EXHIBIT 99.2
AUGUST 1, 1997
AGREEMENT TO FORM COMPANY
THIS AGREEMENT TO FORM COMPANY, dated as of August 1, 1997, between AUTO
PHOTO SYSTEMS, INC., a Maryland corporation ("Maryland Company"), and IRATA,
INC., a Texas corporation ("Texas Company").
RECITALS:
A. Maryland Company is engaged in the business of operating automatic
photo booths, business card machines and other game machines in the United
States.
B. Texas Company operates computerized, self service, vending machine
photo booths known as Video Photo in the United States. Video Photo booths
combine traditional photo options with a variety of souvenir, novelty, and
amusement options, utilizing computer imaging technology, a laser printing
device, and other hardware and software. Booths provide customers a variety of
photo product options, including traditional prints in various sizes and novelty
items such as wanted posters, newspaper front pages, photo greeting cards, and
photo calendars.
C. "Image Dynamics LLC" will be a limited liability company to be formed
under the laws of the State of Texas for the purposes set forth in this
Agreement.
D. Maryland Company and Texas Company believe that they would benefit by
combining their operations. They plan to organize and operate Image Dynamics
LLC, to which they will contribute their assets and assign certain of their
liabilities, upon the closing ("Closing") of this Agreement on the terms set
forth herein in a tax-free transaction with respect to contributed assets and
liabilities pursuant to Section 721 of the Internal Revenue Code of 1986, as
amended (the "Code").
NOW, THEREFORE, in consideration of the premises and the covenants
contained herein, and other good and valuable consideration, the receipt and
sufficiency of which are acknowledged, the parties hereby agree as follows:
ARTICLE I
FORMATION OF IMAGE DYNAMICS LLC
1.01 ARTICLES OF ORGANIZATION. Prior to the Closing, the parties shall
have caused Image Dynamics LLC's Articles of Organization to be filed with the
Texas Secretary of State.
1.02 OPERATING REGULATIONS. After Image Dynamics LLC's Articles of
Organization are filed with the Texas Secretary of State, Image Dynamics LLC's
Board of Managers shall adopt regulations (the Regulations") for the management
of Image Dynamics LLC's affairs. Image Dynamics LLC's Board of Managers shall
consist of three managers designated by Maryland Company (initially Xx. Xxx
Xxxxx, Xx. Xxxxx Xxxxxxx and Xx. Xxx Xxxxxxx) and two managers designated by
Texas Company (initially Xx. Xxxxx Xxxxxx and Xx. Xxxxxx Xxxxxxx). A quorum for
meetings of the Board of Managers shall consist of three managers, provided that
a quorum shall include at least two managers designated by Maryland Company and
at least one manager designated by Texas Company. Managers may participate in
meetings of the Board of Managers either in person or telephonically. A
representative of Royce Investment Group, Inc. shall have the right to notice
of, and attendance (without voting rights) at, meetings of Image Dynamics LLC's
Board of Managers. Xxxxx Xxxxxxx shall be the first Executive Chairman of the
Board of Image Dynamics LLC, and Xxxxx Xxxxxx shall be Image Dynamics LLC's
first President and Chief Executive Officer.
1.03 ISSUANCE OF IMAGE DYNAMICS LLC INTERESTS. Interests of Image
Dynamics LLC ("Image Dynamics LLC Interests") will be issued as provided in
Articles II and III, subject to a post-closing adjustment as provided in Article
V.
ARTICLE II
CONTRIBUTION OF MARYLAND COMPANY ASSETS
2.01 TRANSFER OF ASSETS. At Closing, Maryland Company will contribute and
deliver to, and Image Dynamics LLC will accept from Maryland Company, the assets
currently owned by Maryland Company listed on Schedule 2.01 (the "Maryland
Company Assets"), which shall include all of its sited photo booths, business
card machines, other game machines, related property and equipment supplies,
route system, intellectual property, inventory, furniture, fixtures and
equipment, and the benefit of all its business contracts including site leases
and licenses and the lease of express business card machines, and certain
receivables acceptable to the parties ("Maryland Assumed Receivables") listed on
Schedule 2.01 and/or cash equal to a fraction, the numerator of which shall be
the Image Dynamics LLC Interests issued to the Maryland Company as set forth in
Section 2.03 and the denominator of which shall be the sum of all Image Dynamics
LLC Interests issued, of the total cash and assumed receivables of Image
Dynamics LLC at Closing, subject to an existing security interest which secures
$11.0 million of debt.
2.02 ASSUMPTION OF OBLIGATIONS AND LIABILITIES. At Closing, Image
Dynamics LLC will assume $11.0 million of long term debt at an interest rate of
7.0% assigned from Maryland Company representing an intercompany debt presently
existing between Maryland Company and its parent company and at the same terms
and conditions thereof, as set forth on Schedule 2.02 and the burden of all
obligations and liabilities arising or falling due after Closing under the terms
of the business contracts referred to in Section 2.01 hereof (the "Maryland
Company Liabilities"). Image Dynamics LLC will not assume any other obligations
or liabilities of Maryland Company.
2.03 EQUITY OWNERSHIP. In consideration for the Maryland Company Assets
and Maryland Company Liabilities, Image Dynamics LLC will issue to Maryland
Company Image
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Dynamics LLC Interests at Closing in accordance with the definition of "Agreed
Equity Allocation" set forth in Section 5.01.
