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CROSS PURCHASE AGREEMENT
AGREEMENT made this 26th day of August, 1996, by and among Xxxxxxx
Xxxxxxx, Jr. ("Developer") and West Coast Entertainment Corporation, a Delaware
corporation with its principal office at 0000 Xxxxxx Xxxx, Xxxxxxxxxxxx,
Xxxxxxxxxxxx 00000 ("Buyer").
WHEREAS, the Developer and certain business entities of which he is the
sole or principal stockholder have, on the date hereof, consummated the sale of
the assets and businesses of such entities to Buyer, pursuant to an Asset
Purchase Agreement dated of even date herewith (the "Purchase Agreement"); and
WHEREAS, pursuant to the Purchase Agreement, the Developer and his
Affiliates (as defined therein) agreed with Buyer that they would not engage in
business activities competitive with Buyer, except with the approval of the
Buyer, and subject to the terms of this Agreement; and
WHEREAS, the execution and delivery of this Agreement was a condition to
the consummation of the transactions contemplated by the Purchase Agreement.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the Developer and the Buyer hereby
agree as follows.
1. OPTION TO SELL. On the terms and conditions specified in the Purchase
Agreement, (i) Buyer has agreed to allow Developer and its Affiliates to own and
operate (as a "Picture Show Video" store) a certain retail video store located
at 0000 Xxxxxxxxxx Xxxx, Xxxxxxxxxx, Xxxx (the "Xxxxxxx Store"), (ii) Buyer has
agreed to allow Developer and its Affiliates to develop, own operate or
otherwise acquire interests in up to three additional retail video stores which
will be operated as franchisees of an Affiliate of the Buyer (the "New Stores")
pursuant to one or more franchise agreements with an Affiliate of the Buyer, and
(iii) Developer and his Affiliates, with the prior consent and approval of the
Buyer, may open, operate, develop or own, additional retail video stores in
accordance with the provisions of Section 1.9 of the Purchase Agreement (the
"Additional Stores"). The Xxxxxxx Store, the New Stores and the Additional
Stores are hereinafter referred to collectively as the "Retail Stores."
Upon written notice to the Buyer from the Developer delivered at any time
beginning after the first day of the nineteenth full calendar month following
the date on which the last to open of the Retail Stores is opened (the
"Developer Commencement Date") and ending on the last day of the sixteenth
succeeding whole calendar
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month following the Developer Commencement Date (the "End Date"), the Developer
shall have the option (the "Sell Option") to require the Buyer to purchase from
the Developer or his Affiliates, and the Buyer shall be required to purchase
from the Developer or his Affiliates, all of the assets of all (but not less
than all) of the Retail Stores (the "Assets") pursuant to an asset purchase
agreement substantially in the form and on the terms of the Purchase Agreement
(the "Option Store Purchase Agreement"). If the Developer fails to timely
provide such notice, the Developer shall be deemed to have elected not to cause
the Buyer to purchase the Assets. Notwithstanding the foregoing, the Developer
may exercise the Sell Option with respect to the Xxxxxxx Store (and the Xxxxxxx
Store only) during the 16-month period commencing on the first day of the
thirteenth whole calendar month following the date on which the Xxxxxxx Store is
opened.
2. OPTION TO BUY. Upon written notice to the Developer from the Buyer
delivered at any time beginning after the first day of the twenty-first full
calendar month following the date on which the last to open of the Retail Stores
is opened (the "Buyer Commencement Date") and ending on the last day of the
sixteenth succeeding whole calendar month following the Buyer Commencement Date
(the "End Date"), the Buyer shall have the option (the "Buy Option") to require
the Developer to sell to the Buyer, and the Developer shall be required to sell
to the Buyer, all of the Assets pursuant to the terms of the Option Store
Purchase Agreement. If the Buyer fails to timely provide such notice, the Buyer
shall be deemed to have elected not to cause the Developer to sell the Assets.
