ASSET PURCHASE AGREEMENT
BETWEEN
EMBROIDERY ACQUISITION LLC
(the "Buyer")
and
PCA LLC
(the "Guarantor")
and
HOMETOWN THREADS LLC
(the "Seller")
and
XXXXXX INTERNATIONAL CORP.
(the "Member")
Dated as of October 22, 2004
TABLE OF CONTENTS
Page
ARTICLE I
DEFINITIONS AND CONSTRUCTION
1.1 Definitions..........................................................4
1.2 Construction.........................................................4
ARTICLE II
PURCHASE, TERMS OF PAYMENT AND CLOSING
2.1 Purchase and Sale of Assets..........................................5
2.2 Purchased Assets.....................................................5
2.3 Excluded Assets......................................................6
2.4 Procedures for Non-Transferable Assets...............................7
2.5 Assumed Liabilities..................................................7
2.6 Excluded Liabilities.................................................8
2.7 Purchase Price.......................................................9
2.8 Manner of Payment....................................................9
2.9 Closing..............................................................9
2.10 Closing Obligations.................................................10
2.11 Real Property and Other Expenses; Proration.........................12
2.12 Buyer's Put Right...................................................12
2.13 Deposits for Potential Franchisees in Process.......................13
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE SELLER AND THE MEMBER
3.1 Organization; Good Standing; Ownership..............................13
3.2 Authority; Enforceability...........................................13
3.3 Consents and Approvals; No Violation................................14
3.4 Books and Records...................................................14
3.5 Financial Statements................................................15
3.6 Undisclosed Liabilities.............................................15
3.7 Absence of Certain Changes or Events................................15
3.8 Taxes and Tax Returns...............................................16
3.9 Litigation..........................................................17
3.10 Compliance with Laws................................................18
3.11 Environmental Matters...............................................18
3.12 Employee Benefit Plans; ERISA.......................................18
3.13 Employees; Labor Matters............................................18
3.14 Contracts...........................................................19
3.15 Assets..............................................................20
3.16 Real Property.......................................................21
3.17 Accounts Receivable.................................................21
3.18 Proprietary Rights..................................................21
3.19 Suppliers...........................................................22
3.20 Customers and Franchisees...........................................23
3.21 Brokers.............................................................23
3.22 Franchises..........................................................23
3.23 Full Disclosure.....................................................23
ARTICLE IV
REPRESENTATIONS AND WARRANTIES RELATING TO THE BUYER
4.1 Organization........................................................23
4.2 Authority; Enforceability...........................................24
4.3 Consents and Approvals; No Violation................................24
4.4 Litigation..........................................................24
4.5 Brokers.............................................................24
ARTICLE V
COVENANTS AND AGREEMENTS
5.1 Intentionally Left Blank............................................25
5.2 Employees...........................................................25
5.3 Seller's Name.......................................................25
5.4 Notice to Franchisees...............................................25
ARTICLE VI
INDEMNIFICATION
6.1 Survival; Knowledge..................................................26
6.2 Seller's and Member's Agreement to Indemnify.........................26
6.3 Buyer's Agreement to Indemnify.......................................27
6.4 Procedure for Indemnification - Third-Party Claims...................27
6.5 Indemnification Procedure - Direct Claims............................29
6.6 Interest.............................................................29
6.7 Right of Set-Off.....................................................29
6.8 Limitation on Indemnification Amounts................................30
ARTICLE VII
GENERAL PROVISIONS
7.1 Guaranty.............................................................30
7.2 Expenses.............................................................30
7.3 Amendment and Modification...........................................30
7.4 Waiver of Compliance; Consents.......................................31
7.5 Notices..............................................................31
7.6 Publicity............................................................32
7.7 Assignment; No Third-Party Rights....................................32
7.8 Governing Law........................................................32
7.9 Further Assurances; Records..........................................33
7.10 Severability.........................................................33
7.11 Construction.........................................................33
7.12 Disclosure Schedule..................................................33
7.13 Time of Essence......................................................33
7.14 Counterparts.........................................................33
7.15 Entire Agreement.....................................................33
7.16 No Implied Representations...........................................34
EXHIBITS
A Form of Xxxx of Sale
B Form of Assignment & Assumption Agreement
C Form of Trademark Assignment
D Form of Seller Non-Competition Agreement
E Form of Repair, Maintenance and Support Agreement
F Form of Supply Agreement
ASSET PURCHASE AGREEMENT
This Asset Purchase Agreement, dated as of October 22, 2004, by and among
EMBROIDERY ACQUISITION LLC, a Delaware limited liability company (the "Buyer"),
PCA LLC, a Delaware limited liability company (the "Guarantor"), HOMETOWN
THREADS LLC, a Delaware limited liability company (the "Seller") and XXXXXX
INTERNATIONAL CORP., a Delaware corporation, the sole member of the Seller (the
"Member").
Background Statement
The Seller is engaged in the business of operating and franchising retail
embroidery service centers in Wal-Mart stores and other retail locations,
including the purchase, warehousing and resale of embroidery machines,
accessories, parts, supplies and related software, training in the use of
embroidery machines and software, the purchase, warehousing and resale of
articles of clothing for embroidery, and the leasing of space in retail
locations, particularly Wal-Mart Stores; in each case, in connection with the
operation of retail embroidery centers by the Seller or the subleasing of such
space to franchisees of the Seller (the "Business").
The Member and the Seller desire the Seller to sell, and the Buyer desires
to purchase, substantially all of the assets of the Seller, for the
consideration and on the terms set forth herein.
Statement of Agreement
The parties agree as follows:
ARTICLE I
DEFINITIONS AND CONSTRUCTION
1.1 Definitions. Capitalized terms used in this Agreement have the
meanings given to them in Appendix 1.
1.2 Construction.
(a) The article and section headings contained in this Agreement are solely for
the purpose of reference and convenience, are not part of the agreement of
the parties, and shall not in any way limit, modify or otherwise affect the
meaning or interpretation of this Agreement.
(b) References to "Sections" or "Articles" refer to corresponding Sections or
Articles of this Agreement unless otherwise specified.
(c) Unless the context requires otherwise, the words "include," "including" and
variations thereof mean without limitation, the words "hereof," "hereby,"
"herein," "hereunder" and similar terms refer to this Agreement as a whole
and not any particular section or article in which such words appear, and
any reference to a statute, regulation or law shall include any amendment
thereof or any successor thereto and any rules and regulations promulgated
thereunder.
(d) Unless the context requires otherwise, words in the singular include the
plural, words in the plural include the singular, and words importing any
gender shall be applicable to all genders.
(e) Currency amounts referenced herein are in U.S. Dollars.
(f) References to a number of days refer to calendar days unless Business Days
are specified. Except as otherwise specified, whenever any action must be
taken on or by a day that is not a Business Day, then such action may be
validly taken on or by the next day that is a Business Day.
(g) All accounting terms used herein and not expressly defined herein shall
have the meanings given to them under GAAP.
ARTICLE II
PURCHASE, TERMS OF PAYMENT AND CLOSING
2.1 Purchase and Sale of Assets. On the terms and subject to the
conditions of this Agreement, the Seller hereby sells, conveys,
assigns, transfers and delivers to the Buyer, and the Buyer hereby
purchases, acquires and accepts from the Seller, all of the Purchased
Assets, free and clear of all Liens, except for Permitted Liens, in
exchange for payment of the Purchase Price.
2.2 Purchased Assets. For purposes of this Agreement, the term "Purchased
Assets" means all of the assets, rights and properties of the Seller
owned, used or useable by the Seller in connection with or relating to
the Business, and all of the Seller's rights therein including,
without limitation, the assets identified on the Reference Balance
Sheet as well as the following assets, rights and properties of the
Seller (but excluding the Excluded Assets):
(a) all Fixed Assets of the Seller (the "Purchased Fixed Assets");
(b) all the Seller's interests in the Leased Real Property;
(c) Subject to Section 2.12, all Accounts Receivable of the Seller, including
the notes from DOCAM, LLC (the "DOCAM Note") and XxXxxxx Creations, LLC
(the "XxXxxxx Note") and all amounts collected from franchisees after the
Effective Time, other than royalty payments due for transactions occurring
prior to the Effective Time (the "Purchased Notes and Accounts
Receivable");
(d) all intangible rights and property of the Seller, including all Proprietary
Rights of the Seller, the Seller's trade name and all telephone, telecopy,
domain names and e-mail addresses and listings of the Seller (the
"Purchased Proprietary Rights");
(e) all Software of the Seller, including software developed or modified by or
for the Seller and software licensed by the Seller (the "Purchased
Software");
(f) the Seller's web site including the related software, domain name, hosting
agreements and web site content;
(g) Contracts of the Seller listed on Section 2.2(g) of the Disclosure Schedule
(the "Purchased Contracts"), and all rights of any nature whatsoever
arising out of all Purchased Contracts;
(h) all files, records, documents, data, plans, proposals and all other
recorded knowledge of the Seller, including client and customer lists and
records, referral sources, research and development reports and records,
production reports and records, service and warranty records, equipment
logs, operating guides and manuals, financial and accounting records,
creative materials, advertising materials, promotional materials, studies,
reports, correspondence and other similar documents and records, whether in
written, electronic, visual or other form, and, subject to Legal
Requirements, copies of all personnel and other records of the Seller that
are described in Section 2.3(d);
(i) all rights of the Seller relating to deposits and prepaid expenses, claims
for refunds and rights of offset that are not described in Section 2.3(b);
(j) all claims and rights of the Seller in connection with or relating to the
Business, including all claims and rights of the Seller against third
parties, whether xxxxxx or inchoate, known or unknown, contingent or
non-contingent;
(k) the business of the Seller as a going concern and all of the goodwill
associated with the business of the Seller; and
(l) the amounts listed on Section 3.5(b) of the Disclosure Schedule.
Notwithstanding the foregoing, the Seller may retain and use in appropriate
circumstances copies of the Purchased Contracts: (i) which relate to properties
or activities of the Seller and the Member other than the Business, or (ii)
which are required to be retained pursuant to any Legal Requirements, for
financial reporting purposes, for tax purposes, or otherwise in connection with
the Excluded Liabilities.
2.3 Excluded Assets. Notwithstanding anything to the contrary contained in
Section 2.2 or elsewhere in this Agreement, the Purchased Assets shall
not include any of the following assets, rights and properties of the
Seller (the "Excluded Assets"), all of which are excluded from the
Purchased Assets and shall be retained by the Seller:
(a) the rights arising under all Contracts of the Seller not listed in Section
2.2(g) of the Disclosure Schedule (collectively, the "Excluded Contracts");
(b) all claims and rights of the Seller to federal, state, local and foreign
Tax refunds, Tax refund claims, Tax credits and Tax deposits, but in each
case only to the extent such refunds, claims, credits or deposits relate
directly to a period ending at or prior to Closing;
(c) all corporate seals, corporate minute books, stock records and Tax Returns
of the Seller;
(d) all records of the Seller that the Seller, pursuant to applicable Legal
Requirements, is required to retain in its possession;
(e) all insurance policies of the Seller and all of the Seller's rights
thereunder;
(f) all assets and rights of the Seller in and with respect to the Plans and
other similar obligations of the Seller;
(g) all cash, cash equivalents and short-term investments of the Seller;
(h) all rights of the Seller under this Agreement, the Xxxx of Sale, the
Assignment and Assumption Agreement; and
(i) the assets, rights and properties, if any, set forth in Section 2.3(i) of
the Disclosure Schedule.