2.04 VALUATION. The Maryland Company inventory, furniture, fixtures and
equipment (other than sited booths and machines) will be valued for the purposes
of Section 5.01 at net book value as of April 30, 1997 subject to adjustments to
the date of Closing as set forth in Section 6.01(d).
2.05 EXPENSE CONTRIBUTIONS AND REIMBURSEMENTS. Obligations prepaid by
Maryland Company, which are attributable to operations after Closing, will be
reimbursed to Maryland Company by Image Dynamics LLC on a prorated basis.
Obligations of Maryland Company not due at Closing, which are attributable to
operations prior to Closing, will be reimbursed to Image Dynamics LLC by
Maryland Company on a prorated basis.
ARTICLE III
CONTRIBUTION OF TEXAS COMPANY ASSETS
3.01 TRANSFER OF ASSETS. At Closing, Texas Company will contribute and
deliver to, and Image Dynamics LLC will accept from Texas Company, the assets
listed on Schedule 3.01 (the "Texas Company Assets"), which shall include all of
its sited photo booths, related property and equipment, supplies, intellectual
property, inventory, furniture, fixtures and equipment (other than sited
booths), contracts and leases, and certain receivables acceptable to the parties
("Texas Assumed Receivables"), listed on Schedule 3.01 and/or cash, equal to a
fraction, the numerator of which shall be the Image Dynamics LLC Interests
issued to the Texas Company as set forth in Section 3.03 and the denominator of
which shall be the sum of all Image Dynamics LLC Interests issued, of the total
cash and assumed receivables of Image Dynamics LLC at Closing, subject to an
existing security interest which secures $2.248 million of debt.
3.02 ASSUMPTION OF OBLIGATIONS AND LIABILITIES. At Closing, Texas Company
will assign to, and Image Dynamics LLC will assume from Texas Company, $2.248
million of long-term debt as set forth on Schedule 3.02 and the burden of all
obligations and liabilities arising or falling due after Closing under the terms
of the business contracts referred to in Section 2.01 hereof (the "Texas Company
Liabilities"). Image Dynamics LLC will not assume any other obligations or
liabilities of Texas Company.
3.03 EQUITY OWNERSHIP. In consideration for the Texas Company Assets and
Texas Company Liabilities, Image Dynamics LLC will issue to Texas Company Image
Dynamics LLC Interests at Closing in accordance with the definition of "Agreed
Equity Allocation" set forth in Section 5.01.
3.04 VALUATION. The Texas Company inventory, furniture, fixtures and
equipment (other than sited booths) will be valued for the purposes of Section
5.01 at net book value as of April 30 subject to adjustments to the date of
Closing as set forth in Section 6.01(d).
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3.05 EXPENSE CONTRIBUTIONS AND REIMBURSEMENTS. Obligations prepaid by
Texas Company, which are attributable to operations after Closing, will be
reimbursed to Texas Company by Image Dynamics LLC on a prorated basis.
Obligations of Texas Company not due at Closing, which are attributable to
operations prior to Closing, will be reimbursed to Image Dynamics LLC by Texas
Company on a prorated basis.
ARTICLE IV
CLOSING
4.01 PLACE AND TIME. The Closing of the contribution of assets and
assumption of liabilities contemplated by this Agreement as defined under
Sections 2.01, 2.02, 3.01 and 3.02 will take place at 9:00 a.m. local time at
the offices of Xxxxx, Xxxxxx & Xxxxxx, LLP, 0000 Xxxx Xxxxxx, Xxxxx 0000,
Xxxxxx, Xxxxx, on August 1, 1997, however, this Agreement shall be effective
only upon the purchase by Maryland Company or its affiliates of $2.248 million
of Texas Company debt from Petrus Fund, L.P. ("the Effective Time").
4.02 DELIVERY OF DOCUMENTS.
(A) At Closing, Image Dynamics LLC shall deliver to Maryland Company and
Texas Company the certificates representing their respective Image
Dynamics LLC Interests. Maryland Company and Texas Company shall
execute and deliver to Image Dynamics LLC all bills of sale,
assignments of any intellectual property, assignments of any
warranties on the assets to be transferred, assignments of all permits
relating to the use, occupancy and operation of any leased real
property, certificates of ownership of all motor vehicles for which
registration is required, and such other instruments of transfer as
are necessary to vest in Image Dynamics LLC good and marketable title
to the assets to be transferred to Image Dynamics LLC and to
effectively assign all intellectual property to Image Dynamics LLC.
(B) Maryland Company and Texas Company shall forthwith after the Closing
use their best efforts to procure site contracts, licenses, leases,
UCC-1 filings and distribution agreements relating to the assets to be
transferred to Image Dynamics LLC in the name of Image Dynamics LLC,
and pending such novation, shall hold in trust for Image Dynamics LLC
all rights and benefits available under leases and contracts in the
names of Maryland Company and Texas Company. Image Dynamics LLC shall
indemnify Maryland Company and Texas Company against all financial
obligations arising under them from and after the Closing Date.
(C) Maryland Company and Texas Company shall also deliver to Image
Dynamics LLC as soon as practicable after Closing copies of all
correspondence, files and business records requested by Image Dynamics
LLC pertaining to the Maryland Company Assets and Liabilities or the
Texas Company Assets and Liabilities.
(D) At the Closing, Image Dynamics LLC shall execute and deliver to
Maryland
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Company and Texas Company instruments pursuant to which Image Dynamics
LLC shall assume the Maryland Company Liabilities and Texas Company
Liabilities pursuant to this Agreement.
