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ASSET PURCHASE AGREEMENT
By and Among
West Coast Entertainment Corporation
and the Sellers and Principals Identified
on Schedule I hereto
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TABLE OF CONTENTS
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 Purchase Price 3
1.4 Assumption of Liabilities, Etc. 5
1.5 Allocation of Purchase Price and Assumed
Liabilities 5
1.6 The Closing 5
1.7 Restrictions on Transfer 5
2. Representations of the Sellers and the Principals 5
2.1 Organization 6
2.2 Capitalization of the Sellers 6
2.3 Authorization 6
2.4 Ownership of the Assets 7
2.5 Financial Statements 7
2.6 Absence of Undisclosed Liabilities 9
2.7 Litigation 9
2.8 Insurance 9
2.9 Inventory 10
2.10 Fixed Assets 10
2.11 Leases 10
2.12 Change in Financial Condition and Assets 11
2.13 Tax Matters 11
2.14 Accounts Receivable 12
2.15 Books and Records 12
2.16 Contracts and Commitments 13
2.17 Compliance with Agreements and Laws 15
2.18 Employee Relations 15
2.19 Absence of Certain Changes or Events 16
2.20 Suppliers 17
2.21 Prepayments and Deposits 17
2.22 Trade Names and Other Intangible Property 18
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2.23 Employee Benefit Plans 18
2.24 Regulatory Approvals 19
2.25 Indebtedness to and from Officers, Directors and
Shareholders 19
2.26 Powers of Attorney and Suretyships 19
2.27 Disclosure 20
3. Representations of the Buyer 20
3.1 Organization and Authority 20
3.2 Capitalization of the Buyer 20
3.3 Authorization 20
3.4 Regulatory Approvals 21
3.5 Disclosure 21
4. Access to Information; Public Announcements 21
4.1 Access to Management, Properties and Records 21
4.2 Confidentiality 22
4.3 Public Announcements 23
5. Pre-Closing Covenants of the Sellers 23
5.1 Conduct of Business 23
5.2 Absence of Material Changes 23
5.3 Taxes 25
5.4 Delivery of Subsequent Financial Statements 25
5.5 Compliance with Laws 26
5.6 Continued Truth of Representations
and Warranties of the Sellers 26
5.7 Continuing Obligation to Inform 26
5.8 Exclusive Dealing 26
5.9 No Publicity 26
6. Satisfaction of Conditions 27
7. Conditions to Obligations of the Buyer 27
7.1 Continued Truth of Representations
and Warranties of the Sellers; Compliance with
Covenants and Obligations 27
7.2 Corporate Proceedings 27
7.3 Governmental Approvals 27
7.4 Consents of Lenders, Lessors and Other
Third Parties 28
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7.5 Adverse Proceedings 28
7.6 Opinion of Counsel 28
7.7 Board of Directors and Shareholder and
Member and Manager Approval 28
7.8 The Assets 28
7.9 Update 28
7.10 Cash Available for Working Capital Purposes 28
7.11 Payables 29
7.12 Engineer's Report 29
7.13 Tax Lien Waivers 29
7.14 Closing Deliveries 29
7.15 Noncompete Agreement 30
8. Conditions to Obligations of the Sellers 30
8.1 Continued Truth of Representations and
Warranties of the Buyer; Compliance
with Covenants and Obligations 30
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 31
8.6 Opinion of Counsel 31
8.7 Closing Deliveries 31
8.8 Seller Approval 32
9. Indemnification 32
9.1 By the Buyer and the Sellers and the Principals. 32
9.2 By the Sellers and the Principals 33
9.3 Claims for Indemnification 34
9.4 Defense by Indemnifying Party 34
9.5 Payment of Indemnification Obligation 35
9.6 Survival of Representations; Claims for
Indemnification 35
10. Post-Closing Agreements 35
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10.1 Proprietary Information 35
10.2 No Solicitation or Hiring of Former Employees 36
10.3 Non-Competition Agreement 36
10.4 Sharing of Data 37
10.5 Use of Name 37
10.6 Cooperation in Litigation 37
11. Termination of Agreement 38
11.1 Termination by Lapse of Time 38
11.2 Termination by Agreement of the Parties 38
11.3 Termination by Reason of Breach 38
12. Transfer and Sales Tax 38
13. Brokers 39
13.1 For the Sellers 39
13.2 For the Buyer 39
14. Notices 39
15. Arbitration 40
16. Successors and Assigns 40
17. Entire Agreement; Amendments; Attachments 40
18. Expenses 41
19. Legal Fees 41
20. Governing Law 41
21. Section Headings 41
22. Severability 41
23. Counterparts 42
Exhibits
A - Escrow Agreement
B - Instrument of Assumption of Liabilities
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C - Opinion of Counsel to Sellers
D - Xxxx of Sale
E - Opinion of Xxxx and Xxxx
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ASSET PURCHASE AGREEMENT
Agreement made as of November __, 1996 between West Coast Entertainment
Corporation, a Delaware corporation with its principal office at 0000 Xxxxxx
Xxxx, Xxxxxxxxxxxx, Xxxxxxxxxxxx 00000 (the "Buyer"), each of the Sellers
identified on Schedule I attached hereto, each of whom has a principal office
as indicated on Schedule I attached hereto (individually, a "Seller" and
collectively, the "Sellers"), and those persons identified as "Principals" on
Schedule I attached hereto (individually, a "Principal" and collectively, the
"Principals").
