducted.
Section 2.4 Execution, Delivery; Valid and Binding
Agreement. The execution, delivery and performance of this
Agreement by Seller and the consummation of the transactions
contemplated hereby have been duly and validly authorized by the
Board of Directors of Seller, and, except for approval by
Seller's shareholders, no other proceedings on its part are
necessary to authorize the execution, delivery and performance of
this Agreement. This Agreement constitutes, and when executed
and delivered, the other documents and instruments to be executed
and delivered by Seller pursuant hereto (the "Ancillary
Agreements") will constitute, the valid and binding obligations
of Seller, enforceable in accordance with their terms.
Section 2.5 No Violation. Neither the execution and
delivery of this Agreement or the Ancillary Agreements, the
consummation of the transactions contemplated hereby or thereby,
nor the performance of the Seller's obligations hereunder and
thereunder will (i) violate, conflict with or result in any
breach of any trust agreement, Articles of Incorporation, bylaws,
judgment, decree, order, statute or regulation applicable to
Seller, (ii) violate, conflict with or result in a material
breach, material default or termination or give rise to any right
of termination, cancellation or acceleration of the maturity of
any payment date of any of the obligations of Seller or increase
or otherwise materially affect the obligations of Seller under
any law, rule, regulation or any judgment, decree, order,
governmental permit, license or order or any of the terms,
conditions or provisions of any mortgage, indenture, note,
license, agreement or other instrument or obligation related to
Seller or to Seller's ability to consummate the transactions
contemplated hereby or thereby, except that landlords' consent
may be required for assignment of Real Property Leases, (iii)
violate any order, writ, injunction, decree, statute, rule or
regulation applicable to Seller or (iv) result in the creation of
any claim or lien upon the Assets.
Section 2.6 Title to Properties.
(a) The Real Property owned by Seller and the real
property demised by the Real Property Leases (the "Leased
Parcels") constitutes all of the real property owned, used or
occupied by Seller used in connection with operation of the
Restaurants. The Real Property and Leased Parcels have access,
sufficient for the operation of the Restaurants as now conducted,
to public roads and to all utilities, including electricity,
sanitary and storm sewer, potable water, natural gas and other
utilities, used in the operation of the Restaurant at that
location. To Seller's actual knowledge without inquiry, there is
not (i) any claim of adverse possession involving any of the
Restaurants, (ii) any building or other structure which
encroaches on the boundaries of any of the Real Property or
Leased Parcels except as may be shown by the Surveys, or (iii)
any structure of any other party which encroaches on the
boundaries of any of the Restaurants except as may be shown by
the Surveys.
(b) The Real Property Leases are in full force and
effect, and Seller holds a valid and existing leasehold interest
under each of the Real Property Leases for the term set forth in
Schedule 2.6(b) attached hereto. Seller has delivered to Buyer
complete and accurate copies of each of the Real Property Leases,
and none of the Real Property Leases has been modified in any
respect, except to the extent that such modifications are
disclosed by the copies delivered to Buyer. To the best of
Seller's knowledge, Seller is not in default beyond applicable
cure periods, and no circumstances exist which, if unremedied,
would, either with or without notice or the passage of time or
both, result in such default under any of the Real Property
Leases; nor, to the knowledge of Seller, is any other party to
any of the Real Property Leases in default. Seller has not, and
to the knowledge of Seller, the lessors under any of the Real
Property Leases have not (i) subleased or assigned any of its
rights and obligations under the Real Property Leases to any
other party, or (ii) granted any possessory right in any of the
Assets to any other person. Seller is in sole possession, use
and quiet enjoyment of the Real Property and the Leased Parcels.
(c) Seller owns good and marketable title to the
Assets, including each parcel of Real Property and each of the
tangible properties and tangible assets reflected on the Latest
Balance Sheet (as defined in Section 2.12 hereof) or acquired
since the date thereof, free and clear of all liens and
encumbrances, except for (i) liens for current taxes not yet due
and payable, (ii) liens set forth on Schedule 2.6(c) attached
hereto, (iii) the properties subject to the Real Property Leases,
(iv) assets disposed of since the date of the Latest Balance
Sheet in the ordinary course of business, (v) liens imposed by
law and incurred in the ordinary course of business for
obligations not yet due to carriers, warehousemen, laborers and
materialmen and (vi) liens in respect of pledges or deposits
under workers' compensation laws, all of which liens aggregate
less than $5,000, and (vii) matters shown on the Title
Commitment. The Assets comprise all of the property and assets
(except for Excluded Assets) necessary to permit Buyer to operate
the Restaurants as they are presently operated.
(d) Schedule 2.6(d)(1) attached hereto sets forth a
description of all the Assets which constitute equipment,
machinery, motor vehicles, furniture, fixtures, furnishings and
leasehold improvements. Except as otherwise described in
Schedule 2.6(d)(2), all of the buildings, machinery, equipment
and other tangible assets necessary for the operation of the
Restaurants are in good condition and repair, ordinary wear and
tear excepted, and are usable in the ordinary course of business.
The parties agree that Seller shall pay up to, but not exceeding,
One Hundred Thousand Dollars ($100,000.00) for repairs to the
items described on Schedule 2.6(d)(2), provided that each claim
for repair shall equal or exceed the sum of One Thousand Dollars
($1,000.00). The parties agree that such repairs shall not be
included in the Damages described in Section 10.2. To Seller's
knowledge there are no defects in such assets or other conditions
relating thereto which, in the aggregate, materially adversely
affect the operation of the Restaurants. Seller owns, or leases
under valid leases, all buildings, machinery, equipment and other
tangible assets necessary for operation of the Restaurants.
(e) To the best of Seller's knowledge, Seller is not
in violation of any applicable zoning ordinance or other law,
regulation or requirement relating to the operation of any
properties used in the operation of the Restaurants, and Seller
has not received any notice of any such violation, or the
existence of any condemnation proceeding with respect to any of
the Real Property or Leased Parcels, except, in each case, with
respect to violations the potential consequences of which do not
or will not have a material adverse effect on the Restaurants.
(f) Seller has no knowledge of improvements made or
contemplated to be made by any public or private authority, the
costs of which are to be assessed as special taxes or charges
against any of the Real Property or Leased Parcels, and there are
no present assessments.
Section 2.7 Labor and Employee Relations. Except as
set forth in Schedule 2.7 attached hereto, and only with respect
to employees of Seller who perform functions in connection with
the Business: (a) to the knowledge of Seller, no employee of
Seller and no group of the Seller's employees has any plans to
terminate his, her or its employment; (b) Seller has complied
with all laws relating to the employment of labor, including
provisions thereof relating to wages, hours, equal opportunity,
collective bargaining and the payment of social security and
other taxes; (c) Seller has no material labor relations problem
pending and its labor relations are satisfactory; (d) there are
no workers' compensation claims pending against Seller nor is
Seller aware of any facts that would give rise to such a claim;
(e) to the knowledge of Seller, no employee of Seller is subject
to any secrecy or noncompetition agreement or any other agreement
or restriction of any kind that would impede in any way the
ability of such employee to carry out fully all activities of
such employee in connection with the Restaurants; and (f) no
employee or former employee of Seller has any claim with respect
to any Intellectual Property or Seller's rights therein. Schedule
2.7 attached hereto lists, as of the date of this Agreement,
each employee of Seller who performs functions in connection with
the Restaurants and the position, title, remuneration (including
any scheduled salary or remuneration increases), date of
employment and accrued vacation pay of each such employee. Seller
shall update Schedule 2.7 attached hereto as of the Closing Date.
All Employees are employees-at-will and are employed for an
indefinite term.
Section 2.8 Governmental Approvals. Except for the
applicable requirements of the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended, and the rules and
regulations promulgated thereunder (the "HSR Act") and the
Securities Exchange Act of 1934 and the regulations promulgated
thereunder (the "Exchange Act"), the Seller is not required to
submit any notice, report or other filing with any governmental
authority in connection with the execution or delivery by it of
this Agreement or the consummation of the transactions
contemplated hereby. Except as set forth on Schedule 2.8
attached hereto, no consent, approval, authorization or other
action by any governmental or regulatory authority is required to
be obtained by Seller in connection with its execution, delivery
and performance of this Agreement. Seller acknowledges that Buyer
is not familiar with the HSR Act or any other approvals which
Seller may be required to obtain.
Section 2.9 Compliance with Law; Licenses; Permits.
(a) To Seller's knowledge, Seller has complied in all
material respects with all applicable laws, regulations and other
requirements, including, but not limited to, federal, state,
local and foreign laws, ordinances, rules, regulations and other
requirements pertaining to product labeling, consumer products
safety, equal employment opportunity, employee
retirement, the Americans with Disabilities Act, affirmative
action and other hiring practices, occupational safety and
health, workers' compensation, unemployment and building and
zoning codes, which are applicable to the Restaurants or the
Assets and to which Seller is or may be subject, and no
claims have been filed against Seller alleging a violation of
any such laws, regulations or other requirements. Except as set
forth on Schedule 2.9 attached hereto, Seller has no knowledge
of any action, pending or threatened, to change the zoning or
building ordinances or any other laws, rules, regulations or
ordinances affecting the Restaurants or the Assets. Seller
is not relying on any exemption from or deferral of any such
applicable law, regulation or other requirement that would not be
available to Buyer after it acquires the Assets.
(b) Seller has, in full force and effect, all
licenses, permits and certificates, from federal, state, local
and foreign authorities (including, without limitation, federal
and state agencies regulating occupational health and safety)
necessary to operate the Restaurants and to own and operate the
Assets (other than Environmental Permits, as such term is defined
in Section 2.19(c) hereof) (collectively, the "Permits"). A
true, correct and complete list of all Permits is set forth in
Schedule 2.9(b) attached hereto, with an indication as to whether
the Permit is assignable to Buyer. Seller has conducted its
business in compliance with all material terms and conditions of
the Permits.
(c) Seller has not violated and has no liability, and
has not received a notice or charge asserting any violation of or
liability under, the federal Occupational Safety and Health Act
of 1970 or any other federal or state acts (including rules and
regulations thereunder) regulating or otherwise affecting
employee or consumer health and safety in connection with the
Restaurants or the Assets.
Section 2.10 Employee Benefits.
(a) Except as set forth in Schedule 2.10(a) attached
hereto, with respect to all employees and former employees of
Seller who perform or performed functions in connection with the
Restaurants and all dependents and beneficiaries of such
employees and former employees: (i) Seller does not maintain or
contribute to any nonqualified deferred compensation or
retirement plans, contracts or arrangements; (ii) Seller does not
maintain or contribute to any qualified defined contribution
plans (as defined in Section 3(34) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), or Section
414(i) of the Code; (iii) Seller does not maintain or contribute
to any qualified defined benefit plans (as defined in Section
3(35) of ERISA or Section 414(j) of the Code); and (iv) Seller
does not maintain or contribute to any employee welfare benefit
plans (as defined in Section 3(1) of ERISA).
(b) To the extent required (either as a matter of law
or to obtain the intended tax treatment and tax benefits), all
employee benefit plans (as defined in Section 3(3) of ERISA)
which Seller does maintain or to which it does contribute
(collectively, the "Plans") comply in all material respects with
the requirements of ERISA and the Code. With respect to the
Plans, (i) all required contributions which are due have been
made and a proper accrual has been made for all contributions due
in the current fiscal year; (ii) there are no actions, suits or
claims pending, other than routine uncontested claims for
benefits; and (iii) there have been no prohibited transactions
(as defined in Section 406 of ERISA or Section 4975 of the Code).
(c) Buyer has received true and complete copies of (i)
the most recent determination letter, if any, received by Seller
from the Internal Revenue Service regarding the Plans which
Seller maintains or to which it contributes and any amendment to
any Plan made
subsequent to any Plan amendments covered by any
such determination letter; (ii) the most recent financial
statements and annual report or return for the Plans; and (iii)
the most recently prepared actuarial valuation reports.
(d) Seller does not contribute (and has not ever
contributed) to any multi-employer plan, as defined in Section
3(37) of ERISA. Seller has no actual or potential liabilities
under Section 4201 of ERISA for any complete or partial
withdrawal from a multi-employer plan. Seller has no actual or
potential liability for death or medical benefits after
separation from employment, other than (i) death benefits under
the employee benefit plans or programs (whether or not subject to
ERISA) set forth in Schedule 2.10(d) attached hereto and (ii)
health care continuation benefits described in Section 4980B of
the Code.
(e) Neither Seller nor any of its directors, officers,
employees or other "fiduciaries", as such term is defined in
Section 3(21) of ERISA, has committed any breach of fiduciary
responsibility imposed by ERISA or any other applicable law with
respect to the Plans which would subject Seller, Buyer, Buyer's
subsidiaries or any of their respective officers, members,
managers or employees to any liability under ERISA or any
applicable law.
(f) Seller has not incurred any liability for any tax
or civil penalty or any disqualification of any employee benefit
plan (as defined in Section 3(3) of ERISA) imposed by Sections
4980B and 4975 of the Code and Part 6 of Title I and Section
502(i) of ERISA.
Section 2.11 Contracts. The Contracts identified on
Schedule 1.1(e) attached hereto and on Schedule 2.11 attached
hereto (Contracts not assigned), together with the Real Property
Leases, comprise a true, correct and complete list of all
material leases, contracts and commitments necessary for the
operation of the Restaurants. Seller has delivered to Buyer true
and complete copies of all Contracts on Schedules 1.1(e) and 2.11
attached hereto (including all amendments and modifications
thereto) and has provided to Buyer a complete description of all
Contracts which are not in writing. Except as set forth in
Schedule 2.11 attached hereto each Contract is valid and
enforceable, and is full force and effect. Seller has performed
all the obligations required to be performed by it, has not
received any notice of default and is not in default, with due
notice or lapse of intention of not fully performing all its
obligations under each of the Contracts, and Seller has no
knowledge of any breach of or anticipated breach by the other
party to any of the Contracts to which Seller is a party. None
of the Contracts has been terminated. To Seller's knowledge, no
notice has been given by any party thereto of any alleged default
by any party thereunder, and Seller is not aware of any intention
or right of any party to declare another party to any of the
Contracts to be in default.