ARTICLE V
AGREED EQUITY ALLOCATION AND PRIORITY CAPITAL DISTRIBUTIONS
5.01 AGREED EQUITY ALLOCATION. At Closing, Image Dynamics LLC will issue
Interests to Maryland Company or Texas Company so that the number of Interests
then issued to Maryland Company and to Texas Company shall have been allocated,
as set forth in Schedule 5.01, in accordance with the following definition of
agreed equity allocation: a fraction, the numerator of which shall be for
Maryland Company and Texas Company, respectively, the sum of its audited sales,
net of sales taxes, for the 12-month period ending April 30, 1997, less $172,000
of leased business card machine net sales, net of sales taxes, for the 12-month
period ending April 30, 1997 in the case of Maryland Company, as set forth in
Schedules 7.02 and 8.02, respectively, and its collected or collectible
receivables and/or cash assigned to Image Dynamics LLC, and the value of
inventory, furniture, fixtures and equipment (other than sited booths and
machines), as set forth in Schedules 2.01 and 3.01, respectively, and a "Special
Financing Contribution" of $1.497 million in the case of Maryland Company less
$11.0 million of long-term debt, as set forth in Schedule 2.02, in the case of
Maryland Company, and less $2.248 million of long-term debt, as set forth in
Schedule 3.02, in the case of Texas Company, and the denominator of which shall
be the sum of all such factors for both Maryland Company and Texas Company.
ARTICLE VI
POST CLOSING ADJUSTMENT
6.01 POST CLOSING ADJUSTMENT. Within 180 days after the Closing, with the
exception of Section 6.01(e), the parties will effect a post-closing adjustment
by causing Image Dynamics LLC to issue additional Interests to the Maryland
Company or the Texas Company so that the total number of Interests then issued
to Maryland Company and to Texas Company shall have been allocated in accordance
with the definition of agreed equity allocation as set forth in Section 5.01, as
adjusted as follows:
(A) reduction in Maryland Company or Texas Company audited sales, net of
sales taxes for the 12 month period ending April 30, 1997 if the
number of sited booths in operation by the relevant company
immediately prior to Closing is less than the number in operation at
April 30,1997 as respectively set forth in Schedule 7.02 for Maryland
Company and Schedule 8.02 for Texas Company. The reduction will equal
a fraction the numerator of which shall be the total number of photo
booths in operation by the relevant company as of April 30, 1997 less
the total number of photo booths in operation by it immediately prior
to Closing and the denominator of which shall be the total number of
photo booths in operation by it at April 30, 1997 which fraction shall
be multiplied by the audited photo booth sales, net of
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sales taxes of the relevant company for the 12 month period ending
April 30, 1997.
(B) Maryland Company or Texas Company, assigned receivables as set forth
in Schedule 2.01 for Maryland Company and 3.01 for Texas Company which
are determined to be uncollectible prior to 180 days from Closing will
be repurchased for cash with no adjustment to the agreed equity
allocation, and
(C) reductions in Maryland Company or Texas Company value of inventory
that is in excess of the amount required to support normal operations
to the extent only that purchases of inventory since April 30, 1997
exceed the normal annual rate.
(D) for Maryland Company and Texas Company the value of inventory,
furniture, fixtures and equipment (other than sited booths and
machines), as set forth in Schedules 2.01 and 3.01, respectively will
be adjusted for any subsequent purchases or sales prior to Closing so
as to reflect book value at Closing.
(E) following repayment of the final installment of the Maryland Company
long term debt referred to in Section 2.02 of $11.0 million , the
Special Financing Contribution referred to in Section 5.01 will be
recalculated by reference to the actual dates of each part repayment
until the debt is entirely cleared so that, if overall the debt is
repaid earlier than envisaged when the Special Financing Contribution
was initially calculated, an appropriate adjustment of the equity
calculation shall be made in favor of the Texas Company and
conversely, if overall the debt is paid later than so envisaged, the
equity allocation shall be adjusted in favor of the Maryland Company.
In either case the necessary adjustment will be achieved by the issue
of additional Image Dynamics LLC Interests to the party whose equity
allocation is to be increased in accordance with the revised Section
5.01 fraction resulting from the adjustment of the Special Financing
Contribution hereunder.
ARTICLE VII
REPRESENTATIONS AND WARRANTIES OF
MARYLAND COMPANY
Maryland Company represents and warrants to Texas Company as follows:
7.01 ORGANIZATION AND AUTHORIZATION. Maryland Company is a corporation
organized under the laws of the state of Maryland which is entitled, as owner of
the assets hereunder agreed to be transferred to Image Dynamics LLC, to enter
into and be bound by this Agreement which it has duly and validly executed and
delivered.
7.02 AUDITED SALES AND SITED BOOTHS AND MACHINES. Attached as Schedule
7.02 is Maryland Company's audited sales, net of sales taxes, for the twelve
months ended April 30, 1997, which has been prepared in accordance with
generally accepted accounting principles. Maryland Company had 1412 sited photo
booths, 284 sited business card machines and 58 sited other game machines in
operation at April 30, 1997.
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7.03 NO CONFLICT. Except as set forth on Schedule 7.03, entering into
and/or consummation of this Agreement will not breach or constitute a default
under any judgment, decree, order or award of any court, or arbitrator or other
competent authority in any case or dispute to which Maryland Company was a
party.
ARTICLE VIII
REPRESENTATIONS AND WARRANTIES OF TEXAS COMPANY
Texas Company represents and warrants to Maryland Company as follows:
8.01 ORGANIZATION AND AUTHORIZATION. Texas Company is a corporation
organized under the laws of the state of Texas which is entitled, as owner of
the assets hereunder agreed to be transferred to Image Dynamics LLC, to enter
into and be bound by this Agreement which it has duly and validly executed and
delivered.