Preliminary Statement
The Buyer desires to purchase, and the Sellers desire to sell,
substantially all of the assets and business of the Sellers, each of which is
engaged in the retail video rental and sales business (the "Business") for the
consideration set forth below and the assumption of certain of the Sellers'
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
1.1 Delivery of the Assets.
(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
Sellers shall sell, transfer, convey, assign and deliver to the Buyer, and the
Buyer shall purchase from the Sellers, the following properties, assets and
other claims, rights and interests:
(i) all inventories, videotapes, finished goods, office supplies,
maintenance supplies, packaging materials and similar items of the Sellers
(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 Sellers, including any
security held by the Sellers
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for the payment thereof (the "Accounts Receivable");
(iii) all prepaid expenses, deposits and other similar assets of the
Sellers existing on the Closing Date;
(iv) all rights of the Sellers under the contracts, agreements, leases,
licenses and other instruments set forth on Schedule 2.16 attached hereto, but
not including such rights under contracts, agreements, leases, licenses and
other instruments set forth on Schedule 1.1 (collectively, the "Contract
Rights");
(v) copies of all books, records and accounts, correspondence, manuals,
customer lists, employment records, studies, reports or summaries relating to
or arising out of the business of the Sellers;
(vi) all rights of the Sellers under express or implied warranties from
the suppliers of the Sellers;
(vii) the motor vehicles and other rolling stock owned by the Sellers on
the Closing Date;
(viii) all of the machinery, equipment, furniture, leasehold improvements
and construction in progress owned by the Sellers on the Closing Date whether
or not reflected as capital assets in the accounting records of the Sellers
(collectively, the "Fixed Assets");
(ix) all of the Sellers' 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 trade names
(if any) identified on Schedule I attached hereto or any derivation thereof,
trademarks, trademark registrations, applications for trademark registrations,
copyrights, copyright registrations, owned or, where not owned, used by the
Sellers in their business and all licenses and other agreements to which the
Sellers are a party (as licensor or licensee) or by which the Sellers are 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");
(x) all of the outstanding shares of capital stock of the subsidiaries of
the Sellers, if any, set forth on Schedule 2.2 attached hereto (collectively,
the "Subsidiaries"); and
(xi) except as specifically provided in Subsection 1.1(b) hereof, all
other assets, properties, claims, rights and interests of the Sellers 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 those assets
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listed on Schedule 1.1 attached hereto (the "Excluded Assets"). In the event a
lessor of real property for a store of a Seller does not consent to the
transfer or assignment of the lease for such real property to the Buyer and the
Buyer elects not to assume the liabilities thereunder, the assets included in
and related to such store shall become Excluded Assets and included on Schedule
1.1 prior to the Closing and the Purchase Price (as defined below) will be
adjusted based on a recalculation of Net Operating Cash Flow (as defined
below). Any such store not being transferred to the Buyer shall be herein
referred to as an "Excluded Store".
(c) The Inventory, Accounts Receivable, Contract Rights, Fixed Assets,
Intangible Property and other properties, assets and business of the Sellers
described in paragraph (a) above, other than the Excluded Assets, shall be
referred to collectively as the "Assets." The Assets relate to one or more
retail video stores which are owned and operated by the Sellers, all of which
stores are identified by location on Schedule I attached hereto, each of which
is sometimes hereinafter referred to as a "Store" and all of which are
sometimes hereinafter referred to collectively as the "Stores." The owner of
each Store is also set forth on Schedule I.
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 Sellers
and the Principals 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 Purchase Price.
(a) The "Purchase Price" for the assets shall be as set forth on Schedule
I attached hereto. The parties acknowledge and agree that the Purchase Price
was determined as a multiple of the minimum Net Operating Cash Flow (as defined
below). The Purchase Price shall be subject to adjustment in the event a store
becomes an Excluded Store and further adjustment as provided in Subsection 1.4
below. In the event a store becomes an Excluded Store the Purchase Price shall
be reduced based on a recalculation of Net Operating Cash Flow that does not
include the Excluded Store.
(b) At the Closing, the Buyer shall deliver to the Sellers (i) 60% of the
Purchase Price in cash, by cashiers or certified check or by wire transfer of
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immediately available funds to an account designated by the Sellers, and (ii)
that number of shares of Common Stock, $.01 par value per share, of the Buyer
("Common Stock") as determined by dividing that portion of the balance of the
Purchase Price by the Market Value of a share of Common Stock. The "Market
Value" of a share of Common Stock shall equal the average of the closing price
of a share of Common Stock on the Nasdaq National Market for the 15 trading
days ending on the third business day prior to the Closing. The shares of
Common Stock issuable hereunder shall be registered under the Securities Act of
1933, as amended, pursuant to a Registration Statement on Form S-1 filed with
the Securities and Exchange Commission. At the Closing, 90% of the shares
issuable hereunder shall be issued to the Sellers and the balance shall be
issued in the name of the Seller and held by the Buyer as escrow agent (the
"Escrow Agent") in an escrow account in accordance with the Escrow Agreement
attached hereto as Exhibit A. The Purchase Price shall be allocated among the
Sellers in accordance with Section 1.3 hereto.
(c) For purposes hereof "Net Operating Cash Flow" shall be equal to the
pre-tax income, before general and administrative expenses, from the Stores for
the 12-month period ending on June 30, 1996, plus all debt-related interest
expense related to the Stores and depreciation and amortization expenses for
the Stores for such 12-month period, plus all Pennsylvania capital stock tax
for the Stores for such 12-month period, to the extent previously deducted,
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 such 12-month period, plus all royalty expenses
attributable to such stores during such 12-month period, plus all compensation
benefits, travel and entertainment expenses for all persons employed by Sellers
spending less than 75% of their employment time serving customers at the Stores
during such 12-month period; with such components of Net Operating Cash Flow
determined in accordance with generally accepted accounting principles applied
consistently with the Sellers' past practices. Notwithstanding the above, the
portion of the Net Operating Cash Flow deemed to be contributed by the Store
owned by Pennsburg W.C. Video Inc. shall be deemed to be equal to that portion
of the Net Operating Cash Flow attributable to the Store owned by Bloomsburg
W.C. Video Inc.
1.4 Assumption of Liabilities; Etc.
(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 liabilities, obligations and commitments of
the Sellers (the "Assumed Liabilities") set forth on Schedule I.
(b) The Buyer shall not at the Closing assume or agree to perform, pay or
discharge, and the Sellers shall remain unconditionally liable for, all
obligations, liabilities and commitments, fixed or contingent, of the Sellers
other than the Assumed Liabilities.
1.5 Allocation of Purchase Price and Assumed Liabilities. The aggregate
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amount of the Purchase Price and the Assumed Liabilities shall be allocated
among the Assets as set forth on Schedule 1.5 attached hereto.