3. THE CLOSING. The closing of the acquisition by the Buyer of the Assets
(the "Closing") shall take place within 45 days following the date of delivery
of the Sell Option or Buy Option, as applicable, and the determination of the
Purchase Price (in accordance with Sections 4 and 6 below) or as soon as
practicable thereafter, at the offices of Xxxx and Xxxx, 00 Xxxxx Xxxxxx,
Xxxxxx, Xxxxxxxxxxxxx, at such time or date as may be selected by Buyer, on not
less than two days prior notice to Developer (which notice may be given orally),
or at such other time and date as may be mutually agreed upon in writing by the
parties hereto. If the Sell Option with respect to the Xxxxxxx Store is
exercised separately, there shall be held a separate Closing for the purchase of
the Xxxxxxx Store.
4. PURCHASE PRICE. The purchase price for the Assets (the "Purchase
Price") shall be equal to the product of (x) 3.5 multiplied by (y) the aggregate
amount of the Net Operating Cash Flow for all of the Retail Stores (except that
if the Sell Option with respect to the Xxxxxxx Store is exercised separately,
the purchase price for the Xxxxxxx Store assets alone shall be payable
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(i.e., 3.5 times the Net Operating Cash Flow for the Xxxxxxx Store)). The
Purchase Price shall be paid in the manner provided in Section 5 below.
For purposes hereof, the Net Operating Cash Flow for each Retail Store
shall be equal to the pre-tax income from such Retail Store during the 12-month
period ending on the last day of the eighteenth full calendar month following
the opening of such Retail Store, plus all debt-related interest expense and
depreciation and amortization expenses attributable to such Retail Store for
such 12-month period, less all rental product purchases for such Retail Store
during such 12-month period (including revenue sharing expenses if not
previously expensed), less all earned income interest for such Retail Store for
such 12-month period, plus all compensation expenses for all persons employed by
Developer spending less than 75% of their employment time serving customers at
such Retail Store during such 12-month period. The Net Operating Cash Flow shall
be determined in accordance with generally accepted accounting principles
applied consistently with the Developer's past practice. If the purchase price
for the Xxxxxxx Store is calculable prior to the end of the eighteenth full
month of operations, the applicable period for calculation of the Net Operating
Cash Flow shall be the first twelve full calendar months after opening of the
Xxxxxxx Store.
5. PAYMENT OF PURCHASE PRICE. (a) Unless the Developer makes the election
described in Section 5(b) below, in accordance with the terms thereof, the Buyer
shall pay the Purchase Price for the Assets by delivery of an unsecured
promissory note of the Buyer, in the principal amount of the Purchase Price (the
"Note"). Amounts outstanding under the Note shall bear interest at the rate of
2% per annum, noncompounded. The Note shall mature on the third anniversary of
the Closing date (but shall be prepayable, without premium or penalty, at any
time in the Buyer's sole discretion), and shall provide for no payments (of
principal or interest) during the term thereof, but for payment of the entire
principal amount due thereunder, and accrued and unpaid interest thereon, at
maturity.
(b) In lieu of delivery of the Note, as provided in Section 5(a)
above, if the Developer so elects, the Buyer may deliver to the Developer on the
Closing Date, or as soon as practicable thereafter, that number of shares of
Common Stocks, $.01 par value per share, of the Buyer ("Common Stock") as is
determined by dividing (x) the Purchase Price by (y) the Market Value. The
"Market Value" shall equal the average of the average of the bid and asked
prices per share of Buyer's Common Stock as reported on the Nasdaq Stock
Exchange for each of the fifteen trading days ending on the business day
preceding the date on which the closing of the transaction contemplated by the
Purchase
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Agreement occurred. Such shares of Buyer Common Stock shall be registered under
the Securities Act of 1933, as amended (the "Securities Act"), pursuant to a
Registration Statement (the "Registration Statement") filed with the Securities
and Exchange Commission (the "SEC"). The Developer shall make the election
contemplated by this clause (b) only following delivery to the Developer of a
then current prospectus relating to shares of Buyer's Common Stock, which
prospectus is included in a then effective Registration Statement (provided such
prospectus may include supplements thereto). Buyer may deliver any such
prospectus at any time (and more than one time) following the date hereof. If,
within 10 business days following any such delivery of such a prospectus, the
Developer notifies the Buyer that it has made such election, such election shall
be irrevocable unless the Buyer and the Developer mutually agree otherwise.