8.02 AUDITED SALES AND SITED BOOTHS. Attached as Schedule 8.02 is Texas
Company's audited sales, net of sales taxes, for the twelve months ended April
30, 1997, which has been prepared in accordance with generally accepted
accounting principles. Texas Company had 674 sited photo booths in operation at
April 30, 1997.
8.03 NO CONFLICT. Except as set forth on Schedule 8.03, entering into
and/or consummation of this Agreement will not breach or constitute a default
under any judgment, decree, order or award of any court, or arbitrator or other
competent authority in any case or dispute to which Texas Company was a party
ARTICLE IX
COVENANTS
9.01 CONDUCT OF BUSINESS. Until Closing, no party shall, directly or
indirectly, without the prior written consent of the other, which shall not be
unreasonably withheld, enter into any material contractual obligations or any
other material transactions, or make any material commitments regarding the
business, in each case other than in the ordinary course of business. The Texas
Company and Maryland Company shall be operated and conducted only in the
ordinary course in accordance with prior practices, and carry on its business
diligently and substantially in the manner as heretofore conducted. By way of
illustration and not in limitation of the foregoing:
(A) Their assets shall be reasonably maintained in their present state or
repair (ordinary wear and tear excepted), and shall use its best
efforts to keep available the services of employees, and preserve the
good will of its businesses and relationships with the material
customers, licensors and, suppliers, with whom it has business
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relations.
(B) Without the prior consent of the other parties, prior to Closing
neither Texas Company nor Maryland Company shall hereafter take any of
the following actions:
(I) Dispose of any of their assets other than in the ordinary course
of business consistent with past practice;
(II) Mortgage, pledge or subject to liens, security shares, or other
encumbrances any of their assets;
(III) Purchase or commit to purchase any capital asset for a price
exceeding $10,000;
(IV) Change (or announce any change of) any salaries, wages or
employee benefits or hire, or commit to hire any employee whose
annual compensation would exceed $25,000;
(V) Amend or terminate any contract or other material agreement,
including any plan or any insurance policy, in force on the date
hereof; or
(VI) Do any act, omit to do any act or permit any act within their
control which will cause a breach of any representation, warranty
or obligation contained in this Agreement or any obligations
contained in any contract.
9.02 EMPLOYEES. Until Closing Maryland Company and Texas Company shall
remain liable for all compensation, vacation, sick leave, workers' compensation
claims, pension or profit-sharing or any other compensation or benefits accrued
or payable to their respective employees, as well as for any severance payments
or unemployment benefits payable to their respective employees who are
terminated and after Closing shall remain similarly liable in respect of all
their employees who are not taken on by Image Dynamics LLC.
9.03 CONFIDENTIALITY. Maryland Company and Texas Company ratify and
confirm the letter agreement relating to confidentiality between them, dated
March 21, 1997, and agree that it shall remain in effect until this Agreement is
consummated or terminated.
9.04 AGREEMENT NOT TO COMPETE. After the Closing, no party will compete
directly with Image Dynamics LLC in the United States. Texas Company shall
continue to indirectly engage in the photo booth business only through Image
Dynamics LLC.
9.05 SCHEDULES. Maryland Company and Texas Company shall furnish to each
other their Schedules 2.01, 2.02, 7.02, 7.03 and Schedules 3.01, 3.02, 5.01,
8.02, 8.03 respectively, to this Agreement on or prior to signature of this
Agreement.
9.06 INCORPORATION OF IMAGE DYNAMICS LLC SUBSIDIARY. On or prior to any
distribution of Image Dynamics LLC Interests which would result in Image
Dynamics LLC
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becoming a reporting company for purposes of the Securities Exchange Act of
1934, as amended, Image Dynamics LLC will form a wholly owned subsidiary which
will be taxed under Subchapter C of the Code to which it shall transfer all of
its assets and liabilities in a tax-free transaction pursuant to Section 351 of
the Code. Image Dynamics LLC will prepare and file an appropriate registration
statement with the Securities and Exchange Commission relating to such Image
Dynamics LLC Interests, which shall become effective prior to any distribution.
9.07 PURCHASE OF TEXAS COMPANY DEBT. On or before August 4, 1997,
Maryland Company or its affiliates shall purchase $2.248 million of Texas
Company debt from Petrus Fund, L.P. The note evidencing such debt shall be
modified and extended as set forth on Schedule 3.02. The purchaser of this debt
shall consent to the assignment of this debt and to the assignment of the assets
securing this debt to Image Dynamics LLC pursuant to this Agreement.
ARTICLE X
CONDITIONS TO PARTIES' OBLIGATIONS
10.01 OBLIGATIONS OF MARYLAND COMPANY. The obligations of Maryland
Company are subject to the satisfaction (or waiver) of each of the following
conditions:
(A) REPRESENTATIONS AND WARRANTIES TRUE AT CLOSING. Texas Company's
representations and warranties contained in this Agreement will be
true in all material respects on and as of the Closing with the same
force and effect as though made on and as of such date; Texas Company
will have complied in all material respects with its covenants and
agreements in this Agreement on or before the Closing; and Texas
Company will have delivered to Maryland Company a certificate dated
the Closing signed by an authorized officer to all such effects.