2.4 Procedures for Non-Transferable Assets(a) . In the event the Seller
does not obtain consent necessary for the assignment or transfer of an
Purchased Contract or Purchased Asset as of the Closing, then
following the Closing, the Seller shall (a) use Commercially
Reasonable Efforts to obtain, as soon as possible after the Closing
Date, any consents requested by the Buyer that were not previously
obtained and (b)assign such Purchased Contracts or other property or
rights included in the Purchased Assets to the Buyer on the effective
date for any such consent obtained. With respect to any such Purchased
Contract for which a consent has not been obtained as of the Closing
Date, if requested by the Buyer and permitted by the terms of such
Purchased Contract, the Seller shall subcontract to the Buyer such
Purchased Contract (i)until the earlier of the date on which such
consent is obtained and is effective and the date on which the term of
such Purchased Contract ends, (ii)at the price specified in such
Purchased Contract without any additional xxxx-up, (iii)and otherwise
on the same terms and conditions as are included in such Purchased
Contract, and the Buyer, under such subcontract, shall be responsible
for the costs and liabilities associated with the Buyer's performance
of such Purchased Contract, in each case, to the extent arising after
the Effective Time and will be entitled to and shall receive all of
the benefits, including any revenues, from such Purchased Contract. If
subcontracting such Purchased Contract is not permitted under its
terms, the Seller and the Buyer shall cooperate with one another in
any reasonable arrangement designed to give the Buyer the practical
benefits of such Purchased Contract and the obligations arising after
the Effective Time under such Purchased Contract. With respect to any
property or right included in the Purchased Assets (other than a
Purchased Contract) for which a consent has not been obtained as of
the Closing Date, if requested by the Buyer, the Seller shall enter
into any reasonable arrangement with the Buyer that is designed to
give the Buyer the practical benefits of such property or right,
without any additional cost to the Buyer.
2.5 Assumed Liabilities. As of the Effective Time, on the Closing Date,
the Buyer shall assume, and shall thereafter timely pay and perform,
the following obligations and liabilities of the Seller (the "Assumed
Liabilities"):
(a) the current liabilities set forth, in detail, on Section 2.5 of the
Disclosure Schedule that were incurred by the Seller in connection with its
operation of the Business in the Ordinary Course through the Effective Time
and that remain unpaid at Closing. Any current liabilities that exist at
Closing in excess of One Hundred Thousand Dollars ($100,000.00) shall be
paid from the Seller's proceeds at Closing and shall reduce the payment
from the Buyer to the Seller under Section 2.8(b). Any current liabilities
that exist at Closing, are subsequently paid by the Buyer in its discretion
and are not set forth on Section 2.5 of the Disclosure Schedule shall be
paid from, and reduce, the Holdback Amount, without regard to the
limitations imposed by Section 6.8, however, such amounts shall be included
in the threshold calculation of Section 6.8; and
(b) the obligations of the Seller arising after the Effective Time under the
Purchased Contracts (including any obligations assumed by the Buyer
pursuant to Section 2.4), except for (i) liabilities for breaches thereof
occurring at or before the Effective Time, (ii) liabilities that were
incurred at or before the Effective Time, whether or not due prior to
Closing, and (iii) promises made by the Seller, either oral or written, to
franchisees or host stores prior to the Effective Time and not disclosed to
the Buyer in Section 2.2(g) of the Disclosure Schedule.
2.6 Excluded Liabilities.
(a) Except for the Assumed Liabilities, neither the Buyer nor any of its
Affiliates shall assume, take subject to or be liable for any liabilities
or obligations of any kind or nature, whether absolute, contingent,
accrued, known or unknown, of the Business, the Seller or any Affiliate of
the Seller (the "Excluded Liabilities"). The Seller shall pay and perform,
and shall cause its Affiliates to pay and perform, on or before the date
due, all Excluded Liabilities (except intercompany liabilities due to the
Member).
(b) Without limiting the generality of Section 2.6(a), the Excluded Liabilities
shall include any liabilities or obligations of the Seller or any Affiliate
of the Seller incurred, arising from or out of, in connection with or
relating to:
(i) any claims made by or against the Seller or any Affiliate of the
Seller, whether before or after the Closing Date, that arise out of
events prior to the Closing Date, including any and all liabilities or
obligations relating to investigations by any Governmental Authority,
but excluding any claims that are Assumed Liabilities.
(ii) any Taxes that arise out of events occurring prior to the Closing, but
including any Taxes arising by reason of the transactions contemplated
herein;
(iii)products manufactured, sold or distributed by the Seller prior to the
Effective Time, including liabilities or obligations related to
product warranties, recalls of such products or defects with respect
to such products;
(iv) any liabilities or obligations under a Contract that are not assumed
by the Buyer pursuant to Section
2.5(c);
(v) Environmental Laws or environmental liability related to real property
that arise out of events occurring prior to the Closing;
(vi) any Plans or other similar obligations;
(vii)any employment, severance, retention or termination agreement with
any employee or any employee grievance that arises out of events
occurring prior to the Closing;
(viii) any compliance or noncompliance with any Legal Requirement of any
Governmental Authority that arises out of events occurring prior to
the Closing;
(ix) any obligation relating to the Excluded Assets;
(x) any obligation of the Seller under this Agreement or any other
document executed in connection with the transactions contemplated
hereby; and
(xi) any obligation of the Seller, Xxxxxx Xxxxxxx d/b/a Hometown Threads or
the Member to any franchisee or host store other than the Assumed
Liabilities.
2.7 Purchase Price. In consideration of the sale of the Purchased Assets, at
the Closing and subject to the conditions contained herein, the Buyer shall
pay to the Seller, an aggregate amount (the "Purchase Price") equal to One
Million Five Hundred Thousand Dollars ($1,500,000.00).
2.8 Manner of Payment. On the Closing Date, the Purchase Price shall be paid by
the Buyer as follows:
(a) as security for (i) any amounts that may become payable by the Seller to
the Buyer on account of failure of the makers of the Promissory Note from
DOCAM, LLC dated October 15, 2002 to pay any amount due thereunder, (ii)
any outstanding sales tax obligations existing at the Effective Time that
are paid or payable by the Buyer, including any cost to the Buyer in
assisting the Seller in the pursuit of any sales tax audit, except any
sales tax obligations that are part of the Assumed Liabilities, and (iii)
any Damages that may arise as described in Section 6.2, the Buyer shall
withhold from the Purchase Price otherwise payable to the Seller the amount
of Two Hundred Thousand Dollars ($200,000) (the "Holdback Amount"). The
Buyer shall pay to the Seller on April 29, 2005 an amount equal to the
Holdback Amount less (A) any amounts retained by the Buyer to offset
amounts described in clauses (i), (ii) or (iii) of this paragraph (a), (B)
the estimated amounts of any claim asserted by the Buyer but not resolved
as of April 25, 2005 and (C) any undisclosed current liabilities paid by
the Buyer pursuant to Section 2.5(a). Any amounts that are withheld
pursuant to subsection (B) shall be applied to the asserted claim by the
Buyer if it is ultimately determined, pursuant to the procedures set forth
in Section 6.5, to be due, with the balance, if any, promptly (no later
than ten (10) business days) returned to the Seller upon the resolution of
such claim, provided, however, interest shall accrue at the Prime Rate on
any such amount not timely returned to the Seller; and
(b) the Buyer shall pay to the Seller, by wire transfer of immediately
available funds to the following account Citibank NA, New York, NY, for the
account of Xxxxxx International Corp., account # 00000000, Routing #
000000000, Swift # XXXXXX00, an aggregate amount equal to the Purchase
Price less (i) any current liabilities in excess of One Hundred Thousand
Dollars ($100,000.00) assumed by the Buyer at Closing, (ii) any amounts
specified in subsections (ii)(A) and (ii)(B) of Section 3.5(b) of the
Disclosure Schedule and (iii) the Holdback Amount (the "Closing Payment").
2.9 Closing. The closing (the "Closing") of the purchase and sale of the
Purchased Assets shall take place at the offices of Xxxxxxxx, Xxxxxxxx &
Xxxxxx, P.A., in Charlotte, North Carolina, beginning at 2:00 p.m., local
time, on October __, 2004 or at such other time or place as the parties
shall agree. The Closing shall be effective as of 12:01 a.m. on the Closing
Date (the "Effective Time") and all actions scheduled in this Agreement for
the Closing Date shall be deemed to occur simultaneously at the Effective
Time.
2.10 Closing Obligations. At the Closing:
(a) The Seller and the Member shall deliver to the Buyer:
(i) a xxxx of sale substantially in the form of Exhibit A attached hereto
(the "Xxxx of Sale") executed by the Seller, conveying the Purchased
Assets to the Buyer;
(ii) an assignment and assumption agreement substantially in the form of
Exhibit B attached hereto (the "Assignment & Assumption Agreement")
executed by the Seller, assigning to the Buyer the rights under the
Purchased Contracts;
(iii)one or more assignments of lease in form and substance reasonably
satisfactory to the Buyer (the "Assignment of Lease") executed by the
Seller, conveying to the Buyer leasehold title to the Leased Real
Property, without any exceptions other than Permitted Liens.
(iv) an assignment of all of the registered Marks included in the Purchased
Proprietary Rights substantially in the form of Exhibit C attached
hereto (the "Trademark Assignment") executed by the Seller or its
Affiliate;
(v) non-competition agreements in the form of Exhibit D, executed by the
Seller and the Member (the "Seller and Member Non-Competition
Agreements"); and
(vi) a Repair, Maintenance and Support Agreement in the form of Exhibit E
attached hereto (the "Maintenance Agreement") executed by the Member;
(vii)a Purchase and Supply Agreement in the form of Exhibit F attached
hereto (the "Supply Agreement") executed by the Member;
(viii) a certificate from the secretary of the Seller certifying (A) that
attached thereto is a true and complete copy of such Seller's
certificate of organization and all amendments thereto, certified by
the Secretary of State of such Seller's jurisdiction of incorporation
as of a date not more than ten Business Days prior to the Closing
Date, (B) that attached thereto is a true and complete copy of the
operating agreement of the Seller as then in effect, (C) that attached
thereto is a true and complete copy of the resolutions adopted by the
managers of the Seller authorizing the execution, delivery and
performance of this Agreement and the transactions contemplated
hereby, and (D) as to the incumbency and signatures of any of the
Seller's officers who shall execute documents at the Closing or who
have executed this Agreement;
(ix) a certificate of existence of the Seller, dated as of a date not more
than ten Business Days prior to the Closing Date, from the
jurisdiction of its organization and from each jurisdiction in which
it has qualified to do business;
(x) a certificate from the secretary of the Member certifying (A) that
attached thereto is a true and complete copy of the resolutions
adopted by the board of directors of the Member authorizing the
execution, delivery and performance of this Agreement and the
transactions contemplated hereby, and (B) as to the incumbency and
signatures of any of the Member's officers who shall execute documents
at the Closing or who have executed this Agreement;
(xi) a certificate as to the tax good standing status of the Seller, dated
as of a date not more than ten Business Days prior to the Closing
Date, from the jurisdiction of organization of the Seller;
(xii)a copy of the Wal-Mart consent letter signed by the Seller and a copy
of the Wal-Mart release letter signed by the Member; and
(xiii) a lien release from Congress Financial Corporation.
(b) The Buyer shall deliver to the Seller and the Member, as applicable:
(i) the Closing Payment to be paid to the Seller pursuant to Section
2.8(b);
(ii) the Assignment & Assumption Agreement executed by the Buyer, pursuant
to which the Buyer shall assume the obligations of the Purchased
Contracts to the extent such obligations are included in the Assumed
Liabilities;
(iii)the Buyer's acceptance of the Assignment of Lease executed by the
Buyer;
(iv) the Buyer's acceptance of the Trademark Assignment executed by the
Buyer;
(v) the Maintenance Agreement executed by the Buyer;
(vi) the Supply Agreement executed by the Buyer;
(vii) the Wal-Mart consent and release letter signed by Wal-Mart.
(viii) a certificate from the secretary of the Buyer certifying (A)that
attached thereto is a true and complete copy of the Buyer's
certificate of organization and all amendments thereto, certified by
the Secretary of State of the Buyer's jurisdiction of incorporation;
(B)that attached thereto is a true and complete copy of the
resolutions adopted by the managers of the Buyer authorizing the
execution, delivery and performance of this Agreement and the
transactions contemplated hereby, and (C)as to the incumbency and
signatures of any of the Buyer's officers who shall execute documents
at the Closing or who have executed the Agreement; and
(ix) a certificate of existence of the Buyer from the jurisdiction of its
incorporation.