1.6 The Closing. The closing of the transactions contemplated by this
Agreement (the "Closing") shall take place at the offices of Xxxx and Xxxx, 00
Xxxxx Xxxxxx, Xxxxxx, Xxxxxxxxxxxxx 00000, on the date set forth on Schedule I
or on such other date mutually agreeable to the Buyer and the Principals (the
"Closing Date"). The transfer of the Assets by the Sellers 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 Restrictions on Transfer. Each of the Sellers and the Principals
hereby confirm, covenant and agree that, without the prior written consent of
the Buyer, it, she or he will not, directly or indirectly, sell, offer to sell,
contract to sell, pledge, grant any option for the sale of, or otherwise
dispose of, (i) any shares of Common Stock issued or issuable to Sellers or the
Principals hereunder prior to the date 12 months after the Closing Date and
(ii) at least 60% of such shares of Common Stock prior to the date 18 months
after the Closing Date.
2. Representations of the Sellers and the Principals
The Sellers and the Principals, jointly and severally, represent and
warrant to the Buyer as follows:
2.1 Organization. Each Seller is a corporation duly organized, validly
existing and in good standing under the laws of the state of its incorporation,
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. Schedule 2.1 attached hereto
constitute a true, correct and complete list of all corporate, partnership,
joint venture and other entities in which any Seller holds, directly or
indirectly, a 50% or greater interest. Each of the Subsidiaries is a
corporation or other entity duly organized, validly existing and in good
standing under the laws of the state of its incorporation or organization and
has all requisite power and authority to own its properties and to carry on its
business as now being conducted. Each Seller and each Subsidiary is duly
qualified to do business and in good standing in all jurisdictions in which
their 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 Sellers and the Subsidiaries, each as amended to
date, have been previously delivered to the Buyer, are complete and correct,
and no amendments have been made
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thereto or have been authorized since the date thereof. No Seller owns any
capital stock of or other equity interest in any corporation, partnership or
other entity, other than the Subsidiaries.
2.2 Capitalization of the Sellers. Each Seller's state of organization
and authorized and issued capital stock is as specified on Schedule I. The
Principals own (beneficially and of record) all issued and outstanding shares
of stock of each Seller, all as more fully specified on Schedule I. All of
such shares have been duly and validly issued and are fully paid and
nonassessable.
2.3 Authorization. The execution and delivery of this Agreement by each
Seller, and the agreements provided for herein, and the consummation by each
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 any Seller is a party constitute
the valid and legally binding obligations of such Seller, enforceable against
such Seller in accordance with their respective terms. The execution, delivery
and performance by each Seller of this Agreement and the agreements provided
for herein, and the consummation by each Seller 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 such Seller; (b) violate the provisions of the charter
or Bylaws of such 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 such Seller pursuant to,
any indenture, mortgage, deed of trust or other instrument or agreement to
which such Seller is a party or by which such 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 each 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 Sellers are, and at the Closing will
be, the true and lawful owners of the Assets, and will have the right to sell
and transfer to the Buyer good, clear, record and marketable title to the
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.
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(a) The Sellers have previously delivered to the Buyer their combined
audited balance sheets 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 flow of the Sellers for the fiscal
years ended December 31, 1993, 1994 and 1995 (collectively, including the
Audited Balance Sheet, the "Audited Financial Statements").
The Sellers have also delivered their combined unaudited balance sheets as
of December 31, 1991 and 1992 (the "Unaudited Balance Sheets") and the related
statements of income, shareholders' equity, retained earnings and statements of
cash flow of the Sellers for the fiscal years then ended (collectively,
including the Unaudited Balance Sheets, the "Unaudited Financial Statements").
The Sellers have delivered to the Buyer their internal statements for each
whole monthly period commencing after June 30, 1996 and ending prior to the
date hereof (the "Internal Statements"), which were prepared by Sellers in
accordance with their internal accounting policies, consistently applied.
The Sellers shall deliver to the Buyer, no later than November 24, 1996,
their combined unaudited balance sheets as of September 30, 1996 and September
30, 1995, and the combined comparative statements of operations and retained
earnings and statements of cash flows for the nine months ended September 30,
1996 and September 30, 1995, prepared in accordance with generally accepted
accounting principles ("GAAP") applied consistently with Sellers' past
practices (the "Interim Statements").
The Audited Financial Statements have been prepared in accordance with
generally accepted accounting principles applied consistently with past
practice and are certified without qualification by the Sellers' respective
independent public accountants. The Unaudited Financial Statements and the
Internal Statements (and the subsequent financial statements to be delivered by
Sellers pursuant to Section 5.4) have been or will be certified by each
Sellers' chief financial officer to have been prepared in accordance with
Seller's internal accounting policies, consistent with past practice. The
Audited Financial Statements and the Unaudited Financial Statements are
hereinafter referred to collectively as the "Financial Statements."
(b) Each Seller's Financial Statements and the Internal Statements fairly
present, and the Interim Statements will fairly present, as of their respective
dates, the financial condition, retained earnings, assets and liabilities of
each Seller and the results of operations of such Seller's business for the
periods indicated; with respect to the
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contracts and commitments for the sale of goods or the provision of services by
such Seller, the Financial Statements and the Internal Statements contain and
reflect and the Interim Statements will contain and reflect adequate reserves,
which are consistent with previous reserves taken, for all reasonably
anticipated material losses and costs and expenses (except that the Internal
Statements do not contain accruals for current and deferred income taxes, tape
amortization or depreciation); and the amounts shown as accrued for current and
deferred income and other taxes in the Financial Statements, the Internal
Statements and the Interim Statements are (or will be) sufficient for the
payment of all unpaid federal, state and local income taxes, interest,
penalties, assessments or deficiencies applicable to such Seller, whether
disputed or not, for the applicable period then ended and periods prior
thereto.
(c) The Net Operating Cash Flow for the Seller is not less than the amount
set forth in Schedule I attached hereto.
2.6 Absence of Undisclosed Liabilities. Except as and to the extent (a)
reflected and reserved against in its most recent Audited Balance Sheet, (b)
set forth on Schedule 2.6 attached hereto or (c) incurred in the ordinary
course of business after the date of its most recent Audited Balance Sheet and
not material in amount, either individually or in the aggregate, no Seller
(individually) has, nor do the Sellers (in the aggregate) 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 only, "material" means any amount in excess of $10,000.