(B) LITIGATION. No suit, investigation, action or other proceeding will
be overtly threatened or pending against Texas Company before any
court or governmental agency which, in the reasonable opinion of
counsel for Maryland Company, could result in the restraint or
prohibition of Texas Company, or the obtaining of damages or other
relief from any such party, in connection with this Agreement or the
consummation of the transactions contemplated herein.
(C) NO MATERIAL ADVERSE CHANGES. Texas Company will not have suffered any
material adverse change in its businesses, prospects, financial
condition, working capital, assets, liabilities (absolute, accrued,
contingent, or otherwise) or operations.
(D) OPINION OF SPECIAL TAX COUNSEL. Maryland Company will have received
from special tax counsel an opinion, dated the Closing, to the effect
that the transaction contemplated by this Agreement with respect to
the contributed assets and liabilities is free from United States
taxation pursuant to Section 721 of the Code.
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(E) DOCUMENTS AND SCHEDULES SATISFACTORY. All Schedules, bills of sale,
assignments, certificates, and other documents delivered by Texas
Company to Maryland Company on or prior to Closing will be in form and
substance satisfactory to Maryland Company and its counsel.
(F) REQUIRED GOVERNMENTAL APPROVALS. All governmental authorizations,
consents, and approvals necessary to validly consummate the
transactions contemplated here will have been obtained and will be in
full force and effect, including the assignment of all permits and
licenses necessary to permit Image Dynamics LLC to carry on the
business of Texas Company Assets and Liabilities on and after the
Closing.
(G) BOARD APPROVAL. This Agreement shall have been approved by the Board
of Directors of Texas Company.
10.02 OBLIGATIONS OF TEXAS COMPANY. Texas Company's obligations to be
performed under this Agreement are subject to the satisfaction (or waiver) of
each of the following conditions:
(A) REPRESENTATIONS AND WARRANTIES TRUE AT CLOSING. The representations
and warranties of Maryland Company contained in this Agreement will be
true in all material respects on and as of the Closing with the same
force and effect as though made on and as of such date; Maryland
Company will have complied in all material respects with its covenants
and agreements in this Agreement to be performed on or before the
Closing; and Maryland Company will have delivered to Texas Company a
certificate dated the Closing signed by an authorized officer to all
such effects.
(B) LITIGATION. No suit, investigation, action, or other proceeding will
be overtly threatened or pending against Maryland Company before any
court or governmental agency that, in the reasonable opinion of Texas
Company's counsel, could result in the restraint or prohibition of any
such party, or the obtaining of damages or other relief from Maryland
Company, in connection with this Agreement or consummation of the
transactions contemplated herein.
(C) NO MATERIAL ADVERSE CHANGES. Maryland Company will not have suffered
any material adverse change in its businesses, prospects, financial
condition, working capital, assets, liabilities (absolute, accrued,
contingent, or otherwise) or operations.
(D) OPINION OF SPECIAL TAX COUNSEL. Texas Company will have received from
special tax counsel an opinion, dated the Closing, to the effect that
the transaction contemplated by this Agreement with respect to the
contributed assets and liabilities is free from United States taxation
pursuant to Section 721 of the Code.
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(E) FAIRNESS OPINION. Texas Company will have received from an investment
banking firm an opinion, dated the Closing, that the terms of this
Agreement are fair to Texas Company and its shareholders.
(F) DOCUMENTS AND SCHEDULES SATISFACTORY. All Schedules, bills of sale,
assignments, certificates and other documents delivered by Maryland
Company to Texas Company on or prior to Closing will be in form and
substance satisfactory to Texas Company and its counsel.
(G) GOVERNMENTAL APPROVALS. All governmental authorizations, consents,
and approvals necessary to validly consummate the transactions
contemplated here will have been obtained and will be in full force
and effect, including the assignment of all permits and licenses
necessary to permit Image Dynamics LLC to carry on the business of
Maryland Company Assets and Liabilities on and after the Closing
(H) BOARD APPROVAL. This Agreement shall have been approved by the Board
of Directors of Maryland Company.
ARTICLE XI
CLAIMS AND INDEMNIFICATION
11.01 SURVIVAL OF CLAIMS. For purposes of indemnification under this
Article XI, any "General Claim" (as herein defined) shall survive until two
years after Closing
11.02 DEFINITION OF CLAIMS.
"General Claim" means any claim based upon, arising out of or otherwise
related to any inaccuracy in any representation or warranty or any
breach of any covenant or agreement made by Maryland Company or Texas
Company in or pursuant to this Agreement.
11.03 OBLIGATIONS OF MARYLAND COMPANY. Maryland Company agrees to
indemnify, defend and hold Texas harmless from and against all losses, costs,
deficiencies, damages, consequential damages (including, but not limited to,
interruptions of business and costs of remedial actions), fines, penalties and
liabilities incurred, and all expenses (including, but not limited to reasonable
attorneys' fees) arising out of or otherwise related to any General Claim
(collectively, "Losses," and individually, a "Loss").
11.04 OBLIGATION OF TEXAS COMPANY. Texas Company agrees to indemnify,
defend and hold Maryland Company harmless from and against all losses, costs,
deficiencies, damages, consequential damages (including, but not limited to,
interruptions of business and costs of
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remedial actions), fines, penalties and liabilities incurred, and all expenses
(including, but not limited to reasonable attorneys' fees) arising out of or
otherwise related to any General Claim, (collectively, "Losses," and
individually, a "Loss").