Section 2.12 Financial Statements. Seller has delivered
to Buyer copies of (a) the unaudited balance sheet, as of
November 30, 2004, of the Restaurants (the "Latest Balance
Sheet") and the unaudited statements of earnings, shareholders'
equity and cash flows of the Business for the nine month period
ended September 30, 2004 (such statements and the Latest Balance
Sheet being herein referred to as the "Latest Financial
Statements") and (b) the audited balance sheets, as of December
31, 2001, 2002 and 2003 of the Restaurants and the audited
statements of earnings, shareholders' equity and cash flows of
the Business for each of the years ended December 31, 2001, 2002
and 2003 (collectively, the "Annual Financial Statements"). The
Latest Financial Statements and the Annual Financial Statements
are based upon the information contained in the books and records
of Seller and fairly present the financial condition of the
business as of the dates thereof and results of operations for
the periods referred to therein. The Annual Financial Statements
have been prepared in accordance with generally accepted
accounting principles, consistently applied throughout the
periods indicated.
The Latest Financial Statements have been prepared in accordance
with generally accepted accounting principles applicable to
unaudited interim financial statements (and thus may not contain
all notes and may not contain prior period comparative data which
are required to be prepared in accordance with generally
accepted accounting principles) consistently with the Annual
Financial Statements and reflect all adjustments necessary to a fair
statement of the results for the interim period(s) presented.
Section 2.13 Absence of Undisclosed Liabilities. With
respect to the Assets or the operations of the Restaurants,
Seller has no liabilities (whether accrued, absolute, contingent,
unliquidated or otherwise, whether due or to become due, whether
known or unknown, and regardless of when asserted) arising out of
transactions or events heretofore entered into, or any action or
inaction, or any state of facts existing, with respect to or
based upon transactions or events heretofore occurring, except
(i) as reflected in the Latest Balance Sheet, (ii) liabilities
which have arisen after the date of the Latest Balance Sheet in
the ordinary course of business (none of which is a material
uninsured liability for breach of contract, breach of warranty,
tort, infringement, claim or lawsuit), or (iii) as otherwise set
forth in Schedule 2.13 attached hereto.
Section 2.14 No Material Adverse Changes. Since the date
of the Latest Balance Sheet (the "Balance Sheet Date"), there has
been no material adverse change in the assets, financial
condition, operating results, customer, employee or supplier
relations, business condition or prospects of Seller.
Section 2.15 Absence of Certain Developments. Since the
Balance Sheet Date, Seller has not in each case, with respect to
the Restaurants or the Assets:
(a) borrowed any amount or incurred or become subject
to any liability in excess of $5,000, except (i) current
liabilities incurred in the ordinary course of business and (ii)
liabilities under contracts entered into in the ordinary course
of business;
(b) mortgaged, pledged or subjected to any lien,
charge or any other encumbrance, any of the Assets except (i)
liens for current property taxes not yet due and payable, (ii)
liens imposed by law and incurred in the ordinary course of
business for obligations not yet due to carriers, warehousemen,
laborers, materialmen and the like, (iii) liens in respect of
pledges or deposits under workers' compensation laws, (iv) liens
set forth in Schedule 2.15(b) attached hereto, or (v) items shown
on Title Commitments.;
(c) discharged or satisfied any lien or encumbrance or
paid any liability, in each case with a value in excess of
$5,000, other than current liabilities paid in the ordinary
course of business;
(d) sold, assigned or transferred (including, without
limitation, transfers to any employees, affiliates or
shareholders) any tangible assets of the Restaurants (except the
sale/leaseback of the DeLand Restaurant) or canceled any debts or
claims, in each case, except in the ordinary course of business;
(e) sold, assigned or transferred (including, without
limitation, transfers to any employees, affiliates or
shareholders) any Intellectual Property or other intangible
assets used in or held for use with respect to the Restaurants;
(f) disclosed, to any person other than Buyer and
authorized representatives of Buyer, any proprietary confidential
information of the Business or otherwise related to the
Restaurants or the Assets, other than pursuant to (i) reports and
filings required under the Securities Act of 1933, as amended,
and rules and regulations promulgated thereunder, (ii) the
Securities and Exchange Act of 1934, as amended, and rules and
regulations promulgated thereunder, or (iii) a confidentiality
agreement prohibiting the use or further disclosure of such
information, which agreement is identified in Schedule 2.15(f)
attached hereto and is in full force and effect on the date
hereof;
(g) waived any rights of material value or suffered
any extraordinary losses or adverse changes in collection loss
experience, whether or not in the ordinary course of business or
consistent with past practice;
(h) taken any other action or entered into any other
transaction other than in the ordinary course of business and in
accordance with past custom and practice, or entered into any
transaction with any "insider" (as defined in Section 2.16
hereof) other than employment arrangements otherwise disclosed in
the schedules to this Agreement;
(i) suffered any material theft, damage, destruction
or loss of or to any property or properties owned or used by it
in connection with the Restaurants, whether or not covered by
insurance;
(j) made or granted any bonus or any wage, salary or
compensation increase to any officer or employee or consultant
other than in the normal course of business consistent with past
practices, or made or granted any increase in any employee
benefit plan or arrangement, or amended or terminated any
existing employee benefit plan or arrangement, or adopted any new
employee benefit plan or arrangement or made any commitment or
incurred any liability to any labor organization; or
(k) made any single capital expenditure or commitment
therefor in excess of $5,000, except as shown Schedule 2.15(k)
attached hereto.
Section 2.16 Transactions with Affiliates. Except as
disclosed in Schedule 2.16 attached hereto, no officer, director
or employee of Seller or any member of the immediate family of
any such officer, director or employee, or any entity in which
any of such persons owns any beneficial interest (other than any
publicly-held corporation whose stock is traded on a national
securities exchange or in the over-the-counter market and less
than one percent of the stock of which is beneficially owned by
any of such persons) (collectively "insiders"), has any agreement
with Seller (other than normal employment arrangements) or any
interest in any property, real, personal or mixed, tangible or
intangible, used in or pertaining to the operation of the
Restaurants or to the Assets. None of the insiders has any
direct or indirect interest in any competitor, supplier or
customer of Seller or in any person, firm or entity from whom or
to whom Seller leases any property, or in any other person, firm
or entity with whom Seller transacts business of any nature. For
purposes of this Section 2.16, the members of the immediate
family of an officer, director or employee shall consist of the
spouse, parents, children, siblings, mothers- and fathers-in-law,
sons- and daughters-in-law, and brothers- and sisters-in-law of
such officer, director or employee.
Section 2.17 Taxes.
(a) Each of Seller and any subsidiary, any affiliated,
combined or unitary group of which the Seller or any subsidiary
is or was a member, any "Plans" (as defined in Section 2.10(b)
hereof), as the case may be (each, a "Tax Affiliate" and,
collectively, the "Tax
Affiliates"), has: (i) timely filed (or
has had timely filed on its behalf) all returns, declarations,
reports, estimates, information returns, and statements
("Returns") required to be filed or sent by it in respect of any
"Taxes" (as defined in subsection (p) below) or required to be
filed or sent by it by any taxing authority having jurisdiction;
(ii) timely and properly paid (or has had paid on its behalf) all
Taxes shown to be due and payable on such Returns; (iii)
established on its Latest Balance Sheet, in accordance with
generally accepted accounting principles, reserves that are
adequate for the payment of any Taxes not yet due and payable;
(iv) complied with all applicable laws, rules, and regulations
relating to the withholding of Taxes and the payment thereof
(including, without limitation, withholding of Taxes under
Sections 1441 and 1442 of the Internal Revenue Code of 1986, as
amended (the "Code"), or similar provisions under any foreign
laws), and timely and properly withheld from individual employee
wages and paid over to the proper governmental authorities all
amounts required to be so withheld and paid over under all
applicable laws.
(b) There are no liens for Taxes upon any of the
assets, except liens for Taxes not yet due and payable.
(c) No deficiency for any Taxes has been proposed,
asserted or assessed against Seller or the Tax Affiliates that
has not been resolved and paid in full. No waiver, extension or
comparable consent given by Seller or the Tax Affiliates
regarding the application of the statute of limitations with
respect to any Taxes or Returns is outstanding, nor is any
request for any such waiver or consent pending. There has been
no Tax audit or other administrative proceeding or court
proceeding with regard to any Taxes or Returns, nor is any such
Tax audit or other proceeding pending, nor has there been any
notice to Seller by any Taxing authority regarding any such Tax,
audit or other proceeding, or, to the knowledge of Seller, is any
such Tax audit or other proceeding threatened with regard to any
Taxes or Returns. Seller does not expect the assessment of any
additional Taxes on Seller or the Tax Affiliates and is not aware
of any unresolved questions, claims or disputes concerning the
liability for Taxes on Seller or the Tax Affiliates which would
exceed the estimated reserves established on its books and
records.
(d) Neither Seller nor any Tax Affiliate is a party to
any agreement, contract or arrangement that would result,
separately or in the aggregate, in the payment of any "excess
parachute payments" within the meaning of Section 280G of the
Code and the consummation of the transactions contemplated by
this Agreement will not be a factor causing payments to be made
by Seller or any Tax Affiliate that are not deductible (in whole
or in part) under Section 280G of the Code.
(e) Neither Seller nor any Tax Affiliate has requested
any extension of time within which to file any Return, which
Return has not since been filed.
(f) No Asset is property that Seller or any Tax
Affiliates is or will be required to treat as being owned by
another person under the provisions of Section 168(f)(8) of the
Code (as in effect prior to amendment by the Tax Reform Act of
1986) or is "tax-exempt use property" within the meaning of
Section 168 of the Code.
(g) Neither Seller nor any Tax Affiliate is required
to include in income any adjustment under Section 481(a) of the
Code by reason of a voluntary change in accounting method
initiated by Seller or any Tax Affiliate as a result of the Tax
Reform Act of 1986 and neither Seller nor any Tax Affiliate has
knowledge that the Internal Revenue Service has proposed any such
adjustment or change in accounting method.
(h) All transactions that could give rise to an
understatement of federal income tax (within the meaning of
Section 6661 of the Code as it applied prior to repeal) or an
underpayment of tax (within the meaning of Section 6662 of the
Code) were reported in a manner for which there is substantial
authority or were adequately disclosed (or, with respect to
Returns filed before the Closing Date, will be reported in such a
manner or adequately disclosed) on the Returns required in
accordance with Sections 6661(b)(2)(B) and 6662(d)(2)(B) of the
Code.
(i) Neither Seller nor any Tax Affiliate has engaged
in any transaction that would result in a deemed election under
Section 338(e) of the Code, and neither Seller nor any Tax
Affiliate will engage in any such transaction within any
applicable "consistency period" (as such term is defined in
Section 338 of the Code).
(j) All deductions claimed or reported on all Returns
of Seller and any Tax Affiliate on account of royalties or
similar fees payable with respect to any intellectual property of
Seller or any other party are allowable in full.
(k) For purposes of this Agreement, the term "Tax" or
"Taxes" means all taxes, charges, fees, levies, or other
assessments, including, without limitation, all net income, gross
income, gross receipts, sales, use, ad valorem, transfer,
franchise, profits, license, withholding, payroll, employment,
social security, unemployment, excise, estimated, severance,
stamp, occupation, property, or other taxes, customs duties,
fees, assessments, or charges of any kind whatsoever, including,
without limitation, all interest and penalties thereon, and
additions to tax or additional amounts imposed by any taxing
authority, domestic or foreign, upon Seller or any Tax Affiliate.
Section 2.18 Litigation. Except as set forth on Schedule
2.18 attached hereto, there is no (i) action, suit, claim,
proceeding or investigation pending or, to the knowledge of
Seller, threatened against or affecting Seller (whether or not
Seller is a party or prospective party thereto), at law or in
equity, or before or by any federal, state, municipal or other
governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, (ii) arbitration proceeding
pending relating to Seller or (iii) governmental inquiry pending
or to Seller's knowledge, threatened against or involving Seller,
and there is no basis for any of the foregoing. Seller has not
received any opinion or memorandum or legal advice from legal
counsel to the effect that it is exposed, from a legal
standpoint, to any liability or disadvantage which may be
material and adverse to the business, prospects, financial
condition, operations, property or affairs of Seller. There are
no outstanding, orders, writs, judgments, injunctions, or decrees
served upon Seller by any court, governmental agency or
arbitration tribunal against Seller. To Seller's knowledge, there
are no facts or circumstances which may result in institution of
any action, suit, claim or legal, administrative or arbitration
proceeding or investigation against, involving or affecting any
Seller or the transactions contemplated hereby. Seller is not in
default with respect to any order, writ, injunction or decree
known to or served upon it from any court or of any federal,
state, municipal or other governmental department, commission,
board, bureau, agency or instrumentality, domestic or foreign.
There is no action or suit by Seller pending or threatened
against others.
Section 2.19 Environmental Matters.
(a) As used in this Section 2.19, the following terms
shall have the following meanings:
(i) "Hazardous Materials" means any dangerous,
toxic or hazardous pollutant, contaminant, chemical,
waste, material or substance as defined in or governed
by any federal, state or local law, statute, code,
ordinance, regulation, rule or other requirement
relating to such substance or otherwise relating to the
environment or human health or safety, including
without limitation any waste, material, substance,
pollutant or contaminant that might cause any injury to
human health or safety or to the environment or might
subject Seller to any imposition of costs or liability
under any Environmental Law.
