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ASSET PURCHASE AGREEMENT
By and Among
West Coast Entertainment Corporation,
Each of the Entities Identified
On SCHEDULE A Attached Hereto
and
XXXXXXX XXXXXXX, JR.
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TABLE OF CONTENTS
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Section Page
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1. Sale and Delivery of the Assets....................... 1
1.1 Delivery of the Assets.......................... 1
1.2 Further Assurances ............................. 3
1.3 Base Purchase Price............................. 3
1.4 Assumption of Liabilities; Etc.................. 4
1.5 Allocation of Base Purchase Price and
Assumed Liabilities............................. 5
1.6 The Closing..................................... 5
1.7 No Apportionment................................ 5
1.8 Post-Closing Adjustments........................ 5
1.9 Additional Stores............................... 7
2. Representations of the Seller and the Principal....... 8
2.1 Organization.................................... 8
2.2 Capitalization of the Seller ................... 9
2.3 Authorization................................... 9
2.4 Ownership of the Assets......................... 9
2.5 Financial Statements............................ 10
2.6 Absence of Undisclosed Liabilities.............. 11
2.7 Litigation...................................... 11
2.8 Insurance....................................... 11
2.9 Inventory....................................... 11
2.10 Fixed Assets.................................... 12
2.11 Leases.......................................... 12
2.12 Change in Financial Condition and Assets........ 13
2.13 Tax Matters..................................... 13
2.14 Accounts Receivable............................. 14
2.15 Books and Records............................... 14
2.16 Contracts and Commitments....................... 14
2.17 Compliance with Agreements and Laws............. 16
2.18 Employee Relations.............................. 17
2.19 Absence of Certain Changes or Events............ 18
2.20 Suppliers....................................... 18
2.21 Prepayments and Deposits........................ 19
2.22 Trade Names and Other Intangible Property....... 19
2.23 Employee Benefit Plans.......................... 19
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Section Page
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2.24 Regulatory Approvals............................ 20
2.25 Indebtedness to and from Officers, Directors
and Shareholders................................ 20
2.26 Powers of Attorney and Suretyships.............. 20
2.27 Disclosure...................................... 20
3. Representations of the Buyer.......................... 21
3.1 Organization and Authority...................... 21
3.2 Capitalization of the Buyer..................... 21
3.3 Authorization................................... 22
3.4 Regulatory Approvals............................ 22
3.5 Disclosure...................................... 22
3.6 Issuance of Shares.............................. 22
4. Access to Information; Public Announcements........... 22
4.1 Access to Management, Properties and Records.... 22
4.2 Confidentiality................................. 23
4.3 Public Announcements............................ 23
5. Pre-Closing Covenants of the Seller................... 24
5.1 Conduct of Business............................. 24
5.2 Absence of Material Changes..................... 24
5.3 Taxes........................................... 26
5.4 Delivery of Interim Financial Statements ....... 26
5.5 Compliance with Laws............................ 26
5.6 Continued Truth of Representations
and Warranties of the Seller.................... 26
5.7 Continuing Obligation to Inform................. 26
5.8 Exclusive Dealing............................... 26
5.9 No Publicity.................................... 27
6. Satisfaction of Conditions, Liquidated Damages........ 27
6.1 Satisfaction of Conditions...................... 27
6.2 Liquidated Damages.............................. 27
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Section Page
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7. Conditions to Obligations of the Buyer................ 28
7.1 Continued Truth of Representations
and Warranties of the Seller; Compliance with
Covenants and Obligations ...................... 28
7.2 Corporate Proceedings........................... 28
7.3 Governmental Approvals.......................... 28
7.4 Consents of Lenders, Lessors and Other
Third Parties................................... 28
7.5 Adverse Proceedings............................. 29
7.6 Opinion of Counsel.............................. 29
7.7 Board of Directors and Shareholder Approval..... 29
7.8 The Assets...................................... 29
7.9 Update.......................................... 29
7.10 Cash Available for Working Capital Purposes..... 20
7.11 Payables........................................ 29
7.12 Engineer's Report............................... 29
7.13 Tax Lien Waivers................................ 29
7.14 Franchise Agreements............................ 30
7.15 Cross Purchase Agreement........................ 30
7.16 Closing Deliveries.............................. 30
8. Conditions to Obligations of the Seller............... 31
8.1 Continued Truth of Representations and
Warranties of the Buyer; Compliance
with Covenants and Obligations.................. 31
8.2 Corporate Proceedings........................... 31
8.3 Governmental Approvals.......................... 31
8.4 Consents of Lenders, Lessors and Other
Third Parties................................... 31
8.5 Adverse Proceedings............................. 32
8.6 Opinion of Counsel.............................. 32
8.7 Closing Deliveries.............................. 32
9. Indemnification....................................... 32
9.1 By the Buyer and the Seller
and the Principal............................... 32
9.2A By the Seller and the Principal................. 33
9.2B By the Buyer.................................... 34
9.3 Claims for Indemnification...................... 34
9.4 Defense by Indemnifying Party.................. 35
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Section Page
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9.5 Payment of Indemnification Obligation........... 35
9.6 Survival of Representations; Claims for
Indemnification................................. 35
10. Post-Closing Agreements............................... 36
10.1 Proprietary Information......................... 36
10.2 No Solicitation or Hiring of Former Employees... 36
10.3 Non-Competition Agreement....................... 37
10.4 Sharing of Data................................. 38
10.5 Use of Name.................................... 38
10.6 Cooperation in Litigation....................... 38
11. Termination of Agreement.............................. 39
11.1 Termination by Lapse of Time.................... 39
11.2 Termination by Agreement of the Parties........ 39
11.3 Termination by Reason of Breach................ 39
12. Transfer and Sales Tax................................ 39
13. Brokers............................................... 39
13.1 For the Seller.................................. 39
13.2 For the Buyer................................... 40
14. Notices............................................... 40
15 Arbitration........................................... 40
16. Successors and Assigns................................ 41
17. Entire Agreement; Amendments; Attachments............. 41
18. Expenses.............................................. 42
19. Legal Fees............................................ 42
20. Governing Law......................................... 42
21. Section Headings...................................... 42
22. Severability.......................................... 42
22. Counterparts.......................................... 43
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ASSET PURCHASE AGREEMENT
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Agreement made as of August 23, 1996 by and among West Coast
Entertainment Corporation, a Delaware corporation with its principal
office at 0000 Xxxxxx Xxxx, Xxxxxxxxxxxx, Xxxxxxxxxxxx 00000 (the
"Buyer"), each of the entities identified on SCHEDULE A attached hereto
(collectively, the "Seller"), each of which has its principal office at
address specified on SCHEDULE A, and Xxxxxxx Xxxxxxx, Jr. (the
"Principal").
Preliminary Statement
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The Buyer desires to purchase, and the Seller desires to sell,
substantially all of the assets and business of the Seller related to
the Seller's retail video rental and sales business (the "Business"),
for the consideration set forth below and the assumption of certain of
the Seller's liabilities set forth below, subject to the terms and
conditions of this Agreement.
NOW, THEREFORE, in consideration of the mutual promises
hereinafter set forth and other good and valuable consideration, the
receipt of which is hereby acknowledged, the parties hereby agree as
follows:
1. Sale and Delivery of the Assets
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1.1 Delivery of the Assets.
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(a) Subject to and upon the terms and conditions of this
Agreement, at the closing of the transactions contemplated by this
Agreement (the "Closing"), the Seller shall sell, transfer, convey,
assign and deliver to the Buyer, and the Buyer shall purchase from the
Seller, the following properties, assets and other claims, rights and
interests related to the Business:
(i) all inventories, videotapes, finished goods,
office supplies, maintenance supplies, packaging materials, spare parts
and similar items of the Seller (collectively, the "Inventory") which
exist on the Closing Date (as defined below);
(ii) all accounts, accounts receivable, notes and
notes receivable existing on the Closing Date which are payable to the
Seller, including any security held by the Seller for the payment
thereof (the "Accounts Receivable");
(iii) all prepaid expenses, deposits, bank accounts
and other similar assets of the Seller existing on the Closing Date,
including the cash represented by such assets, but
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excluding the cash of Seller held in Seller's bank accounts or at the
Stores, as defined below (other than the $600 per store required to be
transferred to Buyer pursuant to Section 7.10);
(iv) all rights of the Seller under the contracts,
agreements, leases, licenses and other instruments set forth on
SCHEDULE 2.16 attached hereto (collectively, the "Contract Rights");
(v) all books, records and accounts,
correspondence, manuals, customer lists, employment records, studies,
reports or summaries relating to or arising out of the Business;
(vi) all rights of the Seller under express or
implied warranties from the suppliers of the Seller;
(vii) all of the machinery, equipment, furniture,
leasehold improvements and construction in progress owned by the Seller
on the Closing Date, which are reflected as "fixed assets" or "capital
assets" in the accounting records of the Seller (collectively, the
"Fixed Assets");
(viii) all of the Seller's right, title and interest
in and to all intangible property rights, including but not limited to
inventions, discoveries, trade secrets, processes, formulas, know-how,
United States and foreign patents, patent applications, trade names,
including the name "Picture Show" or any derivation thereof,
trademarks, trademark registrations, applications for trademark
registrations, copyrights, copyright registrations, owned or, where not
owned, used by the Seller in its business and all licenses and other
agreements to which the Seller is a party (as licensor or licensee) or
by which the Seller is bound relating to any of the foregoing kinds of
property or rights to any "know-how" or disclosure or use of ideas
(collectively, the "Intangible Property"); and
(ix) except as specifically provided in Subsection
1.1(b) hereof, all other assets, properties, claims, rights and
interests of the Seller which exist on the Closing Date, of every kind
and nature and description, whether tangible or intangible, real,
personal or mixed.
(b) Notwithstanding the provisions of paragraph (a)
above, the assets to be transferred to the Buyer under this Agreement
shall not include any motor vehicles owned, leased or operated by the
Seller, or those assets listed on SCHEDULE 1.1(b) attached hereto or
the Seller's assets which
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relate solely to the Excluded Stores, as described in Section 1.1(c)
below (the "Excluded Assets").
(c) The Inventory, Accounts Receivable, Contract Rights,
Fixed Assets, Intangible Property and other properties, assets and
business of the Seller described in paragraph (a) above, other than the
Excluded Assets, shall be referred to collectively as the "Assets." The
Assets relate to the five retail video stores identified on SCHEDULE I
attached hereto, which constitute all of the retail video stores in
which Seller or the Principal has an interest except for the Excluded
Stores, as defined below. Such stores are sometimes hereinafter
referred to collectively as the "Stores." In addition to the Stores,
the Principal or his Affiliates owns and operates (or is in the process
of developing) the retail video stores described on SCHEDULE II
attached hereto (the "Excluded Stores").
1.2 FURTHER ASSURANCES. At any time and from time to time
after the Closing, at the Buyer's request and without further
consideration, the Seller promptly shall execute and deliver such
instruments of sale, transfer, conveyance, assignment and confirmation,
and take such other action, as the Buyer may reasonably request to more
effectively transfer, convey and assign to the Buyer, and to confirm
the Buyer's title to, all of the Assets, to put the Buyer in actual
possession and operating control thereof, to assist the Buyer in
exercising all rights with respect thereto and to carry out the purpose
and intent of this Agreement.
1.3 Base Purchase Price.
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(a) The purchase price for the assets shall be an amount
equal to $2,080,000 (the "Base Purchase Price"). The Base Purchase
Price shall be subject to adjustment as provided in Section 1.8 below.