2.7 Litigation. Except as set forth on Schedule 2.7 attached hereto, no
Seller is a party to, or to the Sellers' 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 any Seller. No Seller is 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. Schedule 2.8 attached hereto sets forth a true, correct
and complete list of all fire, theft, casualty, general liability, workers
compensation, business interruption, environmental impairment, product
liability, automobile and other insurance policies insuring the Assets or
business of each Seller and of all life insurance policies maintained for any
of its employees, specifying the type of coverage, the amount of coverage, the
premium, the insurer and the expiration date of each such policy (collectively,
the "Insurance Policies") and all claims made under such Insurance Policies
since January 1, 1992. True, correct and complete copies of all of the
Insurance Policies have been previously delivered by the Sellers to the Buyer.
The Insurance Policies are in full force and effect and are in amounts and of a
nature which are adequate and customary for the Sellers' business. All
premiums due on the Insurance Policies or renewals thereof have been paid and
there is no default under any of the Insurance Policies.
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2.9 Inventory. Schedule 2.9 attached hereto sets forth a true, correct
and complete list of the Sellers' inventory of rental videotapes, rental video
games and other products held for rent by the Sellers, all as of a date not
more than two days prior to the date hereof which inventory shall be prepared
on a Seller-by-Seller basis, including quantities and titles. Schedule 2.9
also sets forth a true, correct and complete list of the inventory of the
Sellers' merchandise held for sale, all as of a date not more than two days
prior to the date hereof, which inventory shall be prepared on a
Seller-by-Seller basis, including a description, quantity and cost of all such
merchandise. Schedule 2.9, as updated pursuant to Subsection 7.9 hereof,
shall set forth a true, correct and complete list of such inventories as of a
date not more than two days prior to the Closing Date. Such inventories
consist of items of a quality and quantity which are usable or saleable without
discount in the ordinary course of the business conducted by the Sellers.
2.10 Fixed Assets. Schedule 2.10 attached hereto sets forth a true,
correct and complete list of all Fixed Assets (on a Seller-by-Seller basis) 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 Fixed Assets as of the Closing Date,
including a description and valuation thereof. All of the 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 Sellers 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 lease, to which each 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
Sellers 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. No Seller is obligated to pay any leasing or
brokerage commission relating to any Lease and, except as set forth on Schedule
2.11 attached hereto, no Seller will have any obligation to pay any
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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 any Seller. The
Financial Statements and the Internal Statements contain (and the Interim
Statements will 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.
2.12 Change in Financial Condition and Assets. Except as set forth on
Schedule 2.12 attached hereto, since December 31, 1995, there has been no
change which materially and adversely affects the business, properties, assets,
store operating cash flow, condition (financial or otherwise) or prospects of
any Seller, other than general economic conditions, and economic and other
conditions in and affecting the retail video rental industry generally. No
Seller has any knowledge of any existing or threatened occurrence, event or
development which, as far as can be reasonably foreseen, could have a material
and adverse effect on such Seller or its business, properties, assets, store
operating cash flow, condition (financial or otherwise) or prospects, other
than general economic conditions, and economic and other conditions in and
affecting the retail video rental industry generally.
2.13 Tax Matters.
(a) Except as set forth on Schedule 2.13 to this Agreement, the Sellers
and the Principals represent and warrant, as to each Seller:
(i) Within the times and in the manner prescribed by law, such Seller has
filed all Returns which are required to be filed;
(ii) With respect to all amounts in respect of Taxes imposed upon such
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 such Seller to Taxing Authorities or others on or before the date
hereof have been paid.
(iii) All Returns filed by such Seller constitute materially complete and
accurate representations of the respective Tax liabilities of, or attributable
to, such Seller for such years;
(iv) No examination of the Returns of such Seller is currently in progress
nor, to the best knowledge of the Seller, threatened and no unresolved
deficiencies have been asserted or assessed against such 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 such Seller;
17
(vi) Such Seller is not a person other than a United States person within
the meaning of the Internal Revenue Code of 1986, as amended (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. "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. Schedule 2.14 attached hereto sets forth a
true, correct and complete list of the Sellers' collection accounts, including
an aging thereof as of the Balance Sheet Date. Schedule 2.14, as updated
pursuant to Subsection 7.9 hereof, shall set forth a true, correct and complete
list of the Sellers collection accounts as of the Closing Date, including an
aging thereof. Except for such collection accounts, the Sellers have no
Accounts Receivable. The collection accounts arose out of the sales or rentals
of inventory or services in the ordinary course of business, and the Sellers'
have established a reserve therefor in an amount equal to 100% of such
collection accounts.
2.15 Books and Records. The general ledgers and books of account of each
Seller, all federal, state and local income, franchise, property and other tax
returns filed by each Seller, with respect to the Assets, and all other books
and records of each 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 any
Seller is a party or by which any Seller or any of its property is bound;
(ii) all pledges, conditional sale or title retention agreements, security
18
agreements, equipment obligations, personal property leases and lease purchase
agreements relating to any of the Assets to which any Seller is a party or by
which any Seller or any of its property is bound;
(iii) all contracts, agreements, commitments, purchase orders or other
understandings or arrangements to which any Seller is a party or by which any
Seller or any of its property is bound which (A) involve payments or receipts
by any 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 condition (financial or
otherwise) or the properties, assets, business or prospects of any Seller;
(iv) all collective bargaining agreements, employment and consulting
agreements, executive compensation plans, bonus plans, deferred compensation
agreements, pension plans, vacation 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 any Seller is a party or by which any Seller or any of its property is
bound;
(v) all agency, distributor, sales representative and similar agreements
to which any Seller is a party;
(vi) all contracts, agreements or other understandings or arrangements
between any Seller and any stockholder, member or Affiliate of such Seller;
(vii) all leases, whether operating, capital or otherwise, under which any
Seller is lessor or lessee; and
(viii) any other material agreement or contract entered into by any
Seller.
(b) Except as set forth on Schedule 2.16 attached hereto:
(i) each Contract is a valid and binding agreement of the applicable
Seller, enforceable against such Seller in accordance with its terms, and such
Seller does not have any knowledge that any Contract is not a valid and binding
agreement of the other parties thereto;
(ii) each Seller has fulfilled all material obligations required pursuant
to the Contracts to have been performed by such Seller on its part prior to the
date hereof, and each 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) no Seller is in material 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 Sellers and the Principals, 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) no Seller is restricted by any Contract from carrying on its business
anywhere in the world; and
(vi) no Seller has any written or oral Contracts to sell products or
perform services which are expected to be performed at, or to result in, a
material 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 Contracts have previously
been delivered by the Sellers to the Buyer.