(c) The Member shall cause Xxxxxx Business Concepts, LLC ("HBCL" or the
"Assignor"), the owner of certain trademarks that are registered in the
United States Patent and Trademark Office, as identified on Schedule
3.18(d) to the Disclosure Schedule (the "Marks"), to assign to the Buyer
all rights that the Assignor has in the Marks, and the registrations
thereof, together with the goodwill of the business represented by the
Marks as promptly as practicable following the Closing Date.
2.11 Real Property and Other Expenses; Proration.
(a) The Seller shall pay any sales or use Taxes arising out of the transactions
contemplated herein. The Buyer shall pay any recording fees for recording
the Assignment of Leases conveying the Purchased Real Property to the
Buyer.
(b) The Seller shall be responsible for, and as of the Closing represents that
it has paid, all ad valorem Taxes on the Purchased Assets levied in years
prior to the year in which the Closing occurs. All ad valorem Taxes on the
Purchased Assets for the year in which the Closing occurs shall be prorated
per diem on a calendar-year basis. The Seller shall be responsible for the
prorated amount of such Taxes up to and including the Closing Date and the
Buyer shall be responsible for the prorated amount of such Taxes after the
Closing Date.
2.12 Buyer's Put Right.
(a) The Member hereby grants to the Buyer an irrevocable put right (the "Put
Right") for all of the Buyer's right, title and interest under the DOCAM
Note, including any right, title and interest to the security therefor (the
"Note Security") and guaranty thereof (the "Note Guaranty"), each as
disclosed in Section 2.12(a) of the Disclosure Schedule. In the event of a
payment default under the DOCAM Note (such defaulted note referred to
herein to as a "Defaulted Note") during the Put Period (as defined below),
the Buyer shall have the right to sell such Defaulted Note to the Member at
the Put Price (as defined below).
(b) To exercise the Put Right with respect to such Defaulted Note, the Buyer
shall give written notice (the date of such notice being referred to herein
as the "Put Notice Date") to the Member specifying (i)the aggregate unpaid
outstanding amount, including principal and interest, under such Defaulted
Note as of the Put Notice Date (any such outstanding amount referred to
herein to as the "Put Price"), (ii)the factual basis for Buyer's
conclusion that there has been a payment default thereunder and (iii)a
place and date, not earlier than the date three business days from the Put
Notice Date, for the closing of the Buyer's put exercise (the "Put Closing
Date").
(c) On the Put Closing Date, (i)the Buyer shall reduce the Holdback Amount by
the Put Price; and (ii)the Buyer shall deliver the Defaulted Note
(together with any related Note Security and Note Guaranty) to the Member,
free of any Liens, together with an executed assumption and assignment
agreement, xxxx of sale or any other similar instrument of transfer and
assignment as the Member may reasonably request to effect the legal
transfer of all of the Buyer's rights, title and interest in the Defaulted
Note (together with any related Note Security and Note Guaranty) to the
Member.
For the purpose of this Agreement, with respect to a Defaulted Note, "Put
Period" means the period commencing on the Closing Date and terminating on the
date upon which there shall remain outstanding no greater than $25,000 of the
aggregate amount, including principal and interest, of the DOCAM Note but in no
event later than April 15, 2005.
2.13 Deposits for Potential Franchisees in Process. Section 3.5 (b) (ii) sets
forth certain amounts received from potential franchisees as deposits. In
the event any such amounts become nonrefundable and the Buyer receives
absolute right to retain such deposit pursuant to the applicable contract,
the Buyer shall retain one-half of such amount and shall send to the Seller
one-half of such amount promptly after such amount becomes nonrefundable.
The Buyer will provide status updates to the Seller regarding the refund
amounts as reasonably requested.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE SELLER AND THE MEMBER
The Seller and the Member jointly and severally represent and warrant
to the Buyer that:
3.1 Organization; Good Standing; Ownership.
(a) The Seller is a limited liability company, and the Member is a corporation,
duly organized, validly existing and in good standing under the laws of the
State of Delaware. The Seller has full organizational power and authority
to own or use the Purchased Assets and to conduct its business as presently
conducted. The Seller is duly qualified to do business as a foreign limited
liability company and is in good standing in all the states, provinces and
jurisdictions in which either the nature of the activities of the Seller,
or the ownership or use of the Purchased Assets, makes such qualification
necessary. The Member owns all of the membership interests in the Seller,
free and clear of any liens, claims, security interests, encumbrances,
options or other restrictions of any nature, except for the lien held by
Congress Financial Corporation. Other than the membership interests held by
the Member, no Person holds any equity interests in the Seller. There are
no outstanding warrants, options, agreements, convertible or exchangeable
securities or other commitments pursuant to which the Member is or may
become obligated to issue, sell, purchase, return or redeem any membership
interests or other securities in the Seller.
(b) The Seller has delivered to the Buyer accurate and complete copies of its
Certificate of Formation and operating agreement.
3.2 Authority; Enforceability. Each of the Seller and the Member has the
absolute and unrestricted right, authority, power and capacity to (i)
execute and deliver this Agreement and each certificate, document and
agreement to be executed by it in connection herewith (such certificates,
documents and agreements to be executed by it in connection with this
Agreement, collectively, the "Seller Documents") and (ii) perform its
obligations hereunder and thereunder. The execution and delivery of this
Agreement and the Seller Documents and the consummation of the transactions
contemplated hereby and thereby have been duly and validly authorized by
the Seller and the Member, and no other proceedings on the part of either
Seller or the Member are necessary to authorize this Agreement or any
Seller Document or to consummate the transactions contemplated hereby or
thereby. This Agreement has been duly and validly executed and delivered by
the Seller and the Member and constitutes a legal, valid and binding
obligation of each of the Seller and the Member, enforceable against it in
accordance with its terms, except as enforcement may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or similar
law affecting the rights of creditors generally. Upon execution and
delivery by the Seller and the Member of each Seller Document, as
applicable, such Seller Document shall constitute a legal, valid and
binding obligation of the Seller and the Member, as applicable, in each
case enforceable against it in accordance with its terms, except as
enforcement may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar law affecting the rights of creditors
generally.
3.3 Consents and Approvals; No Violation.
(a) No Governmental Authorization is required in connection with (i) the
execution or delivery by the Seller or the Member of this Agreement or the
Seller Documents, (ii) the performance of the Seller's and the Member's
obligations under this Agreement or the Seller Documents or (iii) the
consummation of the transactions contemplated hereby.
(b) Except as disclosed in Section 3.3 of the Disclosure Schedule, neither the
execution and delivery of this Agreement and the Seller Documents by the
Seller or the Member nor the performance of the Seller's and the Member's
obligations hereunder or thereunder nor the consummation of the
transactions contemplated hereby will, directly or indirectly (with or
without notice or lapse of time):
(i) contravene, conflict with or result in any violation of any provision
of the organizational or operating documents of the Seller or the
Member, any resolution thereof, or any agreement among such parties;
(ii) contravene, conflict with or result in a breach of any of the terms or
provisions of, or give any Person a right to declare a default or
exercise any remedy under, or to accelerate the maturity or
performance of, or to cancel, terminate or modify any Purchased
Contract;
(iii) result in the creation of any Lien upon any of the Purchased Assets;
(iv) contravene, conflict with, violate, or give any Governmental Authority
or other Person the right to challenge any of the transactions
contemplated hereby or exercise any remedy (including revocation,
withdrawal, suspension or modification of any Governmental
Authorization) or obtain any relief under, any Legal Requirement
applicable to the Seller or the Member; or
(v) otherwise require the Seller or the Member to give any notice to, or
obtain any consent from, any Person.
3.4 Books and Records. The books of account and other records of the Seller
since January 1, 2000 are complete and correct in all material respects and
have been maintained in accordance with sound business practices and, in
all material respects, Legal Requirements.
3.5 Financial Statements.
(a) The Seller has delivered to the Buyer the following: (i) an unaudited
balance sheet of the Seller as of August 31, 2004 (the "Reference Balance
Sheet"), and an unaudited statement of income of the Seller for the period
from February 1, 2004 through August 31, 2004; (ii)an unaudited balance
sheet and unaudited statement of income dated as of May 31 2004; and
(iii)the audited balance sheet, income statement and statement of cash
flows dated January 31, 2004 (collectively, the "Financial Statements").
The Financial Statements (i)fairly present in all material respects the
results of operations, cash flows and financial position of the Seller for
the periods and as of the dates referred to in the Financial Statements,
all in accordance with GAAP consistently applied throughout the periods
referred to in the Financial Statements, subject, with respect to the
unaudited statements, to normal recurring year-end adjustments (the effect
of which would not, individually or in the aggregate, have a Material
Adverse Effect) and to the absence of notes and (ii)are consistent with
the books and records of the Seller.
(b) (i) Section 3.5(b)(i) of the Disclosure Schedule sets forth all amounts
received by the Seller for any advertising or similar marketing fund from
any franchisee that have not been used for advertising purposes in
accordance with the terms of the applicable franchise agreements, all of
which is held in a segregated account by the Seller. (ii) Section
3.5(b)(ii) of the Disclosure Schedule sets forth all amounts, other than
advertising funds described in subsection (b)(i) above, held by the Seller
as deposits from franchisees for any reason, including, without limitation,
(A) partial franchisee fees paid prior to an agreement between the Seller
and the prospective franchisee as to a site and which are refundable if no
site is agreed upon and (B) payments by franchisees for supplies or
equipment to be delivered by the Seller to the franchisee on or after
Closing and for which payment to the supplier of such supplies or equipment
has not been made prior to Closing.
3.6 Undisclosed Liabilities. The Seller does not have any obligation or
liability (whether known or unknown and whether absolute, contingent or
otherwise), except liabilities and obligations that (i)are fully accrued
or reserved against in the Reference Balance Sheet; (ii)were incurred
since the Reference Balance Sheet Date in the Ordinary Course and
consistent with past practices; (iii)are the Seller's obligations under
its Contracts, excluding liability for breaches thereof; (iv) would not be
required to be accrued or estimated in accordance with GAAP; or (v) would
not be reasonably expected to have a Material Adverse Effect on the
Business .
3.7 Absence of Certain Changes or Events. Since August 31, 2004, through and
including the Closing Date, except as set forth on Section 3.7 of the
Disclosure Schedule, the Seller has conducted its business only in the
Ordinary Course and there has not been any:
(i) event or condition that has had, or could reasonably be expected to
have, a Material Adverse Effect;
(ii) change in the Seller's authorized or issued ownership interest;
(iii)loss or damage (whether or not covered by insurance) affecting any of
the Purchased Assets in excess of $5,000 in the aggregate;
(iv) amendment or modification to the Seller's organizational documents or
operating agreement;
(v) increase by the Seller of any bonuses, salaries or other compensation
to the Member, director, officer or employee (except, in the case of
employees, payments of salaries or other compensation in the Ordinary
Course) or entry by the Seller into any employment, severance or
similar contract with any director, officer or employee;
(vi) payment or distribution to the Member except for cash dividends from
available cash, the purchase of goods received by the Seller after
August 31, 2004 or the payment of expenses of the Seller incurred in
the Ordinary Course after August 31, 2004 by the Seller but paid by
the Member;
(vii)adoption of, or any increase in the payments to or benefits under,
any profit sharing, bonus, deferred compensation, savings, insurance,
pension, retirement, or other employee benefit plan for or with any
employees of the Seller, except in accordance with the terms of
existing plans, procedures or arrangements and consistent with past
practice;
(viii) entry into, breach or default under, termination of, receipt of a
notice of termination of or cancellation or waiver of any (A)
Purchased Contract or transaction or (B) claims or rights of the
Seller;
(ix) sale, lease or other disposition of any Purchased Asset or other
property of the Seller or mortgage, pledge or imposition of any Lien
on any Purchased Asset;
(x) change in the accounting methods used by the Seller;
(xi) acquisition of assets by the Seller other than in the Ordinary Course;
(xii) change in the terms of any Purchased Contracts;
(xiii) indication by any customer, franchisee or supplier of the Seller of
any intention to discontinue or change the terms of its relationship
with the Seller;
(xiv)execution of, or agreement to execute or enter into, any franchise
agreement or lease with a host store that was not approved in writing
by the Buyer; or
(xv) agreement, whether oral or written, by the Seller to do any of the
foregoing.
3.8 Taxes and Tax Returns.
(a) Other than as listed in Section 3.8 of the Disclosure Schedule, the Seller
has duly and timely filed all Tax Returns required to be filed by them on
or before the date hereof, and all such Tax Returns are true, correct and
complete in all material respects. The Seller has duly paid or made
provision on the Financial Statements, in accordance with GAAP, for the
payment of all Taxes that have been incurred or are due to any taxing
authorities by the Seller. The Seller has established reserves on the
Financial Statements that are adequate for the payment of all Taxes of the
Seller not yet due and payable. All amounts required to be paid by the
Seller as estimated income taxes under Code Section 6655, and all
comparable provisions of state or local statutes, have been duly paid.
Since August 31, 2004, the Seller has not incurred any liability for Taxes,
other than in the Ordinary Course.
(b) Other than as listed on Section 3.8 of the Disclosure Schedule:
(i) There are no disputes pending in respect of, or claims asserted for,
Taxes upon the Seller.
(ii) There are no pending or, to the Seller's Knowledge, threatened audits
or investigations or outstanding matters under discussion with any
taxing authorities with respect to the payment of Taxes of the Seller.
(iii)The Seller has not given or been requested to give any currently
effective waivers extending the statutory period of limitation
applicable to any Taxes for any period.
(iv) To the Seller's Knowledge, there are no threatened claims or disputes,
nor is there any basis for any claims or disputes, for past due Taxes
of the Seller.
(v) No claim against the Seller has ever been made by an authority in a
jurisdiction where such Seller does not file Tax Returns.
(c) There are no Liens with respect to Taxes (except for Liens for Taxes,
assessments or other governmental charges not yet due) upon any of the
Purchased Assets.
3.9 Litigation.
(a) Except as listed on Section 3.9 of the Disclosure Schedule, as of the date
hereof, there are no Proceedings (i) that have been commenced by or against
the Seller or, (ii) to the Seller's Knowledge, that have been threatened
against the Seller (including its officers, directors or employees in their
capacity as such) or any of its properties, assets or operations, or (iii)
that challenge, or that could reasonably be expected to have the effect of
preventing, delaying, making illegal, or otherwise materially adversely
interfering with, the transactions contemplated by this Agreement. To the
Seller's Knowledge, no event has occurred or circumstance exists that is
reasonably likely to give rise to or serve as a basis for the commencement
of any such Proceeding.
(b) There are no Orders (i) to which the Seller or to which any of the assets
owned or used by the Seller is subject or (ii) that could reasonably be
expected to adversely affect the Seller (including its officers, directors
or employees in their capacity as such) or that challenge, or (iii) that
could reasonably be expected to have the effect of preventing, delaying,
making illegal, or otherwise materially adversely interfering with, the
transactions contemplated by this Agreement, or (iv) that could affect the
enforceability of this Agreement against the Seller or materially adversely
affect the Seller's ability to consummate the transactions contemplated by
this Agreement. To the Seller's Knowledge, no officer or director of the
Seller is subject to any Order that prohibits such officer or director from
engaging in or continuing any conduct, activity, or practice relating to
the business of the Seller.
3.10 Compliance with Laws.
(a) The Seller is, and at all times since January 1, 2000, has been, in
compliance in all material respects with all Legal Requirements applicable
to such Seller.
(b) Except as set forth on Section 3.10(b) of the Disclosure Schedule, the
Seller does not have any Governmental Authorizations, and is not required
to have any Governmental Authorizations in order to lawfully conduct the
Business.
(c) The Seller has not received, at any time since January 1, 2000, any notice
or other communication (whether oral or written) from any Governmental
Authority regarding (i) any actual, alleged, possible or potential
violation of, or failure to comply with, any Legal Requirement of the
Seller, or (ii) any actual, alleged, possible or potential obligation on
the part of such Seller to undertake, or to bear all or any portion of, any
remedial action of any nature. Except as set forth on Section 3.10(c) of
the Disclosure Schedule, the Seller has no Knowledge of any event or
circumstance that may constitute a violation by Seller of any Legal
Requirement.
3.11 Environmental Matters. The Seller (i) is, and at all times has been, in
compliance with all Environmental Laws; (ii) has no liability, contingent
or otherwise, under any Environmental Laws for investigation, removal,
response, remediation or other costs; and (iii) has not received any
communication (written or oral) that alleges that it is not, or at any time
has not been, in such compliance, or has caused exposure of any Person or
the environment to any Hazardous Substance. The Seller does not use, nor
has it disposed of, Hazardous Substances. The Seller has never
manufactured, used or sold any products containing asbestos.
3.12 Employee Benefit Plans; ERISA.
(a) Section 3.12 of the Disclosure Schedule lists each employee pension,
retirement, profit sharing, bonus, incentive, deferred compensation,
hospitalization, medical, dental, vacation, insurance, sick pay,
disability, severance and other plan, trust, fund, program, policy,
contract, arrangement or the like that is a Plan maintained, participated
in or contributed to by the Seller (each, a "Seller Plan").
(b) Neither the Seller nor any ERISA Affiliate has ever participated in any
"multiemployer plan" (as defined in Section 4001(a) (3) of ERISA) . Neither
the Seller nor any ERISA Affiliate is subject to any liability with respect
to current or prior participation in, current or prior contributions to or
current or prior obligations to contribute to any such multiemployer plan.
3.13 Employees; Labor Matters.
(a) Section 3.13(a) of the Disclosure Schedule sets forth all employees of the
Seller as of the date hereof, identifies which of such employees are on
leave of absence, layoff, short-term disability or other similar status,
and indicates for each such employee such employee's job title, current
hourly rate of compensation or base salary (as applicable) and bonus
structure, accrued vacation and severance pay.
(b) Except as set forth on Section 3.13(b) of the Disclosure Schedule, there is
no Contract of the Seller(i) for the employment of any individual or (ii)
relating to the payment of any severance or termination payment or bonus to
any employee or former employee of the Seller.
(c) The Seller is not delinquent in payments to any employee of the Seller for
any wages, salaries, commissions, bonuses or other compensation for any
services performed by them to date or amounts required to be reimbursed to
such employees.
(d) To the Seller's Knowledge, no employee of the Seller is a party to, or
otherwise bound by, any agreement or arrangement, including any
confidentiality, non-competition, or proprietary rights agreement, between
such employee and any other Person that in any way adversely affects or
shall affect (i) the performance of his or her duties as an employee of the
Seller, (ii) the ability of the Seller to conduct its business or (iii) the
ability of such individual to assign to the Seller any rights under any
invention, improvement or discovery.
(e) Section 3.13(d) of the Disclosure Schedule specifies the number of
employees terminated by the Seller during the 90-day period prior to the
date hereof. To the Sellers' Knowledge, no employee of the Seller intends
to terminate his or her employment with the Seller, except at Closing.
(f) The Seller is not, and since January 1, 2000, has not been, a party to any
collective bargaining agreement. There is not presently, and since January
1, 2000, there has not been, any pending or existing or, to the Seller's
Knowledge, threatened (i)strike, slowdown, picketing, work stoppage, or
employee grievance process, or (ii)application for certification of a
collective bargaining agent for any of the employees of the Seller. There
is no lockout of any employees of the Seller, and no such action is
contemplated by the Seller.
(g) The Seller has delivered to the Buyer true and complete copies of all
personnel, payroll, and employment manuals and policies of the Seller.
(h) Except as set forth on Section 3.13(h) of the Disclosure Schedule, there
are no loans or other obligations payable or owing by the Seller to any
officer, director or employee of the Seller, except salaries, wages,
bonuses and salary advances and reimbursement of expenses incurred and
accrued in the Ordinary Course. Except as set forth on Section 3.13(h) of
the Disclosure Schedule, there are no loans or debts payable or owing by
any such Persons or their Affiliates to the Seller, nor has the Seller
guaranteed any of their loans or obligations.
3.14 Contracts.
(a) Set forth in Section 3.14 of the Disclosure Schedule is a complete and
accurate list of all of the Contracts to which the Seller is a party,
except for non-franchise related Contracts that (i) are not material to the
Business and (ii) and are terminable by the Seller upon thirty (30) days'
notice or less. The Seller has heretofore delivered to the Buyer true and
complete (A)copies of all such written contracts and (B) descriptions of
all material terms of all oral contracts.
(b) Each of the Purchased Contracts is in full force and effect, and
constitutes a valid and binding obligation of the Seller and to the
Seller's Knowledge, the other parties thereto.
(c) No event has occurred or circumstance exists that (with or without notice
or lapse of time) may contravene, conflict with, or result in a violation
or breach of, or give the Seller or the other Person party thereto the
right to declare a default or exercise any remedy under, or to accelerate
the maturity or performance of, or to cancel, terminate, or modify, any
Purchased Contract. The Seller has not given to or received from any other
Person, at any time since January 1, 2000, any notice or other
communication (whether oral or written) regarding any actual, alleged,
possible, or potential violation or breach of, or default under, any
Purchased Contract.
(d) The Seller has obtained all consents necessary to assign or transfer the
Purchased Assets, including the Purchased Contracts. Each Purchased
Contract shall remain in full force and effect upon the Closing and shall
be enforceable by the Buyer immediately after the Closing.
3.15 Assets.
(a) The Seller own good and valid title to all of the Purchased Assets, whether
tangible or intangible, including all of the assets reflected on the
Reference Balance Sheet (except for assets held under leases and assets
sold since the Reference Balance Sheet Date in the Ordinary Course), free
and clear of all the Liens except for the Permitted Liens and Liens that
will be released on or prior to the Closing (all of which are set forth on
Section 3.15(a) of the Disclosure Schedule).
(b) Section 3.15(b) of the Disclosure Schedule lists all of the Purchased Fixed
Assets owned by the Seller with a book value of $500 or above and the
location thereof. Each item of tangible personal property included on
Section 3.15(b) of the Disclosure Schedule is in a good state of repair,
reasonable wear and tear excepted, is free of any defect, does not require
any maintenance and repairs except for routine maintenance and repairs not
material in nature or cost and is adequate for use by the Sellers for its
intended purposes. The Seller does not own or possess any Inventory.
(c) Section 3.15(c) of the Disclosure Schedule lists all of the Purchased
Assets that are leased (rather than owned) by the Seller. For each such
leased asset, the Seller has delivered to the Buyer true and complete
copies of all leases and other agreements affecting such asset.
(d) The Purchased Assets, together with the Excluded Assets, constitute all of
the assets used by the Seller in connection with the operation of its
business and the Purchased Assets are sufficient for the continued conduct
of the Seller's business by the Buyer after the Closing in substantially
the same manner as conducted prior to the Closing.
(e) Since its inception, the Seller has not made, manufactured, constructed,
distributed, sold, leased, supported or installed any products in
connection with the operation of the Business.
3.16 Real Property.
(a) The Seller does not own, and does not have any options or obligations to
purchase, any real property.
(b) All real property leased or otherwise occupied or operated by the Seller
(the "Leased Real Property") is identified in Section 3.16(b) of the
Disclosure Schedule. The Seller has good and valid title to the leasehold
estate under each such lease of the Leased Real Property, free and clear of
all of the Liens other than Permitted Liens. The Seller has delivered or
made available to the Buyer copies of the leases and other instruments
(whether or not recorded) by which the Seller acquired such Leased Real
Property interests, as well as any other agreements to which the Seller is
a party that relates to such Leased Real Property interests.
(c) The Leased Real Property, and the improvements, buildings and structures
thereon constitute all of the real property used by the Seller in the
conduct of the Business.
(d) The Seller does not owe any money to any architect, contractor,
subcontractor or materialman for labor or materials performed, rendered or
supplied to or in connection with the Leased Real Property, and there is no
construction or other improvement work being done at nor are there any
construction or other improvement materials being supplied to the Leased
Real Property.