The Base Purchase Price shall be allocated among the entities
identified on SCHEDULE A attached hereto in proportion to the
respective percentages set forth opposite their respective names on
SCHEDULE A.
(b) The Base Purchase Price shall be paid as follows. At
the Closing, the Buyer shall deliver to the Seller (i) $1,240,000 in
cash, by bank or cashiers check, or by wire transfer of immediately
available federal funds, and (ii) delivery of an Instrument of Evidence
of Indebtedness, substantially in the form of EXHIBIT A attached hereto
(the "Instrument") which shall provide for payment of the balance of
the Base Purchase Price on the first anniversary of the Closing Date.
The Instrument shall provide for payment of such amount (x) by delivery
of a promissory note of Buyer with a maturity date four years from the
Closing
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Date (which shall bear simple interest as the rate of 2% per annum, and
shall provide for payment of all principal and interest at maturity,
and not before) or (y) if the Seller so elects (which election shall be
made at the time and on the terms provided below), by delivery of that
number of shares of Common Stock, $.01 par value per share, of the
Buyer ("Common Stock") as is determined by dividing (x) $840,000 by (y)
the Market Value (as defined below). The number of shares issuable
pursuant to the Instrument shall be subject to appropriate adjustment
in the event of a stock dividend, stock split or similar event which
occurs after the issuance of the Instrument, but prior to the issuance
of shares thereunder. The "Market Value" of a share of Common Stock
shall equal 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
Closing Date. Shares of Buyer Common Stock issued pursuant to the
Instrument 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 Seller shall make the election contemplated
by clause (y) above only following delivery to the Seller of a current
prospectus relating to shares of Buyer's Common Stock on the date the
election is made, which prospectus is included in a then effective
Registration Statement (provided such prospectus may include
supplements thereto).
1.4 Assumption of Liabilities; Etc.
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(a) At the Closing, the Buyer shall execute and deliver
an Instrument of Assumption of Liabilities (the "Instrument of
Assumption") substantially in the form attached hereto as EXHIBIT B,
pursuant to which it shall assume and agree to perform, pay and
discharge the following liabilities, obligations and commitments of the
Seller related to the Business (the "Assumed Liabilities"):
(i) All obligations of the Seller continuing after
the Closing under the leases and contracts of the Business and set
forth on SCHEDULE 1.4 attached hereto which become due and payable
after the Closing Date;
(ii) Accounts payable incurred in the ordinary
course of business by Seller for purchase of videotapes, to the extent
such videotapes are shipped to the Seller during the 30-day period
prior to the Closing Date; and
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(iii) All other liabilities and obligations of the
Seller, if any, specifically set forth in SCHEDULE 1.4 attached hereto.
Notwithstanding the foregoing, Buyer will not assume (and the Assumed
Liabilities shall exclude) any liabilities, obligations or commitments
of the Seller to the extent such liabilities, obligations and
commitments relate in whole or in part to the Excluded Stores, except
to the extent that the Seller can demonstrate, to Buyer's reasonable
satisfaction, that such liabilities (or a portion thereof) are
attributable to the Stores and the Assets.
(b) The Buyer shall not at the Closing assume or agree
to perform, pay or discharge, and the Seller shall remain
unconditionally liable for, all obligations, liabilities and
commitments, fixed or contingent, of the Seller other than the Assumed
Liabilities.
1.5 ALLOCATION OF BASE PURCHASE PRICE AND ASSUMED
LIABILITIES. The aggregate amount of the Base Purchase Price and the
Assumed Liabilities shall be allocated among the Assets in the manner
reasonably determined by the Buyer's chief financial officer, provided
such allocation shall not be inconsistent with the allocation reflected
on SCHEDULE 1.5 attached hereto.
1.6 THE CLOSING. The Closing shall take place on or before
September 30, 1996, at the offices of Xxxx and Xxxx, 00 Xxxxx Xxxxxx,
Xxxxxx, Xxxxxxxxxxxxx, at such time or date as may be selected by
Buyer, or at such other time and date as may be mutually agreed upon in
writing by the parties hereto. The transfer of the Assets by the Seller
to the Buyer shall be deemed to occur at 9:00 a.m., Boston time, on the
date of the Closing (the "Closing Date").
1.7 NO APPORTIONMENT. The purchase price of the assets shall
not be subject to any adjustment for any prepaid expenses of the
Seller, including without limitation: (i) prepaid premiums on
insurance, (ii) water and sewer use charges, (iii) prepaid rent, (iv)
transfer taxes and recording fees, if any, incurred in connection with
the transfer of the Assets contemplated hereby, or (v) real property
taxes or other taxes for the then current tax period, and such prepaid
amounts, if any, shall not be added to or deducted from the Base
Purchase Price.
1.8 Post-Closing Adjustments.
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(a) Within 90 days following the Closing, the
Buyer shall cause independent certified public accountants for the
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Buyer (the "Accountants"), to review the books and records of the
Business. The Buyer shall cause the Accountants to deliver a statement
setting forth the Net Operating Cash Flow (as defined below) of the
Business to each of the parties to this Agreement (the "Accountants'
Report).
In the event that the Buyer or the Seller dispute the calculation
of the Net Operating Cash Flow, the disputing party shall notify the
other parties 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 Seller ("Seller's
Accountants"), for resolution. The Accountants and Seller's Accountants
shall use their best efforts to resolve the dispute within 10 business
days after submission. If they are unable to agree upon a resolution of
the dispute within such 10-business day period, the dispute shall be
submitted to arbitration in accordance with Section 15.
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 Seller's Accountants in connection with the
resolution of disputes pursuant to the preceding paragraph shall be
borne by the Seller.
Immediately upon the expiration of the 10-business day period for
giving the Dispute Notice, if no Dispute Notice is given, or
immediately upon the resolution of disputes, if any, as provided above,
the Base Purchase Price shall be adjusted by the Cash Flow Adjustment,
as provided below.
A Cash Flow Adjustment shall occur only if the Seller's aggregate
Net Operating Cash Flow for the 12-month period ending December 31,
1995, as determined by the Accountants (the "Audited Cash Flow") is
less than $614,382. A Cash Flow Adjustment shall be a reduction in the
Base Purchase Price by an amount determined as follows:
Base Purchase Price - Base Purchase Price x Audited Cash Flow
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$614,382
Any such reduction shall reduce the cash portion of the Base Purchase
Price, and the Seller shall, within 10 days following the determination
of the Cash Flow Adjustment, pay such amount to the
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Buyer in cash, or by bank or certified check, or by wire transfer of
immediately available funds.
For purposes of this Subsection 1.8, "Net Operating Cash Flow"
shall be equal to the pre-tax income from the Stores for the 12-month
period ended December 31, 1995, plus all debt-related interest expense
and depreciation and amortization expenses attributable to the Stores
for such 12-month period, plus the amount of all items listed on
SCHEDULE 1.8 for such 12-month period to the extent such items are not
attributable to the day to day operation of the Stores, less all rental
product purchases for the Stores during such 12-month period (including
revenue sharing expenses if not previously expensed), less all earned
income interest for the Stores for such 12-month period, plus all
compensation expenses for all office personnel employed by Seller
during such 12-month period. The Net Operating Cash Flow shall be
determined in accordance with generally accepted accounting principles
applied consistently with the Seller's past practice.
1.9 ADDITIONAL STORES. An Affiliate of the Principal
currently operates a retail video store at 0000 Xxxxxxxxxx Xxxx,
Xxxxxxxxxx, Xxxx (the "Xxxxxxx Store"), and the Principal is in the
process of developing retail video stores located at 0000 X. Xxxxxxxxx
Xxxx, Xxxxxxxxxx, Xxxx, 8121 Plainfield Road, Cincinnati, Ohio, and
0000 Xxxxx Xxxxxxx, Xxxxxxxx, Xxxxxxxx (such three stores being
hereinafter referred to as the "New Stores" and together with the
Xxxxxxx Store and any additional stores opened in accordance with this
Section 1.9, the "Additional Stores"). The New Stores shall be operated
as West Coast Entertainment franchisee stores pursuant to a separate
Franchise Agreement, which shall be executed and delivered on the
Closing Date.
The Seller shall be entitled to open additional retail stores from
time to time only subject to the terms and conditions contained in this
Section 1.9. Any such stores shall be opened only with the Buyer's
prior approval, shall be subject to a purchase option on the same terms
as the New Stores, and shall be operated as West Coast Entertainment
Corporation franchisee stores, subject to the terms and conditions of
the Buyer's then standard form of franchising agreement. Without
limiting the foregoing, the Buyer shall have the right to approve the
location of any such additional store, and such store must be in the
greater Cincinnati, Ohio area, unless Buyer and Seller otherwise agree
in writing. Such franchising agreement shall be on the Buyer's
customary terms, including (i) payment by Seller of a $1,000 per store
franchise fee, and (ii) payment of 5% monthly royalty fee commencing on
the date upon which any such new store opens. In connection with each
such new store, if any, Buyer's counsel shall prepare, for execution of
the Buyer and the Seller,
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a franchising agreement embodying the terms contained in this
Section 1.9.
The provisions of this Section 1.9 shall be binding upon the
Seller, the Principal and their respective Affiliates (as such term is
defined in the Securities Act of 1933, as amended, and the rules and
regulations promulgated thereunder ("Affiliate")).
Seller and its Affiliates shall not, without Buyer's prior written
consent, sell, transfer or dispose of, directly or indirectly, by sale
of stock, assets, merger, consolidation or otherwise, all or any
portion of, or any interest in, any of stores opened pursuant to the
provisions of this Section 1.9, without Buyer's prior written consent,
which may be granted or denied in Buyer's sole and absolute discretion.
All of the Additional Stores shall be subject to a Cross- Purchase
Agreement, substantially in the form and on the terms of EXHIBIT C
hereto, which shall be executed and delivered at the Closing (the
"Cross Purchase Agreement").
2. Representations of the Seller and the Principal
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The Seller and the Principal, jointly and severally, represent and
warrant to the Buyer as follows (it being understood that all
references in this Section 2 to the Seller shall be deemed to include
each and all, as applicable, of the entities listed on SCHEDULE A on a
joint and several basis, unless the context otherwise requires):
2.1 ORGANIZATION. The Seller is a corporation duly organized,
validly existing and in good standing under the laws of the state
indicated on SCHEDULE A attached hereto, and has all requisite power
and authority (corporate and other) to own its properties, to carry on
its business as now being conducted, to execute and deliver this
Agreement and the agreements contemplated herein, and to consummate the
transactions contemplated hereby. The Seller is duly qualified to do
business and in good standing in each of the jurisdictions listed on
SCHEDULE A attached hereto, which constitute all jurisdictions in which
its ownership of property or the character of their business requires
such qualification. Certified copies of the charter, bylaws and other
governing instruments of each of the Seller, each as amended to date,
have been previously delivered to the Buyer, are complete and correct,
and no amendments have been made thereto or have been authorized since
the date thereof. The Seller does not own any capital stock of or other
equity interest in any corporation, partnership, limited liability
company or other entity. SCHEDULE I (the Stores) and SCHEDULE II (the
Excluded Stores) together sets
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forth a list of each retail video rental store (including the location
of each such store and the name and address of all owners (if not
Seller) of each such store) owned, operated or licensed directly or
indirectly by the Seller and its Affiliates.