2.17 Compliance with Agreements and Laws. Each 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, other than those the failure of which
to obtain could not have a material adverse effect on any Seller or its
properties (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 Sellers to the Buyer. No Seller is 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 any
Seller or its properties. Except as set forth on Schedule 2.7, the business of
each 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 such
Seller. Except as set forth on
20
Schedule 2.17 attached hereto, no Seller has since January 1, 1993 received any
notice or communication from any federal, state or local governmental or
regulatory authority or otherwise of any such violation or noncompliance.
2.18 Employee Relations.
(a) Each Seller is in material compliance with all federal, state and
municipal laws respecting employment and employment practices, terms and
conditions of employment, and wages and hours, and no Seller is engaged in any
unfair labor practice, and there are no arrears in the payment of wages or
social security taxes.
(b) Except as set forth on Schedule 2.18 attached hereto:
(i) none of the employees of any Seller is represented by any labor union;
(ii) there is no unfair labor practice complaint against any Seller
pending before the National Labor Relations Board or any state or local agency;
(iii) there is no pending labor strike or other material labor trouble
affecting any Seller (including, without limitation, any organizational drive);
(iv) there is no labor grievance pending against any Seller;
(v) there is no pending representation question respecting the employees
of any Seller; and
(vi) there are no pending arbitration proceedings arising out of or under
any collective bargaining agreement to which any Seller is a party, or to the
best knowledge of the Sellers, any basis for which a claim may be made under
any collective bargaining agreement to which any 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 each Seller to its employees and
all contracts or agreements between each Seller and its employees, and (b) each
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 years ending December 31, 1995 and December
31, 1994.
(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 a Seller's business.
2.19 Absence of Certain Changes or Events. Except as set forth on
Schedule 2.19 attached hereto, since December 31, 1995, the Sellers have 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 Sellers
have not:
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(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 Internal
Statements;
(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 any 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 except in the ordinary course of their business and consistent with
past practice;
(h) Except as set forth on Schedule 2.7, 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 six suppliers of the
Sellers which accounted for the largest dollar volume of purchases by the
Sellers for the fiscal years ending December 31, 1994 and December 31, 1995.
None of such suppliers has notified any Seller that it intends to discontinue
its relationship with the Sellers.
2.21 Prepayments and Deposits. Except for deposits from customers to
reserve videotapes which, in the aggregate, are less than $1,500 (which
deposits, as they
22
exist on the Closing Date, shall be transferred to the Buyer pursuant to this
Agreement), the Sellers have not received prepayments or deposits from
customers for products to be shipped, or services to be performed, at a later
date.
2.22 Trade Names and Other Intangible Property.
(a) Schedule 2.22 attached hereto sets forth a true, correct and complete
list and, where appropriate, a description of, all Intangible Property. True,
correct and complete copies of all licenses and other agreements relating to
the Intangible Property have been previously delivered by the Sellers to the
Buyer.
(b) Except as otherwise disclosed in Schedule 2.22 attached hereto, the
Sellers are the sole and exclusive owners of all Intangible Property and all
designs, permits, labels and packages used on or in connection therewith. The
Intangible Property owned by the Sellers is sufficient to conduct the Sellers'
business as currently conducted and, when transferred to the Buyer pursuant to
this Agreement, will be sufficient to permit the Buyer to conduct the business
of the Sellers as currently conducted by the Sellers. The Sellers have
received no notice of, and have no knowledge of any basis for, a claim against
any of them that any of their operations, activities, products or publications
infringes on any patent, trademark, trade name, copyright or other property
right of a third party, or that any of them is illegally or otherwise using the
trade secrets, formulae or any property rights of others. No Seller has any
disputes with or claims against any third party for infringement by such third
party of any trade name or other Intangible Property of any Seller. Each
Seller has taken all steps reasonably necessary to protect its right, title and
interest in and to the Intangible Property.
2.23 Employee Benefit Plans.
(a) Except as listed on Schedule 2.23, none of the Sellers now has or
contributes to or participates in, and none of the Sellers has 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 which liability relates to any period prior to or after the Closing Date,
including, without limitation, any 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. Schedule 2.23 attached hereto contains a true,
correct and complete list of all 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 any Seller's employees, or maintained at any
time since January 1, 1991 by any 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
23
purposes of Section 414(b), (c) and (m), respectively, of the Internal Revenue
Code of 1986, as amended (the "Code")) (the "Employee Plans") and, except as
set forth on Schedule 2.23 attached hereto, no Seller has any obligations,
contingent or otherwise, past or present, under applicable law or the terms of
any Employee Plan.
2.24 Regulatory Approvals. Except to the extent waived by the Buyer in
this Section 2.24, all consents, approvals, authorizations and other
requirements prescribed by any law, rule or regulation which must be obtained
or satisfied by the Sellers and which are necessary for the execution and
delivery by the Sellers of this Agreement and the documents to be executed and
delivered by the Sellers in connection herewith are set forth on Schedule 2.24
attached hereto and have been, or will be prior to the Closing Date, obtained
and satisfied. The Sellers shall pay all costs and expenses required to obtain
such consents, approvals, authorizations and other requirements.
2.25 Indebtedness to and from Officers, Directors and Shareholders.
Except as set forth on Schedule 2.25 attached hereto, no Seller is indebted,
directly or indirectly, to any person who is an officer, director or
shareholder of any 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 Internal Statements,
and no such officer, director, shareholder or affiliate is indebted to any
Seller, except for advances made to employees of the Sellers 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. Except as set forth on Schedule
2.26 attached hereto, no Seller has any 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. To the best of the Sellers' and the Principals'
knowledge, no representation or warranty by any of the Sellers or the
Principals 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 or omits or will omit any
material fact necessary in order to make the statements contained therein not
misleading.