(ii) "Environmental Laws" means all applicable
federal, state, local and foreign laws, rules,
regulations, codes, ordinances, orders, decrees,
directives, permits, licenses and judgments relating to
pollution, contamination or protection of the
environment (including, without limitation, all
applicable federal, state, local and foreign laws,
rules, regulations, codes, ordinances, orders, decrees,
directives, permits, licenses and judgments relating to
Hazardous Materials in effect as of the date of this
Agreement).
(iii) "Release" shall mean the spilling,
leaking, disposing, discharging, emitting, depositing,
ejecting, leaching, escaping or any other release or
threatened release, however defined, whether
intentional or unintentional, of any Hazardous
Material.
(b) To the best of Seller's actual knowledge, Seller,
with respect to the Restaurants and the Assets, is in material
compliance with all applicable Environmental Laws.
(c) Seller has obtained, and maintained in full force
and effect, all environmental permits, licenses, certificates of
compliance, approvals and other authorizations necessary to
operate the Restaurants and to own or operate the Assets,
including the Real Property and real property demised by the Real
Property Leases (collectively, the "Environmental Permits"). A
copy of each such Environmental Permit shall be provided by
Seller to Buyer at least fourteen (14) days prior to the Closing.
Seller has operated the Restaurants and owned and operated the
Assets in compliance with all terms and conditions of the
Environmental Permits. Seller has filed all reports and
notifications required to be filed under and pursuant to all
applicable Environmental Laws with respect to the Business and
the Assets.
(d) Except as set forth in Schedule 2.19(d) attached
hereto, to Seller's knowledge,: (i) no Hazardous Materials have
been generated, treated, contained, handled, located, used,
manufactured, processed, buried, incinerated, deposited, stored,
or released on, under or about any part of the Real Property or
real property demised by the Real Property Leases, (ii) the Real
Property and the Leased Parcels and any improvements thereon,
contain no asbestos, urea, formaldehyde, radon at levels above
natural background, polychlorinated biphenyls (PCBs) or
pesticides, and (iii) no aboveground or underground storage tanks
are located on, under or about the Real Property or the Leased
Parcels, or have been located on, under or about such real
property and then subsequently been removed or filled. To
Seller's knowledge, if any such storage tanks exist on, under or
about the Real Property or the Leased Parcels, such storage tanks
have been duly registered with all appropriate governmental
entities and are otherwise in compliance with all applicable
Environmental Laws.
(e) Except as set forth in Schedule 2.19(e) attached
hereto, Seller has not received notice alleging in any manner
that Seller is, or might be potentially responsible for, any
Release of Hazardous Materials, or any costs arising under or
violation of Environmental Laws with respect to the Restaurants
or the Assets.
(f) To Seller's knowledge, no expenditure will be
required in order for Buyer to comply with any Environmental Laws
in effect at the time of the Closing in connection with the
operation or continued operation of the Restaurants or the Assets
in a manner consistent with the current operation thereof by
Seller.
(g) Neither Seller, the Real Property nor the Leased
Parcels are, and to Seller's knowledge, have not been listed on
the United States Environmental Protection Agency National
Priorities List of Hazardous Waste Sites, or any other list,
schedule, law, inventory or record of hazardous or solid waste
sites maintained by any federal, state or local agency.
(h) Seller has disclosed and delivered to Buyer all
environmental reports and investigations which Seller has
obtained with respect to the Real Property and the Leased
Parcels.
(i) To Seller's knowledge, no part of the Real
Property or the Leased Parcels have been used as a landfill, dump
or other disposal, storage, transfer, handling or treatment area
for Hazardous Materials, or as a gasoline service station or a
facility for selling, dispensing, storing, transferring,
disposing or handling petroleum and/or petroleum products.
(j) No lien has been attached or filed against Seller
or any of the Assets in favor of any governmental or private
entity for (i) any liability or imposition of costs under or
violation of any applicable Environmental Law; or (ii) any
Release of Hazardous Materials.
(k) Seller, on behalf of itself and its successors and
assigns, hereby waives, releases and agrees not to bring any
claim, demand, cause of action or proceeding, including without
limitation any cost recovery action, against Buyer under any
Environmental Law in connection with the Buyer's purchase,
ownership or operation of the Restaurants and the Assets.
Section 2.20 Insurance. Schedule 2.20 attached hereto
lists and briefly describes each insurance policy maintained by
Seller with respect to the Assets and operations of the
Restaurants and sets forth the date of expiration of each such
insurance policy. All of such insurance policies are in full
force and effect and are issued by insurers of recognized
responsibility. Seller is not in default with respect to its
obligations under any of any insurance policies relating to the
Assets or the Restaurants.
Section 2.21 Intellectual Property. The Intellectual
Property constitutes all such property needed or used in the
operation of the Restaurants. Schedule 2.21 attached hereto
describes all Intellectual Property and whether such Intellectual
Properties are owned or licensed and registered or unregistered.
Except as set forth on Schedule 2.21 attached hereto Seller is
not a party to, either as a licensor or licensee, and is not
bound by or subject to, any license agreement for any
Intellectual Property. Except as set forth on Schedule 2.21
attached hereto there are no rights of third parties with respect
to any Intellectual Property which would have an adverse effect
on the operations of the Restaurants. To its knowledge, Seller
has not interfered with, infringed upon, or misappropriated, or
otherwise come into conflict with any intellectual property
rights of any other person, and Seller has not received any
charge, complaint, claim, demand, or notice alleging any such
interference, infringement, misappropriation, or violation. To
Seller's knowledge, no person has interfered with, infringed
upon, misappropriated, or otherwise come into conflict with
Intellectual Property which are owned or used in the operation of
the Restaurants.
Section 2.22 Broker's or Finder's Fees. Except for the
services rendered by Bob Lurie of Florida Growth Realty, Inc.,
the fees of which shall be paid by Seller, no agent, broker,
person or firm acting on behalf of any Seller is, or will be,
entitled to any commission or broker's or finder's fees from any
Seller or from any person controlling, controlled by or under
common control with any Seller in connection with any of the
transactions contemplated herein.
Section 2.23 Disclosure. Neither this Agreement, the
Ancillary Agreements, the schedules and exhibits attached hereto
nor any other documents prepared by Seller nor any of the
financial statements referred to in Section 2.12 hereof, contain
any untrue statement of a material fact regarding Seller, the
Restaurants or any of the Assets or other matters dealt with in
this Article II. This Agreement, the Ancillary Agreements, the
schedules and exhibits attached hereto. any other documents
delivered to Buyer by or on behalf of Seller and the financial
statements referred to in Section 2.12 hereof, do not omit any
material fact necessary to make the statements contained herein
or therein, in light of the circumstances in which they were
made, not misleading, and to Seller's knowledge, there is no fact
which has not been disclosed to Buyer of which any officer of
Seller is aware which materially affects adversely or could
reasonably be anticipated to materially affect adversely the
Assets or the Restaurants, including operating results, assets,
customer relations, employee relations and business prospects.
Section 2.24 No Existing Acquisition Proposals. Seller has
not received any proposals to acquire the Restaurants, the Assets
or any portion thereof, and Seller is not a party to any letter
of intent, contract, agreement of sale, merger or business
combination agreement, or other agreements relating to the sale
of all or any portion of the Assets or the Restaurants.
ARTICLE III. REPRESENTATIONS AND WARRANTIES OF BUYER
----------------------------------------------------
As an inducement to Seller to enter into this Agreement and
to consummate the transactions contemplate hereby, Buyer
represents and warrants to Seller as follows:
Section 3.1 Organization. Buyer is a limited liability
company duly organized, validly existing and in good standing
under the laws of the State of Delaware. Buyer is duly licensed
and in good standing in each jurisdiction where it is required to
be registered as a foreign limited liability company.
Section 3.2 Power and Authority. Seller has the
requisite corporate power and authority and all authorizations,
permits, licenses and certifications necessary to own, lease and
operate the Assets and to carry on the business of the
Restaurants as now being conducted.
Section 3.3 Execution, Delivery; Valid and Binding
Agreement. The execution, delivery and performance of this
Agreement by Buyer and the consummation of the transactions
contemplated hereby have been duly and validly authorized by the
Board of Managers [and members] of Buyer, and no other
proceedings on its part are necessary to authorize the execution,
delivery and performance of this Agreement. This Agreement
constitutes, and when executed and delivered will constitute, the
valid and binding obligation of Buyer, enforceable in accordance
with its terms.
Section 3.4 No Violation. Neither the execution and
delivery of this Agreement or the Ancillary Agreements to which
Buyer is a party, the consummation of the transactions
contemplated hereby or thereby, nor the performance of Buyer's
obligations hereunder and thereunder will (i) violate, conflict
with or result in any breach of any trust agreement, Certificate
of Organization, limited liability company agreement, judgment,
decree, order, statute or regulation applicable to Buyer, (ii)
violate, conflict with or result in a material breach, material
default or termination or give rise to any right of termination,
cancellation or acceleration of the maturity of any payment date
of any of the obligations of Buyer or increase or otherwise
materially affect the obligations of Buyer under any law, rule,
regulation or any judgment, decree, order, governmental permit,
license or order or any of the terms, conditions or provisions of
any mortgage, indenture, note, license, agreement or other
instrument or obligation related to Buyer or to Buyer's ability
to consummate the transactions contemplated hereby or thereby,
or (iii) violate any order, writ, injunction, decree, statute,
rule or regulation applicable to Buyer.
Section 3.5 Broker's or Finder's Fees. No agent, broker,
person or firm acting on behalf of Buyer is, or will be, entitled
to any commission or broker's or finder's fees from Buyer, or
from any person controlling, controlled by or under common
control with Buyer, in connection with any of the transactions
contemplated herein and Buyer shall indemnify Seller for any
damages arising from a breach of this representation.
Section 3.6 Disclosure. Neither this Agreement nor any
Ancillary Agreement to which Buyer is a party contain any untrue
statement of a material fact regarding Buyer. This Agreement and
the Ancillary Agreements to which Buyer is a party do not omit
any material fact necessary to make the statements contained
herein or therein, in light of the circumstances in which they
were made, not misleading, and there is no fact which has not
been disclosed to Seller of which any officer or director of
Buyer is aware which materially affects adversely or could
reasonably be anticipated to materially affect adversely Buyer's
ability to consummate the transactions contemplated hereby.
Section 3.7 Governmental Approvals. Except for the
applicable requirements of the HSR Act, Buyer is not required to
submit any notice, report or other filing with any governmental
authority in connection with the execution or delivery by it of
this Agreement or the consummation of the transactions
contemplated hereby. No consent, approval or authorization of
any governmental or regulatory authority or any other party or
person is required to be obtained by Buyer in connection with its
execution, delivery and performance of this Agreement or the
transactions contemplated hereby.
ARTICLE IV. COVENANTS OF SELLER
--------------------------------
Section 4.1 Conduct of the Business. In connection with
the Assets and the Restaurants, Seller agrees that, from the date
hereof until the Closing Date, unless otherwise consented to by
Buyer in writing:
(a) Restaurants shall be operated only in, and Seller
shall not take any action except in, the ordinary course of
Seller's business, on an arm's-length basis and in accordance in
all material respects with all applicable laws, rules and
regulations and Seller's past custom and practice;
(b) Seller shall not, directly or indirectly, do or
permit to occur any of the following insofar as they relate to
Restaurants or the Assets: (i) sell, pledge, dispose of or
encumber any of the Assets, except in the ordinary course of
business; (ii) acquire (by merger, exchange, consolidation,
acquisition of stock or assets or otherwise) any corporation,
partnership, joint venture or other business organization or
division or material assets thereof; (iii) incur any indebtedness
for borrowed money or issue any debt securities except the
borrowing of working capital in the ordinary course of business
and consistent with past practice; (iv) permit any accounts
payable owed to trade creditors to remain outstanding more than
60 days; (v) accelerate, beyond the normal collection cycle,
collection of accounts receivable; or (vi) enter into or propose
to enter into, or modify or propose to modify, any agreement,
arrangement or understanding with respect to any of the matters
set forth in this Section 4.1(b);
(c) r shall not, directly or indirectly, in the case
of employees, take any action with respect to the grant of any
bonuses, salary increases, severance or termination pay or with
respect to any increase of benefits payable in effect on the date
hereof except as otherwise in the ordinary course of business
consistent with past practices;
(d) Seller shall not adopt or amend any bonus, profit
sharing, compensation, pension, retirement, deferred
compensation, employment or other employee benefit plan, trust,
fund or group arrangement for the benefit or welfare of any
employees or affiliates;
(e) Seller shall not cancel or terminate its current
insurance policies covering the Assets and the Restaurants, or
cause any of the coverage thereunder to lapse, unless
simultaneously with such termination, cancellation or lapse,
replacement policies providing coverage equal to or greater than
the coverage under the canceled, terminated or lapsed policies
for substantially similar premiums are in full force and effect;
(f) Seller shall (i) use its best efforts to preserve
intact the organization and goodwill associated with the
Restaurants, keep available the services of Seller's employees as
a group and maintain satisfactory relationships with suppliers,
distributors, customers and others having business relationships
with Seller in connection with the Restaurants; (ii) confer on a
regular and frequent basis with representatives of Buyer to
report operational matters and the general status of ongoing
operations with respect to the Restaurants; (iii) not
intentionally take any action which would render, or which
reasonably may be expected to render, any representation or
warranty made by it in this Agreement untrue at the Closing; (iv)
notify Buyer of any emergency or other change in the normal
course of the Restaurants' businesses or in the operation of the
properties of the Restaurants and of any governmental or third
party complaints, investigations or hearings (or communications
indicating that the same may be contemplated) if such emergency,
change, complaint, investigation or hearing would be material,
individually or in the aggregate, to the business, operations or
financial condition of Seller or to Seller's or Buyer's ability
to consummate the transactions contemplated by this Agreement;
and (v) promptly notify Buyer in writing if Seller shall discover
that any representation or warranty made by it in this Agreement
was when made, or has subsequently become, untrue in any respect;
(g) Seller shall (i) file any Returns, elections or
information statements with respect to any liabilities for Taxes
of Seller or other matters relating to Taxes of Seller which
affect the Assets and pursuant to applicable law must be filed
prior to the Closing Date; (ii) promptly upon filing provide
copies of any such Returns, elections or information statements
to Buyer; (iii) make any such Tax elections or other
discretionary positions with respect to Taxes taken by or
affecting Seller only upon prior consultation with and consent of
Buyer; and (iv) not amend any Return;
(h) Neither Seller nor any of its affiliates shall
make any election without respect to Taxes, change an annual
accounting period, adopt or change any accounting method or file
any amended return, report or form, if such election, adoption,
change or filing would have
the effect of increasing the Tax liability of the Buyer with
respect to any period ending after the Closing Date; and
(i) Seller shall not perform any act referenced by (or
omit to perform any act which omission is referenced by) the
terms of Section 2.15 hereof; and
(j) Seller shall continue to convert its Ryan's
Restaurants to the WJ Restaurant and FB Restaurant concepts as
further described on Schedule 4.1(j) attached hereto.