2.2 CAPITALIZATION OF THE SELLER. The Seller's authorized
capital stock is described on SCHEDULE A. SCHEDULE A accurately
reflects the issued and outstanding capital stock of Seller, and the
legal and beneficial owners thereof. All of such issued and outstanding
shares have been duly and validly issued and are fully paid and
nonassessable.
2.3 AUTHORIZATION. The execution and delivery of this
Agreement by the Seller, and the agreements provided for herein, and
the consummation by the Seller of all transactions contemplated hereby,
have been duly authorized by all requisite corporate and shareholder
action. This Agreement and all such other agreements and obligations
entered into and undertaken in connection with the transactions
contemplated hereby to which the Seller is a party constitute the valid
and legally binding obligations of the Seller, enforceable against the
Seller in accordance with their respective terms. The execution,
delivery and performance by the Seller of this Agreement and the
agreements provided for herein, and the consummation by the Buyer of
the transactions contemplated hereby and thereby, will not, with or
without the giving of notice or the passage of time or both: (a)
violate the provisions of any law, rule or regulation applicable to the
Seller; (b) violate the provisions of the charter or Bylaws of the
Seller; (c) violate any judgment, decree, order or award of any court,
governmental body or arbitrator; or (d) conflict with or result in the
breach or termination of any term or provision of, or constitute a
default under, or cause any acceleration under, or cause the creation
of any lien, charge or encumbrance upon the properties or assets of the
Seller pursuant to, any indenture, mortgage, deed of trust or other
instrument or agreement to which the Seller is a party or by which the
Seller or any of its properties is or may be bound. SCHEDULE 2.3
attached hereto sets forth a true, correct and complete list of all
consents and approvals of third parties that are required in connection
with the consummation by the Seller of the transactions contemplated by
this Agreement.
2.4 OWNERSHIP OF THE ASSETS. SCHEDULE 2.4(i) attached hereto
sets forth a true, correct and complete list of all claims,
liabilities, liens, pledges, charges, encumbrances and equities of any
kind affecting the Assets (collectively, the "Encumbrances"). The
Seller is, and at the Closing will be, the true and lawful owner of the
Assets, and will have the right to sell and transfer to the Buyer good,
clear, record and marketable title to the
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Assets, free and clear of all Encumbrances of any kind, except as set
forth on SCHEDULE 2.4(ii) attached hereto (the "Permitted
Encumbrances"). The delivery to the Buyer of the instruments of
transfer of ownership contemplated by this Agreement will vest good and
marketable title to the Assets in the Buyer, free and clear of all
liens, mortgages, pledges, security interests, restrictions, prior
assignments, encumbrances and claims of any kind or nature whatsoever,
except for the Permitted Encumbrances.
2.5 Financial Statements.
--------------------
(a) The Seller has previously delivered to the Buyer its
audited balance sheet as of December 31, 1993, 1994 and 1995 (the
"Audited Balance Sheets") and the related statements of income,
shareholders' equity, retained earnings and statements of cash flows of
the Seller for the fiscal years then ended (collectively, including the
Audited Balance Sheet, the "Audited Financial Statements"). The Seller
has also previously delivered to the Buyer its comparative Balance
Sheet (the "Current Balance Sheet") as of June 30, 1996 (the "Balance
Sheet Date") and as of June 30, 1995, and the related comparative
statements of income, shareholders' equity, retained earnings and
statements of cash flows of the Seller for the six-month periods then
ended (collectively, the "Current Financial Statements"). The Seller
has also included in the footnotes to the Audited Financial Statements
and the Current Financial Statements statements of its quarterly
earnings. The Audited Financial Statements, the Current Financial
Statements and the interim financial statements (the "Interim Financial
Statements") to be delivered pursuant to Subsection 5.4 hereof
(collectively, the "Financial Statements") have been (or will be)
prepared in accordance with generally accepted accounting principles
applied consistently with past practice and are certified without
qualification by the Seller's independent public accountants, in the
case of the Audited Financial Statements, and have been (or will be)
certified by the Seller's chief financial officer, in the case of the
Current Financial Statements and the Interim Financial Statements.
(b) The Financial Statements fairly present, as of their
respective dates, the financial condition, retained earnings, assets
and liabilities of the Seller and the results of operations of the
Seller's business for the periods indicated; with respect to the
contracts and commitments for the sale of goods or the provision of
services by the Seller, the Financial Statements contain and reflect
adequate reserves, which are consistent with previous reserves taken,
for all reasonably anticipated material losses and costs and expenses;
and the amounts shown as accrued for current and deferred income and
other taxes in the Financial Statements are sufficient for the payment
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of all accrued and unpaid federal, state and local income taxes,
interest, penalties, assessments or deficiencies applicable to the
Seller, whether disputed or not, for the applicable period then ended
and periods prior thereto.
2.6 ABSENCE OF UNDISCLOSED LIABILITIES. Except as and to the
extent (a) reflected and reserved against in the Current Balance Sheet,
or (b) incurred in the ordinary course of business after the date of
the Current Balance Sheet and not material in amount, either
individually or in the aggregate, the Seller does not have any
liability or obligation, secured or unsecured, whether accrued,
absolute, contingent, unasserted or otherwise, affecting the Assets.
For purposes of this Subsection 2.6, "material" means any amount in
excess of $10,000.
2.7 LITIGATION. The Seller is not a party to, or to the
Seller's best knowledge threatened with, and none of the Assets are
subject to, any litigation, suit, action, investigation, proceeding or
controversy before any court, administrative agency or other
governmental authority relating to or affecting the Assets or the
business or condition (financial or otherwise) of the Seller. The
Seller is not in violation of or in default with respect to any
judgment, order, writ, injunction, decree or rule of any court,
administrative agency or governmental authority or any regulation of
any administrative agency or governmental authority.
2.8 INSURANCE. Seller maintains fire, theft, casualty,
general liability, workers compensation, business interruption,
environmental impairment, product liability, automobile and other
insurance policies insuring the Assets or business of the Seller in
amounts and of the types which are customary and adequate for the
business conducted by Seller and required by applicable laws
(collectively, the "Insurance Policies"). No claims have been made or
are pending under such Insurance Policies and Seller knows of no basis
therefor. The Insurance Policies are in full force and effect. All
premiums due on the Insurance Policies or renewals thereof have been
paid and there is no default under any of the Insurance Policies.
2.9 INVENTORY. SCHEDULE 2.9 attached hereto sets forth a
true, correct and complete list of the Inventory as of the date hereof,
including a description and the book value thereof. SCHEDULE 2.9, as
updated pursuant to Subsection 7.9 hereof, shall set forth a true,
correct and complete list of such Inventory as of the Closing Date,
including a description and valuation thereof. Such Inventory consists
of items of a quality and quantity which are usable or saleable without
discount in the ordinary course of the business conducted by the
Seller. The
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value of all items of obsolete materials and of materials of below
standard quality has been written down to realizable market value, and
the values at which such Inventory is carried reflect the normal
inventory valuation policy of the Seller of stating the Inventory at
the lower of cost or market value in accordance with generally accepted
accounting principles.
2.10 FIXED ASSETS. SCHEDULE 2.10 attached hereto sets forth a
true, correct and complete list of all Fixed Assets, as of the date
hereof, including a description and the book value thereof. SCHEDULE
2.10, as updated pursuant to Subsection 7.9 hereof, shall set forth a
true, correct and complete list of all such Fixed Assets as of the
Closing Date, including a description and valuation thereof. All of
such Fixed Assets are in good operating condition and repair, normal
wear and tear excepted, are currently used by the Seller in the
ordinary course of business and in the production of products of the
Seller and normal maintenance has been consistently performed with
respect to such Fixed Assets.
2.11 LEASES. SCHEDULE 2.11 attached hereto sets forth a true,
correct and complete list as of the date hereof of all leases of real
property, identifying separately each ground lease, to which the Seller
is a party (the "Leases"). True, correct and complete copies of the
Leases, and all amendments, modifications and supplemental agreements
thereto, have previously been delivered by the Seller to the Buyer. The
Leases are in full force and effect, are binding and enforceable
against each of the parties thereto in accordance with their respective
terms and, except as set forth on SCHEDULE 2.11, have not been modified
or amended since the date of delivery to the Buyer. No party to any
Lease has sent written notice to the other claiming that such party is
in default thereunder, which remains uncured. Except as set forth on
SCHEDULE 2.11 attached hereto, there has not occurred any event which
would constitute a breach of or default in the performance of any
material covenant, agreement or condition contained in any Lease, nor
has there occurred any event which with the passage of time or the
giving of notice or both would constitute such a breach or material
default. The Seller is not obligated to pay any leasing or brokerage
commission relating to any Lease and, except as set forth on SCHEDULE
2.11 attached hereto, will not have any enforceable obligation to pay
any leasing or brokerage commission upon the renewal of any Lease. No
material construction, alteration or other leasehold improvement work
with respect to any of the Leases remains to be paid for or to be
performed by the Seller. The Financial Statements contain adequate
reserves to provide for the restoration of the properties subject to
the Leases at the end of the respective Lease terms, to the extent
required by the Leases.
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2.12 CHANGE IN FINANCIAL CONDITION AND ASSETS. Since the
Balance Sheet Date, there has been no change which materially and
adversely affects the business, properties, assets, condition
(financial or otherwise) or prospects of the Seller. The Seller has no
knowledge of any existing or threatened occurrence, event or
development which, as far as can be reasonably foreseen, could have a
material adverse effect on the Seller or its business, properties,
assets, condition (financial or otherwise) or prospects.
2.13 Tax Matters.
-----------
(a)(i) Within the times and in the manner prescribed
by law, the Seller has filed all Returns which are required to be
filed;
(ii) With respect to all amounts in respect of Taxes
imposed upon the Seller for which it could be liable, whether to Taxing
Authorities (as, for example, under law) or to other persons or
entities (as, for example, under Tax allocation agreements), with
respect to all taxable periods or portions of taxable periods ending on
or before the Closing Date, all applicable tax laws and agreements have
been fully complied with, and all such amounts required to be paid by
the Seller to Taxing Authorities or others on or before the date hereof
have been paid.
(iii) All Returns filed by the Seller constitute
complete and accurate representations of the respective Tax liabilities
of, or attributable to, the Seller for such years;
(iv) No examination of the Returns of the Seller is
currently in progress nor, to the best knowledge of the Seller,
threatened and no unresolved deficiencies have been asserted or
assessed against the Seller as a result of any audit by any Taxing
Authority and no such deficiency has been proposed or threatened;
(v) There are no liens for Taxes (other than
for current Taxes not yet due and payable) upon the assets of the
Seller; and
(vi) The Seller is not a person other than a United
States person within the meaning of the Code.
(b) For purposes of this Section 2.13:
"Return" means any return, declaration, report, statement or other
document required to be filed in respect of any Tax.
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"Tax" or "Taxes" means any federal, state, local, foreign and
other net income, gross income, gross receipts, sales, use, ad valorem,
transfer, franchise, profits, license, lease, service, service use,
withholding, payroll, employment, excise, severance, stamp, occupation,
premium, property, windfall profits, customs duty or other tax, fee,
assessment or charge of any kind whatever, together with interest and
any penalty, addition to tax or additional amount with respect thereto.
"Taxing Authority" means any governmental authority responsible
for the imposition of Taxes.
2.14 ACCOUNTS RECEIVABLE. The Seller has no Accounts
Receivable.