3.17 Accounts Receivable. All Purchased Accounts Receivable (i) represent valid
and bona fide claims, (ii) were acquired or arose in the Ordinary Course of
the Seller's business, and (iii) are and will be fully collectible by the
Seller in the aggregate face value thereof in the Ordinary Course of the
Seller's business net of any reserves set forth on the Reference Balance
Sheet (other than the notes referred to in Section 2.12, as to which
Section 2.12 governs). Except as disclosed on Section 3.17 of the
Disclosure Schedule, there is no contest, claim, or right of set-off, under
any Purchased Contract with any obligor of a Purchased Account Receivable
relating to the amount or validity of such Account Receivable.
3.18 Proprietary Rights.
(a) Ownership and Right to Use. The Seller owns or has the right to use all of
the Purchased Proprietary Rights. Section 3.18(a) of the Disclosure
Schedule identifies each Purchased Proprietary Right that is owned by any
other Person and licensed to the Seller and identifies the Purchased
Contract pursuant to which the Seller has licensed such Purchased
Proprietary Right. Except as disclosed in Section 3.18(a) of the Disclosure
Schedule, the Seller has no obligation to pay any royalty or other fee to
any Person relating to any Purchased Proprietary Right and is under no
obligation to any other Person to register, protect or otherwise take any
action with respect to any Purchased Proprietary Right. There is no
Purchased Contract, other than those Contracts listed in Section 3.18(a) of
the Disclosure Schedules that grants any Person a license in any Purchased
Proprietary Right that imposes any restriction or limitation upon the
Seller relating to its use of the Purchased Proprietary Rights.
(b) Marks. Section 3.18(b) of the Disclosure Schedule lists each Xxxx and Trade
Name that has been used by the Seller during the last five years to
identify its goods, services or business and lists each registration that
has been filed or obtained by the Seller with respect to any Marks or Trade
Names. The Seller has the right to use each such Xxxx and Trade Name within
the scope, and in the geographic area, of its present use. To the Seller's
Knowledge: (i) no other Person is using a Xxxx or Trade Name similar to one
included in the Purchased Proprietary Rights to describe products or
services that are similar to the products and services of the Seller; and
(ii) no other Person is currently using any Xxxx or Trade Name in a manner
that would preclude the Seller from using the Marks or Trade Names included
in the Purchased Proprietary Rights throughout the United States.
(c) Patents. The Seller does not own or license any Patents.
(d) Copyrights. Section 3.18(d) of the Disclosure Schedule lists each of the
Seller's registered copyrights.
(e) Trade Secrets. The Seller has taken efforts that are reasonable under the
circumstances to prevent unauthorized disclosure to any other Person of
such portions of the Seller's Trade Secrets included in the Purchased
Proprietary Rights that would enable such Person to compete with the Seller
within the scope of the Seller's business as now conducted and as presently
proposed to be conducted.
(f) Software. Section 3.18(f) of the Disclosure Schedule lists all of the
Software that the Seller uses solely in or in connection with its business.
With respect to each such Software program, Section 3.18(f) of the
Disclosure Schedule indicates whether the Seller owns the Software, uses a
copy of the Software purchased from another Person or licenses the Software
from another Person and identifies each Purchased Contract pursuant to
which the Seller has purchased or licensed such Software, or a copy
thereof, from another Person.
(g) No Infringement. The Seller has not interfered with, infringed upon or
misappropriated any Proprietary Right of any other Person and the continued
operation of the Seller's business by the Buyer, in the manner that such
business is currently conducted, will not interfere with, infringe upon or
misappropriate any Proprietary Right of any other Person. To the Seller's
Knowledge, no Person is interfering with, infringing upon or
misappropriating any Purchased Proprietary Right. No claim has been
asserted against the Seller by any Person: (i) that such Person has any
right, title or interest in or to any of the Copyrights, Patents, Trade
Secrets or Know-How included in the Purchased Proprietary Rights; (ii) that
such Person has the right to use any of the Marks or Trade Names included
in the Purchased Proprietary Rights; (iii) to the effect that any past,
present or projected act or omission by the Seller infringes any
Proprietary Right of such Person; or (iv) that challenges the Seller's
right to use any of the Purchased Proprietary Rights. No facts or
circumstances exist that, with or without the passing of time or the giving
of notice or both, might reasonably serve as the basis for any such claim.
3.19 Suppliers. To the Seller's Knowledge, the relationships of the Seller with
each of its suppliers are good working relationships, and no such supplier
has cancelled or otherwise terminated, or threatened in writing to cancel
or otherwise terminate, its relationship with the Seller, or has decreased
materially, or threatened to decrease or limit materially, its services,
supplies or materials to the Seller.
3.20 Customers and Franchisees . Except as set forth on Section 3.20 of the
Disclosure Schedule, since January 1, 2000, no customer or franchisee of
the Seller has made in writing or filed any complaint against the Seller as
to any matter, including, without limitation, related to the franchise, the
support of franchisees by the Seller, host store relations or the operation
of the business of either the franchisee or the Seller or, to the Seller's
Knowledge, threatened any such complaint.
3.21 Brokers. No broker, finder or other Person is or shall be entitled to any
brokerage fees, commissions or finder's fees in connection with the
transactions contemplated hereby from the Seller or the Member by reason of
any action taken by the Seller or the Member.
3.22 Franchises.
(a) All franchise agreements of the Seller are listed in Section 2.2(g) of the
Disclosure Schedule and, except as required under applicable Legal
Requirements there are no written or oral promises to franchisees that are
not listed in Section 2.2(g) of the Disclosure Schedule.
(b) Copies of all franchise agreements, territory agreements, area agreements,
side agreements, addendums or other arrangements with any franchises or
prospective franchisee of the Seller have been provided to the Buyer.
(c) There are no circumstances or facts that, if known to the franchisees,
would give any franchisee or group of franchisees a claim or cause of
action against the Seller or the Member.
(d) The Seller has performed all material obligations required to be performed
by it prior to the Closing Date pursuant to any agreement with a
franchisee.
3.23 Full Disclosure. No statement that relates to the Seller or the Member
contained in this Agreement, the Disclosure Schedule or any Seller Document
(including each representation and warranty in this ARTICLE III) contains
any untrue statement of a material fact or omits to state any material fact
that was necessary to make such statements, in light of the circumstances
in which they were made, not misleading.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES RELATING TO THE BUYER
The Buyer represents and warrants to the Seller and the Member as follows:
4.1 Organization. The Buyer is a limited liability company duly organized,
validly existing and in good standing under the laws of the jurisdiction of
its organization. The Buyer is a wholly-owned subsidiary of PCA LLC, a
Delaware limited liability company.
4.2 Authority; Enforceability. The Buyer has the absolute and unrestricted
legal right, authority, power and capacity to (i)execute and deliver this
Agreement and each certificate, document and agreement to be executed by
the Buyer in connection herewith (collectively, the "Buyer Documents") and
(ii)perform its obligations hereunder and thereunder. The execution and
delivery of this Agreement and the Buyer Documents and the consummation of
the transactions contemplated hereby and thereby have been duly and validly
authorized by the Buyer, and no other proceedings on the part of the Buyer
are necessary to authorize this Agreement or any of the Buyer Documents or
to consummate the transactions contemplated hereby or thereby. This
Agreement has been duly and validly executed and delivered by the Buyer and
constitutes a legal, valid and binding obligation of the Buyer, enforceable
against it in accordance with its terms, except as enforcement may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
similar law affecting the rights of creditors generally. Upon execution and
delivery by the Buyer of each Buyer Document, such Buyer Document shall
constitute a legal, valid and binding obligation of the Buyer, in each case
enforceable against it in accordance with its terms, except as enforcement
may be limited by applicable bankruptcy, insolvency, reorganization,
moratorium or similar law affecting the rights of creditors generally.
4.3 Consents and Approvals; No Violation.
(a) No Governmental Authorization is required in connection with (i) the
execution or delivery by the Buyer of this Agreement or the Buyer
Documents, or (ii) the performance of the Buyer's obligations under this
Agreement or the Buyer Documents.
(b) Neither the execution and delivery of this Agreement and the Buyer
Documents by the Buyer nor the performance of the Buyer's obligations
hereunder or thereunder shall (with or without notice or lapse of time):
(i) contravene, conflict with or result in any violation of any provision
of the articles of incorporation or bylaws of the Buyer or any resolution
adopted by members of the Buyer, or (ii) contravene, conflict with, result
in any violation of, or give any Governmental Authority the right challenge
any of the transaction contemplated hereby or to exercise any remedy
(including revocation, withdrawal, suspension or modification) or obtain
any relief under, any Legal Requirement applicable to the Buyer.
4.4 Litigation. There are no Proceedings commenced against, or, to the Buyer's
knowledge, threatened against the Buyer that could affect its ability to
consummate the transactions contemplated by this Agreement. The Buyer is
not subject to any Order that could affect the enforceability of this
Agreement against the Buyer or impair its ability to consummate the
transactions contemplated by this Agreement.
4.5 Brokers. No broker, finder or other Person is or shall be entitled to any
brokerage fees, commissions or finder's fees in connection with the
transactions contemplated hereby from the Seller by reason of any action
taken by the Buyer.
ARTICLE V
COVENANTS AND AGREEMENTS
5.1 Intentionally Left Blank.
5.2 Employees.
(a) The Buyer represents and warrants to the Seller that the Buyer desires to
obtain the employment of those employees of the Seller set forth on Section
5.2 of the Disclosure Schedule (the "Seller Employees") and the Seller
shall cooperate with and shall make available to the Buyer, to the extent
permitted by applicable Legal Requirements, all information and documents
as may be necessary to assist and coordinate the employment by the Buyer of
any Seller Employees.
(b) Effective as of the Closing Date, the Buyer shall offer to employ the
Seller Employees set forth on Section 5.2 of the Disclosure Schedule, upon
such terms and conditions as Buyer may determine, and the Seller shall
terminate the employment of such Seller Employees set forth on Section 5.2
of the Disclosure Schedule. The Seller, and not the Buyer, shall be liable
to any Seller Employees or other Persons for any severance obligations,
benefit obligations or any other similar obligations owed by the Seller in
connection with the termination of any Seller Employee's or other Person's
employment with the Seller.
(c) The Seller acknowledges and agrees that the Buyer shall have the right to
hire each of the Seller Employees set forth on Section 5.2 of the
Disclosure Schedule and that such employees shall have the right to accept
such employment without violating any agreements with the Seller or the
Member. Upon being hired by the Buyer, the Seller represents that the
Seller Employees set forth on Section 5.2 of the Disclosure Schedule shall
not be bound by any confidentiality or noncompetition restrictions with
respect to the Seller or the Member.
(d) Except as specified in this Section 5.2, nothing in this Agreement,
expressed or implied, shall (i) obligate the Buyer or any Affiliate of the
Buyer to employ any Person currently employed by the Seller, to engage any
independent contractor currently engaged by the Seller or to assume any
obligations relating to the employment of any Person as an employee,
independent contractor or otherwise; or (ii) confer upon any employee or
independent contractor of the Seller any right to employment or to
continued employment for any specified period, as an employee, independent
contractor or otherwise.
5.3 Seller's Name. On or before the date that is fifteen days after the Closing
Date, the Seller shall change its name to a name that is not similar to
"Hometown Threads LLC" and shall discontinue using the Seller's name in any
form or manner except as required to comply with any applicable Legal
Requirement.
5.4 Notice to Franchisees. Following the Closing, the Buyer shall promptly
provide notice to all franchisees of the Business informing such
franchisees that the Buyer has agreed to assume certain of the Seller's
obligations under the franchise agreements listed on Section 2.2(g) of the
Disclosure Schedule in accordance with the terms of this Agreement. Neither
the Seller nor the Member shall contact any such franchisees regarding this
Agreement or the Business without the prior written consent from, or
participation by, the Buyer.