Section 4.2 Access to Books and Records. Between the
date hereof and the Closing Date, Seller shall afford to Buyer
and its authorized representatives (the "Buyer's
Representatives") full access at all reasonable times and upon
reasonable notice to the offices, properties, books, records,
officers, employees and other items relating to the business of
the Restaurants, and the work papers of Deloitte & Touche LLP,
Seller's independent accountants, relating to work done by
Deloitte & Touche LLP for Seller (insofar as the work relates to
the Restaurants or the Assets) for each of the fiscal years ended
December 31, 2001, 2002 and 2003, and otherwise provide such
assistance as is reasonably requested by Buyer in order that
Buyer may have a full opportunity to make such investigation and
evaluation as it shall reasonably desire to make of the
Restaurants and the Assets. In addition, Seller and its officers
and directors shall cooperate fully (including providing
introductions where necessary) with Buyer to enable Buyer to
contact such third parties, including customers, prospective
customers, specifying agencies, vendors or suppliers of the
Restaurants, as Buyer deems reasonably necessary to complete its
due diligence; provided that Buyer agrees not to initiate such
contacts without the prior approval of Seller, which approval
will not be unreasonably withheld.
Section 4.3 Regulatory Filings. As promptly as
practicable after the execution of this Agreement, Seller shall
make or cause to be made all filings and submissions under the
HSR Act and any other laws or regulations applicable to Seller on
connection with consummation of the transactions contemplated
herein. Seller will coordinate and cooperate with Buyer in
exchanging such information, will not make any such filing
without providing to Buyer a final copy thereof for its review
and consent at least two full business days in advance of the
proposed filing and will provide such reasonable assistance as
Buyer may request in connection with all of the foregoing.
Section 4.4 Conditions. Seller shall take all
commercially reasonable actions necessary or desirable to cause
the conditions set forth in Article VI to be satisfied and to
consummate the transactions contemplated herein as soon as
reasonably possible after the satisfaction thereof (but in any
event within three business days of such date).
Section 4.5 Payment of Liabilities. Except for the
liabilities assumed pursuant to Section 1.3 hereof, Seller shall
pay and satisfy in full all of its other obligations and
liabilities relating to the Restaurants and the Assets, of any
nature whatsoever, due or accrued prior or subsequent to the
Closing Date.
Section 4.6 Electronic Data Transfer. Seller shall use
its best efforts to make an electronic data transfer to Buyer of
information, data and records used or useful in the record
keeping associated with the Restaurants.
Section 4.7 Use of Corporate Offices. Seller agrees to
allow Buyer to use its corporate offices located at 2113 Florida
Boulevard, Neptune Beach, Florida, 32266, free of charge for a
period of sixty (60) days after the Closing Date.
Section 4.8 Employees and Employee Benefits.
(a) As of the Closing Date, Seller shall terminate
and/or accept the resignations of employment from all employees
who are currently employed by any Seller in the Restaurants.
Buyer shall have the option, but not the obligation, to extend
offers of employment to the Restaurant employees of Seller on
such terms and conditions as Buyer shall determine in its sole
discretion.
(b) Seller shall not increase the compensation of or
benefits for any employee employed at the Restaurants or hire any
employee at any of the Restaurants other than in the ordinary
course of business and consistent with past practices. Seller
will use reasonable efforts to maintain substantially all of the
current Restaurant employees in a manner consistent with Sellers
normal business practices.
Section 4.9 Necessary Actions. At any time and from time
to time after the Closing Date, at the request of Buyer and
without further consideration, Seller shall execute and deliver
such other instruments of sale, transfer, conveyance, assignment
and confirmation as may be reasonably requested in order to more
effectively carry out the transactions contemplated by this
Agreement.
Section 4.10 Non-Competition Agreement.
(a) Seller and its principal shareholder will not, at
any time during the five (5) year period following the Closing
Date, directly or indirectly, own, manage, operate, control,
participate in the ownership, management, operation or control
of, engage in or be connected with or have any interest in, any
person, firm, corporation, limited liability company,
partnership, or other business entity (whether as a stockholder,
member, agent, security holder, creditor, independent contractor,
consultant, or otherwise) that engages in any restaurant business
activity which is the same as, similar to, or competitive with,
the business currently engaged in by Buyer or Seller within
thirty (30) miles of any Restaurant (each a "Location"). If any
of the provisions of this paragraph is held to be unenforceable
because of the scope, duration or area of its applicability, the
court or arbitrator making such determination shall have the
power to modify such scope, duration or area so that this
covenant shall remain enforceable, and such provision shall then
be applicable in modified form.
(b) Seller acknowledges and understands that the
covenants contained in this Section 4.10 shall be construed as a
series of separate covenants, one for each Location. Except for
geographic coverage, each such separate covenant shall be deemed
identical in terms to the covenants contained in this Section
4.10. If, in any judicial proceeding, a court shall refuse to
enforce any of the separate covenants deemed included in this
section, then such unenforceable covenant shall be deemed
eliminated from these provisions for the purpose of those
proceedings to the extent necessary to enable the remaining
separate covenants to be enforced.
(c) Seller expressly agrees that Buyer shall be
entitled to injunctive and/or other equitable relief to prevent a
breach by Seller of this covenant and to secure the enforcement
of the terms and conditions herein in addition to any other legal
or equitable
remedy which may be available. This Section 4.10
shall survive the closing for a period of five (5) years from the
Closing Date.
Section 4.11 No Negotiations, etc. Seller shall not
directly or indirectly, through any officer, director, agent or
otherwise, solicit, initiate or encourage submission of any
proposal or offer from any person or entity (including any of its
or their officers or employees) relating to any liquidation,
dissolution, recapitalization, merger, consolidation or
acquisition or purchase of all or a material portion of the
assets of, or any equity interest in, Seller or other similar
transaction or business combination involving Seller or, unless
Seller's Board of Directors is advised by Seller's outside
counsel in writing to the effect that there would be a material
risk of liability on the part of the members of Seller's Board of
Directors to Seller's shareholders for failure to do so,
participate in any negotiations regarding, or furnish to any
other person any information with respect to, or otherwise
cooperate in any way with, or assist or participate in,
facilitate or encourage, any effort or attempt by any other
person or entity to do or seek any of the foregoing. Seller
shall promptly notify Buyer if any such proposal or offer, or any
inquiry from or contact with any person with respect thereto, is
made and shall promptly provide Buyer with such information
regarding such proposal, offer, inquiry or contact as Buyer may
request.
ARTICLE V: COVENANTS OF THE BUYER
---------------------------------
Section 5.1 Investigation by Buyer. Buyer shall have
until the date which is thirty (30) days after the date of this
Agreement (the "Diligence Period") to complete its due diligence
investigation ("Review") of Seller, the Restaurants and the
Assets. Upon Buyer's request, Buyer shall be given reasonable
access to Seller's management personnel associated with the
Restaurants, which access shall be coordinated through and
arranged by Seller. Buyer shall conduct its Review at such
times and in such a manner as to minimize any disruption to the
operation of the Restaurants. Buyer shall identify any Assets
which are not in good serviceable or working condition, ordinary
wear and tear excepted, and Seller shall repair or replace such
Assets prior to the Closing Date. Seller shall furnish to Buyer
any additional financial and operating data and other information
as Buyer and its counsel, accountants, and other authorized
representatives shall from time to time reasonably request with
respect to the same. Until the conclusion of the Diligence
Period, Buyer shall have the right, in its sole discretion, to
terminate this Agreement if the Review reveals any information
that would have a material adverse effect on Buyer's ability to
consummate the Acquisition, Seller, the Restaurants or the Assets
which cannot be reasonably cured by the Closing. For purposes of
this Agreement, "material adverse effect" shall be defined as an
effect that prevents Buyer, through no fault of Buyer, from
having the ability to operate the Restaurants in a profitable
manner consistent with Seller's operations thereof prior to the
Closing Date.
Section 5.2 Regulatory Filings.
(a) As promptly as practicable after the conclusion of
the Diligence Period, Buyer shall make or cause to be made all
filings and submissions under the HSR Act and any other laws or
regulations applicable to Buyer for the consummation of the
transactions contemplated herein. Buyer will coordinate and
cooperate with Seller in exchanging such information, will not
make any such filing without providing to Seller a final copy
thereof for its review and consent at least two full business
days in advance of the proposed filing and will provide such
reasonable assistance as Seller may request in connection with
all of the foregoing.
(b) Upon execution of this Agreement, Seller shall
promptly prepare and file with the Securities and Exchange
Commission an Information Statement under the Exchange Act
describing the transactions contemplated by this Agreement.
Buyer will cooperate with Seller in providing information
necessary or appropriate to be included in the Information
Statement and Seller will keep Buyer advised as to the progress
of the review by the Securities and Exchange Commission.
Following completion of the review by the Securities and Exchange
Commission, Seller shall promptly mail the Information Statement
to its shareholders so that the shareholders may approve the
transactions contemplated by this Agreement.
Section 5.3 Conditions.
Buyer shall take all commercially reasonable actions
necessary or desirable to cause the conditions set forth in
Article VII to be satisfied and to consummate the transactions
contemplated herein as soon as reasonably possible after the
satisfaction thereof (but in any event within three business days
of such date).
ARTICLE VI. CONDITIONS TO THE BUYER'S OBLIGATION
-------------------------------------------------
Section 6.1 Conditions to Buyer's Obligation. The
obligation of Buyer to consummate the transactions contemplated
by this Agreement is subject to the satisfaction of the following
conditions on or before the Closing Date (unless a shorter time
is provided):
(a) The representations and warranties set forth in
Article II hereof shall be true and correct in all material
respects at and as of the Closing Date as though then made and as
though the Closing Date had been substituted for the date of this
Agreement throughout such representations and warranties (without
taking into account any disclosures by Seller of discoveries,
events or occurrences arising on or after the date hereof),
except that any such representation or warranty made as of a
specified date (other than the date hereof) shall only need to
have been true on and as of such date;
(b) Seller shall have performed in all material
respects all of the covenants and agreements required to be
performed and complied with by it under this Agreement prior to
the Closing;
(c) Seller shall have assigned to Buyer the agreements
and permits specified in Schedule 2.9(b) attached hereto to the
extent they are assignable;
(d) Seller shall have obtained, or caused to be
obtained, each consent and approval necessary in order that the
transactions contemplated herein not constitute a breach or
violation of, or result in a right of termination or acceleration
of, or creation of any encumbrance on any of the Assets pursuant
to the provisions of, any agreement, arrangement or undertaking
of or affecting Seller or any license, franchise or permit of or
affecting Seller, regardless of whether assigned to Seller
pursuant to Section 1.3 hereof;
(e) Seller's shareholders shall have approved this
Agreement and the transactions contemplated hereby;
(f) The applicable waiting periods under the HSR Act
shall have expired or been terminated, and all other material
governmental filings, authorizations and approvals that are
required for the consummation of the transactions contemplated
hereby will have been duly made and obtained;
(g) There shall not be threatened, instituted or
pending any action or proceeding, before any court or
governmental authority or agency, domestic or foreign, (i)
challenging or seeking to make illegal, or to delay or otherwise
directly or indirectly restrain or prohibit, the consummation of
the transactions contemplated hereby or seeking to obtain
material damages in connection with such transactions, (ii)
seeking to prohibit direct or indirect ownership or operation by
Buyer of all or a material portion of the Assets, or to compel
Buyer or any of its subsidiaries to dispose of or to hold
separately all or a material portion of the business or assets of
Buyer and its subsidiaries, as a result of the transactions
contemplated hereby, (iii) seeking to invalidate or render
unenforceable any material provision of this Agreement or (iv)
otherwise relating to and materially adversely affecting the
transactions contemplated hereby;
(h) There shall not be any action taken, or any
statute, rule, regulation, judgment, order or injunction enacted,
entered, enforced, promulgated, issued or deemed applicable to
the transactions contemplated hereby by any federal, state or
foreign court, government or governmental authority or agency,
which would reasonably be expected to result, directly or
indirectly, in any of the consequences referred to in subsection
(g) above;
(i) Buyer shall not have discovered any fact or
circumstance existing as of the date of this Agreement which has
not been disclosed to Buyer as of the date of this Agreement
regarding the Restaurants or Assets, which is, individually or in
the aggregate with other such facts and circumstances, materially
adverse to the value of the Assets or the Restaurants, as
determined by the Buyer in its reasonable discretion;
(j) There shall have been no damage, destruction or
loss of or to any of the Assets, whether or not covered by
insurance, which, in the aggregate, has, or would be reasonably
likely to have, a material adverse effect on the Assets or the
Restaurants;
(k) Buyer shall have received from counsel for Seller
a written opinion, dated as of the Closing Date, addressed to
Buyer and satisfactory to Buyer's counsel, in form and substance
substantially as set forth in Exhibit A attached hereto;
(l) By the conclusion of the Diligence Period, Buyer
shall have received a commitment for financing (a "Financing
Commitment") in an amount sufficient to enable Buyer to
consummate the transactions contemplated by this Agreement;
(m) On the Closing Date, Seller shall have delivered
to Buyer all of the following:
(i) an executed Bill of Sale and such other
instruments of conveyance, transfer, assignment and
delivery as Buyer shall reasonably request;
(ii) appropriate assignment documents assigning
Seller's right, title and interest in and to the Real
Property Leases and Contracts to Buyer;
(iii) special warranty deed for each parcel of
Real Property transferring the Real Property to Buyer;
(iv) certificates of the officers of Seller or
other persons satisfactory to Buyer in form and
substance satisfactory to Buyer, dated the Closing Date
and stating that the conditions precedent set forth in
subsections (a) and (b) above
have been satisfied;
(v) copies of the third party and governmental
consents and approvals referred to in subsections (c)
and (d) above.;
(vi) estoppel certificates from each lessor under
the Real Property Leases, dated the Closing Date,
stating that Seller is in compliance with all terms of
the Real Property Leases and containing such other
information as Buyer shall reasonably request;
(vii) each of the Real Property Leases shall
have a minimum of fifteen (15) years remaining,
including options;
(viii) the aggregate annual rent under all Real
Property Leases shall not exceed $1,300,000.00, and
contain provisions limiting increases in rent such that
the aggregate annual rent under all Real Property
Leases does not escalate in excess of two percent
(2.0%) annually over the life of the Lease (including
options);
(ix) a copy of the text of the resolutions adopted
by the Board of Directors and shareholders of Seller
authorizing the execution, delivery and performance of
this Agreement and the consummation of all of the
transactions contemplated by this Agreement; along with
a certificate executed on behalf of Seller, by its
corporate secretary certifying to Buyer that such copy
is a true, correct and complete copy of such
resolutions, and that such resolutions were duly
adopted and have not been amended or rescinded;
(x) incumbency certificates executed on behalf of
Seller by its corporate secretary certifying the
signature and office of each officer executing this
Agreement or any of the Related Agreements;
(xi) Seller shall have completed conversion of the
Ryan's Restaurant located at 9569 Regency Square
Boulevard, N., Jacksonville, Florida, into a WJ
Restaurant (which restaurant shall be deemed a
"Restaurant" for purposes of this Agreement); and
(xii) such other certificates, documents and
instruments as Buyer reasonably requests related to the
transactions contemplated hereby.