2.15 BOOKS AND RECORDS. The general ledgers and books of
account of the Seller, all federal, state and local income, franchise,
property and other tax returns filed by the Seller, with respect to the
Assets, and all other books and records of the Seller are in all
material respects complete and correct and have been maintained in
accordance with good business practice and in accordance with all
applicable procedures required by laws and regulations.
2.16 CONTRACTS AND COMMITMENTS.
(a) SCHEDULE 2.16 attached hereto contains a true,
complete and correct list and description of the following contracts
and agreements, whether written or oral (collectively, the
"Contracts"):
(i) all loan agreements, indentures,
mortgages and guaranties to which the Seller is a party or by
which the Seller or any of its property is bound;
(ii) all pledges, conditional sale or title
retention agreements, security agreements, equipment obligations,
personal property leases and lease purchase agreements relating to any
of the Assets to which the Seller is a party or by which the Seller or
any of its property is bound;
(iii) all contracts, agreements, commitments,
purchase orders or other understandings or arrangements to which the
Seller is a party or by which the Seller or any of its property is
bound which (A) involve payments or receipts by the Seller of more than
$2,000 in the case of any single contract, agreement, commitment,
understanding or arrangement under which full performance (including
payment) has not been rendered by all parties thereto or (B) which may
materially adversely affect the
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condition (financial or otherwise) or the properties, assets,
business or prospects of the Seller;
(iv) all collective bargaining agreements,
employment and consulting agreements, executive compensation plans,
bonus plans, deferred compensation agreements, pension plans,
retirement plans, employee stock option or stock purchase plans and
group life, health and accident insurance and other employee benefit
plans, agreements, arrangements or commitments to which the Seller is a
party or by which the Seller or any of its property is bound;
(v) all agency, distributor, sales
representative and similar agreements to which the Seller is a
party;
(vi) all contracts, agreements or other
understandings or arrangements between the Seller any stockholder
or Affiliate of the Seller;
(vii) all leases, whether operating, capital or
otherwise, under which the Seller is lessor or lessee; and
(viii) any other material agreement or contract
entered into by the Seller.
(b) Except as set forth on SCHEDULE 2.16 attached
hereto:
(i) each Contract is a valid and binding agreement
of the Seller, enforceable against the Seller in accordance with its
terms, and the Seller does not have any knowledge that any Contract is
not a valid and binding agreement of the other parties thereto;
(ii) the Seller has fulfilled all material
obligations required pursuant to the Contracts to have been performed
by the Seller on its part prior to the date hereof, and the Seller has
no reason to believe that it will not be able to fulfill, when due, all
of its obligations under the Contracts which remain to be performed
after the date hereof;
(iii) the Seller is not in breach of or default under
any Contract, and no event has occurred which with the passage of time
or giving of notice or both would constitute such a default, result in
a loss of rights or result in the creation of any lien, charge or
encumbrance, thereunder or pursuant thereto;
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(iv) to the best knowledge of the Seller, there is
no existing breach or default by any other party to any Contract, and
no event has occurred which with the passage of time or giving of
notice or both would constitute a default by such other party, result
in a loss of rights or result in the creation of any lien, charge or
encumbrance thereunder or pursuant thereto;
(v) the Seller is not restricted by any
Contract from carrying on its business anywhere in the world; and
(vi) the Seller has no written or oral Contracts to
sell products or perform services which are expected to be performed
at, or to result in, a loss.
(c) Except as set forth on SCHEDULE 2.3 or SCHEDULE
2.16, the continuation, validity and effectiveness of each Contract
will not be affected by the transfer thereof to Buyer under this
Agreement and all such Contracts are assignable to Buyer without a
consent.
(d) True, correct and complete copies of all written
Contracts have previously been delivered by the Seller to the Buyer.
2.17 COMPLIANCE WITH AGREEMENTS AND LAWS. The Seller has all
requisite licenses, permits and certificates, including environmental,
health and safety permits, from federal, state and local authorities
necessary to conduct the Business and own and operate the Assets
(collectively, the "Permits"). SCHEDULE 2.17 attached hereto sets forth
a true, correct and complete list of all such Permits, copies of which
have previously been delivered by the Seller to the Buyer. The Seller
is not in violation of any law, regulation or ordinance (including,
without limitation, laws, regulations or ordinances relating to
building, zoning, environmental, disposal of hazardous substances, land
use or similar matters) relating to its properties, the violation of
which could have a material adverse effect on the Seller or its
properties. The business of the Seller does not violate, in any
material respect, any federal, state, local or foreign laws,
regulations or orders (including, but not limited to, any of the
foregoing relating to employment discrimination, occupational safety,
environmental protection, hazardous waste (as defined in the Resource
Conservation and Recovery Act, as amended, and the regulations adopted
pursuant thereto), conservation, or corrupt practices, the enforcement
of which would have a material and adverse effect on the results of
operations, condition (financial or otherwise), assets, properties,
business or prospects of the Seller. Except as set forth on SCHEDULE
2.17 attached hereto, the Seller has not since January 1, 1993 received
any notice or
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communication from any federal, state or local governmental or
regulatory authority or otherwise of any such violation or
noncompliance.
2.18 Employee Relations.
------------------
(a) The Seller is in compliance with all federal, state
and municipal laws respecting employment and employment practices,
terms and conditions of employment, and wages and hours, and is not
engaged in any unfair labor practice, and there are no arrears in the
payment of wages or social security taxes.
(b) (i) none of the employees of the Seller is
represented by any labor union;
(ii) there is no unfair labor practice complaint
against the Seller pending before the National Labor Relations Board or
any state or local agency;
(iii) there is no pending, or to Seller's knowledge,
threatened, labor strike or other material labor trouble affecting the
Seller (including, without limitation, any organizational drive);
(iv) there is no material labor grievance
pending, or to Seller's knowledge, threatened, against the Seller;
(v) there is no pending, or to Seller's
knowledge, threatened, representation question respecting the
employees of the Seller; and
(vi) there are no pending, or to Seller's knowledge,
threatened, arbitration proceedings arising out of or under any
collective bargaining agreement to which the Seller is a party, or to
the best knowledge of the Seller, any basis for which a claim may be
made under any collective bargaining agreement to which the Seller is a
party.
(c) SCHEDULE 2.18 attached hereto sets forth a true,
correct and complete list of (a) the employee benefits provided by the
Seller to its employees and all contracts or agreements between the
Seller and its employees, and (b) the Seller's current payroll,
including the job descriptions and salary or wage rates of each of its
employees, showing separately for each such person who received an
annual salary in excess of $20,000 the amounts paid or payable as
salary and bonus payments for the year ending December 31, 1995.
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(d) For purposes of this Subsection 2.18, the term
"employee" shall be construed to include sales agents and other
independent contractors who spend a majority of their working time on
the Seller's business.
2.19 ABSENCE OF CERTAIN CHANGES OR EVENTS. Since the Balance
Sheet Date, the Seller has not entered into any transaction which is
not in the usual and ordinary course of business, and, without limiting
the generality of the foregoing, the Seller has not:
(a) Incurred any material obligation or liability
for borrowed money;
(b) Discharged or satisfied any lien or encumbrance or
paid any obligation or liability other than current liabilities
reflected in the Current Balance Sheet;
(c) Mortgaged, pledged or subjected to lien,
charge or other encumbrance any of the Assets;
(d) Sold or purchased, assigned or transferred any of
its tangible assets or cancelled any debts or claims, except for
inventory sold and raw materials purchased in the ordinary course of
business;
(e) Made any material amendment to or termination
of any Contract or done any act or omitted to do any act which
would cause the breach of any Contract;
(f) Suffered any losses, whether insured or uninsured,
and whether or not in the control of the Seller, in excess of $5,000 in
the aggregate, or waived any rights of any value;
(g) Made any changes in compensation of its
officers, directors or employees;
(h) Received notice of any litigation, warranty
claim or products liability claims; or
(i) Made any material change in the terms, status or
funding condition of any Employee Plan, as defined in Subsection 2.23
hereof.
2.20 SUPPLIERS. SCHEDULE 2.20 attached hereto sets forth a
true, correct and complete list of the names and addresses of the ten
suppliers of the Seller which accounted for the largest dollar volume
of purchases by the Company for the fiscal year
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ending December 31, 1995. None of such suppliers has notified the
Seller that it intends to discontinue its relationship with the Seller.
2.21 PREPAYMENTS AND DEPOSITS. The Seller is not holding (and
does not have) any prepayments or deposits from customers for products
to be shipped, or services to be performed, after the Closing Date.
2.22 Trade Names and Other Intangible Property.
-----------------------------------------
(a) The Seller's only Intangible Property is the
name "Picture Show Video".
(b) The Seller is making no representation or warranty
as to its ownership rights, if any, in the name "Picture Show Video"
except for those expressly set forth in this Section 2.22. The
Intangible Property owned by the Seller is sufficient to conduct the
Seller's business as presently conducted and, when transferred to the
Buyer pursuant to this Agreement, will be sufficient to permit the
Buyer to conduct the business of the Seller as presently conducted by
the Seller. The Seller has received no notice of, and has no knowledge
of any basis for, a claim against it that any of its operations,
activities, products or publications infringes on any patent,
trademark, trade name, copyright or other property right of a third
party, or that it is illegally or otherwise using the trade secrets,
formulae or any property rights of others. The Seller has no disputes
with or claims against any third party for infringement by such third
party of any trade name or other Intangible Property of the Seller.
2.23 Employee Benefit Plans.
----------------------
(a) The Seller does not now have or otherwise contribute
to or participate in, and has not in the past had or otherwise
contributed to, any employee benefit plan subject to the Employee
Retirement Income Security Act of 1974.
(b) The Buyer assumes no liabilities with respect to any
employee benefit plan operated or sponsored by the Seller or in which
its employees participate, including, without limitation, any
liabilities for taxes, accrued vacation or sick pay (whether or not
vested), accrued vacation, sick and personal leaves, employee policies,
employee benefit claims or liability to the Pension Benefit Guaranty
Corporation.
(c) EMPLOYEE PLANS. The Seller does not now have
(nor has it ever had) and the Seller does not now (or has it ever
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been) a contributor to or participant in any pension, benefit, profit
sharing, retirement, deferred compensation, welfare, insurance,
disability, bonus, vacation pay, severance pay and other similar plans,
programs and agreements, whether reduced to writing or not, relating to
the Seller's employees, or maintained by the Seller or by any other
member of any controlled group of corporations, group of trades or
businesses under common control, or affiliated service group (as
defined for purposes of Section 414(b), (c) and (m), respectively, of
the Internal Revenue Code of 1986, as amended (the "Code")) ("Employee
Plans") and the Seller has no obligations, contingent or otherwise,
past or present, under applicable law or the terms of any Employee
Plan.
2.24 REGULATORY APPROVALS. There are no consents, approvals,
authorizations and other requirements prescribed by any law, rule or
regulation which must be obtained or satisfied by the Seller and which
are necessary for the execution and delivery by the Seller of this
Agreement and the documents to be executed and delivered by the Seller
in connection herewith.
2.25 INDEBTEDNESS TO AND FROM OFFICERS, DIRECTORS AND
SHAREHOLDERS. Except as set forth on SCHEDULE 2.25 attached hereto, the
Seller is not indebted, directly or indirectly, to any person who is an
officer, director or shareholder of the Seller or any affiliate of any
such person in any amount whatsoever other than for salaries for
services rendered or reimbursable business expenses, all of which have
been reflected on the Current Financial Statements, and no such
officer, director, shareholder or affiliate is indebted to the Seller,
except for advances made to employees of the Seller in the ordinary
course of business to meet reimbursable business expenses anticipated
to be incurred by such obligor.