24
The Sellers and the Principals have disclosed to the Buyer the 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 35,000,000 shares of Common Stock, $.01
par value ("Common Stock"), and 2,000,000 shares of Preferred Stock, $.01 par
value per share, none of which shares of Preferred Stock are issued or
outstanding. As of September 9, 1996, there were issued and outstanding
12,070,239 shares of Common Stock of the Buyer. 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 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. Schedule 3.3 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 Buyer of
the transactions contemplated by this Agreement.
25
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.
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 Sellers
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 Sellers, 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 Sellers, and the Buyer shall be
permitted to make abstracts from, or copies of, all such books and records.
The Sellers shall furnish to the Buyer such financial and operating data and
other information as to the Assets and the business of the Sellers as the Buyer
shall reasonably request.
(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 Sellers 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 Sellers.
26
(c) If reasonably requested by the Buyer, the Sellers shall authorize the
release to the Buyer of all files pertaining to the Sellers, the Assets or the
business or operations of the Sellers 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 Sellers or the Buyer which shall have been furnished by the Buyer or the
Sellers 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, (a) the
Buyer may include in any Registration Statement or periodic report filed by it
with the Securities and Exchange Commission or any state securities commission
or any stock market and (b) otherwise disclose, to the extent reasonably
advised to do so by counsel, any information regarding the Seller, the business
of the Seller, the financial condition of the Seller and/or the terms of this
Agreement.
In the event that the transactions contemplated by this Agreement shall
not be consummated, for a period of 12 months after the date of the termination
of this Agreement, the Buyer shall not solicit any person who was an employee
of any Seller on the date of such termination to terminate his employment with
the Sellers or to become an employee of the Buyer, or hire any person who was
such an employee on the date of such termination. In the event that the
transactions contemplated by this Agreement shall not be consummated, the Buyer
agrees that the remedy at law for any breach of this Section 4.2 by the Buyer
would be inadequate and that the Sellers shall be entitled to injunctive relief
in addition to any other remedy they may have upon breach of the Buyer's
obligations in such sentence.
4.3 Public Announcements. The parties agree that prior to the Closing
Date, except as otherwise required by law, any and 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 Sellers
From and after the date hereof and until the Closing Date:
5.1 Conduct of Business. Each 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,
27
management, accounting or operation, except as agreed to in writing by the
Buyer. All of the property of each 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, no Seller shall:
(a) Take any action to amend its charter, operating agreement, certificate
of formation 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) Except for customary (in amount and frequency consistent with past
practice) dividend and distribution payments to the stockholders and members of
the Sellers, 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;
(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
28
employees, outside of the ordinary course of business or inconsistent 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, to the extent materially different from those
made in accordance with customary past practice;
(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 material 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) use its best efforts to keep in faithful service its present
officers and key employees, (iii) use its best efforts to preserve the goodwill
of its customers, suppliers, agents, brokers and others having business
relations with it, and (iv) use its best efforts to 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 $20,000 per annum;
(q) Materially alter the terms, status or funding condition of any
Employee Plan;
(r) Make any loans to any person or entity; or
(s) Commit or agree to do any of the foregoing in the future.
5.3 Taxes. Each 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 such 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 a pro-rata portion of all personal property and excise taxes
payable with respect to the Assets by such Seller).
29
5.4 Delivery of Subsequent Financial Statements. As promptly as possible
following the last day of each month after the date hereof, and in any event
within 30 days after the end of each such month, the Sellers shall deliver to
the Buyer their combined comparative balance sheets and related statements of
income, shareholders' equity, retained earnings and statements of cash flow for
the one-month period then ended, and for the comparable one-month period of the
prior fiscal year, all prepared in accordance with Sellers' internal accounting
policies consistent with past practice, and certified by the chief financial
officer (collectively, the "Subsequent Financial Statements"). In addition, on
each of such dates, the Sellers shall deliver to the Buyer such combined
comparative balance sheets and related statements of income, shareholders'
equity, retained earnings and statements of cash flow for such periods,
prepared in accordance with Sellers internal accounting periods, consistent
with past practice.
5.5 Compliance with Laws. Each 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 Sellers. No
Seller will take any actions which would result in any of the representations
or warranties set forth in Section 2 hereof being materially untrue, except for
representations which are qualified as to materiality, in which case no Seller
will take any actions which would result in any of such representations or
warranties being untrue in any respect.
5.7 Continuing Obligation to Inform. From time to time prior to the
Closing, each Seller will deliver or cause to be delivered to the Buyer
supplemental information concerning material 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. No such supplemental information shall modify the obligations of the
parties hereunder or constitute a waiver by the Buyer of any claims or rights
it may have for breach by any Seller or Principal of this Agreement.
5.8 Exclusive Dealing. No Seller or Principal shall, directly or
indirectly, through any officer, director, agent or otherwise, (a) solicit,
initiate or encourage submission of proposals or offers from any person
relating to any acquisition or purchase of all or a material portion of the
Assets, or any equity interest in, any Seller or
30
any equity investment, merger, consolidation or business combination with any
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 Sellers 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. No Seller or Principal shall make any public
announcement with respect to this Agreement or the transactions contemplated
hereby without the express prior written consent of the Buyer. Each Seller and
Principal 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. The Sellers, the Principals and the Buyer
covenant and agree to use their commercially reasonable efforts to obtain the
satisfaction of the conditions specified in this Agreement.
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 Sellers;
Compliance with Covenants and Obligations. The representations and warranties
of the Sellers and the Principals 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 Sellers and the Principals shall have performed and complied
in all material respects with all terms, conditions, covenants, obligations,
agreements and restrictions required by this Agreement to be performed or
complied with by them 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 Sellers to authorize or carry out this Agreement
and to convey, assign, transfer and deliver the Assets shall have been taken.
Without limiting the foregoing, promptly following delivery to the Principals
of a Prospectus relating to the sale of Buyer's Common Stock (which is included
in a Registration Statement which has been declared effective by the SEC), the
Sellers will hold a meeting of their respective stockholders for purposes of
approving the consummation of the transactions contemplated by this Agreement.
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
31
consummation by the Sellers of the transactions contemplated by this Agreement
and the operation of the Sellers' 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 Sellers
shall have received all requisite consents and approvals of all lenders, if
any, lessors and other third parties whose consent or approval is required in
order for the Sellers to consummate the transactions contemplated by this
Agreement, including, without limitation, those set forth on Schedule 2.3
attached hereto.