ARTICLE VII. CONDITIONS TO THE SELLER'S OBLIGATIONS
----------------------------------------------------
Section 7.1 Conditions to Seller's Obligation. The
obligation of Seller to consummate the transactions contemplated
by this Agreement is subject to the satisfaction, on or prior to
the Closing Date, of the following conditions:
(a) The representations and warranties set forth in
Article III hereof will be true and correct in all material
respects at and as of the Closing as though then made and as
though the Closing Date had been substituted for the date of this
Agreement throughout such representations and warranties, except
that any such representation or warranty made as of a specified
date (other than the date hereof) shall only need to have been
true on and as of such date;
(b) Buyer shall have performed in all material
respects all the covenants and agreements required to be
performed by it under this Agreement prior to the Closing;
(c) The applicable waiting periods under the HSR Act
shall have expired or been terminated and all other material
governmental filings, authorizations and approvals that are
required for the consummation of the transactions contemplated
hereby will have been duly made and obtained;
(d) Seller shall receive the requisite approval of its
shareholders with respect to the transaction contemplated by this
Agreement;
(e) There shall not be threatened, instituted or
pending any action or proceeding, before any court or
governmental authority or agency, domestic or foreign, (i)
challenging or seeking to make illegal, or to delay or otherwise
directly or indirectly restrain or prohibit, the consummation of
the transactions contemplated hereby or seeking to obtain
material damages in connection with such transactions, (ii)
seeking to invalidate or render unenforceable any material
provision of this Agreement, or (iii) otherwise relating to and
materially adversely affecting the transactions contemplated
hereby;
(f) There shall not be any action taken, or any
statute, rule, regulation, judgment, order or injunction,
enacted, entered, enforced, promulgated, issued or deemed
applicable to the transactions contemplated hereby by any
federal, state or foreign court, government or governmental
authority or agency, which would reasonably be expected to
result, directly or indirectly, in any of the consequences
referred to in subsection (d) above;
(g) Seller shall have received from counsel for Buyer
a written opinion, dated as of the Closing Date, addressed to
Seller and satisfactory to Seller's counsel, in form and
substance substantially as set forth in Exhibit B attached
hereto; and
(h) On the Closing Date, Buyer will have delivered to
Seller:
(i) a wire transfer in immediately available
funds in the amount described in Sections 1.5(b)(i),
(ii) and (iii);
(ii) the executed Note;
(iii) a certificate of the appropriate
officer(s) of Buyer in form and substance satisfactory
to Seller, dated the Closing Date, stating that the
conditions precedent set forth in subsections (a) and
(b) above have been satisfied,
(iv) appropriate assignment documents assuming
Seller's obligations under the Real Property Leases and
Contracts;
(v) a copy of the text of the resolutions adopted
by the Board of Managers of Buyer authorizing the
execution, delivery and performance of this Agreement
and the consummation of all of the transactions
contemplated by this Agreement, along with a
certificate executed on behalf of Buyer by its
corporate secretary certifying to Seller that such copy
is a true, correct and complete copy of such
resolutions, and that such resolutions were duly
adopted and have not been amended or rescinded, and
(vi) an incumbency certificate executed on behalf
of Buyer by its corporate secretary certifying the
signature and office of each officer executing this
Agreement or any of the Related Agreements.
(i) Seller shall have obtained landlords' consents to
the assignment of the Real Estate Leases.
(j) Seller shall have received an opinion from its
investment adviser that the consideration to be received by the
Seller in the transactions contemplated by the Agreement is fair,
from a financial point of view.
ARTICLE VIII. THE CLOSING
--------------------------
Section 8.1 Time and Place of Closing. The closing of
the transactions contemplated by this Agreement (the "Closing")
shall take place at the offices of McGuireWoods LLP, Bank of
America Tower, 50 North Laura Street, Ste 3300, Jacksonville,
Florida, at 10:00 a.m. (local time) on or prior to April 18, 2005
(such date the "Closing Date"), or on such other date and time as
mutually agreed upon by the parties.
ARTICLE IX. TITLE MATTERS
--------------------------
Section 9.1 Title Commitments and Objections.
(a) Seller will, at its expense, within twenty (20)
days from the date hereof, deliver commitments for title
insurance (collectively, the "Title Commitments") to Buyer,
together with copies of all exceptions to title (collectively,
the "Title Exceptions") appearing in Schedule B of each of the
Title Commitments, whereby the Title Company agrees to issue to
Buyer an owner's policy of title insurance, including
endorsements for access, survey and such other endorsements as
Buyer deems reasonably necessary (individually, an "Owner's
Policy," and collectively, the "Owners' Policies") with respect
to each parcel of Real Property and a leasehold owner's policy of
title insurance, including endorsements for access, survey and
such other endorsements as Buyer deems reasonably necessary
(individually, a "Leasehold Owner's Policy," and collectively,
the "Leasehold Owners' Policies") ("Owners' Policies" and
"Leasehold Owners' Policies" collectively referred to herein as
"Title Policies") with respect to each Leased Parcel on American
Land Title Association standard Form B10-17-92 with Florida
modifications. The Owners' Policies will insure the Buyer that,
upon consummation of the purchase and sale herein contemplated,
Buyer will be vested with good, fee simple, marketable and
insurable title to the Real Property. The Leasehold Owners'
Policies will insure the Buyer that, upon consummation of the
transactions herein contemplated, Buyer will be vested with good,
valid and insurable leasehold estates in and to the Leased
Parcels. Buyer, shall, at its expense obtain any mortgagee's
title insurance policies which may be required by Buyer's
lenders.
(b) Notwithstanding the time limit prescribed by
Section 5.1, Buyer shall have twenty (20) days from the date of
its receipt of the last to be received of the: (i) Title
Commitments and the Title Exceptions; or (ii) the Surveys (the
"Title Inspection Period") to furnish Seller a written statement
of title and survey objections ("Title Objections"). Seller
shall have until April 13, 2005 ("Title Objection Cure Date") to
satisfy such Objections (but with no obligation to do so), and if
Seller fails to satisfy all Objections on or prior to the Title
Objection Cure Date, then Buyer'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 within five (5) days after the Title
Objection Cure Date. Buyer will be deemed to have waived its
right to terminate due to the Objections if no such notice of
termination is so given to Seller.
Section 9.2 Surveys, Plans and Permits. Seller shall, at
its expense, within thirty (30) days after the date hereof,
furnish to Buyer or to Buyer's permitted assigns, a current ALTA
survey of each parcel of Real Property and Leased Parcels (the
"Surveys") and copies of any and all drawings and plans of the
buildings, structures, improvements, underground storage tanks
and piping installations located on the Real Property and Leased
Parcels to the extent the same are in Seller's possession.
Seller shall provide to Buyer copies of the building permits,
certificates of occupancy and all other material permits and
certificates issued by any governmental organizations or agencies
which relate to the construction, occupancy or use of the Real
Property and Leased Parcels and the buildings and improvements
located thereon.
Section 9.3 Tests and Studies. Buyer and its employees
and representatives shall have the right at reasonable times to
enter upon the Real Property and Leased Parcels, and into the
buildings and improvements thereon, for the purpose of inspecting
the physical condition of the respective buildings and
improvements. Buyer shall, at Buyer's expense, also have the
right to conduct an asbestos inspection other tests or
inspections on the Real Property and Leased Parcels. All such
tests or inspections shall be at Buyer's sole expense and
conducted by persons acceptable to Buyer. Buyer shall give
Seller reasonable advance notice of the time of all such tests
and inspections, and Seller shall have the right to be present
during such tests.
Section 9.4 Buyer's Duty as to Tests and Inspections.
All tests, studies, inspections and examinations conducted
pursuant to this Agreement by Buyer, Buyer's employees, agents
and representatives shall be done in a manner so as not to
unreasonably impede the normal operation of the Business or
unreasonably interfere with Seller's occupancy of same. Buyer
shall reimburse Seller for any damages arising from the conduct
of any such tests, studies, inspections or examinations by or on
behalf of Buyer and caused solely by the negligence or misconduct
of Buyer or its agents; but Buyer shall not be liable for any
consequential damages of such tests. Buyer agrees to indemnify
Seller for any loss, cost, damage or expense incurred by Seller
as a result of Buyer's tests or inspections.
Section 9.5 Environmental Reports. Seller shall, within
thirty (30) days after the date hereof, furnish to Buyer or to
Buyer's permitted assigns, copies of all environmental reports
pertaining to the Real Property and the Leased Parcels (the
"Environmental Reports") in Seller's possession as of the date of
this Agreement (the "Environmental Reports"). Seller shall
provide Buyer or Buyer's permitted assigns, copies of all
Environmental Reports received after the date of this Agreement
immediately after such reports have been delivered to Seller.
Seller shall have no duty to order new or additional
Environmental Reports and Seller makes no representation as to
the accuracy of Environmental Reports delivered.
ARTICLE X. SURVIVAL; INDEMNIFICATION
-------------------------------------
Section 10.1 Survival. All representations, warranties,
and covenants contained in this Agreement and the Ancillary
Agreements shall survive the closing of the transactions
contemplated by this Agreement and any investigation at any time
made by or on behalf of any party for a period of eleven (11)
months, except that the covenant not to compete described in
Section 4.10 shall survive the closing of the transactions
contemplated by this Agreement and for a period of five (5) years
thereafter.
Section 10.2 Indemnification by Seller. Seller shall
indemnify, defend, and hold Buyer and the respective officers,
directors, shareholders, members, managers, employees and agents
of Buyer, and their successors and assignees (the "Buyer
Indemnified Parties") harmless from, against and with respect to
any claim, liability, obligation, loss, damage, assessment,
judgment, legal fee, cost and expense of any kind or character
("Damages"), arising out of or in any manner incident, relating
or attributable to:
(a) Any material inaccuracy in any representation or
material breach of any material warranty of Seller contained in
this Agreement;
(b) Any failure by Seller to perform or observe, or to
have performed or observed, in full any covenant, agreement or
condition to be performed or observed by it under this Agreement;
(c) Reliance by Buyer on any books or records of
Seller or written information prepared by Seller in the event
that such books and records or written information are false in
some material respect or materially inaccurate;
(d) Liabilities or obligations of, or claims against,
Buyer (whether absolute, accrued, contingent or otherwise)
relating to, or arising out of, the operation of the Restaurants
or the Assets prior to the Closing Date (excluding any
liabilities assumed pursuant to Section 1.3 hereof); or
(e) Claims of employees of Seller, general creditor
claims, vendor claims, product liability, warranty refund or
customer injury or damage claims arising out of or in any way
relating to circumstances existing or events occurring prior to
the Closing Date, but asserted after the Closing Date.
Notwithstanding the foregoing, Seller shall not be obligated
to indemnify any Buyer Indemnified Party under this Section 10.2
until Damages exceed Twenty-five Thousand Dollars and No/100
($25,000) and then only to the extent of aggregated Damages in
excess of Twenty-five Thousand Dollars and No/100 ($25,000).
Damages are to be calculated separate from the Purchase Price and
not to be an addition to or deduction from the disbursement of
the Purchase Price.