(c) If the Developer has made the election contemplated by Section
5(b) above, and prior to the issuance of shares of Buyer Common Stock pursuant
to Section 5(b) above, the Buyer shall:
(x) declare a dividend of Common Stock on its Common Stock,
(y) subdivide outstanding Common Stock into a larger number
of shares of Common Stock by reclassification, stock split or
otherwise, or
(z) combine outstanding Common Stock into a smaller number of
shares of Common Stock by reclassification or otherwise,
then the number of shares of Buyer Common Stock issuable pursuant to Section
5(b) shall be adjusted proportionately so that thereafter the Developer shall be
entitled to receive the number of shares of Common Stock which the Developer
would have been entitled to receive after the happening of any of the events
described above had the shares to be issued been issued immediately prior to the
happening of such events. An adjustment made pursuant to this Section 5(c) shall
become effective immediately after the record date in the case of a dividend and
shall become effective immediately after the effective date in the case of a
subdivision or combination.
(d) The Buyer shall not assume any liabilities of the Developer in
connection with the acquisition of the Retail Stores, except that, if the
Developer so elects, up to two-sevenths of the total purchase price shall be
paid by assumption by the Buyer of the Developer's liabilities, the amount so
assumed to reduce, on a
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dollar-for-dollar basis, the amount of the other consideration deliverable to
the Developer in payment of the Purchase Price.
6. DETERMINATION OF PURCHASE PRICE. Promptly following the delivery of
the Buy Option or Sell Option, as applicable, the Buyer shall cause independent
certified public accountants for the Buyer (the "Accountants"), to review the
books and records of the Developer and its Affiliates which relate to the Retail
Stores. Not later than 90 days after the delivery of the Buy Option or Sell
Option, as applicable, the Buyer shall cause the Accountants to deliver a
statement setting forth the Net Operating Cash Flow for the Retail Stores to be
acquired to each of the parties to this Agreement (the "Accountants' Report).
In the event that the Buyer or the Developer dispute the calculation of
the Net Operating Cash Flows, the disputing party shall notify the other party
hereto in writing (the "Dispute Notice") of the amount, nature and basis of such
dispute, within 10 calendar days after delivery of the Accountants' Report. In
the event of such a dispute, the parties hereto shall first use their best
efforts to resolve such dispute among themselves. If the parties are unable to
resolve the dispute within 10 business days after delivery of the Accountants'
Report, the dispute shall be submitted to the Accountants and Xxx Xxxxxxx,
independent accountants for the Developer ("Developer's Accountants"), for
resolution. The Accountants and Developer's Accountants shall use their best
efforts to resolve the dispute within five business days after submission. If
they are unable to agree upon a resolution of the dispute within such
five-business day period, the dispute shall be submitted to arbitration in
accordance with Section 9.
The fees and expenses of the Accountants in connection with the
preparation of the Accountants' Report and the resolution of disputes pursuant
to the preceding paragraph shall be borne by the Buyer and the fees and expenses
of Developer's Accountants in connection with the resolution of disputes
pursuant to the preceding paragraph shall be borne by the Developer.
Promptly upon the expiration of the 10-business day period for giving the
Dispute Notice, if no Dispute Notice is given, or promptly upon the resolution
of disputes, if any, as provided above, the Closing shall occur.
7. RESTRICTIONS ON TRANSFER OF RETAIL STORES. Developer and its
Affiliates hereby agree that they shall not, without Buyer's prior written
consent (which may be granted or denied in Developer's sole and absolute
discretion), sell, transfer or dispose of, directly or indirectly, by sale of
stock, assets, merger, consolidation or otherwise, all or any portion of, or any
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interest in, any of the Retail Stores which are now owned or may hereafter be
developed or acquired by Developer or such Affiliates, until such time as the
options contained in this Agreement have expired unexercised.
8. NOTICES. Any notices or other communications required or permitted
hereunder shall be sufficiently given if delivered personally or sent by telex,
federal express, registered or certified mail, postage prepaid, addressed as
follows or to such other address of which the parties may have given notice:
To the Developer: Mr. Xxxxxxx Xxxxxxx, Jr.
0000 Xxxxxxx Xxxx
Xxxxxxxxx, XX 00000
With a copy to: Xxxxxx Xxxx, Esq.