ARTICLE VI
INDEMNIFICATION
6.1 Survival; Knowledge. All representations, warranties, covenants and
agreements made by the Seller, the Buyer and the Member in this Agreement,
the Disclosure Schedule and the documents to be executed in connection with
this Agreement, shall survive the Closing Date subject to the limitations
set forth below. Any claim for indemnification relating to the breach by
the Buyer of any representation and warranty may be made by the Seller or
the Member only if it provides notice of such claim within six months after
the Closing Date, provided that any claim for breach of Section 4.2 may be
made within sixty months after the Closing Date. Any claim for
indemnification relating to the breach by the Seller or the Member of any
representation and warranty may be made by the Buyer only if it provides
notice of such claim in accordance with Section 6.5 within six months after
the Closing Date, provided that any claim for breach of (i) Section 3.1,
3.2, 3.8, 3.11 or 3.15(a) shall be made within sixty months after the
Closing Date and (ii) Section 3.22 shall be made within twelve months after
the Closing Date. No representation or warranty shall be deemed to be
waived or otherwise diminished as a result of any due diligence
investigation by the party to whom the representation or warranty was made,
as a result of any actual or constructive knowledge by such party with
respect to any facts, circumstances or claims or that any representation or
warranty is false, in each case, whether before or after the execution and
delivery of this Agreement.
6.2 Seller's and Member's Agreement to Indemnify.
(a) Subject to the limitations set forth in this ARTICLE VI, the Seller and the
Member, jointly and severally, shall indemnify and hold harmless the Buyer
and its Affiliates (and the officers, directors, managers, equity holders,
employees and agents of each of them) for, and shall pay to such Persons
and reimburse such Persons for, any and all Damages arising, directly or
indirectly, from or in connection with:
(i) any breach or alleged breach of any representation or warranty of the
Seller or the Member contained in this Agreement, the Disclosure
Schedule, or any certificate or document delivered pursuant to Section
2.10(a) (other than the Seller and Member Non-Competition Agreements,
the Maintenance Agreement, and the Supply Agreement);
(ii) any breach or alleged breach of any covenant or agreement of the
Seller or the Member contained in this Agreement or in any agreement
or instrument executed and delivered pursuant to Section 2.10(a)
(other than the Seller and Member Non-Competition Agreements, the
Maintenance Agreement, and the Supply Agreement); or
(iii)any Excluded Liability (including without limitation any Excluded
Liability that becomes, or is alleged to have become, a liability of
the Buyer under any applicable bulk sales law, under any doctrine of
de facto merger or successor liability, or otherwise by operation of
law).
6.3 Buyer's Agreement to Indemnify. Subject to the limitations set forth in
this ARTICLE VI, the Buyer shall indemnify and hold harmless the Seller,
the Member and the Affiliates of the Seller and the Member (and the
officers, directors, managers, equity holders, employees and agents of each
of them) for, and shall pay to such Persons and reimburse such Persons for,
any and all Damages arising, directly or indirectly, from or in connection
with:
(i) any breach or alleged breach of any representation or warranty of the
Buyer contained in this Agreement or in any certificate or document
delivered pursuant to this Agreement;
(ii) any breach or alleged breach of any covenant or agreement of the Buyer
contained in this Agreement or in any agreement or instrument executed
and delivered pursuant to this Agreement;
(iii)any Assumed Liability, but, in the case of Assumed Liabilities under
Section 2.5(a) only to the extent
of the amount listed; and
(iv) except to the extent covered by the indemnification obligations set
forth in Section 6.2, the operation of the Business or the Purchased
Assets on and after the Closing.
6.4 Procedure for Indemnification - Third-Party Claims.
(a) If any Person shall claim indemnification hereunder arising from any claim
or demand of a third party, the party seeking indemnification (the
"Indemnified Party") shall notify the party from whom indemnification is
sought (the "Indemnifying Party") in writing of the basis for such claim or
demand setting forth the nature of the claim or demand in reasonable
detail. The failure of the Indemnified Party to so notify the Indemnifying
Party shall not relieve the Indemnifying Party of any indemnification
obligation hereunder except to the extent that the defense of such claim or
demand is materially prejudiced by the failure to give such notice.
(b) If any Proceeding is brought by a third party against an Indemnified Party
and the Indemnified Party gives notice to the Indemnifying Party pursuant
to Section 6.4(a), the Indemnifying Party shall, unless the claim involves
Taxes, be entitled to participate in such Proceeding and, to the extent
that it wishes, to assume the defense of such Proceeding, if (i)the
Indemnifying Party provides written notice to the Indemnified Party that
the Indemnifying Party intends to undertake such defense, and by such
notice it shall be conclusively established that the Indemnifying Party
shall indemnify the Indemnified Party against all claims for
indemnification resulting from or relating to such third-party claim as
provided in this ARTICLE VI, (ii)the Indemnifying Party conducts the
defense of the third-party claim actively and diligently with counsel
reasonably satisfactory to the Indemnified Party and (iii)if the
Indemnifying Party is a party to the Proceeding, the Indemnifying Party has
not determined in good faith that joint representation would be
inappropriate. The Indemnified Party shall, in its sole discretion, have
the right to employ separate counsel (who may be selected by the
Indemnified Party in its sole discretion) in any such action and to
participate in the defense thereof, and the fees and expenses of such
counsel shall be paid by such Indemnified Party. The Indemnified Party
shall fully cooperate with the Indemnifying Party and its counsel in the
defense or compromise of such claim or demand, provided that all reasonable
out-of-pocket expenses incurred by the Indemnified Party shall be paid by
the Indemnifying Party (except as set forth in the preceding sentence). If
the Indemnifying Party assumes the defense of a Proceeding, (A) no
compromise or settlement of the claims with respect thereto may be effected
by the Indemnifying Party without the Indemnified Party's consent unless
(I) there is no finding or admission of any violation of law or any
violation of the rights of any Person and (II) the sole relief provided is
monetary damages that are paid in full by the Indemnifying Party and (B)
the Indemnified Party shall have no liability with respect to any
compromise or settlement of such claims effected without its consent.
(c) If (i)notice is given to the Indemnifying Party of the commencement of any
Proceeding by a third party and the Indemnifying Party does not, within ten
days after the Indemnified Party's notice is given, give notice to the
Indemnified Party of its election to assume the defense of such Proceeding
or (ii)any of the conditions set forth in clauses (i) through (iii) of
Section 6.4(b) above become unsatisfied, the Indemnified Party shall (upon
notice to the Indemnifying Party) have the right to undertake the defense,
compromise or settlement of such claim; provided that the Indemnifying
Party shall reimburse the Indemnified Party promptly and periodically for
the costs of defending against the third-party claim (including reasonable
attorneys' fees and expenses) and the Indemnifying Party shall remain
responsible for any indemnifiable amounts arising from or related to such
third-party claim to the fullest extent provided in this ARTICLE VI. The
Indemnifying Party may elect to participate in such Proceedings,
negotiations or defense at any time at its own expense.
(d) The Seller and the Member hereby consent to the non-exclusive jurisdiction
of any court in which a Proceeding is brought by a third party against any
Indemnified Party for purposes of any claim that an Indemnified Party may
have under this Agreement with respect to such Proceeding or the matters
alleged therein and agree that process may be served on the Seller and the
Member with respect to such a claim anywhere in the world.
(e) With respect to any third-party claim subject to indemnification under this
ARTICLE VI, (i) both the Indemnified Party and the Indemnifying Party, as
the case may be, shall keep the other Person fully informed of the status
of such third-party claim and any related Proceedings at all stages thereof
if such Person is not represented by its own counsel, and (ii) the parties
agree to render (each at its own expense) to each other such assistance as
they may reasonably require of each other and to cooperate in good faith
with each other in order to ensure the proper and adequate defense of any
third-party claim.
(f) With respect to any third-party claim subject to indemnification under this
ARTICLE VI, the parties agree to cooperate in such a manner as to preserve
in full (to the extent possible) the confidentiality of all confidential
information and the attorney-client and work-product privileges. In
connection therewith, each party agrees that: (i) it will use Commercially
Reasonable Efforts, in respect of any third-party claim in which it has
assumed or participated in the defense, to avoid production of confidential
information (consistent with applicable Legal Requirements), and (ii) all
communications between any party hereto and counsel responsible for or
participating in the defense of any third-party claim shall, to the extent
possible, be made so as to preserve any applicable attorney-client or
work-product privilege.
6.5 Indemnification Procedure - Direct Claims.
(a) If an Indemnified Party shall claim indemnification hereunder for any claim
other than a third-party claim, the Indemnified Party shall notify the
Indemnifying Party in writing of the basis for such claim in reasonable
detail and setting forth in reasonable detail the nature and amount of the
damages resulting from such claim. The Indemnifying Party shall give
written notice of any disagreement with such claim within 30 days following
receipt of the Indemnified Party's notice of the claim, specifying in
reasonable detail the nature and extent of such disagreement. If the
Indemnifying Party and the Indemnified Party are unable to resolve any
disagreement within 30 days following receipt by the Indemnified Party of
the notice referred to in the preceding sentence, the disagreement shall be
submitted for resolution to an independent Person (the "Arbitrator")
mutually agreed by the Indemnifying Party and the Indemnified Party. If the
Indemnifying Party and the Indemnified Party cannot agree on a single
Arbitrator, then the disagreement shall be submitted to an Arbitrator
selected in accordance with the Rules of the American Arbitration
Association.
(b) Any such arbitration shall be conducted in accordance with the Rules of the
American Arbitration Association and shall be held in New York City, New
York or such other location to which the parties to such dispute mutually
agree. The determination by the Arbitrator shall be made within 30 days of
the submission of the dispute, shall be in accordance with this Agreement,
shall be set forth in a written statement delivered to the Indemnifying
Party and the Indemnified Party and shall be final, binding and conclusive.
Judgment upon the decision rendered by the Arbitrator may be entered in any
court having jurisdiction thereof and may include the award of attorneys'
fees and other costs to the extent provided by this Article. The Person who
is prevailed against in the resolution of such disagreement shall pay the
fees and expenses of the Arbitrator; if one Person does not prevail on all
issues, the fees and expenses shall be apportioned in such manner as the
Arbitrator shall determine. Any amount owing by any Person as a result of
this Section 6.5 shall be paid within five Business Days after final
determination of such amount.
(c) The parties agree that (i) the provisions of this Section 6.5 shall not
apply to any preliminary or temporary equitable relief sought with respect
to breaches of the obligations set forth in Sections 5.2, 5.2(c) and 7.6,
(ii) the Arbitrator shall have no power to grant such preliminary or
temporary relief with respect to breaches of such obligations (iii) except
for such preliminary or temporary equitable relief, claims pursuant to this
Article VI shall be the exclusive remedy for claims by or among the parties
hereto (or their affiliates) for a breach of this Agreement, and the other
agreements, documents or instruments delivered by the Seller or Member
pursuant to Section 2.10(a) (other than the Seller and Member
Non-Competition Agreements, the Maintenance Agreement, and the Supply
Agreement).
6.6 Interest. Interest shall accrue on the unpaid amount of all indemnification
obligations hereunder at the Prime Rate, such interest to be calculated
based on the actual number of days elapsed from the date each
indemnification obligation becomes due and owing until paid in full and
shall be based on a 365-day year.
6.7 Right of Set-Off. Upon notice to the Seller specifying in reasonable detail
the basis for such set-off, the Buyer may (without prejudice to the right
of the Seller or Member to contest the claim by the Buyer) set off any
amount to which it may be entitled from the Seller or the Member under this
Article or otherwise against the Holdback or amounts otherwise payable by
the Buyer to the Seller or the Member. The exercise of such right of
set-off by the Buyer hereunder in good faith, whether or not ultimately
determined to be justified, shall be deemed not to constitute a breach of
this Agreement or any other covenant or obligations of the Buyer. Neither
the exercise of nor failure to exercise such right of set-off shall
constitute an election of remedies or limit the Buyer in any manner in the
enforcement of any other remedies that may be available to it.
6.8 Limitation on Indemnification Amounts. Notwithstanding any provision to the
contrary contained in this ARTICLE VI, the Seller and the Member shall not
be obligated to indemnify the Buyer with respect to Damages arising from
claims under Section 6.2(a) unless and until the amount of Damages with
respect to such matters shall equal or exceed in the aggregate $15,000,
provided that after such threshold is met, the Buyer shall be entitled to
recover Damages from the first dollar without regard to the threshold. The
total liability of the Seller and the Member with respect to Damages
arising from claims under Sections 6.2(a)(i) or (ii) shall be limited in
the aggregate to $200,000, provided, however, that any Damages arising from
any breach or alleged breach of Sections 3.1, 3.2, 3.8, 3.11 or 3.15(a)
shall not be subject to such limitation.