Section 10.3 Notice to Seller. If any of the matters as
to which a Buyer Indemnified Party is entitled to receive
indemnification under Section 10.2 should entail litigation with
or claims asserted by parties other than Seller, Seller shall be
given prompt notice thereof and shall have the right, at its
expense, to control such claim or litigation upon prompt notice
to Buyer of its election to do so. To the extent requested by
Seller, Buyer shall cooperate with and assist Seller in
connection with such claim or litigation. Buyer shall have the
right to appoint counsel to consult with and remain advised by
Seller in connection with such claim or litigation.
Seller shall have final authority to determine all matters in
connection with such claim or litigation; provided, however,
that Seller shall not settle any third party claim without the
consent of Buyer, which shall not be unreasonably denied or
delayed.
Section 10.4 Indemnification by Buyer. Buyer shall
indemnify, defend, and hold Seller and its successors and assigns
(the "Seller Indemnified Parties") harmless from, against and
with respect to any Damages arising out of or in any manner
incident, relating or attributable to:
(a) Any material inaccuracy in any material
representation or material breach of material warranty of Buyer
contained in this Agreement;
(b) Any material failure by Buyer to perform or
observe, or to have performed or observed, in full, any material
covenant, material agreement or material condition to be
performed or observed by it under any of the Ancillary
Agreements;
(c) Reliance by Seller on any books or records of
Buyer or reliance by Seller on any written information furnished
to Seller pursuant to this Agreement by or on behalf of Buyer in
the event that such books and records or written information are
false in some material respect or inaccurate; or
(d) The failure of Buyer to pay or perform the
Contracts, Real Property Leases and other liabilities assumed
pursuant to Section 1.3 hereof subsequent to the Closing Date.
(e) Notwithstanding the foregoing, Buyer shall not be
obligated to indemnify any Seller Indemnified Party under this
Section 10.4 until Damages exceed One Thousand Dollars and No/100
($1,000) and then only to the extent of aggregated Damages in
excess of One Thousand Dollars and No/100 ($1,000).
Section 10.5 Notice to the Buyer. If any of the matters
as to which a Seller Indemnified Party is entitled to receive
indemnification under Section 10.4 should entail litigation with
or claims asserted by parties other than Buyer, Buyer shall be
given prompt notice thereof and shall have the right, at its
expense, to control claim or litigation upon prompt notice to
Seller of its election to do so. To the extent requested by
Buyer, Seller, at its expense, shall cooperate with and assist
Buyer, in connection with such claim or litigation. Seller shall
have the right to appoint counsel to consult with and remain
advised by Buyer in connection with such claim or litigation.
Buyer shall have final authority to determine all matters in
connection with such claim or litigation; provided, however, that
Buyer shall not settle any third party claim without the consent
of Seller entitled to indemnity, which shall not be unreasonably
denied or delayed.
ARTICLE XI. TERMINATION
-----------------------
Section 11.1 Termination. This Agreement may be
terminated at any time prior to the Closing:
(a) by the mutual consent of Buyer and Seller;
(b) by either Buyer or Seller if there has been a
material misrepresentation, breach of warranty or breach of
covenant on the part of the other in the representations,
warranties and covenants set forth in this Agreement;
(c) by either Buyer or Seller if the transactions
contemplated hereby have not been consummated by May 31, 2005;
provided that, neither Buyer nor Seller will be entitled to
terminate this Agreement pursuant to this Section 11.1(c) if such
party's willful breach of this Agreement has prevented the
consummation of the transactions contemplated hereby;
(d) by Buyer if, after the conclusion of the Diligence
Review, there shall have been a material adverse change in the
financial condition or business of the Restaurants or Assets
which change was not reasonably foreseeable during the Diligence
Review; or
(e) by Buyer at any time, if any of the Schedules
prepared by Seller and delivered to Buyer after execution of the
Agreement reveals any information not previously disclosed to
Buyer that would have a "material adverse effect" (as defined in
Section 5.1) on Buyer's ability to consummate the Acquisition or
operate the Restaurants in a profitable manner consistent with
Seller's operations thereof prior to the Closing Date;
(f) by Buyer as provided in Section 5.1; or
(g) by Seller if Buyer fails to obtain a Financing
Commitment by the conclusion of the Diligence Period.
Section 11.2 Effect of Termination. In the event of
termination of this Agreement by either Buyer or Seller as
provided in Section 11.1, the Deposit shall be returned to Buyer
and this Agreement shall become void and there shall be no
liability on the part of either Buyer or Seller, or their
respective stockholders, officers, or directors, except that
Articles X and XI shall survive indefinitely, and except with
respect to willful breaches of this Agreement prior to the time
of such termination, and except for termination pursuant to
Section 11.1(g), Buyer shall be entitled to retain of one-half
(1/2) of the Deposit.
ARTICLE XII. MISCELLANEOUS
----------------------------
Section 12.1 Knowledge of Seller. Where any
representation or warranty contained in this Agreement is
expressly qualified by reference to "Seller's knowledge",
"Seller's knowledge" shall mean the actual knowledge of its board
of directors or officers of Seller, or the knowledge they should
have acquired in the prudent and reasonable exercise of their
duties as to the matters that are the subject of such
representations and warranties.
Section 12.2 "Person" Defined. "Person" shall mean and
include an individual, a partnership, a joint venture, a
corporation, a trust, an unincorporated organization and a
government or other department or agency thereof.
Section 12.3 Notices. All notices, requests, consents and
other communications hereunder shall be in writing, shall be
addressed to the receiving party's address set forth below or to
such other addresses as a party may designate by notice
hereunder, and shall be either (i) delivered by hand, (ii) sent
by recognized overnight courier, (iii) sent by registered or
certified mail, return receipt requested, postage prepaid, or
(iv) sent via facsimile with confirmation of receipt.
If to the Buyer: Banner Buffets, LLC
1000 S. Caraway, Ste. 101
Post Office Box 3017
Jonesboro, AR 72403-3017
Attn: George W. Osborn
Facsimile No. (870) 933-8144
With a copy to: Donald L. Parker II, Esq.
MIXON PARKER & HURST PLC
505 Union Street
Post Office Box 1442
Jonesboro, AR 72403-1442
Facsimile No. (870) 935-8622
Richard R. Gibson, Esq.
KRASS MONROE, P.A.
8000 Norman Center Drive
Suite 1000
Minneapolis, MN 55437
Facsimile No. (952) 885-5969
If to the Seller: EACO Corporation
Mr. Glen F. Ceiley, Chairman
1500 N. Lakeview Ave.
Anaheim, CA 92807
Facsimile No. (714) 693-5980
With a copy to: Halcyon E. Skinner, Esq.
McGuireWoods LLP
Bank of America Tower
50 North Laura Street, Ste. 3300
Jacksonville, FL 32202-3661
Facsimile No. (904)360-6324
All notices, requests, consents and other communications
hereunder shall be deemed to have been given (i) if by hand, at
the time of the delivery thereof to the receiving party at the
address of such party set forth above, (ii) if sent by overnight
courier, on the next business day following the day such notice
is delivered to the courier service, or (iii) if sent by
registered or certified mail, on the fifth business day following
the day such mailing is sent. The address of any party herein may
be changed at any time by written notice to the parties.
Section 12.4 Entire Agreement. This Agreement and the
Ancillary Agreements embody the entire agreement and
understanding between the parties hereto with respect to the
subject matter hereof and supersede all prior oral or written
agreements and understandings relating to the subject matter
hereof. No statement, representation, warranty, covenant or
agreement of any kind not expressly set forth in the Ancillary
Agreements shall affect, or be used to interpret, change or
restrict, the express terms and provisions of this Agreement.
Section 12.5 Modification and Amendments. The terms and
provisions for this Agreement may be modified or amended only by
written agreement executed by all parties hereto.
Section 12.6 Assignment/Binding Effect. Seller shall not
assign this Agreement, nor any rights or obligations hereunder,
without the prior written consent of Buyer. Buyer shall be
permitted to assign its rights and obligations hereunder to its
subsidiaries or affiliated entities, and shall be permitted to
assign its obligation to purchase the Real Property and rights
attendant therewith under this Agreement to a third party,
without the consent of Seller. This Agreement shall be binding
upon, and inure to the benefit of, the parties hereto and their
respective heirs, personal representatives, successors and
permitted assigns.
Section 12.7 Parties in Interest. Nothing in this
Agreement, express or implied, is intended to confer upon any
other person any rights or remedies of any nature whatsoever
under or by reason of this Agreement. Nothing in this Agreement
shall be construed to create any rights or obligations except
among the parties hereto, and no person or entity shall be
regarded as a third-party beneficiary of this Agreement.
Section 12.8 Governing Law. THIS AGREEMENT AND THE RIGHTS
AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE CONSTRUED IN
ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF FLORIDA
WITHOUT GIVING EFFECT TO THE CONFLICT OF LAW PRINCIPLE THEREOF.
Section 12.9 Severability. In the event that any
arbitrator shall finally determine that any provision, or any
portion thereof, contained in this Agreement shall be void or
unenforceable in any respect, then such provision shall be deemed
limited to the extent that such arbitrator determines it
enforceable, and as so limited shall remain in full force and
effect. In the event that such arbitrator shall determine any
such provision, or portion thereof, wholly unenforceable, the
remaining provisions of this Agreement shall nevertheless remain
in full force and effect.
Section 12.10 Interpretation. The parties hereto
acknowledge and agree that: (i) the rule of construction to the
effect that any ambiguities are resolved against the drafting
party shall not be employed in the interpretation of this
Agreement, and (ii) the terms and provisions of this Agreement
shall be construed fairly as to all parties hereto and not in
favor of or against any party, regardless of which party was
generally responsible for the preparation of this Agreement.
Section 12.11 Headings and Captions. The headings and
captions of the various subdivisions of this Agreement are for
convenience of reference only and shall in no way modify, or
affect, or be considered in construing or interpreting the
meaning or construction of any of the terms or provisions hereof.
Section 12.12 Reliance. The parties hereto agree that,
notwithstanding any right of any party to the Agreement to
investigate the affairs of any other party of this Agreement, the
party having such right to investigate shall have the right to
rely fully upon the representations and warranties of the other
party expressly contained herein.
Section 12.13 Expenses. Except as otherwise specifically
provided herein, each party shall pay its own fees and expenses
(including the fees of any attorneys, accountants, appraisers or
others engaged by such party) incurred in connection with this
Agreement and the transactions contemplated hereby whether or not
the transaction contemplated hereby are consummated.
Section 12.14 Gender. All pronouns and any variation
thereof shall be deemed to refer to the masculine, feminine,
neuter, singular, or plural as the identity of the person or
entity or the context may require.
Section 12.15 Publicity. Except by the mutual agreement
between Seller and Buyer, no party shall issue any press release
or otherwise make any public statement with respect to the
execution of, or the transactions contemplated by, this Agreement
except as may be required by law.
Section 12.16 Counterparts. This Agreement may be executed
in one or more counterparts, and by different parties hereto on
separate counterparts, each of which shall be deemed an original,
but all of which together shall constitute one and the same
instrument.
Section 12.17 Further Assurances. Seller and Buyer shall
execute and deliver all such other instruments and take all such
other action as any party may reasonably request from time to
time, before or after the Closing, in order to effectuate the
transactions provided for herein. The parties shall cooperate
with each other and with their respective counsel and accountants
in connection with any steps to be taken as a part of their
respective obligations under this Agreement.
IN WITNESS WHEREOF, Buyer and Seller have each caused this
Agreement to be executed by its duly authorized officer all as of
the day and year first above written.
BUYER: BANNER BUFFETS, LLC
By: /s/ George W. Osborn
-----------------------------------
George W. Osborn, Authorized Member
SELLER: EACO CORPORATION
By: /s/ Glen F. Ceiley
-----------------------------------
Glen F. Ceiley, Chairman
SCHEDULE 1
RESTAURANTS
Florida Buffet #108 Florida Buffet #127
3933 E. Silver Springs Blvd. 5100 US Highway 90W
Ocala, FL 34470 Lake City, FL 32055
Fee Property Fee Property
Ryans #110 Whistle Junction #130
2815 Lakeland Hills Blvd. 13235 Cortez Blvd.
Lakeland, FL 33805 Brooksville, FL 34613
Fee Property Leased Property
Florida Buffet #111 Whistle Junction #132
3125 US Highway 98 South 301 E. International Speedway
Lakeland, FL 33803 Blvd.
Fee Property DeLand, FL 32724
Leased Property
Ryan's #112 Ryan's #134
2775 Lake Alfred Rd. 4551 13th St.
Winter Haven, FL 33881 St. Cloud, FL 34769
Fee Property Fee Property
Florida Buffet #113 Ryan's #135
2501 N. Main St. 3125 Columbia Blvd.
Gainesville, FL 32609 Titusville, FL 32780
Fee Property Fee Property
Ryan's #119 Ryan's #136
1854 S. Ridgewood Ave. 9569 Regency Sq. Blvd. N.
Daytona Beach, FL 32119 Jacksonville, FL 32225
Fee Property Fee Property
Ryan's #122 Whistle Junction #120
1754 Econlockhatchee Tr. 5109 Fowler Ave.
Orlando, FL 32825 Tampa, FL 33617
Fee Property Leased Property
Florida Buffet #124 Whistle Junction #137
3299 S. Babcock St. 5350 International Drive
Melbourne, FL 32901 Orlando, FL 32819
Fee Property Leased Property
FIRST AMENDMENT TO
ASSET PURCHASE AGREEMENT
This First Amendment to Asset Purchase Agreement is entered
into as of the 28th day of April, 2005, by and between Banner
Buffets, LLC, a Delaware limited liability company (the "Buyer")
and EACO Corporation, a Florida corporation (the "Seller").
WHEREAS, the Buyer and the Seller entered into an Asset
Purchase Agreement dated as of the 22nd day of February, 2005
(the "Agreement");
WHEREAS, the parties wish to amend one provision of the
Agreement.
NOW, THEREFORE, in consideration of the premises and for
other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto
agree as follows:
Section 1 Amendment. Section 11.1(g) of the Agreement is
hereby amended in its entirety as follows:
"(g) by Seller if Buyer fails to obtain a Financing
Commitment prior to April 30, 2005."
Section 2 Full Force and Effect. Other than the amendment
to Section 11.1(g) set forth above, the Agreement remains in full
force and effect without modification.
IN WITNESS WHEREOF, the parties have executed this First
Amendment as of the date first above written.
BUYER: BANNER BUFFETS, LLC
By: /s/ George W. Osborn
-----------------------------------
George W. Osborn, Authorized Member
SELLER: EACO CORPORATION
By: /s/ Glen F. Ceiley
------------------------------------
Glen F. Ceiley, Chairman
SECOND AMENDMENT TO
ASSET PURCHASE AGREEMENT
This Second Amendment to Asset Purchase Agreement is entered
into as of the 16th day of May, 2005, by and between Banner
Buffets, LLC, a Delaware limited liability company (the "Buyer")
and EACO Corporation, a Florida corporation (the "Seller").
WHEREAS, the Buyer and the Seller entered into an Asset
Purchase Agreement dated as of the 22nd day of February, 2005
(the "Agreement");
WHEREAS, the parties have previously amended one provision
of the Agreement.
WHEREAS, the parties wish to amend one additional provision
of the Agreement.
NOW, THEREFORE, in consideration of the premises and for
other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto
agree as follows:
Section 1 Amendment. Section 11.1(c) of the Agreement is
hereby amended in its entirety as follows:
"(c) by either Buyer or Seller if the transactions
contemplated hereby have not been consummated by June 30, 2005;
provided that, neither Buyer nor Seller will be entitled to
terminate this Agreement pursuant to this Section 11.1(c) if such
party's willful breach of this Agreement has prevented the
consummation of the transaction contemplated hereby."
Section 2 Full Force and Effect. Other than the amendment
to Section 11.1(c) set forth above, the Agreement, as previously
amended, remains in full force and effect without modification.
IN WITNESS WHEREOF, the parties have executed this First
Amendment as of the date first above written.
BUYER: BANNER BUFFETS, LLC
By: /s/ George W. Osborn
-----------------------------------
George W. Osborn, Authorized Member
SELLER: EACO CORPORATION
By: /s/ Glen F. Ceiley
-----------------------------------
Glen F. Ceiley, Chairman
EXHIBIT B
May 25, 2005
CONFIDENTIAL
------------
Board of Directors
EACO Corporation
Attention: Mr. Edward B. Alexander
President and Chief Operating Officer
2113 Florida Boulevard
Neptune Beach, FL 32266
Dear Board of Directors:
You have requested the opinion of Allen C. Ewing & Co.
("Ewing") as to the fairness, from a financial point of view, to
the shareholders of EACO Corporation (the "Company") of the sale
of the Company's restaurant assets and operations to Banner
Buffets, LLC (the "Transaction"). The Transaction consideration
will consist of $25,950,000 in cash at closing and $4 million of
promissory notes which will bear interest at the rate of 8% per
annum and which will be repaid by the fourth anniversary date of
their issuance. The Board of Directors (the "Board") of the
Company approved the Transaction at its meeting on February 22,
2005.
In arriving at our opinion, we have conducted discussions
with members of senior management of the Company concerning the
Company's business and the prospects of such business. We have
visited the Company's Whistle Junction restaurant in
Jacksonville, Florida, and we have reviewed and analyzed certain
publicly available business and financial information and certain
other information prepared by, or provided to, us in connection
with the Transaction, including, among other things, the
following:
(a) the Agreement;
(b) the Company's consolidated financial statements
for the fiscal year ended December 29, 2004 and the quarter ended
March 30, 2005;
(c) certain other historical financial information
relating to the Company that we deemed relevant;
(d) the Company's business plan for 2005;
(e) the Company's internally prepared consolidated
financial projections for the fiscal year ending December 28,
2005;
(f) certain publicly available information with
respect to historical market prices and trading activity of the
Company's common stock;
(g) real estate appraisals of the Company's restaurant
properties prepared in connection with the Transaction;
(h) the financial terms of recent sales of restaurant
properties considered by us to be reasonably similar to the
Company's restaurant properties;
1. the current market environment generally and the restaurant
industry environment in particular; and
2. such other information, financial studies, analyses,
inquiries and other matters that we deemed relevant.
Ewing has relied upon the accuracy and completeness of the
information provided by the Company, including the terms of the
Transaction, and has not conducted an independent verification of
such information. Ewing based its opinion on the terms of the
Transaction and the current financial condition of and outlook
for the Company.
Based upon Ewing's knowledge of and experience in the
valuation of companies and their securities, it is Ewing's
opinion that the proposed terms of the Transaction are fair, from
a financial point of view, to the shareholders of the Company.
Ewing's opinion is directed to the Board and does not
constitute a recommendation to the Company's shareholders. Ewing
has not been requested to opine as to, and the opinion does not
address, the Board's business decision to effect the Transaction.
The preparation of this fairness opinion involves various
determinations as to the most appropriate and relevant methods of
financial analysis and the application of those methods to the
particular circumstances. Furthermore, in arriving at its
opinion of fairness, Ewing did not attribute any particular
weight to any one factor considered by it, but made qualitative
judgments as to the significance and relevance of the analysis of
all factors. Ewing believes that its analysis must be considered
as a whole and that considering any portions of such analysis and
the factors considered without considering all analyses and
factors could create a misleading or incomplete view of the
process underlying its fairness opinion.
Very truly yours,
ALLEN C. EWING & CO.
By: /s/ Benjamin C. Bishop, Jr.
---------------------------
Benjamin C. Bishop, Jr.
EXHIBIT C
Florida Business Corporation Act
Chapter XIII
607.1301 Appraisal rights; definitions.
The following definitions apply to 607.1302-607.1333:
(1) "Affiliate" means a person that directly or indirectly
through one or more intermediaries controls, is controlled by, or
is under common control with another person or is a senior
executive thereof. For purposes of 607.1302(2)(d), a person is
deemed to be an affiliate of its senior executives.
(2) "Beneficial shareholder" means a person who is the
beneficial owner of shares held in a voting trust or by a nominee
on the beneficial owner's behalf.
(3) "Corporation" means the issuer of the shares held by a
shareholder demanding appraisal and, for matters covered in
607.1322-607.1333, includes the surviving entity in a merger.
(4) "Fair value" means the value of the corporation's shares
determined:
(a) Immediately before the effectuation of the corporate action
to which the shareholder objects.
(b) Using customary and current valuation concepts and
techniques generally employed for similar businesses in the
context of the transaction requiring appraisal, excluding any
appreciation or depreciation in anticipation of the corporate
action unless exclusion would be inequitable to the corporation
and its remaining shareholders.
(5) "Interest" means interest from the effective date of the
corporate action until the date of payment, at the rate of
interest on judgments in this state on the effective date of the
corporate action.
(6) "Preferred shares" means a class or series of shares the
holders of which have preference over any other class or series
with respect to distributions.
(7) "Record shareholder" means the person in whose name shares
are registered in the records of the corporation or the
beneficial owner of shares to the extent of the rights granted by
a nominee certificate on file with the corporation.
(8) "Senior executive" means the chief executive officer, chief
operating officer, chief financial officer, or anyone in charge
of a principal business unit or function.
(9) "Shareholder" means both a record shareholder and a
beneficial shareholder.
607.1302 Right of shareholders to appraisal.
(1) A shareholder is entitled to appraisal rights, and to obtain
payment of the fair value of that shareholder's shares, in the
event of any of the following corporate actions:
(a) Consummation of a merger to which the corporation is a party
if shareholder approval is required for the merger by 607.1103
and the shareholder is entitled to vote on the merger or if the
corporation is a subsidiary and the merger is governed by
607.1104;
(b) Consummation of a share exchange to which the corporation is
a party as the corporation whose shares will be acquired if the
shareholder is entitled to vote on the exchange, except that
appraisal rights shall not be available to any shareholder of the
corporation with respect to any class or series of shares of the
corporation that is not exchanged;
(c) Consummation of a disposition of assets pursuant to
607.1202 if the shareholder is entitled to vote on the
disposition, including a sale in dissolution but not including a
sale pursuant to court order or a sale for cash pursuant to a
plan by which all or substantially all of the net proceeds of the
sale will be distributed to the shareholders within 1 year after
the date of sale;
(d) Any other amendment to the articles of incorporation,
merger, share exchange, or disposition of assets to the extent
provided by the articles of incorporation, bylaws, or a
resolution of the board of directors, except that no bylaw or
board resolution providing for appraisal rights may be amended or
otherwise altered except by shareholder approval; or
(e) With regard to a class of shares prescribed in the articles
of incorporation prior to October 1, 2003, including any shares
within that class subsequently authorized by amendment, any
amendment of the articles of incorporation if the shareholder is
entitled to vote on the amendment and if such amendment would
adversely affect such shareholder by:
1. Altering or abolishing any preemptive rights attached to any
of his or her shares;
2. Altering or abolishing the voting rights pertaining to any
of his or her shares, except as such rights may be affected by
the voting rights of new shares then being authorized of any
existing or new class or series of shares;
3. Effecting an exchange, cancellation, or reclassification of
any of his or her shares, when such exchange, cancellation, or
reclassification would alter or abolish the shareholder's voting
rights or alter his or her percentage of equity in the
corporation, or effecting a reduction or cancellation of accrued
dividends or other arrearages in respect to such shares;
4. Reducing the stated redemption price of any of the
shareholder's redeemable shares, altering or abolishing any
provision relating to any sinking fund for the redemption or
purchase of any of his or her shares, or making any of his or her
shares subject to redemption when they are not otherwise
redeemable;
5. Making noncumulative, in whole or in part, dividends of any
of the shareholder's preferred shares which had theretofore been
cumulative;
6. Reducing the stated dividend preference of any of the
shareholder's preferred shares; or
7. Reducing any stated preferential amount payable on any of
the shareholder's preferred shares upon voluntary or involuntary
liquidation.
(2) Notwithstanding subsection (1), the availability of
appraisal rights under paragraphs (1)(a), (b), (c), and (d) shall
be limited in accordance with the following provisions:
(a) Appraisal rights shall not be available for the holders of
shares of any class or series of shares which is:
1. Listed on the New York Stock Exchange or the American Stock
Exchange or designated as a national market system security on an
interdealer quotation system by the National Association of
Securities Dealers, Inc.; or
2. Not so listed or designated, but has at least 2,000
shareholders and the outstanding shares of such class or series
have a market value of at least $10 million, exclusive of the
value of such shares held by its subsidiaries, senior executives,
directors, and beneficial shareholders owning more than 10
percent of such shares.
(b) The applicability of paragraph (a) shall be determined as
of:
1. The record date fixed to determine the shareholders entitled
to receive notice of, and to vote at, the meeting of shareholders
to act upon the corporate action requiring appraisal rights; or
2. If there will be no meeting of shareholders, the close of
business on the day on which the board of directors adopts the
resolution recommending such corporate action.
(c) Paragraph (a) shall not be applicable and appraisal rights
shall be available pursuant to subsection (1) for the holders of
any class or series of shares who are required by the terms of
the corporate action requiring appraisal rights to accept for
such shares anything other than cash or shares of any class or
any series of shares of any corporation, or any other proprietary
interest of any other entity, that satisfies the standards set
forth in paragraph (a) at the time the corporate action becomes
effective.
(d) Paragraph (a) shall not be applicable and appraisal rights
shall be available pursuant to subsection (1) for the holders of
any class or series of shares if:
1. Any of the shares or assets of the corporation are being
acquired or converted, whether by merger, share exchange, or
otherwise, pursuant to the corporate action by a person, or by an
affiliate of a person, who:
a. Is, or at any time in the 1-year period immediately
preceding approval by the board of directors of the corporate
action requiring appraisal rights was, the beneficial owner of 20
percent or more of the voting power of the corporation, excluding
any shares acquired pursuant to an offer for all shares having
voting power if such offer was made within 1 year prior to the
corporate action requiring appraisal rights for consideration of
the same kind and of a value equal to or less than that paid in
connection with the corporate action; or
b. Directly or indirectly has, or at any time in the 1-year
period immediately preceding approval by the board of directors
of the corporation of the corporate action requiring appraisal
rights had, the power, contractually or otherwise, to cause the
appointment or election of 25 percent or more of the directors to
the board of directors of the corporation; or
2. Any of the shares or assets of the corporation are being
acquired or converted, whether by merger, share exchange, or
otherwise, pursuant to such corporate action by a person, or by
an affiliate of a person, who is, or at any time in the 1-year
period immediately preceding approval by the board of directors
of the corporate action requiring appraisal rights was, a senior
executive or director of the corporation or a senior executive of
any affiliate thereof, and that senior executive or director will
receive, as a result of the corporate action, a financial benefit
not generally available to other shareholders as such, other
than:
a. Employment, consulting, retirement, or similar benefits
established separately and not as part of or in contemplation of
the corporate action;
b. Employment, consulting, retirement, or similar benefits
established in contemplation of, or as part of, the corporate
action that are not more favorable than those existing before the
corporate action or, if more favorable, that have been approved
on behalf of the corporation in the same manner as is provided in
5 607.0832; or
c. In the case of a director of the corporation who will, in
the corporate action, become a director of the acquiring entity
in the corporate action or one of its affiliates, rights and
benefits as a director that are provided on the same basis as
those afforded by the acquiring entity generally to other
directors of such entity or such affiliate.