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
counsel to the Sellers, dated as of the Closing Date, in substantially the form
attached hereto as Exhibit C, and as to such other matters as may be reasonably
requested by the Buyer or its counsel.
7.7 Board of Directors and Shareholder and Member and Manager Approval.
The Board of Directors and shareholders or members and managers, as applicable,
of each 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 Sellers shall have provided the Buyer with a true,
correct and complete list and amount, as of the Closing Date, of (a) the
Inventory; (b) the Fixed Assets; and (c) the trade accounts payable and accrued
liabilities of the Seller. The Seller shall have provided the Buyer with a
list of the Accounts Receivable, as of, or within five days prior to, the
Closing Date, including an aging thereof, as reflected in the records of the
Seller.
7.10 Cash Available for Working Capital Purposes. On the Closing Date,
32
the Sellers will have available cash for working capital purposes of not less
than $200 per Store, which cash will be transferred to the Buyer pursuant to
the terms of this Agreement.
7.11 Payables.
(a) On the Closing Date, the Sellers shall have no obligations to
suppliers and vendors of goods and services and other trade creditors which are
either (i) in excess of $1,000 in the aggregate or (ii) past due in accordance
with their terms and in no event shall the Seller have any of such obligations
outstanding for more than 60 days as of the Closing.
(b) On the Closing Date, the Sellers shall have no outstanding obligations
to any Affiliate (including any stockholder).
(c) On the Closing Date, the Sellers shall have no liabilities to
employees for accrued vacation or sick pay, employee benefit claims or
liabilities to the Pension Benefit Guaranty Corporation.
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 Sellers shall
have obtained and delivered to the Buyer tax lien waivers from all
jurisdictions in which Assets are located and which provide such tax lien
waivers.
7.14 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 D;
(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 Sellers' business as the Buyer may reasonably request;
(d) copies of the general ledgers and books of account of each Seller, and
all federal, state and local income, franchise, property and other tax returns
filed by each Seller with respect to the Assets since January 1, 1991;
(e) such certificates of each Seller's officers and such other documents
evidencing satisfaction of the conditions specified in Section 7 as the Buyer
shall reasonably request;
33
(f) a certificate of the Secretary of State of the state of organization
of each Seller as to the legal existence and good standing of each Seller in
such jurisdiction, and a certificate of the Secretary of State of each
jurisdiction in which each Seller is qualified to transact business, as to the
good standing and foreign qualification of each Seller in each such
jurisdiction as soon as practicable after the Closing;
(g) certificates of the Secretary or other appropriate offices of each
Seller attesting to the incumbency of such Seller's officers, respectively, the
authenticity of the resolutions authorizing the transactions contemplated by
the Agreement, and the authenticity and continuing validity of the charter
documents delivered pursuant to Subsection 2.1;
(h) estoppel certificates (in the form previously approved by the Buyer)
from each lessor from whom each 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 such
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.
7.15 Noncompete Agreement. Xxxxxx Xxxxxx shall have entered into a
noncompetition agreement with the Buyer on terms substantially similar to the
terms set forth in Section 10.3 hereof.
8. Conditions to Obligations of the Sellers
The obligations of the Sellers 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 Sellers:
8.1 Continued 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 Principals. The Buyer
shall have performed and
34
complied in all material respects 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, including,
without limitation, those set forth on Schedule 3.3 attached hereto.
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 Sellers to transfer the Assets.
8.6 Opinion of Counsel. The Sellers 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 E, and as to such other
matters as may be reasonably requested by the Sellers or their counsel.
8.7 Closing Deliveries. The Sellers 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
Sellers 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) The Instrument, and an Instrument of Assumption of
35
Liabilities executed by the Buyer and accepted by the Sellers;
(e) payment of the Purchase Price;
(f) such other documents, instruments or certificates as the Sellers may
reasonably request.
8.8 Seller Approval. Each of the Sellers and the Principals shall have
approved the transactions contemplated by this Agreement after receipt and
review by each of them of a current prospectus (and any current supplement
thereto) included in the Buyer's Registration Statement on Form S-1.
9. Indemnification
9.1 By the Buyer and the Sellers and the Principals. The Buyer on the one
hand and the Sellers and the Principals, jointly and severally, on the other
hand, each hereby agree to indemnify and hold 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 actions or threatened actions) reasonably
incurred by the Buyer or the Sellers in connection with each and all of the
following:
(a) Any breach by the indemnifying party of any representation or warranty
made by it 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.
9.2 By the Sellers and the Principals. The Sellers and the Principals, 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:
36
(a) Any claims against, or liabilities or obligations of, the Sellers 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 Sellers or the transactions contemplated by this Agreement;
(c) Any violation by any Seller of, or any failure by the Sellers to
comply with, any law, ruling, order, decree, regulation or zoning,
environmental or permit requirement applicable to any Seller, the Assets or the
business of the Sellers, whether or not any such violation or failure to comply
has been disclosed to the Buyer, 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;
(d) Any warranty claim or product liability claim relating to any Seller's
business or operation prior to the Closing Date;
(e) Any Taxes of any Seller or any Principal;
(f) Any claims against, or liabilities or obligations of, any Seller with
respect to obligations under Employee Plans, or for accrued vacation or
severance pay, or for accrued and unpaid wages or similar amounts; and
(g) Except for the Assumed Liabilities, any claims, damages, or
liabilities arising out of the conduct of the business and operations of the
Sellers, the Business or the Stores, to the extent such claims accrue or arise
out of facts or circumstances occurring on or before to the Closing Date.
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 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
37
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 Sellers or the Principals hereunder shall be effected by payment of
cash or delivery of a cashier's or certified check in the amount of the
indemnification liability; provided that the Buyer shall have the right to
offset against amounts due from Buyer under the Instrument any amounts due to
Buyer hereunder.
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 eighteen-month anniversary
of the Closing Date, except for claims, if any, asserted in writing prior to
such eighteen-month anniversary, which shall survive until finally resolved and
satisfied in full. All 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
eighteen-month period. Notwithstanding the above claims resulting from the
failure by any Seller or Principal to pay any Tax when due shall expire one
year after any applicable statute of limitations.