ARTICLE VII
GENERAL PROVISIONS
7.1 Guaranty. The Guarantor hereby guarantees to the Seller and the Member the
due and punctual payment, performance and observance by the Buyer of the
Buyer's indemnification obligations under ARTICLE VI, the Buyer's
obligations under Section 2.13, and the payment of the Holdback Amount, if
applicable, under Section 2.8(a). The Guarantor shall be entitled to the
defenses, if any, against payment and performance of such obligations that
are both permitted by law and are available to the Buyer under the terms
and provisions of this Agreement (for the avoidance of doubt, the Guarantor
shall not have the benefit of any defense relating to the bankruptcy or
insolvency of the Buyer). Except for such permitted defenses, the guaranty
provided hereby shall be absolute, continuing, unconditional and
irrevocable. The guaranty provided hereby is a guaranty of payment (and not
merely collection) and neither Seller nor Member is required to make demand
upon or exhaust remedies (or any similar matter) as against the Buyer
before proceeding against the Guarantor.
7.2 Expenses. Whether or not the transactions contemplated hereby are
consummated, except as otherwise provided herein, the Buyer shall pay all
costs and expenses incurred by the Buyer in connection with this Agreement
and the transactions contemplated hereby, and the Seller and the Member
shall pay all costs and expenses incurred by the Seller and the Member in
connection with this Agreement and the transactions contemplated hereby,
including in each case all fees and expenses of investment bankers,
finders, brokers, agents, representatives, consultants, counsel and
accountants.
7.3 Amendment and Modification. This Agreement may be amended, modified or
supplemented only by an agreement in writing signed by the party against
whom such amendment, modification or supplement is sought to be enforced,
except that the Seller shall be entitled to amend, modify or supplement
this Agreement on behalf of itself and the Member. Any such writing must
refer specifically to this Agreement.
7.4 Waiver of Compliance; Consents. The rights and remedies of the parties are
cumulative and not alternative and may be exercised concurrently or
separately. No failure or delay by any party in exercising any right,
power, or privilege under this Agreement shall operate as a waiver of such
right, power, or privilege, and no single or partial exercise of any such
right, power, or privilege shall preclude any other or further exercise of
such right, power, or privilege or the exercise of any other right, power,
or privilege. To the maximum extent permitted by applicable law, (i) no
claim or right arising out of this Agreement can be discharged by one
party, in whole or in part, by a waiver or renunciation of the claim or
right unless in writing signed by the other party (or, if applicable, the
Seller on behalf of itself and the Member); (ii) no waiver that may be
given by a party shall be applicable except in the specific instance for
which it is given; and (c) no notice to or demand on one party shall be
deemed to be a waiver of any obligation of such party or of the right of
the party giving such notice or demand to take further action without
notice or demand as provided in this Agreement. Any consent required or
permitted by this Agreement is binding only if in writing.
7.5 Notices. All notices, consents, waivers and other communications hereunder
shall be in writing and shall be (i) delivered by hand, (ii) sent by
facsimile transmission, or (iii) sent certified mail or by a nationally
recognized overnight delivery service, charges prepaid, to the address set
forth below (or such other address for a party as shall be specified by
like notice):
(a) If to the Seller or the Member, to:
Xxxxxx International Corp.
000 Xxxxxxxx Xxxxxxxxx
Xxxxxxxxx, XX 00000
Attention Xxxxxxx Xxxxxx, Chief Financial Officer
Facsimile: 000-000-0000
Copies to:
Fried, Frank, Harris, Xxxxxxx & Xxxxxxxx LLP
Xxx Xxx Xxxx Xxxxx
Xxx Xxxx, XX 00000
Attention: Xxxxx X. Xxxxxx
Facsimile: 212-859-4000
(b) If to the Buyer, to:
PCA LLC
000 Xxxxxxxx-Xxxx Xxxx Xxxx
Xxxxxxxx, XX 00000
Attn: Xxxxx X. Xxxx, Chairman, President and CEO
Facsimile: 000-000-0000
Copies to:
Xxxxxxxx, Xxxxxxxx & Xxxxxx, P.A.
000 Xxxxx Xxxxx Xxxxxx, Xxxxx 0000
Xxxxxxxxx, Xxxxx Xxxxxxxx 00000
Attn: Xxxxx Xxxxxxx
Facsimile: 000-000-0000
Each such notice or other communication shall be deemed to have been duly
given and to be effective (x) if delivered by hand, immediately upon delivery if
delivered on a Business Day during normal business hours and, if otherwise, on
the next Business Day; (y) if sent by facsimile transmission, immediately upon
confirmation that such transmission has been successfully transmitted on a
Business Day before or during normal business hours and, if otherwise, on the
Business Day following such confirmation, or (z) if sent by a nationally
recognized overnight delivery service, on the day of delivery by such service
or, if not a Business Day, on the first Business Day after delivery. Notices and
other communications sent via facsimile must be followed by notice delivered by
hand or by overnight delivery service as set forth herein within five Business
Days.
7.6 Publicity. No party hereto shall make any public announcement or similar
publicity of the transactions contemplated by this Agreement prior to the
Closing without first obtaining the prior written consent of the Member and
the Buyer; provided that nothing contained herein shall prohibit any party
from making any public announcement if such party determines in good faith,
on the advice of legal counsel, that such public disclosure is required by
a Legal Requirement so long as such party consults with the member and the
Buyer prior to making such disclosure. From and after the Closing, any
public announcement or similar publicity with respect to this Agreement or
the transactions contemplated hereby will be issued at such a time and in
such a manner as the Buyer determines. The Buyer and the Members shall
consult with each other concerning the means by which the Seller's
employees, franchisees, host stores, customers and suppliers will be
informed of the transactions contemplated hereby.
7.7 Assignment; No Third-Party Rights. This Agreement and all of the provisions
hereof shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and permitted assigns, but neither this
Agreement nor any of the rights, interests or obligations hereunder shall
be assigned by any party hereto without the prior written consent of the
other party, except that (i) the Buyer may assign its rights hereunder to
any Affiliate of the Buyer, and (ii) the Buyer may otherwise assign its
rights and obligations under this Agreement with the consent of the Member.
Except as set forth in ARTICLE VI, this Agreement and its provisions are
for the sole benefit of the parties to this Agreement and their successors
and permitted assigns and shall not give any other Person any legal or
equitable right, remedy or claim.
7.8 Governing Law. The execution, interpretation and performance of this
Agreement, and only disputes with respect to the transactions contemplated
by this Agreement, including any fraud claims, shall be governed by the
internal laws and judicial decisions of the State of North Carolina,
without regard to principles of conflicts of laws.
7.9 Further Assurances; Records. Each Party shall cooperate and take such
actions, and execute all such further instruments and documents, at or
subsequent to the Closing, as another party or other parties may reasonably
request in order to convey title to the Purchased Assets to the Buyer and
for the Buyer to assume the Assumed Liabilities and otherwise to effect the
terms and purposes of this Agreement. Each party shall provide the other
party or parties with access to all relevant documents and other
information pertaining to the Purchased Assets that are needed by such
other party or parties for the purposes of preparing Tax Returns or
responding to an audit by any Governmental Authority or for any other
reasonable purpose.
7.10 Severability. If any provision contained in this Agreement shall for any
reason be held invalid, illegal or unenforceable in any respect, such
invalidity, illegality or unenforceability shall not affect any other
provision of this Agreement, and this Agreement shall be construed as if
such invalid, illegal or unenforceable provision had never been contained
herein, unless the invalidity of any such provision substantially deprives
either party of the practical benefits intended to be conferred by this
Agreement. Notwithstanding the foregoing, any provision of this Agreement
held invalid, illegal or unenforceable only in part or degree shall remain
in full force and effect to the extent not held invalid or unenforceable,
and the determination that any provision of this Agreement is invalid,
illegal or unenforceable as applied to particular circumstances shall not
affect the application of such provision to circumstances other than those
as to which it is held invalid, illegal or unenforceable.
7.11 Construction. Each party acknowledges that such party and its attorneys
have been given an equal opportunity to negotiate the terms and conditions
of this Agreement and that any rule of construction to the effect that
ambiguities are to be resolved against the drafting party or any similar
rule operating against the drafter of an agreement shall not be applicable
to the construction or interpretation of this Agreement.
7.12 Disclosure Schedule. Each representation, warranty and covenant set forth
herein shall have independent significance. Any disclosures in any part of
the Disclosure Schedule apply only to the Section of this Agreement to
which they expressly relate and not to any other representation, warranty
or covenant. In the event of any inconsistency between the statements in
the body of this Agreement and those in of the Disclosure Schedule (other
than an exception expressly set forth as such in of the Disclosure Schedule
with respect to a specifically identified representation or warranty), the
statements in the body of this Agreement will control.
7.13 Time of Essence. With regard to all dates and time periods set forth or
referred to in this Agreement, time is of the essence.
7.14 Counterparts. This Agreement may be executed in multiple counterparts, each
of which shall be deemed an original, but all of which together shall
constitute one and the same instrument. This Agreement may be executed on
signature pages exchanged by facsimile, in which event each party shall
promptly deliver to the others such number of original executed copies as
the others may reasonably request.
7.15 Entire Agreement. This Agreement, including the Appendices, the Exhibits
and the Disclosure Schedule, constitutes the entire agreement and
understanding of the parties hereto in respect of the subject matter
hereof. The Appendices, Exhibits and the Disclosure Schedule hereto are an
integral part of this Agreement and are incorporated by reference herein.
This Agreement supersedes all prior agreements, understandings, promises,
representations and statements between the parties and their
representatives with respect to the transactions contemplated by this
Agreement.
7.16 No Implied Representations. Each party hereto acknowledges that it has made
no representations, warranties or promises whatsoever, except as set forth
in this Agreement, the Seller Documents and the Buyer Documents, and
disclaims any implied warranties of fitness for a particular purpose or
otherwise.
(signatures contained on the following page)
IN WITNESS WHEREOF, the parties have executed this Agreement under seal as
of the date first written above.
EMBROIDERY ACQUISITION LLC
By: /s/ Xxxxx X. Xxxx
------------------------------
Name: Xxxxx X. Xxxx
Title: President
HOMETOWN THREADS LLC
By: /s/ Xxxxxxx Xxxxxx
-------------------------------
Name: Xxxxxxx Xxxxxx
Title: Chief Financial
Officer
XXXXXX INTERNATIONAL CORP.
By: /s/ Xxxx Xxxxxxxxx
-------------------------------
Name: Xxxx Xxxxxxxxx
Title: President
The Guarantor executes this Agreement
solely for the purpose of being bound by
Section 7.1.
PCA LLC
By: /s/ Xxxxx X. Xxxx
------------------------------
Name: Xxxxx X. Xxxx
Title: President
APPENDIX 1
"Accounts Receivable" means, with respect to a Person, (i) all trade
accounts receivable and other rights to payment from customers of such Person
and the full benefit of all security for such accounts or rights to payment,
including all trade accounts receivable representing amounts receivable in
respect of goods shipped or products sold or services rendered to customers of
such Person, (ii) all other accounts or notes receivable of such Person,
including accounts receivable from Affiliates, officers, directors, partners,
members or managers of such Person and the full benefit of all security for such
accounts or notes, and (iii) any claim, remedy or other right related to any of
the foregoing.
"Affiliate" means with respect to any Person, each of the Persons that
directly or indirectly, through one or more intermediaries, owns or controls, is
controlled by or is under common control with, such Person. For the purpose of
this Agreement, "control" means the possession, directly or indirectly, of the
power to direct or cause the direction of management and policies, whether
through the ownership of voting securities, by contract or otherwise.
"Agreement" means this agreement, as it may hereafter be amended in
accordance with its terms.
"Arbitrator" has the meaning set forth in Section 6.5(a).
"Assignment & Assumption Agreement" has the meaning set forth in Section
2.10(a).
"Assignments of Lease" has the meaning set forth in Section 2.10(a).
"Assumed Liabilities" has the meaning set forth in Section 2.5.