000 Xxxx Xxxx Xxxxxx
Xxxxx 0000
Xxxxxxxxx, Xxxxxxxx 00000
To the Buyer: West Coast Entertainment Corporation
0000 Xxxxxx Xxxx
Xxxxxxxxxxxx, Xxxxxxxxxxxx 00000
Attn: President
With a copy to: Xxxx and Xxxx
00 Xxxxx Xxxxxx
Xxxxxx, XX 00000
Attn: Xxxx X. Xxxxx, Esq.
Unless otherwise specified herein, such notices or other communications shall be
deemed received (a) on the date delivered, if delivered personally; (b) one
business day after delivery to an overnight courier, if sent by overnight
courier; or (c) three business days after being sent, if sent by registered or
certified mail.
9. Arbitration.
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(a) Any dispute, controversy or claim between the parties arising
out of or relating to this Agreement, a breach hereof or the transactions
contemplated hereby, shall be settled by arbitration in accordance with the
provisions of this Section. Any arbitration pursuant to this Section shall be
conducted by a single arbitrator appointed by the Boston, Massachusetts office
of the American Arbitration Association upon the request of either party. The
arbitrator shall have a minimum of five years of experience in the area of
business relevant to the particular dispute. Each party shall be permitted to
submit only one proposal to the arbitrator, and the arbitrator shall be required
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to choose one of such two proposals as the resolution of the dispute. The
arbitrator may proceed to a resolution notwithstanding the failure of a party to
participate in the proceedings. Each of the parties shall pay its own costs and
expenses in connection with any such arbitration, and the parties shall share
equally in the fees and expenses of the arbitrator.
(b) The parties agree that any such arbitration will occur in
Boston, Massachusetts, any such arbitration award shall be final and binding
upon the parties, may be entered in any court having jurisdiction and shall not
be appealable by either party in any court.
10. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
assigns, except that the Buyer and the Developer may not assign their respective
obligations hereunder without the prior written consent of the other party;
provided, however, that the Buyer may assign this Agreement, and its rights and
obligations hereunder, to a subsidiary or Affiliate. Any assignment in
contravention of this provision shall be void. No assignment shall release the
Buyer from any obligation or liability under this Agreement.
11. ENTIRE AGREEMENT; AMENDMENTS. This Agreement, all Schedules and
Exhibits hereto, and all agreements and instruments to be delivered by the
parties pursuant hereto represent the entire understanding and agreement between
the parties hereto with respect to the subject matter hereof and supersede all
prior oral and written and all contemporaneous oral negotiations, commitments
and understandings between such parties. The Buyer and the Developer may amend
or modify this Agreement, in such manner as may be agreed upon, by a written
instrument executed by the Buyer and the Developer.
12. EXPENSES. Except as otherwise expressly provided herein, the Buyer
and the Developer shall each pay their own expenses in connection with this
Agreement and the transactions contemplated hereby.
13. LEGAL FEES. In the event that legal or arbitration proceedings are
commenced by the Buyer against the Developer, or by the Developer against the
Buyer, in connection with this Agreement or the transactions contemplated
hereby, the party or parties which do not prevail in such proceedings shall pay
the reasonable attorneys' fees and other costs and expenses, including
investigation costs, incurred by the prevailing party in such proceedings.
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14. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware.
15. SECTION HEADINGS. The section headings are for the convenience of the
parties and in no way alter, modify, amend, limit, or restrict the contractual
obligations of the parties.
16. SEVERABILITY. The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement.
17. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original, but all of which
shall be one and the same document.
18. CAPITALIZED TERMS. Capitalized terms used herein and not otherwise
defined herein shall have the respective meanings ascribed to them in the
Purchase Agreement.
(end of page)
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IN WITNESS WHEREOF, this Agreement has been duly executed by the parties
hereto as of and on the date first above written.
DEVELOPER:
/s/ Xxxxxxx Xxxxxxx, Jr.
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Xxxxxxx Xxxxxxx, Jr. (for himself, and on
behalf of his Affiliates which may own
Retail Stores)
BUYER:
WEST COAST ENTERTAINMENT CORPORATION
By: /s/ Xxxxx X. Xxxxxxxx III
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Title: Chairman
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