10. Post-Closing Agreements
38
The Sellers and the Principals agree that from and after the Closing Date:
10.1 Proprietary Information.
(a) Each of the Sellers and the Principals shall hold in confidence, and
use its best efforts to have all of its officers, directors, managers, members
and personnel hold in confidence, all knowledge and information of a secret or
confidential nature with respect to the business of the Sellers 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 Sellers or the Principals.
(b) The Sellers agree 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 by
law, for a period of five years after the Closing Date, no Seller, Principal or
any Affiliate of any of them shall solicit any person who was an employee of
any Seller on the Closing Date to terminate his employment with the Buyer or to
become an employee of any Seller or hire any person who was such an employee on
the date hereof or on the Closing Date; provided, that, subject to the
provisions of Section 10.3 below, if Xxxxx Xxxxxx voluntarily terminates his
employment with the Buyer, any other Principal shall thereafter be permitted to
employ him.
10.3 Non-Competition Agreement.
(a) Without the prior approval of the Buyer, for a period of three years
after the Closing Date, neither the Sellers, the Principals, nor any Affiliate
thereof, shall engage directly or indirectly in the retail videotape rental
business, retail videotape rental industry, or retail videotape rental market
or the retail video game rental business, retail video game rental industry or
retail video game rental market within a three-mile radius of any of the
Buyer's existing stores, any site selected by the Buyer for a future store (as
evidenced in writing), any store acquired or to be acquired by the Buyer in the
future (as evidenced in writing), in the United States or any other country in
which the Buyer or Sellers conducted their business during the two years prior
to the Closing Date; provided that, nothing herein shall prevent the Sellers,
the Principals or their Affiliates from engaging in the development, marketing
or sale of software for use in video games.
(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
39
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 Sellers and the Applicable Principals agree 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.
10.4 Sharing of Data.
(a) The Sellers shall have the right for a period of three years following
the Closing Date (and for such longer period as may be reasonably necessary to
enable the Sellers to deal with applicable governmental agencies and
regulators) to have reasonable access to such books, records and accounts,
including financial and tax information, correspondence, production 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 (and for such longer period as may be
reasonably necessary to enable the Sellers to deal with applicable governmental
agencies and regulators) 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 Sellers 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 Sellers, the Principals 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 Sellers to the Buyer and the operation thereof
by the Buyer.
10.5 Use of Name. The Sellers and the Principals agree not to use the
name "West Coast" or the service xxxx "_______" or any variation or derivation
thereof after the Closing Date in connection with any business related to,
competitive with, or an outgrowth of, the business conducted by the Sellers on
the date hereof.
10.6 Cooperation in Litigation. Each party hereto will fully cooperate
40
with the others 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 Sellers
prior to or after the Closing Date (other than litigation or proceedings
arising out the transactions contemplated by this Agreement). The party
requesting such cooperation shall pay the reasonable out-of-pocket expenses
(including legal fees and disbursements), as incurred, of the party providing
such cooperation and of its officers, directors, managers, members, 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 officers, directors, managers, members, 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 the day 60 days from the date hereof, if the Closing
contemplated hereby has not been consummated, unless such date is extended by
the written consent of the Buyer and the Principals.
11.2 Termination by Agreement of the Parties. This Agreement may be
terminated by the mutual written agreement of the parties hereto.
11.3 Termination by Reason of Breach. This Agreement may be terminated by
the Sellers, if at any time prior to the Closing there shall occur a material
breach of any of the representations, warranties or covenants of the Buyer or
the failure by the Buyer to perform any material condition or obligation
hereunder, and may be terminated by the Buyer, if at any time prior to the
Closing there shall occur a material breach of any of the representations,
warranties or covenants of the Sellers or the Principals or the failure of the
Sellers to perform any material condition or obligation hereunder.
12. Transfer and Sales Tax
Notwithstanding any provisions of law imposing the burden of such taxes on
the Sellers or the Buyer, as the case may be, the Sellers 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 Sellers 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 Sellers shall promptly reimburse the Buyer for any amounts
so paid by the Buyer.
13. Brokers
13.1 For the Sellers. The Sellers represent and warrant that none of them
has engaged any broker or finder or incurred any liability for brokerage fees,
41
commissions or finder's fees in connection with the transactions contemplated
by this Agreement. The Sellers and the Principals agree 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 any Seller
or any Principal.
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 Sellers and the Principals against any claims or liabilities
asserted against them by any person acting or claiming to act as a broker or
finder on behalf of the Buyer.
14. Notices
Except to the extent otherwise provided herein, 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 any Seller: To the address of the Principal
To any Principal: At the address specified for
this purpose on Schedule I
To the Buyer: West Coast Entertainment Corporation
0000 Xxxxxx Xxxx
Xxxxxxxxxxxx, XX 00000
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)
three business days after being sent, if sent by registered or certified mail;
or (c) on the date of actual receipt, if delivered by any other method.
42
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
conducted by a single arbitrator appointed by the Philadelphia, Pennsylvania
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
Philadelphia, Pennsylvania, 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, the Sellers and the Principals may not assign their respective
obligations hereunder without the prior written consent of the Sellers in the
case of an assignment by the Buyer or the Buyer in the case of an assignment by
any Seller or Principal; 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.
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 Sellers and the Principals may amend or modify this
Agreement, in such manner as may be agreed upon, by a written instrument
executed by the Buyer and the Principals.
(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.
18. Expenses
43
Except as otherwise expressly provided herein, the Buyer (on the one hand)
and the Sellers and the Principals (on the other hand) shall each pay their own
expenses in connection with this Agreement and the transactions contemplated
hereby.
19. Legal Fees
In the event that legal proceedings are commenced by the Buyer against any
Principal or any Seller, or by any Principal or any 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.
23. Counterparts
This Agreement and any amendment hereto 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.
(end of page)
44
IN WITNESS WHEREOF, this Agreement has been duly executed by the parties
hereto as of and on the date first above written.
(Corporate Seal) WEST COAST ENTERTAINMENT CORPORATION
ATTEST:
By:________________________________
___________________________ Title:_____________________________
PRINCIPALS:
___________________________________
___________________________________
SELLERS:
(Corporate Seal)
ATTEST:
_________________________ By:________________________________
Title:_____________________________
(Corporate Seal)
ATTEST:
