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ASSET PURCHASE AGREEMENT
By and Among
West Coast Entertainment Corporation
and the Seller Identified
on Schedule I hereto
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TABLE OF CONTENTS
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Section Page
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1. Sale and Delivery of the Assets....................... 1
1.1 Delivery of the Assets.......................... 1
1.2 Further Assurances ............................. 3
1.3 Purchase Price.................................. 3
1.4 Assumption of Liabilities; Etc.................. 5
1.5 Allocation of Purchase Price and Assumed
Liabilities..................................... 6
1.6 The Closings.................................... 6
1.7 Restrictions on Transfer of Common Stock........ 6
2. Representations of the Seller......................... 6
2.1 Organization.................................... 6
2.2 Capitalization of the Seller and the
Subsidiaries.................................... 7
2.3 Authorization................................... 7
2.4 Ownership of the Assets......................... 8
2.5 Financial Statements............................ 8
2.6 Absence of Undisclosed Liabilities.............. 9
2.7 Litigation...................................... 9
2.8 Insurance....................................... 10
2.9 Inventory....................................... 10
2.10 Fixed Assets.................................... 10
2.11 Leases.......................................... 11
2.12 Change in Financial Condition and Assets........ 11
2.13 Tax Matters..................................... 12
2.14 Accounts Receivable............................. 13
2.15 Books and Records............................... 13
2.16 Contracts and Commitments....................... 13
2.17 Compliance with Agreements and Laws............. 15
2.18 Employee Relations.............................. 16
2.19 Absence of Certain Changes or Events............ 17
2.20 Suppliers....................................... 17
2.21 Prepayments and Deposits........................ 18
2.22 Trade Names and Other Intangible Property....... 18
2.23 Employee Benefit Plans.......................... 18
2.24 Regulatory Approvals............................ 19
2.25 Indebtedness to and from Officers, Directors
and Shareholders................................ 19
2.26 Powers of Attorney and Suretyships.............. 19
2.27 Disclosure...................................... 20
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Section Page
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3. Representations of the Buyer.......................... 20
3.1 Organization and Authority...................... 20
3.2 Capitalization of the Buyer..................... 20
3.3 Authorization................................... 20
3.4 Regulatory Approvals............................ 21
3.5 Disclosure...................................... 21
3.6 Buyer Financial Statements...................... 21
3.7 Issuance of Shares.............................. 21
4. Access to Information; Public Announcements........... 22
4.1 Access to Management, Properties and Records.... 22
4.2 Confidentiality................................. 22
5. Pre-Closing Covenants of the Seller................... 23
5.1 Conduct of Business............................. 23
5.2 Absence of Material Changes..................... 23
5.3 Taxes........................................... 25
5.4 Delivery of Interim Financial Statements ....... 25
5.5 Compliance with Laws............................ 25
5.6 Continued Truth of Representations
and Warranties of the Seller.................... 25
5.7 Continuing Obligation to Inform................. 25
5.8 Exclusive Dealing............................... 26
5.9 No Publicity.................................... 26
6. Satisfaction of Conditions............................ 26
7. Conditions to Obligations of the Buyer................ 26
7.1 Continued Truth of Representations
and Warranties of the Seller; Compliance with
Covenants and Obligations ...................... 26
7.2 Corporate Proceedings........................... 27
7.3 Governmental Approvals.......................... 27
7.4 Consents of Lenders, Lessors and Other
Third Parties................................... 27
7.5 Adverse Proceedings............................. 27
7.6 Opinion of Counsel.............................. 27
7.7 Board of Directors and Shareholder Approval..... 27
7.8 The Assets...................................... 27
7.9 Update.......................................... 27
7.10 Cash Available for Working Capital Purposes..... 28
7.11 Payables........................................ 28
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Section Page
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7.12 Engineer's Report............................... 28
7.13 Tax Lien Waivers................................ 28
7.14 Closing Deliveries.............................. 28
7.15 Retail Store Option Agreement................... 29