11.05 NOTICE OF LOSS OR ASSERTED LIABILITY. Promptly after (a) becoming
aware of circumstances that have resulted in a Loss for which any party hereto
(the "Indemnitee") intends to seek indemnification under Sections 11.03 or 11.04
or (b) receipt by the Indemnitee of written notice of any demand, claim or
circumstances which, with or without the lapse of time, the giving of notice or
both, would give rise to a claim or the commencement (or threatened
commencement) of any action, proceeding or investigation (an "Asserted
Liability") that may result in a Loss, the Indemnitee will give notice thereof
to any other party (or parties) obligated to provide indemnification pursuant to
Sections 11.03 or 11.04 (the "Indemnifying Party").
11.06 OPPORTUNITY TO CONTEST. Subject to the provisions of Sections 11.07
and 11.08, the Indemnifying Party may elect to compromise or contest, at its own
expense and by its own counsel, any Asserted Liability. If the Indemnifying
Party elects to compromise or contest such Asserted Liability, it will within 30
days after receiving notice of the claim from Indemnitee (or sooner, if the
nature of the Asserted Liability so requires) notify the Indemnitee or
Indemnitees in writing of its intent to do so, and the Indemnitee will
cooperate, at the expense of the Indemnifying Party, in the compromise or
contest of such Asserted Liability. If the Indemnifying Party elects not to
compromise or contest the Asserted Liability, fails to so notify the Indemnitee
of its election as herein provided or contests its obligation to indemnify under
this Agreement, the Indemnitee (upon further notice to the Indemnifying Party)
will hereafter have the right to pay, compromise or contest such Asserted
Liability on behalf of and for the account and risk of the Indemnifying Party,
subject to the right of the Indemnifying Party to assume the compromise or
contest of such Asserted Liability at any time before final settlement or
determination thereof. In any event, the Indemnitee and the Indemnifying Party
may participate, at their own expense, in the contest of such Asserted
Liability. If the Indemnifying Party chooses to contest any Asserted Liability,
the Indemnitee will make available to the Indemnifying Party any books, records
or other documents within its control that are necessary or appropriate for,
will make its officers and employees available, on a basis reasonably consistent
with their other duties, in connection with, and will otherwise cooperate with,
such defense.
11.07 DISPUTES WITH CUSTOMERS OR SUPPLIERS. Notwithstanding any other
provision to the contrary, in the case of any Asserted Liability by any supplier
or customer of the Maryland Company or the Texas Company in connection with
which the Maryland Company or the Texas Company makes a claim for
indemnification hereunder, the Maryland Company or the Texas Company shall give
a claims notice with respect thereto but, unless the Maryland Company or the
Texas Company and the Indemnifying party otherwise agree in writing, the
Maryland Company or the Texas Company shall have the exclusive right, at the
Maryland Company or the Texas Company 's option, to defend any such matter at
Maryland Company or the Texas Company's expense; provided, however, that no
settlement or compromise for which the Maryland Company or the Texas Company is
liable shall be made without its prior written consent; provided, further,
however, that if the Maryland Company or the Texas Company refuses or fails
within a reasonable time to give such consent, Maryland Company or the Texas
Company's defense shall be at the other party's expense.
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11.08 LIMITATIONS ON INDEMNIFICATION. The indemnification provided for in
this Article shall be subject to the following limitations:
(A) The claims notice with respect to any Loss or Asserted Liability must
be given pursuant to Section 11.05 before the expiration of the
survival period related to such Loss or Asserted Liability as provided
in Section 11.01, as applicable, and then the obligation to indemnify
shall continue thereafter until the final resolution of such
obligations relating to the Loss or Asserted Liability.
(B) Maryland Company shall not be entitled to receive any indemnification
payments related to Losses until the cumulative amount of all Losses
suffered by the Maryland Company shall equal or exceed $10,000, and
then only to the extent that such amount exceeds $10,000.
(C) The Texas Company shall not be entitled to receive any
indemnification payments until the cumulative amount of all Losses
suffered by the Texas Company shall exceed $10,000, and then only to
the extent such amount exceeds $10,000.
(D) Maryland Company shall not be entitled to receive indemnification
payments for claims under this Article totaling in the aggregate in
excess of the lesser of $2.5 million or 20% of the claimant company's
agreed equity allocation amount as defined under Section 5.01.
(E) The Texas Company shall not be entitled to receive indemnification
payments for claims under this Article totaling in the aggregate in
excess of the lesser of $2.5 million or 20% of the claimant company's
agreed equity allocation amount as defined under Section 5.01.
(F) To the extent a Loss results from, applies to, or relates to the
ownership or operation of the Assets prior to the Closing, or any
accident, event, condition, or occurrence occurring or existing prior
to the Closing, and the accident, event, conditions or occurrence
giving rise to such loss occurred in part before the Closing and in
part after the Closing, liability shall be allocated between the
parties on the basis of the proportions of the cause occurring before
or after the Closing.
ARTICLE XII
MISCELLANEOUS
12.01 ENTIRE AGREEMENT. This Agreement constitutes the sole understanding
of the parties with respect to the subject matter hereof. No amendment,
modification or alteration of the terms or provisions of this Agreement shall be
binding unless the same shall be in writing and duly executed by the parties
hereto. Any of the terms or conditions of this Agreement may be waived in
writing at any time by the party which is entitled to the benefits thereof. No
waiver of any of the provisions of this Agreement shall be deemed to or shall
constitute a waiver of any other
13
provision hereof (whether or not similar).
12.02 PARTIES BOUND BY AGREEMENT; SUCCESSORS AND ASSIGNS. The terms,
conditions and obligations of this Agreement shall inure to the benefit of and
be binding upon the parties hereto and the respective successors and assigns
thereof. Without the prior written consent of the other party, neither party
may assign its rights, duties, or obligations hereunder or any part hereof to
any other person or entity.
12.03 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which will for all purposes be deemed to be an original
and all of which will constitute the same instrument.
12.04 HEADINGS. The headings of the Articles, Sections and Schedules of
this Agreement are inserted for convenience only and shall not be deemed to
constitute part of this Agreement or to affect the construction hereof.
12.05 SALES AND USE TAXES. Any and all sales and use tax due or to become
due as a result of the consummation of the transactions contemplated hereby
shall be borne solely by, and paid to the appropriate taxing body by Image
Dynamics LLC
12.06 NOTICES. Any notice, request, instruction, or other document to be
given must be in writing and delivered personally or sent by certified mail or
by United States Express Mail, postage or fees prepaid,
If to Maryland Company to:
Auto Photo Systems, Inc.
c/o Photo-Me International plc
Xxxxxx Xxxx
Xxxxxxx
Xxxxxx XX00 0XX
England
If to Texas Company to:
Irata, Inc.
0000 Xxxx Xxxxxxx, Xxxxx 000
Xxxxxxx, Xxxxx 00000
Any notice delivered personally in the manner provided here will be deemed given
to the party to whom it is directed upon the party's (or its agent's) actual
receipt. Any notice addressed and mailed in the manner provided here will be
deemed given to the party to whom it is addressed at the close of business,
local time of the recipient, on the fourth business day after the day it is
placed in the mail or, if earlier, the time of actual receipt.
14
13.07 EXPENSES. All expenses of the parties in connection with the
negotiation up to the stage of finalization of the draft Agreement, excluding
special federal or state tax advice and formation filing or related fees, shall
be borne by Image Dynamics LLC up to a maximum amount of $200,000 for both
parties which will be allocated to each party according to the agreed equity
allocation set forth in Section 5.01. If this Agreement is terminated, each
party will bear its own expenses.
13.08 GOVERNING LAW. This Agreement will be construed in accordance with
and governed by the substantive laws of the State of Texas without giving effect
to its principles of conflicts of law.
13.09 PUBLIC ANNOUNCEMENTS. Maryland Company and Texas Company shall
advise and confer with each other prior to issuing any reports, statements or
releases pertaining to this letter or the agreements and transactions
contemplated in it, subject to compliance by Texas Company with applicable
federal securities law, as determined by its securities counsel.
13.10 KNOWLEDGE. As used in this Agreement, "knowledge" and "to the
knowledge of" means actual knowledge of a party or any executive or key
employee, officer of the party.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed and delivered as of the date hereof.
AUTO PHOTO SYSTEMS, INC.
By:
--------------------------------------
Xxxxx Xxxxxxx, Executive Chairman
IRATA, INC.
By:
--------------------------------------
Xxxxx Xxxxxx, President
and Chief Executive Officer
15
SCHEDULE 2.01
Maryland Company Assets
as of April 30, 1997
1412 Sited Photo Booths
-------------------------------------------------------------------------------------------
284 Business Card Machines
-------------------------------------------------------------------------------------------
58 Other Game or Entertainment Machines
-------------------------------------------------------------------------------------------
.Intellectural Property including but no limited to know-how
-------------------------------------------------------------------------------------------
All inventory including paper, toner cartridges, new cabinets, new booth $6,181,000
components, used booth components, spare parts and components for other
machines as well as booths and unsited other machines as well as unsited
booths at net book value
-------------------------------------------------------------------------------------------
All Furniture, Machinery and Equipment including Trucks and Automobiles at $ 268,000
net book value
-------------------------------------------------------------------------------------------
Cash or Accounts Receivable (to be detailed and scheduled within 30 days $ 296,000
after Closing)
-------------------------------------------------------------------------------------------
.Contracts and leases, including but not limited to specialty leasing or
licensing agreements with mall developers and property managers, leases
of Maryland Company's offices and other premises and capital and
operating leases of equipment including but not limited to business card
machines.
-------------------------------------------------------------------------------------------
1
SCHEDULE 2.02
Maryland Company Liabilities
as of April 30, 1997
month 1 2 3 4 5 6 7 8 9
LOAN STRUCTURE
---------------
principal $11,000,000
interest rate 7.00%
monthly payment ($217,813) 60 payments beginning in
month 7
principle payment ($153,647) ($154,543) ($155,444)
interest payment ($64,167) ($64,167) ($64,167) ($64,167) ($64,167) ($64,167) ($64,167) ($63,270) ($62,369)
month 10 11 12 13 14 15 16 17 18
LOAN STRUCTURE
--------------
principal $11,000,000
interest rate 7.00%
monthly payment ($217,813)
principle payment ($156,351) ($157,263) ($158,180) ($159,103) ($160,031) ($160,965) ($161,904) ($162,848) ($163,798)
interest payment ($61,462) ($60,550) ($59,633) ($58,710) ($57,782) ($56,848) ($55,909) ($54,965) ($54,015)
month 19 20 21 22 23 24 25 26 27
LOAN STRUCTURE
---------------
principal $11,000,000
interest rate 7.00%
monthly payment ($217,813)
principle payment ($164,754) ($165,715) ($166,681) ($167,654) ($168,632) ($169,615) ($170,605) ($171,600) ($172,601)
interest payment ($53,060) ($52,098) ($51,132) ($50,160) ($49,182) ($48,198) ($47,208) ($46,213) ($45,212)
month 28 29 30 31 32 33 34 35 36
LOAN STRUCTURE
---------------
principal $11,000,000
interest rate 7.00%
monthly payment ($217,813)
principle payment ($173,608) ($174,621)($175,639) ($176,664) ($177,694) ($178,731) ($179,773) ($180,822) ($181,877)
interest payment ($44,205) ($43,193) ($42,174) ($41,149) ($40,119) ($39,082) ($38,040) ($36,991) ($35,936)
1
SCHEDULE 2.02
month 37 38 39 40 41 42 43 44 45
LOAN STRUCTURE
---------------
principal $11,000,000
interest rate 7.00%
monthly payment ($217,813)
principle payment ($182,938) ($184,005) ($185,078) ($186,158) ($187,244) ($188,336) ($189,435) ($190,540)
interest payment ($34,875) ($33,808) ($32,735) ($31,655) ($30,569) ($29,477) ($28,378) ($27,273)
month 46 47 48 49 50 51 52 53 54
LOAN STRUCTURE
--------------
principal $11,000,000
interest rate 7.00%
monthly payment ($217,813)
principle payment ($192,769) ($193,894) ($195,025) ($196,162) ($197,307) ($198,458) ($199,615) ($200,780) ($201,951)
interest payment ($25,044) ($23,919) ($22,788) ($21,651) ($20,507) ($19,356) ($18,198) ($17,033) ($15,862)
month 55 56 57 58 59 60 61 62 63
LOAN STRUCTURE
---------------
principal $11,000,000
interest rate 7.00%
monthly payment ($217,813)
principle payment ($203,129) ($204,314) ($205,506) ($206,705) ($207,910) ($209,123) ($210,343) ($211,570) ($212,804)
interest payment ($14,684) ($13,499) ($12,307) ($11,109) ($9,903) ($8,690) ($7,470) ($6,243) ($5,009)
month 64 65 66 Cumulative Total
LOAN STRUCTURE
---------------
principal $11,000,000
interest rate 7.00%
monthly payment ($217,813)
principle payment ($214,045) ($215,294) ($216,550) ($11,000,000)
interest payment ($3,768) ($2,519) ($1,263) ($2,453,791)
2
SCHEDULE 3.01
Texas Company Assets
as of April 30, 1997
-----------------------------------------------------------------------------------------
674 Sited Photo Booths
-----------------------------------------------------------------------------------------
Intellectual Property, including but not limited to, know-how, color booth
software developed by Helmsman Publications, black & white booth software
developed by Handmade Software, registered trademark IRATA and registered
trademark VIDEOFOTO.
-----------------------------------------------------------------------------------------
All inventory including paper, toner cartridges, new cabinets, new booth $950,000
components, used booth components and unsited booths at net book value
-----------------------------------------------------------------------------------------
All Furniture, Machinery and Equipment at net book value $150,000
-----------------------------------------------------------------------------------------
Cash or Accounts Receivable (to be detailed and scheduled within 30 days $107,000
after Closing)
-----------------------------------------------------------------------------------------
Contracts and Leases, including but not limited to, specialty leasing
agreements with mall developers and property managers, and equipment
leases, but excluding the Houston office lease and Chicago office lease
-----------------------------------------------------------------------------------------
1
SCHEDULE 3.02
Texas Company Liabilities
as of April 30, 1997
Amended and Restated Loan Agreement dated October 31, 1996 $2,247,639
between Irata, Inc and Petrus Fund, L.P. evidenced by 12%
Senior Note having a maturity date of June 2, 1998 with
monthly interest payments in arrears until maturity.
This note shall be modified and extended upon assumption
by Image Dynamics LLC as follows: at the current maturity
date of June 2, 1998 this note will be extended in maturity,
under the same terms and conditions, until no earlier than
the date of the remaining term of the Maryland Company debt,
as set forth in Schedule 2.02.
1
SCHEDULE 5.01
Maryland Company / Texas Company Equity Allocation Formula Table
(based on April 30, 1997)
$-000's
Maryland Texas Total
Company Company -------
---------- -------
One times 1997 Net Sales $16,980 $6,038 $23,018
percentage 73.77% 26.23% 100.00%
less 32% of 1997 Net Sales of $172 $0 $172
ECM machines
percentage 100.00% 0.00% 100.00%
plus certain Receivables $301 $107 $408
percentage 73.77% 26.23% 100.00%
plus inventory $6,181 $950 $7,131
percentage 86.68% 13.32% 100.00%
plus other assets $268 $150 $418
percentage 64.11% 35.89% 100.00%
less Long Term Debt $11,000 $2,248 $13,248
percentage 83.03% 16.97% 100.00%
plus Capitalized Finance Charge $1,497 $0 $1,497
percentage 100.00% 0.00% 100.00%
-------------- -------------- ---------------
Equity Allocation $14,055 $4,997 $19,052
percentage of Image Dynamics 73.77% 26.23% 100.00%
============== ============== ===============
1
SCHEDULE 7.02
Audited Sales of Maryland Company
Audited sales, net of sales tax, for the twelve
months ended April 30, 1997 $16,980,000
1
SCHEDULE 7.03
Maryland Company
No Conflict
(none)
1
SCHEDULE 8.02
Audited Sales of Texas Company
Audited sales, net of sales tax, for the twelve months $6,038,000
ended April 30, 1997
1
SCHEDULE 8.03
Texas Company
No Conflict
(none)
1