2.26 POWERS OF ATTORNEY AND SURETYSHIPS. The Seller has no
general or special powers of attorney outstanding (whether as grantor
or grantee thereof) and has no obligation or liability (whether actual,
accrued, accruing, contingent or otherwise) as guarantor, surety,
co-xxxxxx, endorser, co-maker, indemnitor or otherwise in respect of
the obligation of any person, corporation, partnership, joint venture,
association, organization or other entity, except as endorser or maker
of checks or letters of credit, respectively, endorsed or made in the
ordinary course of business.
2.27 DISCLOSURE. No representation or warranty by the Seller
in this Agreement or in any Exhibit hereto, or in any list, statement,
document or information set forth in or attached to any Schedule
delivered or to be delivered pursuant to this Agreement, contains or
will contain any untrue statement of a material fact
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or omits or will omit any material fact necessary in order to make the
statements contained therein not misleading. The Seller has disclosed
to the Buyer all material facts pertaining to the transactions
contemplated by this Agreement.
3. Representations of the Buyer
----------------------------
The Buyer represents and warrants to the Seller as follows:
3.1 ORGANIZATION AND AUTHORITY. The Buyer is a corporation
duly organized, validly existing and in good standing under the laws of
the State of Delaware, and has requisite power and authority (corporate
and other) to own its properties and to carry on its business as now
being conducted. The Buyer has full power to execute and deliver this
Agreement and the Instrument of Assumption of Liabilities and to
consummate the transactions contemplated hereby and thereby. Certified
copies of the Certificate of Incorporation and the Bylaws of the Buyer,
as amended to date, have been previously delivered to the Seller, are
complete and correct, and no amendments have been made thereto or have
been authorized since the date thereof.
3.2 CAPITALIZATION OF THE BUYER. On the date hereof, the
Buyer's authorized capital stock consists of 25,000,000 shares of
Common Stock, $.01 par value ("Common Stock"), and 2,000,000 shares of
Preferred Stock, $.01 par value per share. All of the outstanding
shares of capital stock of the Buyer have been and on the Closing Date
will be duly and validly issued and are, or will be, fully paid and
nonassessable.
3.3 AUTHORIZATION. The execution and delivery of this
Agreement by the Buyer, and the agreements provided for herein, and the
consummation by the Buyer of all transactions contemplated hereby, have
been duly authorized by all requisite corporate action. This Agreement
and all such other agreements and written obligations entered into and
undertaken in connection with the transactions contemplated hereby
constitute the valid and legally binding obligations of the Buyer,
enforceable against the Buyer in accordance with their respective
terms. The execution, delivery and performance of this Agreement and
the agreements provided for herein, and the consummation by the Buyer
of the transactions contemplated hereby and thereby, will not, with or
without the giving of notice or the passage of time or both, (a)
violate the provisions of any law, rule or regulation applicable to the
Buyer; (b) violate the provisions of the Buyer's Certificate of
Incorporation or Bylaws; (c) violate any judgment, decree, order or
award of any court, governmental body or arbitrator; or (d) conflict
with or result in the breach or termination of any term or provision
of, or constitute a default under, or cause any
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acceleration under, or cause the creation of any lien, charge or
encumbrance upon the properties or assets of the Buyer pursuant to, any
indenture, mortgage, deed of trust or other agreement or instrument to
which it or its properties is a party or by which the Buyer is or may
be bound. No consents or approvals of third parties are required in
connection with the consummation by the Buyer of the transactions
contemplated by this Agreement.
3.4 REGULATORY APPROVALS. All consents, approvals,
authorizations and other requirements prescribed by any law, rule or
regulation which must be obtained or satisfied by the Buyer and which
are necessary for the consummation of the transactions contemplated by
this Agreement have been, or will be prior to the Closing Date,
obtained and satisfied.
3.5 DISCLOSURE. No representation or warranty by the Buyer in
this Agreement or in any Exhibit hereto, or in any list, statement,
document or information set forth in or attached to any Schedule
delivered or to be delivered pursuant hereto, contains or will contain
any untrue statement of a material fact or omits or will omit any
material fact necessary in order to make the statements contained
therein not misleading.
3.6 ISSUANCE OF SHARES. The issuance and delivery of the
shares of Common Stock in accordance with this Agreement, if any, have
been, or prior to the Closing, will be, duly authorized by all
necessary corporate action on the part of the Buyer, and all such
shares of Common Stock have been duly reserved for issuance. The shares
of Common Stock, when issued and delivered in accordance with the
provisions of this Agreement will be duly and validly issued, fully
paid and non-assessable.
4. Access to Information; Public Announcements
-------------------------------------------
4.1 ACCESS TO MANAGEMENT, PROPERTIES AND RECORDS.
(a) From the date of this Agreement until the Closing
Date, the Seller shall afford the officers, attorneys, accountants and
other authorized representatives of the Buyer free and full access upon
reasonable notice and during normal business hours to all management
personnel, offices, properties, books and records of the Seller, so
that the Buyer may have full opportunity to make such investigation as
it shall desire to make of the management, business, properties and
affairs of the Seller, and the Buyer shall be permitted to make
abstracts from, or copies of, all such books and records. The Seller
shall furnish to the Buyer such financial and operating data and other
information as to the Assets and the business of the Seller as the
Buyer shall reasonably request.
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(b) If the Buyer, at its option and expense, prior to
the Closing Date, elects to have a report or reports prepared by an
engineer or other professional selected by the Buyer, certifying that
the real property associated with the Assets (i) complies with all
applicable federal, state and local environmental and wetlands laws,
rules and regulations and that there is not now, and never has been,
manufacture, storage, or disposal of hazardous wastes at the real
estate in violation of said laws, rules and regulations, (ii) complies
with all applicable building, health and fire codes, and subdivision
control laws, rules and regulations, the Seller shall cooperate with
such engineer or professional to the extent necessary to prepare such
reports, including, without limitation, providing such engineer or
professional access to such real property and necessary records, and
arranging interviews with employees of the Seller.
(c) The Seller shall authorize the release to the Buyer
of all files pertaining to the Seller, the Assets or the business or
operations of the Seller held by any federal, state, county or local
authorities, agencies or instrumentalities.
4.2 CONFIDENTIALITY. All information not previously disclosed
to the public or generally known to persons engaged in the respective
businesses of the Seller or the Buyer which shall have been furnished
by the Buyer or the Seller to the other party in connection with the
transactions contemplated hereby or as provided pursuant to this
Section 4 shall not be disclosed to any person other than their
respective employees, directors, attorneys, accountants or financial
advisors or other than as contemplated herein. In the event that the
transactions contemplated by this Agreement shall not be consummated,
all such information which shall be in writing shall be returned to the
party furnishing the same, including, to the extent reasonably
practicable, all copies or reproductions thereof which may have been
prepared, and neither party shall at any time thereafter disclose to
third parties, or use, directly or indirectly, for its own benefit, any
such information, written or oral, about the business of the other
party hereto. Notwithstanding the above, the Buyer (i) may include in
any Registration Statement or periodic report filed by it with the
Securities and Exchange Commission or any state securities commission
or with any stock market, and (ii) may disclose in order to comply with
applicable law or upon advice of Buyer's counsel, any information
regarding the Seller, the business of the Seller, the financial
condition of the Seller and the terms of this Agreement.
4.3 PUBLIC ANNOUNCEMENTS. The parties agree that prior to
the Closing Date, except as otherwise required by law, any and
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all public announcements or other public communications concerning this
Agreement and the purchase of the Assets by the Buyer shall be subject
to the approval of the Buyer.
5. Pre-Closing Covenants of the Seller
-----------------------------------
From and after the date hereof and until the Closing Date:
5.1 CONDUCT OF BUSINESS. The Seller shall carry on its
business diligently and substantially in the same manner as heretofore
and shall not make or institute any unusual or new methods of purchase,
sale, shipment or delivery, lease, management, accounting or operation,
except as agreed to in writing by the Buyer. All of the property of the
Seller shall be used, operated, repaired and maintained in a normal
business manner consistent with past practice.
5.2 ABSENCE OF MATERIAL CHANGES. Without the prior written
consent of the Buyer, the Seller shall not:
(a) Take any action to amend its charter or Bylaws;
(b) Issue any stock, bonds or other corporate securities
or grant any option or issue any warrant to purchase or subscribe to
any of such securities or issue any securities convertible into such
securities;
(c) Incur any obligation or liability (absolute or
contingent), except current liabilities incurred and obligations under
contracts entered into in the ordinary course of business;
(d) Declare or make any payment or distribution to its
shareholders with respect to their stock or purchase or redeem any
shares of its capital stock;
(e) Mortgage, pledge, or subject to any lien, charge or
any other encumbrance any of the Assets;
(f) Sell, assign, or transfer any of the Assets, except
for inventory sold in the ordinary course of business, at a normal
profit margin, and for not less than replacement cost;
(g) Cancel any debts or claims, except in the ordinary
course of business;
(h) Merge or consolidate with or into any corporation or
other entity;
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(i) Make, accrue or become liable for any bonus, profit
sharing or incentive payment, except for accruals under existing plans,
if any, or increase the rate of compensation payable or to become
payable by it to any of its officers, directors or employees, other
than increases in the ordinary course of business consistent with past
practice;
(j) Make any election or give any consent under the Code
or the tax statutes of any state or other jurisdiction or make any
termination, revocation or cancellation of any such election or any
consent or compromise or settle any claim for past or present Taxes;
(k) Modify, amend, alter or terminate any of its
executory contracts of a material value or which are material in
amount;
(l) Take or permit any act or omission constituting a
breach or default under any contract, indenture or agreement by which
it or its properties are bound;
(m) Fail to (i) preserve the possession and control of
its assets and business, (ii) keep in faithful service its present
officers and key employees, (iii) preserve the goodwill of its
customers, suppliers, agents, brokers and others having business
relations with it, and (iv) keep and preserve its business existing on
the date hereof until after the Closing Date;
(n) Fail to operate its business and maintain its books,
accounts and records in the customary manner and in the ordinary or
regular course of business and maintain in good repair its business
premises, fixtures, furniture and equipment;
(o) Enter into any leases, contracts, agreements or
understandings other than those entered into in the ordinary course of
business calling for payments which in the aggregate do not exceed
$5,000 for each such lease, contract, agreement or understanding;
(p) Engage any employee for a salary in excess of
$10,000 per annum, except in connection with Additional Stores
(authorized pursuant to Section 1.9);
(q) Materially alter the terms, status or funding
condition of any Employee Plan;
(r) Make any loans to any person or entity; or
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(s) Commit or agree to do any of the foregoing in the
future.
5.3 TAXES. The Seller will, on a timely basis, file all tax
returns for and pay any and all taxes which shall become due or shall
have accrued (a) on account of the operation of the business of the
Seller or the ownership of the Assets on or prior to the Closing Date
or (b) on account of the sale of the Assets (including all personal
property and excise taxes payable with respect to the Assets by the
Seller).
5.4 DELIVERY OF INTERIM FINANCIAL STATEMENTS. As promptly as
possible following the last day of each month after the date hereof,
and in any event within 15 days after the end of each such month, the
Seller shall deliver to the Buyer its balance sheet and related
statements of income, shareholders' equity, retained earnings and
statement of cash flows for the one-month period then ended, all
certified by the chief financial officer. In addition, within 60 days
following the closing, the Seller shall provide its balance sheet and
related statements of income, shareholders' equity, retained earnings
and statement of cash flows for the period from the first day of the
month in which the Closing occurred through the Closing Date, all
certified by the chief financial officer (collectively, with all other
financial statements delivered pursuant to this Section 5.4, the
"Interim Financial Statements").