(e) For the purposes of paragraph (d) only, the term "beneficial
owner" means any person who, directly or indirectly, through any
contract, arrangement, or understanding, other than a revocable
proxy, has or shares the power to vote, or to direct the voting
of, shares, provided that a member of a national securities
exchange shall not be deemed to be a beneficial owner of
securities held directly or indirectly by it on behalf of another
person solely because such member is the recordholder of such
securities if the member is precluded by the rules of such
exchange from voting without instruction on contested matters or
matters that may affect substantially the rights or privileges of
the holders of the securities to be voted. When two or more
persons agree to act together for the purpose of voting their
shares of the corporation, each member of the group formed
thereby shall be deemed to have acquired beneficial ownership, as
of the date of such agreement, of all voting shares of the
corporation beneficially owned by any member of the group.
(3) Notwithstanding any other provision of this section, the
articles of incorporation as originally filed or any amendment
thereto may limit or eliminate appraisal rights for any class or
series of preferred shares, but any such limitation or
elimination contained in an amendment to the articles of
incorporation that limits or eliminates appraisal rights for any
of such shares that are outstanding immediately prior to the
effective date of such amendment or that the corporation is or
may be required to issue or sell thereafter pursuant to any
conversion, exchange, or other right existing immediately before
the effective date of such amendment shall not apply to any
corporate action that becomes effective within 1 year of that
date if such action would otherwise afford appraisal rights.
(4) A shareholder entitled to appraisal rights under this
chapter may not challenge a completed corporate action for which
appraisal rights are available unless such corporate action:
(a) Was not effectuated in accordance with the applicable
provisions of this section or the corporation's articles of
incorporation, bylaws, or board of directors' resolution
authorizing the corporate action; or
(b) Was procured as a result of fraud or material
misrepresentation.
607.1303 Assertion of rights by nominees and beneficial
owners.
(1) A record shareholder may assert appraisal rights as to fewer
than all the shares registered in the record shareholder's name
but owned by a beneficial shareholder only if the record
shareholder objects with respect to all shares of the class or
series owned by the beneficial shareholder and notifies the
corporation in writing of the name and address of each beneficial
shareholder on whose behalf appraisal rights are being asserted.
The rights of a record shareholder who asserts appraisal rights
for only part of the shares held of record in the record
shareholder's name under this subsection shall be determined as
if the shares as to which the record shareholder objects and the
record shareholder's other shares were registered in the names of
different record shareholders.
(2) A beneficial shareholder may assert appraisal rights as to
shares of any class or series held on behalf of the shareholder
only if such shareholder:
(a) Submits to the corporation the record shareholder's written
consent to the assertion of such rights no later than the date
referred to in 607.1322(2)(b)2.
(b) Does so with respect to all shares of the class or series
that are beneficially owned by the beneficial shareholder.
607.1320 Notice of appraisal rights.
(1) If proposed corporate action described in 607.1302(1) is
to be submitted to a vote at a shareholders' meeting, the meeting
notice must state that the corporation has concluded that
shareholders are, are not, or may be entitled to assert appraisal
rights under this chapter. If the corporation concludes that
appraisal rights are or may be available, a copy of 607.1301-
607.1333 must accompany the meeting notice sent to those record
shareholders entitled to exercise appraisal rights.
(2) In a merger pursuant to 607.1104, the parent corporation
must notify in writing all record shareholders of the subsidiary
who are entitled to assert appraisal rights that the corporate
action became effective. Such notice must be sent within 10 days
after the corporate action became effective and include the
materials described in 607.1322.
(3) If the proposed corporate action described in 607.1302(1)
is to be approved other than by a shareholders' meeting, the
notice referred to in subsection (1) must be sent to all
shareholders at the time that consents are first solicited
pursuant to 607.0704, whether or not consents are solicited
from all shareholders, and include the materials described in
607.1322.
607.1321 Notice of intent to demand payment.
(1) If proposed corporate action requiring appraisal rights
under 607.1302 is submitted to a vote at a shareholders'
meeting, or is submitted to a shareholder pursuant to a consent
vote
under 607.0704, a shareholder who wishes to assert
appraisal rights with respect to any class or series of shares:
(a) Must deliver to the corporation before the vote is taken, or
within 20 days after receiving the notice pursuant to
607.1320(3) if action is to be taken without a shareholder
meeting, written notice of the shareholder's intent to demand
payment if the proposed action is effectuated.
(b) Must not vote, or cause or permit to be voted, any shares of
such class or series in favor of the proposed action.
(2) A shareholder who does not satisfy the requirements of
subsection (1) is not entitled to payment under this chapter.
607.1322 Appraisal notice and form.
(1) If proposed corporate action requiring appraisal rights
under 607.1302(1) becomes effective, the corporation must
deliver a written appraisal notice and form required by paragraph
(2)(a) to all shareholders who satisfied the requirements of
607.1321. In the case of a merger under 607.1104, the parent
must deliver a written appraisal notice and form to all record
shareholders who may be entitled to assert appraisal rights.
(2) The appraisal notice must be sent no earlier than the date
the corporate action became effective and no later than 10 days
after such date and must:
(a) Supply a form that specifies the date that the corporate
action became effective and that provides for the shareholder to
state:
1. The shareholder's name and address.
2. The number, classes, and series of shares as to which the
shareholder asserts appraisal rights.
3. That the shareholder did not vote for the transaction.
4. Whether the shareholder accepts the corporation's offer as
stated in subparagraph (b)4.
5. If the offer is not accepted, the shareholder's estimated
fair value of the shares and a demand for payment of the
shareholder's estimated value plus interest.
(b) State:
1. Where the form must be sent and where certificates for
certificated shares must be deposited and the date by which those
certificates must be deposited, which date may not be earlier
than the date for receiving the required form under subparagraph
2.
2. A date by which the corporation must receive the form, which
date may not be fewer than 40 nor more than 60 days after the
date the subsection (1) appraisal notice and form are sent, and
state that the shareholder shall have waived the right to demand
appraisal with respect to the shares unless the form is received
by the corporation by such specified date.
3. The corporation's estimate of the fair value of the shares.
4. An offer to each shareholder who is entitled to appraisal
rights to pay the corporation's estimate of fair value set forth
in subparagraph 3.
5. That, if requested in writing, the corporation will provide
to the shareholder so requesting, within 10 days after the date
specified in subparagraph 2., the number of shareholders who
return the forms by the specified date and the total number of
shares owned by them.
6. The date by which the notice to withdraw under 607.1323
must be received, which date must be within 20 days after the
date specified in subparagraph 2.
(c) Be accompanied by:
1. Financial statements of the corporation that issued the
shares to be appraised, consisting of a balance sheet as of the
end of the fiscal year ending not more than 15 months prior to
the date of the corporation's appraisal notice, an income
statement for that year, a cash flow statement for that year, and
the latest available interim financial statements, if any.
2. A copy of 607.1301-607.1333.
607.1323 Perfection of rights; right to withdraw.
(1) A shareholder who wishes to exercise appraisal rights must
execute and return the form received pursuant to 607.1322(1)
and, in the case of certificated shares, deposit the
shareholder's certificates in accordance with the terms of the
notice by the date referred to in the notice pursuant to
607.1322(2)(b)2. Once a shareholder deposits that shareholder's
certificates or, in the case of uncertificated shares, returns
the executed forms, that shareholder loses all rights as a
shareholder, unless the shareholder withdraws pursuant to
subsection (2).
(2) A shareholder who has complied with subsection (1) may
nevertheless decline to exercise appraisal rights and withdraw
from the appraisal process by so notifying the corporation in
writing by the date set forth in the appraisal notice pursuant to
607.1322(2)(b)6. A shareholder who fails to so withdraw from
the appraisal process may not thereafter withdraw without the
corporation's written consent.
(3) A shareholder who does not execute and return the form and,
in the case of certificated shares, deposit that shareholder's
share certificates if required, each by the date set forth in the
notice described in subsection (2), shall not be entitled to
payment under this chapter.
607.1324 Shareholder's acceptance of corporation's offer.
(1) If the shareholder states on the form provided in
607.1322(1) that the shareholder accepts the offer of the
corporation to pay the corporation's estimated fair value for the
shares, the corporation shall make such payment to the
shareholder within 90 days after the corporation's receipt of the
form from the shareholder.
(2) Upon payment of the agreed value, the shareholder shall
cease to have any interest in the shares.
607.1326 Procedure if shareholder is dissatisfied with offer.
(1) A shareholder who is dissatisfied with the corporation's
offer as set forth pursuant to 607.1322(2)(b)4. must notify the
corporation on the form provided pursuant to 607.1322(1) of
that shareholder's estimate of the fair value of the shares and
demand payment of that estimate plus interest.
(2) A shareholder who fails to notify the corporation in writing
of that shareholder's demand to be paid the shareholder's stated
estimate of the fair value plus interest under subsection (1)
within the timeframe set forth in 607.1322(2)(b)2. waives the
right to demand payment under this section and shall be entitled
only to the payment offered by the corporation pursuant to
607.1322(2)(b)4.
607.1330 Court action.
(1) If a shareholder makes demand for payment under 607.1326
which remains unsettled, the corporation shall commence a
proceeding within 60 days after receiving the payment demand and
petition the court to determine the fair value of the shares and
accrued interest. If the corporation does not commence the
proceeding within the 60-day period, any shareholder who has made
a demand pursuant to 607.1326 may commence the proceeding in
the name of the corporation.
(2) The proceeding shall be commenced in the appropriate court
of the county in which the corporation's principal office, or, if
none, its registered office, in this state is located. If the
corporation is a foreign corporation without a registered office
in this state, the proceeding shall be commenced in the county in
this state in which the principal office or registered office of
the domestic corporation merged with the foreign corporation was
located at the time of the transaction.
(3) All shareholders, whether or not residents of this state,
whose demands remain unsettled shall be made parties to the
proceeding as in an action against their shares. The corporation
shall serve a copy of the initial pleading in such proceeding
upon each shareholder party who is a resident of this state in
the manner provided by law for the service of a summons and
complaint and upon each nonresident shareholder party by
registered or certified mail or by publication as provided by
law.
(4) The jurisdiction of the court in which the proceeding is
commenced under subsection (2) is plenary and exclusive. If it so
elects, the court may appoint one or more persons as appraisers
to receive evidence and recommend a decision on the question of
fair value. The appraisers shall have the powers described in the
order appointing them or in any amendment to the order. The
shareholders demanding appraisal rights are entitled to the same
discovery rights as parties in other civil proceedings. There
shall be no right to a jury trial.
(5) Each shareholder made a party to the proceeding is entitled
to judgment for the amount of the fair value of such
shareholder's shares, plus interest, as found by the court.
(6) The corporation shall pay each such shareholder the amount
found to be due within 10 days after final determination of the
proceedings. Upon payment of the judgment, the shareholder shall
cease to have any interest in the shares.
607.1331 Court costs and counsel fees.
(1) The court in an appraisal proceeding shall determine all
costs of the proceeding, including the reasonable compensation
and expenses of appraisers appointed by the court. The court
shall assess the costs against the corporation, except that the
court may assess costs against all or some of the shareholders
demanding appraisal, in amounts the court finds equitable, to the
extent the court finds such shareholders acted arbitrarily,
vexatiously, or not in good faith with respect to the rights
provided by this chapter.
(2) The court in an appraisal proceeding may also assess the
fees and expenses of counsel and experts for the respective
parties, in amounts the court finds equitable:
(a) Against the corporation and in favor of any or all
shareholders demanding appraisal if the court finds the
corporation did not substantially comply with 607.1320 and
607.1322; or
(b) Against either the corporation or a shareholder demanding
appraisal, in favor of any other party, if the court finds that
the party against whom the fees and expenses are assessed acted
arbitrarily, vexatiously, or not in good faith with respect to
the rights provided by this chapter.
(3) If the court in an appraisal proceeding finds that the
services of counsel for any shareholder were of substantial
benefit to other shareholders similarly situated, and that the
fees for those services should not be assessed against the
corporation, the court may award to such counsel reasonable fees
to be paid out of the amounts awarded the shareholders who were
benefited.
(4) To the extent the corporation fails to make a required
payment pursuant to 607.1324, the shareholder may sue directly
for the amount owed and, to the extent successful, shall be
entitled to recover from the corporation all costs and expenses
of the suit, including counsel fees.
607.1332 Disposition of acquired shares.
Shares acquired by a corporation pursuant to payment of the
agreed value thereof or pursuant to payment of the judgment
entered therefor, as provided in this chapter, may be held and
disposed of by such corporation as authorized but unissued shares
of the corporation, except that, in the case of a merger or share
exchange, they may be held and disposed of as the plan of merger
or share exchange otherwise provides. The shares of the surviving
corporation into which the shares of such shareholders demanding
appraisal rights would have been converted had they assented to
the merger shall have the status of authorized but unissued
shares of the surviving corporation.
607.1333 Limitation on corporate payment.
(1) No payment shall be made to a shareholder seeking appraisal
rights if, at the time of payment, the corporation is unable to
meet the distribution standards of 607.06401. In such event,
the shareholder shall, at the shareholder's option:
(a) Withdraw his or her notice of intent to assert appraisal
rights, which shall in such event be deemed withdrawn with the
consent of the corporation; or
(b) Retain his or her status as a claimant against the
corporation and, if it is liquidated, be subordinated to the
rights of creditors of the corporation, but have rights superior
to the shareholders not asserting appraisal rights, and if it is
not liquidated, retain his or her right to be paid for the
shares, which right the corporation shall be obliged to satisfy
when the restrictions of this section do not apply.
(2) The shareholder shall exercise the option under paragraph
(1)(a) or paragraph (b) by written notice filed with the
corporation within 30 days after the corporation has given
written notice that the payment for shares cannot be made because
of the restrictions of this section. If the shareholder fails to
exercise the option, the shareholder shall be deemed to have
withdrawn his or her notice of intent to assert appraisal rights.