"Xxxx of Sale" has the meaning set forth in Section 2.10(a).
"Business" has the meaning set forth in the Background Statement of this
Agreement.
"Business Day" means a day other than a Saturday, Sunday or other day on
which commercial banks in Charlotte, North Carolina or New York, New York are
generally closed for business.
"Buyer" has the meaning set forth in the introductory paragraph of this
Agreement.
"Buyer Consent" means (i) any Governmental Authorization set forth or
required to be set forth on Section 4.3 of the Disclosure Schedule or (ii) any
approval, consent, ratification, waiver or other authorization (including any
Governmental Authorization) necessary to cure, remedy or waive any default,
violation or conflict, or relinquish any rights, set forth or required to be set
forth on Section 4.3 of the Disclosure Schedule.
"Buyer Documents" has the meaning set forth in Section 4.2.
"CERCLA" means the federal statute commonly referred to as the
Comprehensive Environmental Response, Compensation and Liability Act, as
amended.
"Closing" has the meaning set forth in Section 2.9.
"Closing Date" means the date and time as of which the Closing actually
takes place.
"Closing Payment" has the meaning set forth in Section 2.8(b).
"Code" means the Internal Revenue Code of 1986, as amended.
"Commercially Reasonable Efforts" means the efforts that a prudent business
Person would reasonably use in similar circumstances to achieve a desired result
and as expeditiously as possible; provided that an obligation to use the
Commercially Reasonable Efforts under this Agreement does not require the Person
subject to that obligation to take actions that would result in a materially
adverse change in the benefits to such Person of this Agreement or the
transactions contemplated hereby.
"Contract" means any agreement, contract, obligation, promise or
undertaking (whether oral or written and whether express or implied), including
but not limited to contracts, agreements, indentures, deeds of trust, leases and
notes.
"Copyright" means the legal right provided by the Copyright Act of 1976, as
amended, to the expression contained in any work of authorship fixed in any
tangible medium of expression together with any similar rights arising in any
other country as a result of statute or treaty, and any right that may exist to
obtain a registration with respect thereto from any Governmental Authority and
any rights arising under any such application.
"Damages" means damages loss, liability, claim, damage, expense (including
cost of investigation and reasonable attorneys' fees) and diminution of value,
whether or not involving a third-party claim but excluding punitive damages.
"Disclosure Schedule" means the Disclosure Schedule delivered to the Buyer
by the Seller and the Member concurrently with the execution of this Agreement.
"Effective Time" has the meaning set forth in Section 2.9.
"Environmental Laws" means any Legal Requirement that relates to the
generation, storage, handling, discharge, emission, transportation, treatment or
disposal of Hazardous Substances or wastes or to the protection of human health
and the environment, including CERCLA, the Superfund Amendments and
Reauthorization Act of 1986, the Resource Conservation and Recovery Act, the
Clean Water Act, the Federal Water Pollution Control Act, the Safe Drinking
Water Act, the Toxic Substances Control Act, the Occupational Safety and Health
Act, and the Hazardous Material Transportation Act, in each case as amended, and
the regulations implementing such acts and the state and local equivalent of
such acts and regulations, and common law.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, including all regulations and other authoritative Governmental
Authority guidance issue with respect thereto.
"ERISA Affiliate" means any trade or business, whether or not incorporated,
that is a member of a group of corporations or of trades or businesses (whether
or not incorporated) that along with the Seller are treated as a single employer
under and for any of the purposes specified in Section 414(b), (c), (m) or (o)
of the Code or that is a member of a controlled group within the meaning of
Section 4001(a)(14) of ERISA that includes the Seller.
"Excluded Assets" has the meaning set forth in Section 2.3.
"Excluded Contracts" has the meaning set forth in Section 2.3(a).
"Excluded Liabilities" has the meaning set forth in Section 2.6(a).
"Financial Statements" has the meaning set forth in Section 3.5.
"Fixed Assets" means, with respect to a Person, all equipment, machinery,
furniture and furnishings, fixtures, tools, dies, computer hardware, data
processing and telecommunications equipment, office equipment, vehicles and
other tangible personal property (other than Inventories) of every kind owned,
used or useable by such Person, whether owned or leased, together with any
express or implied warranty by the manufacturers or Seller or lessors of any
item or component part thereof and all maintenance records and other documents
relating thereto.
"GAAP" means generally accepted accounting principles as recognized by the
American Institute of Certified Public Accountants, applied on a consistent
basis.
"Guarantor" has the meaning set forth in the introductory paragraph of the
Agreement.
"Governmental Authority" means any nation or government, any state or other
political subdivision thereof, any municipal, local, city or county government,
any entity exercising executive, legislative, judicial, regulatory or
administrative functions of or pertaining to government and any corporation or
other entity owned or controlled, through capital stock or otherwise by any of
the foregoing.
"Governmental Authorization" means any approval, consent, license, permit,
waiver or other authorization issued, granted, given or otherwise made available
by or under the authority of any Governmental Authority or pursuant to any Legal
Requirement.
"Hazardous Substance" includes each substance identified or designated as
such under CERCLA, as well as any other substance or material meeting any one or
more of the following criteria: (i) it is or contains a substance designated as
a hazardous waste, hazardous substance, hazardous material, pollutant,
contaminant or toxic substance under any Environmental Law, (ii) it is toxic,
reactive, corrosive, ignitable, infectious, radioactive or otherwise hazardous
or (iii) it is or contains, without limiting the foregoing, petroleum
hydrocarbons.
"Improvements" has the meaning set forth in Section 3.17(c).
"Indemnified Party" has the meaning set forth in Section 6.4(a).
"Indemnifying Party" has the meaning set forth in Section 6.4(a).
"Inventories" means, with respect to a Person, all inventories of such
Person of finished goods, work in process, raw materials and spare parts and all
other materials and supplies to be used or consumed by such Person in the
production of finished goods or sold by such Person.
"Know-How" means ideas, designs, concepts, compilations of information,
methods, techniques, procedures and processes, whether patentable or not and
whether reduced to practice or not.
"Legal Requirement" means any statute, law, treaty, rule, regulation,
Order, decree, writ, injunction or determination of any arbitrator or court or
Governmental Authority and, with respect to any Person, includes all such Legal
Requirements applicable or binding upon such Person, its business or the
ownership or use of any of its assets.
"Leased Real Property" has the meaning set forth in Section 3.16(b).
"Liens" means any mortgages, claims, liens, security interests, pledges,
escrows, charges, options or other restrictions or encumbrances of any kind or
character whatsoever.
"Xxxx" means any word, name, symbol or device used by a Person to identify
its goods or services, whether or not registered, all goodwill associated
therewith, and any right that may exist to obtain a registration with respect
thereto from any Governmental Authority and any rights arising under any such
application. As used in this Agreement, the term "Xxxx" includes trademarks and
service marks.
"Material Adverse Effect" means an adverse effect in excess of $25,000 on
the condition (financial or otherwise), results of operations, business,
properties or liabilities of the Seller's business.
"Member" has the meaning set forth in the introductory paragraph of this
Agreement.
"Order" means any award, decision, injunction, judgment, order, ruling,
subpoena or verdict entered, issued, made or rendered by any court,
administrative agency, other Governmental Authority or by any arbitrator.
"Ordinary Course" means an action taken by a Person only if:
(a) such action is consistent with the past practices of such Person and
is taken in the ordinary course of the operations of such Person; and
(b) such action is not required to be authorized by the board of directors
of such Person (or by any Person or group of Persons exercising
similar authority) or by its Member or other owners.
"Patent" means any patent granted by the U.S. Patent and Trademark Office
or by the comparable agency of any other country, and any renewal thereof, and
any rights arising under any patent application filed with the U.S. Patent and
Trademark Office or the comparable agency of any other country and any rights
that may exist to file any such application.
"Permitted Liens" means (i) the Liens for current Taxes not yet due and
payable (provided that, with respect to real property, Taxes shall be deemed to
refer to ad valorem property taxes only), and (ii) with respect to personal
property only, the Liens imposed by law, such as the Liens of carriers,
warehousemen, mechanics, materialmen and landlords, and other similar Liens
incurred in the Ordinary Course for sums not constituting borrowed money, that
are not overdue.
"Person" means any corporation, association, joint venture, partnership,
limited liability company, organization, business, individual, trust, government
or agency or political subdivision thereof or other legal entity.
"Plan" means an employee welfare benefit plan within the meaning of Section
3(1) of ERISA, an employee pension benefit plan with the meaning of Section 3(2)
of ERISA or a plan that is both.
"Prime Rate" means the per annum rate of interest from time to time by Bank
of America, N.A. (or, if such bank discontinues its practice of announcing its
prime rate, such other institution approved by the Buyer and the Seller) as its
prime rate of interest, in effect from time to time.
"Proceeding" means any action, arbitration, audit, hearing, investigation,
litigation or suit (whether civil, criminal, administrative, investigative or
informal) commenced, brought, conducted, or heard by or before, or otherwise
involving, any Governmental Authority or arbitrator.
"Proprietary Rights" means, with respect to a Person, all Copyrights,
Marks, Trade Secrets, Patents, intellectual property rights in inventions and
discoveries, whether patentable or not and whether reduced to practice or not,
trade names, intellectual property rights in internet web sites and internet
domain names and intellectual property rights in Know-How.
"Purchase Price" has the meaning set forth in Section 2.7.
"Purchased Accounts Receivable" has the meaning set forth in Section
2.2(c).
"Purchased Assets" has the meaning set forth in Section 2.2.
"Purchased Contracts" has the meaning set forth in Section 2.2(g).
"Purchased Fixed Assets" has the meaning set forth in Section 2.2(a).
"Purchased Proprietary Rights" has the meaning set forth in Section 2.2(d).
"Purchased Software" has the meaning set forth in Section 2.2(e).
"Reference Balance Sheet" means the Seller's Balance Sheet, dated August
31, 2004, that has been provided to the Buyer.
"Seller" has the meaning set forth in the introductory paragraph of this
Agreement.
"Seller Consent" means (i) any Governmental Authorization set forth or
required to be set forth on Section 3.3 of the Disclosure Schedule or (ii) any
approval, consent, ratification, waiver or other authorization (including any
Governmental Authorization) necessary to cure, remedy or waive any default,
violation or conflict, or relinquish any rights, set forth or required to be set
forth on Section 3.3 of the Disclosure Schedule.
"Seller Document" has the meaning set forth in Section 3.2.
"Seller Employees" has the meaning set forth in Section 5.2(a).
"Seller's Knowledge" means the actual knowledge of Xxxx Xxxxxx, Xxxxxx
Xxxxxxx, Xxxxxxx Xxx, Xxxxxxx Xxxxxx and Xxxx Xxxxxxxxx.
"Seller and Member Non-Competition Agreements" has the meaning set forth in
Section 2.10(a).
"Seller Plan" has the meaning set forth in Section 3.12(a).
"Software" means, with respect to a Person, all types of computer software
programs owned, used or useable by such Person, including operating systems,
application programs, software tools, firmware and software imbedded in
equipment, including both object code and source code versions thereof.
"Taxes" means (i) all taxes, charges, fees, levies or other assessments
(whether federal, state, local or foreign), including income, gross receipts,
excise, property, sales, use, transfer, license, payroll, franchise, ad valorem,
withholding, Social Security and unemployment taxes and (ii) any interest,
penalties and additions related to the foregoing.
"Tax Return" means any report, return or other information required to be
supplied to a taxing authority in connection with the Taxes.
"Trade Secrets" means business or technical information of any Person
including, but not limited to, customer lists, marketing data and Know-How, that
is not generally known to other Persons who are not subject to an obligation of
nondisclosure and that derives actual or potential commercial value from not
being generally known to other Persons.
"Trademark Assignment" has the meaning set forth in Section 2.10(a).
"Wal-Mart Master Lease Agreement" shall mean the LEASE AGREEMENT (Space in
Wal-Mart Store or Supercenter) dated September 19, 2000 between Wal-Mart Stores
East Inc., a Delaware Corporation as Landlord, and Hometown Threads, a Delaware
LLC as Tenant, including all amendments, modifications, supplements and
schedules to the LEASE AGREEMENT.