5.5 COMPLIANCE WITH LAWS. The Seller will comply with all
laws and regulations which are applicable to it, its ownership of the
Assets or to the conduct of its business and will perform and comply
with all contracts, commitments and obligations by which it is bound.
5.6 CONTINUED TRUTH OF REPRESENTATIONS AND WARRANTIES OF THE
SELLER. The Seller will not take any actions which would result in any
of the representations or warranties set forth in Section 2 hereof
being untrue.
5.7 CONTINUING OBLIGATION TO INFORM. From time to time prior
to the Closing, the Seller will deliver or cause to be delivered to the
Buyer supplemental information concerning events subsequent to the date
hereof which would render any statement, representation or warranty in
this Agreement or any information contained in any Schedule inaccurate
or incomplete in any material respect at any time after the date hereof
until the Closing Date.
5.8 EXCLUSIVE DEALING. The Seller will not, directly or
indirectly, through any officer, director, agent or otherwise, (a)
solicit, initiate or encourage submission of proposals or
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offers from any person relating to any acquisition or purchase of all
or a material portion of the Assets, or any equity interest in, the
Seller or any equity investment, merger, consolidation or business
combination with the Seller, or (b) participate in any discussions or
negotiations regarding, or furnish to any other person, any non-public
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 to do or seek any of the foregoing. The
Seller shall promptly notify the Buyer if any such proposal or offer,
or any inquiry or contact with any person with respect thereto, is
made.
5.9 NO PUBLICITY. The Seller shall make no public
announcement with respect to this Agreement or the transactions
contemplated hereby without the express prior written consent of the
Buyer. The Seller shall hold in confidence, and use its best efforts to
have all of its officers, directors and personnel hold in confidence,
the terms of this Agreement and the transactions contemplated hereby.
6. Satisfaction of Conditions; Liquidated Damages.
----------------------------------------------
6.1 SATISFACTION OF CONDITIONS. The Seller and the Buyer
covenant and agree to use their commercially reasonable efforts to
obtain the satisfaction of the conditions specified in this Agreement.
6.2 Liquidated Damages.
------------------
(a) The parties hereto agree that the harm suffered by
the Buyer as a result of a breach of this Agreement by the Seller and
the failure by the Seller to consummate the transactions contemplated
hereby is difficult to accurately estimate. The parties agree, based on
all present circumstances, that $1,000,000 represents a reasonable
estimate of the damages, excluding lost opportunity costs, which would
be suffered by the Buyer upon a failure to close due to a breach of the
Seller.
(b) If Seller (i) willfully or intentionally breaches
any representation, warranty or covenant under this Agreement,
willfully or intentionally fails to perform any condition or obligation
required to be performed hereunder, or fails to disclose a material
fact pertaining to the Assets or the transactions contemplated by this
Agreement to the Buyer; or (ii) either elects not to sell the Assets to
the Buyer pursuant to the terms of this Agreement, sells or otherwise
transfers the Assets or enters into an agreement (in principle or
otherwise) with any other person or entity to sell any shares of the
capital stock of Seller, to merge with or into, or consolidate Seller
with any
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person or entity other than the Buyer, to sell more than 10% of the
Assets to any other person or entity or to effect any other transaction
with any other person or entity that would preclude or otherwise
frustrate the transfer of the Assets to the Buyer (a "Willful Breach"),
the Seller will pay to the Buyer the sum of $1,000,000, as liquidated
damages, and Seller will pay the Buyer the additional sum of
$1,000,000, which the parties agree would be a reasonable estimate of
Buyer's lost opportunity cost.
7. Conditions to Obligations of the Buyer
--------------------------------------
The obligations of the Buyer under this Agreement are subject
to the fulfillment, at the Closing Date, of the following conditions
precedent, each of which may be waived in writing in the sole
discretion of the Buyer:
7.1 CONTINUED TRUTH OF REPRESENTATIONS AND WARRANTIES OF THE
SELLER; COMPLIANCE WITH COVENANTS AND OBLIGATIONS. The representations
and warranties of the Seller shall be true on and as of the Closing
Date as though such representations and warranties were made on and as
of such date, except for any changes permitted by the terms hereof or
consented to in writing by the Buyer. The Seller shall have performed
and complied with all terms, conditions, covenants, obligations,
agreements and restrictions required by this Agreement to be performed
or complied with by it prior to or at the Closing Date.
7.2 CORPORATE PROCEEDINGS. All corporate and other
proceedings required to be taken on the part of the Seller to authorize
or carry out this Agreement and to convey, assign, transfer and deliver
the Assets shall have been taken.
7.3 GOVERNMENTAL APPROVALS. All governmental agencies,
departments, bureaus, commissions and similar bodies, the consent,
authorization or approval of which is necessary under any applicable
law, rule, order or regulation for the consummation by the Seller of
the transactions contemplated by this Agreement and the operation of
the Seller's business by the Buyer shall have consented to, authorized,
permitted or approved such transactions.
7.4 CONSENTS OF LENDERS, LESSORS AND OTHER THIRD PARTIES. The
Seller shall have received all requisite consents and approvals of all
lenders, lessors and other third parties whose consent or approval is
required in order for the Seller to consummate the transactions
contemplated by this Agreement, including, without limitation, those
set forth on SCHEDULE 2.3 attached hereto.
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7.5 ADVERSE PROCEEDINGS. No action or proceeding by or before
any court or other governmental body shall have been instituted or
threatened by any governmental body or person whatsoever which shall
seek to restrain, prohibit or invalidate the transactions contemplated
by this Agreement or which might affect the right of the Buyer to own
or use the Assets after the Closing.
7.6 OPINION OF COUNSEL. The Buyer shall have received an
opinion of Xxxxx, Xxxxxx & Park, LLP, counsel to the Seller, dated as
of the Closing Date, in substantially the form attached hereto as
EXHIBIT D, and as to such other matters as may be reasonably requested
by the Buyer or its counsel.
7.7 BOARD OF DIRECTORS AND SHAREHOLDER APPROVAL. The Board
of Directors and shareholders of the Seller shall have duly authorized
the transactions contemplated by this Agreement.
7.8 THE ASSETS. Except for the Permitted Encumbrances, at the
Closing the Buyer shall receive good, clear, record and marketable
title to the Assets, free and clear of all liens, liabilities, security
interests and encumbrances of any nature whatsoever.
7.9 UPDATE. The Seller shall have provided the Buyer with a
true, correct and complete list and amount, as of the Closing Date, of:
(a) the Inventory; and
(b) the Fixed Assets.
7.10 CASH AVAILABLE FOR WORKING CAPITAL PURPOSES. On the
Closing Date, the Seller will have available cash for customary
operations of the Stores of not less than $600 per Store (in a secured
cashbox at each Store), which cash will be transferred to the Buyer
pursuant to the terms of this Agreement.
7.11 PAYABLES. On the Closing Date, the Seller will have no
obligations to suppliers and vendors of goods and services to the
Business and other trade creditors of the Business which are past due
in accordance with their terms.
7.12 ENGINEER'S REPORT. On or prior to the Closing Date, the
Buyer shall have received the engineer's report, if any, referred to in
Subsection 4.1(b) hereof.
7.13 TAX LIEN WAIVERS. On or prior to the Closing Date, the
Seller shall have obtained and delivered to the Buyer tax lien
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waivers (or similar instruments) from all jurisdictions in which Assets
are located and which provide such tax lien waivers.
7.14 FRANCHISE AGREEMENTS. The Buyer and Affiliates of the
Seller shall have entered into Franchise Agreements for each of the
Additional Stores, as contemplated by Section 1.9 of this Agreement.
7.15 CROSS PURCHASE AGREEMENT. The Buyer and the Principal
shall have executed and delivered the Cross Purchase Agreement.
7.16 CLOSING DELIVERIES. The Buyer shall have received at or
prior to the Closing each of the following documents:
(a) a xxxx of sale substantially in the form
attached hereto as EXHIBIT E;
(b) such instruments of conveyance, assignment and
transfer, in form and substance satisfactory to the Buyer, as shall be
appropriate to convey, transfer and assign to, and to vest in, the
Buyer, good, clear, record and marketable title to the Assets;
(c) such contracts, files and other data and
documents pertaining to the Assets or the Seller's business as the
Buyer may reasonably request;
(d) copies of the general ledgers and books of account
of the Seller, and all federal, state and local income, franchise,
property and other tax returns filed by the Seller with respect to the
Assets since January 1, 1991;
(e) such certificates of the Seller's officers and such
other documents evidencing satisfaction of the conditions specified in
Section 7 as the Buyer shall reasonably request;
(f) certificates of the Secretary of State of the states
of organization of each of the entities comprising Seller, and from
comparable authorities, as to the legal existence and good standing
(including tax) of each such entity in such states and in each state in
which they are qualified to transact business;
(g) certificates of the Secretary of the Seller
attesting to the incumbency of the Seller's officers, respectively, the
authenticity of the resolutions authorizing the transactions
contemplated by the Agreement, and the authenticity
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and continuing validity of the charter documents delivered
pursuant to Subsection 2.1;
(h) estoppel certificates from each lessor from whom the
Seller leases real or personal property and instruments reflecting such
lessor's consent to the assumption of such lease by the Buyer and
representing that there are no outstanding claims against the Seller
under any such lease;
(i) the schedules listed in Subsection 7.9;
(j) such other documents, instruments or certificates
as the Buyer may reasonably request
8. Conditions to Obligations of the Seller
---------------------------------------
The obligations of the Seller under this Agreement are subject to
the fulfillment, at the Closing Date, of the following conditions
precedent, each of which may be waived in writing at the sole
discretion of the Seller:
8.1 ONTINUED TRUTH OF REPRESENTATIONS AND WARRANTIES OF THE
BUYER; COMPLIANCE WITH COVENANTS AND OBLIGATIONS. The representations
and warranties of the Buyer in this Agreement shall be true on and as
of the Closing Date as though such representations and warranties were
made on and as of such date, except for any changes consented to in
writing by the Seller. The Buyer shall have performed and complied with
all terms, conditions, obligations, agreements and restrictions
required by this Agreement to be performed or complied with by it prior
to or at the Closing Date.
8.2 CORPORATE PROCEEDINGS. All corporate and other
proceedings required to be taken on the part of the Buyer to authorize
or carry out this Agreement shall have been taken.
8.3 GOVERNMENTAL APPROVALS. All governmental agencies,
departments, bureaus, commissions and similar bodies, the consent,
authorization or approval of which is necessary under any applicable
law, rule, order or regulation for the consummation by the Buyer of the
transactions contemplated by this Agreement shall have consented to,
authorized, permitted or approved such transactions.
8.4 CONSENTS OF LENDERS, LESSORS AND OTHER THIRD PARTIES.
The Buyer shall have received all requisite consents and approvals of
all lenders, lessors and other third parties whose consent or approval
is required in order for the Buyer to consummate the transactions
contemplated by this Agreement.
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8.5 ADVERSE PROCEEDINGS. No action or proceeding by or
before any court or other governmental body shall have been
instituted or threatened by any governmental body or person whatsoever
which shall seek to restrain, prohibit or invalidate the transactions
contemplated by this Agreement or which might affect the right of the
Seller to transfer the Assets.
8.6 OPINION OF COUNSEL. The Seller shall have received an
opinion of Xxxx and Xxxx, counsel to the Buyer, dated as of the Closing
Date, in substantially the form attached hereto as EXHIBIT F, and as to
such other matters as may be reasonably requested by the Seller or its
counsel.
8.7 CLOSING DELIVERIES. The Seller shall have received at or
prior to the Closing each of the following documents:
(a) such certificates of the Buyer's officers and such
other documents evidencing satisfaction of the conditions specified in
this Section 8 as the Seller shall reasonably request;
(b) a certificate of the Secretary of State of the
State of Delaware as to the legal existence and good standing
(including tax) of the Buyer in Delaware;
(c) a certificate of the Secretary of the Buyer
attesting to the incumbency of the Buyer's officers, the authenticity
of the resolutions authorizing the transactions contemplated by this
Agreement, and the authenticity and continuing validity of the charter
documents delivered pursuant to Subsection 3.1;
(d) Instrument of Assumption of Liabilities executed by
the Buyer and accepted by the Seller;
(e) payment of the Base Purchase Price; and
(f) such other documents, instruments or certificates
as the Seller may reasonably request.
9. Indemnification
---------------
9.1 BY THE BUYER AND THE SELLER AND THE PRINCIPAL. The Buyer
on the one hand, and each entity comprising the Seller and the
Principal, jointly and severally, on the other hand, each hereby
indemnifies and holds harmless the other against all claims, damages,
losses, liabilities, costs and expenses (including, without limitation,
settlement costs and any legal, accounting or other expenses for
investigating or defending any
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actions or threatened actions) reasonably incurred by the Buyer or the
Seller in connection with each and all of the following:
(a) Any breach by the indemnifying party of any
representation or warranty made by the indemnifying party in this
Agreement;
(b) Any breach of any covenant, agreement or obligation
of the indemnifying party contained in this Agreement or any other
agreement, instrument or document contemplated by this Agreement; and
(c) Any misrepresentation contained in any statement,
certificate or schedule furnished by the indemnifying party pursuant to
this Agreement or in connection with the transactions contemplated by
this Agreement.
9.2A BY THE SELLER AND THE PRINCIPAL. Each entity comprising
the Seller and the Principal, on a joint and several basis, further
agree to indemnify and hold harmless the Buyer from any and all claims,
damages, losses, liabilities, costs and expenses (including, without
limitation, settlement costs and any legal, accounting or other
expenses for investigating or defending any actions or threatened
actions) reasonably incurred by the Buyer, in connection with each and
all of the following:
(a) Any claims against, or liabilities or obligations
of, the Seller or against the Assets not specifically assumed by the
Buyer pursuant this Agreement;
(b) The failure of the Buyer to obtain the protections
afforded by compliance with the notification and other requirements of
the bulk sales laws in force in the jurisdictions in which such laws
may be applicable to either the Seller, the Assets or the transactions
contemplated by this Agreement;
(c) Any violation by the Seller of, or any failure by
the Seller to comply with, any law, ruling, order, decree, regulation
or zoning, environmental or permit requirement applicable to the
Seller, the Assets or its business, whether or not any such violation
or failure to comply has been disclosed to the Buyer (including the
failure of the Seller to qualify to transact business as a foreign
corporation in any state), including any costs incurred by the Buyer
(i) in order to bring the Assets into compliance with environmental
laws as a consequence of noncompliance with such laws on the Closing
Date or (ii) in connection with the transfer of the Assets;
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(d) Any claim relating to the Seller's business or
operation, or the operation of the Assets, prior to the Closing
Date;
(e) Any Taxes of the Seller; and
(f) Any claims against, or liabilities or obligations
of, the Seller with respect to obligations under Employee Plans or in
respect of Seller's obligations to its employees (including obligations
for accrued vacation, sick or personal days).
9.2B BY THE BUYER. The Buyer further agrees to indemnify and
hold harmless the Seller and the Principal from any and all claims,
damages, losses, liabilities, costs and expenses (including, without
limitation, settlement costs and any legal, accounting or other
expenses for investigating or defending any actions or threatened
actions) reasonably incurred by the Seller and the Principal, in
connection with each and all of the following:
(a) Any claims against, or liabilities or obligations
of, the Seller specifically assumed by the Buyer pursuant this
Agreement;
(b) Any violation by the Buyer of, or any failure by the
Buyer to comply with, any law, ruling, order, decree, regulation or
zoning, environmental or permit requirement applicable to the Buyer or
its business, whether or not any such violation or failure to comply
has been disclosed to the Seller;
(c) Any claim relating to the conduct of the Business
or the operation of the Assets after the Closing Date; and
(d) Any Taxes of the Buyer.
9.3 CLAIMS FOR INDEMNIFICATION. Whenever any claim shall
arise for indemnification hereunder the party seeking indemnification
(the "Indemnified Party"), shall promptly notify the party from whom
indemnification is sought (the "Indemnifying Party") of the claim and,
when known, the facts constituting the basis for such claim. In the
event of any such claim for indemnification hereunder resulting from or
in connection with any claim or legal proceedings by a third-party, the
notice to the Indemnifying Party shall specify, if known, the amount or
an estimate of the amount of the liability arising therefrom. The
Indemnified Party shall not settle or compromise any claim by a third
party for which it is entitled to indemnification hereunder
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without the prior written consent of the Indemnifying Party, which
shall not be unreasonably withheld, unless suit shall have been
instituted against it and the Indemnifying Party shall not have taken
control of such suit after notification thereof as provided in
Subsection 9.4 of this Agreement.
9.4 DEFENSE BY INDEMNIFYING PARTY. In connection with any
claim giving rise to indemnity hereunder resulting from or arising out
of any claim or legal proceeding by a person who is not a party to this
Agreement, the Indemnifying Party at its sole cost and expense may,
upon written notice to the Indemnified Party, assume the defense of any
such claim or legal proceeding if it acknowledges to the Indemnified
Party in writing its obligations to indemnify the Indemnified Party
with respect to all elements of such claim. The Indemnified Party shall
be entitled to participate in (but not control) the defense of any such
action, with its counsel and at its own expense. If the Indemnifying
Party does not assume the defense of any such claim or litigation
resulting therefrom within 30 days after the date such claim is made,
(a) the Indemnified Party may defend against such claim or litigation,
in such manner as it may deem appropriate, including, but not limited
to, settling such claim or litigation, after giving notice of the same
to the Indemnifying Party, on such terms as the Indemnified Party may
deem appropriate, and (b) the Indemnifying Party shall be entitled to
participate in (but not control) the defense of such action, with its
counsel and at its own expense. If the Indemnifying Party thereafter
seeks to question the manner in which the Indemnified Party defended
such third party claim or the amount or nature of any such settlement,
the Indemnifying Party shall have the burden to prove by a
preponderance of the evidence that the Indemnified Party did not defend
or settle such third party claim in a reasonably prudent manner.
9.5 PAYMENT OF INDEMNIFICATION OBLIGATION. All
indemnification by the Buyer, the Seller or the Principal hereunder
shall be effected by payment of cash or delivery of a cashier's or
certified check in the amount of the indemnification liability.
9.6 SURVIVAL OF REPRESENTATIONS; CLAIMS FOR
INDEMNIFICATION. All representations and warranties made by the
parties herein or in any instrument or document furnished in
connection herewith shall survive the Closing and any investigation at
any time made by or on behalf of the parties hereto. All such
representations and warranties shall expire on the third anniversary
of the Closing Date, except for claims, if any, asserted in writing
prior to such third anniversary, which shall survive until finally
resolved and satisfied in full. All
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claims and actions for indemnity pursuant to this Section 9 for breach
of any representation or warranty shall be asserted or maintained in
writing by a party hereto on or prior to the expiration of such
three-year period. Notwithstanding the above, claims resulting from the
failure by the Seller to pay any Tax when due or for breach of the
representations made in Section 2.13 hereof, shall expire six months
after any applicable statute of limitations.
10. Post-Closing Agreements
-----------------------
The Seller agrees that from and after the Closing Date:
10.1 Proprietary Information.
-----------------------
(a) The Seller shall hold in confidence, and use its
best efforts to have all of its officers, directors and personnel hold
in confidence, all knowledge and information of a secret or
confidential nature with respect to the business of the Seller and
shall not disclose, publish or make use of the same without the consent
of the Buyer, except to the extent that such information shall have
become public knowledge other than by breach of this Agreement by the
Seller.
(b) The Seller agrees that the remedy at law for any
breach of this Subsection 10.1 would be inadequate and that the Buyer
shall be entitled to injunctive relief in addition to any other remedy
it may have upon breach of any provision of this Subsection 10.1.
10.2 NO SOLICITATION OR HIRING OF FORMER EMPLOYEES. Except
as provided below in this Section 10.2 or by law, for a period of five
years after the Closing Date, neither the Seller nor any Affiliate
thereof (including the Principal) shall solicit any person who was an
employee of the Seller on the Closing Date to terminate his employment
with the Buyer or to become an employee of the Seller or hire any
person who was such an employee on the date hereof or on the Closing
Date (except that persons who, on the Closing Date, were employed by
the Seller and provided services exclusively to the Excluded Stores,
may provide such services (but no other services) to the Seller after
the Closing Date).
The provisions of this Section 10.2 shall not apply to the
following employees of Seller: Xxxxxx Xxxxxxxx, Xxxxxx Xxx, Xxxxxxxx
Xxxxxxx or Xxxxx Xxxxxx.
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10.3 Non-Competition Agreement.
-------------------------
(a) Subject to the provisions of Section 10.3(c) below,
without the prior approval of the Buyer, for a period of five years
after the Closing Date, neither the Seller nor any Affiliate (including
the Principal) thereof shall (i) market, rent or sell any product which
has the same or substantially the same form, function and primary
application as any existing or proposed product marketed, rented or
sold by the Seller on or prior to the Closing Date or (ii) engage in
any business competitive with the business of the Buyer or Seller as
conducted on the date hereof or on the Closing Date, in the United
States or any other country in which the Buyer conducted its business
during the two years prior to the Closing Date.
(b) The parties hereto agree that the duration and
geographic scope of the non-competition provision set forth in this
Subsection 10.3 are reasonable. In the event that any court determines
that the duration or the geographic scope, or both, are unreasonable
and that such provision is to that extent unenforceable, the parties
hereto agree that the provision shall remain in full force and effect
for the greatest time period and in the greatest area that would not
render it unenforceable. The parties intend that this non-competition
provision shall be deemed to be a series of separate covenants, one for
each and every county of each and every state of the United States of
America and each and every political subdivision of each and every
country outside the United States of America where this provision is
intended to be effective. The Seller agrees that damages are an
inadequate remedy for any breach of this provision and that the Buyer
shall, whether or not it is pursuing any potential remedies at law, be
entitled to equitable relief in the form of preliminary and permanent
injunctions without bond or other security upon any actual or
threatened breach of this non-competition provision.
(c) The Buyer hereby waives the provisions of this
Section 10.3 to the extent necessary to enable the Seller, the
Principal and their respective Affiliates to operate the Xxxxxxx Store,
the New Stores and any other Stores which Seller, the Principal or such
Affiliates may own, operate or acquire in accordance with the
provisions of Section 1.9, but only to the extent the Seller, the
Principals and their respective Affiliates own and operate such stores
in the manner and in accordance with the provisions of such Section 1.9
and of any franchising agreements related thereto.
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10.4 Sharing of Data.
---------------
(a) The Seller shall have the right for a period of
three years following the Closing Date to have reasonable access to
such books, records and accounts, including financial and tax
information, correspondence, production records, employment records and
other similar information as are transferred to the Buyer pursuant to
the terms of this Agreement for the limited purposes of concluding its
involvement in the Business prior to the Closing Date and for complying
with its obligations under applicable securities, tax, environmental,
employment or other laws and regulations. The Buyer shall have the
right for a period of three years following the Closing Date to have
reasonable access to those books, records and accounts, including
financial and tax information, correspondence, employment records and
other records which are retained by the Seller pursuant to the terms of
this Agreement to the extent that any of the foregoing relates to the
Business transferred to the Buyer hereunder or is otherwise needed by
the Buyer in order to comply with its obligations under applicable
securities, tax, environmental, employment or other laws and
regulations.
(b) The Seller and the Buyer agree that from and after
the Closing Date they shall cooperate fully with each other to
facilitate the transfer of the Assets from the Seller to the Buyer and
the operation thereof by the Buyer.
10.5 USE OF NAME. The Seller agrees not to use the name
"Picture Show" or any derivation thereof after the Closing Date in
connection with any business related to, competitive with, or an
outgrowth of, the business conducted by the Seller on the date hereof,
except in connection with the operation of the Xxxxxxx Store.
10.6 COOPERATION IN LITIGATION. Each party hereto will fully
cooperate with the other in the defense or prosecution of any
litigation or proceeding already instituted or which may be instituted
hereafter against or by such party relating to or arising out of the
conduct of the business of the Seller prior to or after the Closing
Date (other than litigation arising out the transactions contemplated
by this Agreement). The party requesting such cooperation shall pay the
out-of-pocket expenses (including legal fees and disbursements) of the
party providing such cooperation and of its officers, directors,
employees and agents reasonably incurred in connection with providing
such cooperation, but shall not be responsible to reimburse the party
providing such cooperation for such party's time spent in such
cooperation or the salaries or costs of fringe benefits or similar
expenses paid by the party providing such cooperation to its
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officers, directors, employees and agents while assisting in the
defense or prosecution of any such litigation or proceeding.
11. Termination of Agreement
------------------------
11.1 TERMINATION BY LAPSE OF TIME. This Agreement shall
terminate at 5:00 p.m., Boston time, on September 30, 1996, if the
transactions contemplated hereby have not been consummated, unless such
date is extended by the written consent of all of the parties hereto.
11.2 TERMINATION BY AGREEMENT OF THE PARTIES. This Agreement
may be terminated by the mutual written agreement of the parties
hereto. In the event of such termination by agreement, the Buyer shall
have no further obligation or liability to the Seller under this
Agreement, and the Seller shall have no further obligation or liability
to the Buyer under this Agreement.
11.3 TERMINATION BY REASON OF BREACH. This Agreement may be
terminated by the Seller, if at any time prior to the Closing there
shall occur a breach of any of the representations, warranties or
covenants of the Buyer or the failure by the Buyer to perform any
condition or obligation hereunder, and may be terminated by the Buyer,
if at any time prior to the Closing there shall occur a breach of any
of the representations, warranties or covenants of the Seller or the
failure of the Seller to perform any condition or obligation hereunder.
12. Transfer and Sales Tax
----------------------
Notwithstanding any provisions of law imposing the burden of
such taxes on the Seller or the Buyer, as the case may be, the Seller
shall be responsible for and shall pay (a) all sales, use and transfer
taxes, and (b) all governmental charges, if any, upon the sale or
transfer of any of the Assets hereunder. If the Seller shall fail to
pay such amounts on a timely basis, the Buyer may pay such amounts to
the appropriate governmental authority or authorities, and the Seller
shall promptly reimburse the Buyer for any amounts so paid by the
Buyer.
13. Brokers
-------
13.1 FOR THE SELLER. The Seller represents and warrants that
it has not engaged any broker or finder or incurred any liability for
brokerage fees, commissions or finder's fees in connection with the
transactions contemplated by this Agreement. The Seller agrees to
indemnify and hold harmless the Buyer against any claims or liabilities
asserted against it by any person acting or claiming to act as a broker
or finder on behalf of the Seller.
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13.2 FOR THE BUYER. The Buyer agrees to pay all fees,
expenses and compensation owed to any person, firm or corporation who
has acted in the capacity of broker or finder on its behalf in
connection with the transactions contemplated by this Agreement. The
Buyer agrees to indemnify and hold harmless the Seller against any
claims or liabilities asserted against it by any person acting or
claiming to act as a broker or finder on behalf of the Buyer.
14. 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 Seller: c/o Xxxxxxx Xxxxxxx, Jr.
0000 Xxxxxxx Xxxx
Xxxxxxxxx, Xxxxxxxx 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.
15. Arbitration
-----------
(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 15. Any arbitration
pursuant to this Section 15 shall be
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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 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.
16. 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 Seller 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.
17. Entire Agreement; Amendments; Attachments
-----------------------------------------
(a) 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, the
Seller and the Principal may amend or modify this Agreement, in such
manner as may be agreed upon, by a written instrument executed by the
Buyer and the Seller.
(b) If the provisions of any Schedule or Exhibit to this
Agreement are inconsistent with the provisions of this Agreement, the
provision of the Agreement shall prevail. The Exhibits and Schedules
attached hereto or to be attached hereafter are hereby incorporated as
integral parts of this Agreement.
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18. Expenses
--------
Except as otherwise expressly provided herein, the Buyer and
the Seller shall each pay their own expenses in connection with this
Agreement and the transactions contemplated hereby. Buyer shall pay the
costs and expenses of any audit conducted by, or at the request of, the
Buyer, and Seller shall pay the costs and expenses of any accounting
services provided to the Seller in connection with the transactions
contemplated hereby. Notwithstanding the foregoing, the Buyer shall pay
up to $15,000 of the fees payable by the Seller to its independent
certified public accountants for accounting and auditing services
provided by them in connection with the preparation of the audited
financial statements and the quarterly and interim financial statements
of the Seller delivered to the Buyer pursuant to this Agreement, and
delivery of such accountants' written reports and consents to be
included by the Buyer in its prospectuses and registration statements,
provided that the Seller provides to the Buyer such accountants'
invoices for such services and fees which reflect in reasonable detail
the services provided.
19. Legal Fees
----------
In the event that legal or arbitration proceedings are
commenced by the Buyer against the Seller, or by the Seller 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.
20. Governing Law
-------------
This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware.
21. 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.
22. 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.
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23. 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.
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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.
SELLER:
J.J. VIDEO INC. - FILM FESTIVAL
By: /s/ Xxxxxxx Xxxxxxx, Jr.
--------------------------------
Title: President
-----------------------------
PICTURE SHOW VIDEO - GARDENSIDE, INC.
By: /s/ Xxxxxxx Xxxxxxx, Jr.
--------------------------------
Title: President
-----------------------------
PICTURE SHOW VIDEO - WINCHESTER, INC.
By: /s/ Xxxxxxx Xxxxxxx, Jr.
--------------------------------
Title: President
-----------------------------
PICTURE SHOW VIDEO NO. 4, INC.
By: /s/ Xxxxxxx Xxxxxxx, Jr.
--------------------------------
Title: President
-----------------------------
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PICTURE SHOW VIDEO, INC.
By: /s/ Xxxxxxx Xxxxxxx, Jr.
--------------------------------
Title: President
-----------------------------
PRINCIPAL:
/s/ Xxxxxxx Xxxxxxx, Jr.
-----------------------------------
Xxxxxxx Xxxxxxx, Jr.
BUYER:
WEST COAST ENTERTAINMENT CORPORATION
By: /s/ Xxxxx X. Xxxxxxxx III
--------------------------------
Title: Chairman
-----------------------------
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Schedule A
----------
Seller Entity Names and Principal Office Addresses
--------------------------------------------------
and Stockholders
----------------
Entity Percentage of
------ Total Consideration
-------------------
J.J. VIDEO INC. - FILM FESTIVAL 16.8%
0000 XXXXXXX XXXX
XXXXXXXXX, XXXXXXXX 00000
State of Organization: Kentucky
States in Which Qualified
To Transact Business: None.
Authorized Stock: 1,000 shares of Common Stock, no par value
per share
Outstanding Stock: 111 shares of Common Stock
Stockholders:
Xxxxxxx Xxxxxxx Jr. 100 shares
Xxxxxx Xxx 11 shares
PICTURE SHOW VIDEO - GARDENSIDE, INC. 15.0%
0000 XXXXXXX XXXX
XXXXXXXXX, XXXXXXXX 00000
State of Organization: Kentucky
States in Which Qualified
To Transact Business: None.
Authorized Stock: 1,000 shares of Common Stock, no par value
per share
Outstanding Stock: 111 shares of Common Stock
Stockholders:
Xxxxxxx Xxxxxxx Jr. 100 shares
Xxxxxx Xxx 11 shares
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52
PICTURE SHOW VIDEO - WINCHESTER, INC. 14.5%
0000 XXXXXXX XXXX
XXXXXXXXX, XXXXXXXX 00000
State of Organization: Kentucky
States in Which Qualified
To Transact Business: None.
Authorized Stock: 1,000 shares of Common Stock, no par
value per share
Outstanding Stock: 111 shares of Common Stock
Stockholders:
Xxxxxxx Xxxxxxx Jr. 100 shares
Xxxxxx Xxx 11 shares
PICTURE SHOW VIDEO NO. 4, INC. 35.8%
0000 XXXXXXX XXXX
XXXXXXXXX, XXXXXXXX 00000
State of Organization: Kentucky
States in Which Qualified
To Transact Business: Ohio
Authorized Stock: 1,000 shares of Common Stock, no par
value per share
Outstanding Stock: 100 shares of Common Stock
Stockholders:
Xxxxxxx Xxxxxxx Jr. 100 shares
PICTURE SHOW VIDEO, INC. 17.9%
0000 XXXXXXX XXXX
XXXXXXXXX, XXXXXXXX 00000
State of Organization: Kentucky
States in Which Qualified
To Transact Business: None.
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Authorized Stock: 1,000 shares of Common Stock, no par value
per share
Outstanding Stock: 100 shares of Common Stock
Stockholders:
Xxxxxxx Xxxxxxx Xx. 000 xxxxxx
-00-
00
Xxxxxxxx I
----------
Stores
------
1. J. J. Video, Inc. - Film Festival
0000 Xxxxxxxxxxx Xxxx, #000
Xxxxxxxxx, Xxxxxxxx 00000
2. Picture Show Video - Gardenside, Inc.
0000 Xxxxxxxxxx Xxxxx
Xxxxxxxxx, Xxxxxxxx 00000
3. Picture Show Video - Winchester, Inc.
000 Xx-Xxxx Xxxx
Xxxxxxxxxx, Xxxxxxxx 00000
4. Picture Show Video, Inc.
0000-00 Xxxx Xxxxxx
Xxxxxxxxxx, Xxxx 00000
4. Picture Show Video No. 4, Inc.
0000 Xxxxxx Xxxx
Xxxxxxxxxx, Xxxx 00000
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Schedule II
-----------
Excluded Stores
---------------
0000 X. Xxxxxxxxx Xxxx
Cincinnati
0000 Xxxxxxxxxx Xxxx
Xxxxxxxxxx
0000 Xxxxx Xxxxxxx
Xxxxxxxx, Xxxxxxxx
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