8. Conditions to Obligations of the Seller............... 29
8.1 Continued Truth of Representations and
Warranties of the Buyer; Compliance
with Covenants and Obligations.................. 30
8.2 Corporate Proceedings........................... 30
8.3 Governmental Approvals.......................... 30
8.4 Consents of Lenders, Lessors and Other
Third Parties................................... 30
8.5 Adverse Proceedings............................. 30
8.6 Opinion of Counsel.............................. 30
8.7 Closing Deliveries.............................. 31
8.8 Retail Store Option Agreement................... 31
9. Indemnification....................................... 31
9.1 By the Buyer and the Seller..................... 31
9.2 By the Seller................................... 32
9.3 Claims for Indemnification...................... 33
9.4 Defense by Indemnifying Party.................. 33
9.5 Payment of Indemnification Obligation........... 34
9.6 Survival of Representations; Claims for
Indemnification................................. 34
10. Post-Closing Agreements............................... 34
10.1 Proprietary Information......................... 34
10.2 No Solicitation or Hiring of Former Employees... 35
10.3 Non-Competition Agreement....................... 35
10.4 Sharing of Data................................. 36
10.5 Use of Name.................................... 36
10.6 Cooperation in Litigation....................... 37
10.7 License to Reel Video........................... 37
10.8 Conduct of Business............................. 37
10.9 Non-Compete Agreement with Xxxxxxx Xxxxx........ 37
10.10 Confidentiality Agreements...................... 37
11. Termination of Agreement.............................. 37
11.1 Termination by Agreement of the Parties........ 37
11.2 Termination by Reason of Breach................ 38
12. Transfer and Sales Tax................................ 38
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Section Page
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13. Brokers............................................... 38
13.1 For the Seller.................................. 38
13.2 For the Buyer................................... 38
14. Notices............................................... 38
15. Arbitration........................................... 39
16. Successors and Assigns................................ 40
17. Entire Agreement; Amendments; Attachments............. 40
18. Expenses.............................................. 40
19. Legal Fees............................................ 40
20. Governing Law......................................... 41
21. Section Headings...................................... 41
22. Severability.......................................... 41
23. Counterparts......................................... 41
Exhibits
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A - Instrument of Assumption of Liabilities
B - Opinion of Counsel to Seller
C - Xxxx of Sale
D - Opinion of Xxxx and Xxxx
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ASSET PURCHASE AGREEMENT
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Agreement made as of October __, 1996 by and among West Coast
Entertainment Corporation, a Delaware corporation with its
principal office at 0000 Xxxxxx Xxxx, Xxxxxxxxxxxx, Xxxxxxxxxxxx
00000 (the "Buyer"), the Seller identified on SCHEDULE I attached
hereto, which has as its principal office the location identified
on SCHEDULE I attached hereto (the "Seller"), and those persons
identified as "Principals" on SCHEDULE I attached hereto
(individually, a "Principal" and collectively, the "Principals").
Preliminary Statement
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The Buyer desires to purchase, and the Seller desires to
sell, substantially all of the assets and business of the Seller
related to the four stores identified on SCHEDULE I attached
hereto (each, a "Store"), for the consideration set forth below
and the assumption of certain of the Seller's liabilities set
forth below, subject to the terms and conditions of this
Agreement.
NOW, THEREFORE, in consideration of the mutual promises
hereinafter set forth and other good and valuable consideration,
the receipt of which is hereby acknowledged, the parties hereby
agree as follows:
1. Sale and Delivery of the Assets
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1.1 Delivery of the Assets.
----------------------
(a) Subject to and upon the terms and conditions
of this Agreement, at each of the four closings of the
transactions contemplated by this Agreement (each, a "Closing"),
the Seller shall sell, transfer, convey, assign and deliver to the
Buyer, and the Buyer shall purchase from the Seller, the following
properties, assets and other claims, rights and interests related
to the Store acquired by the Buyer at each such Closing:
(i) all inventories, videotapes, finished
goods, office supplies, maintenance supplies, packaging materials
and similar items of the Seller (collectively, the "Inventory")
which exist on the Closing Date (as defined below);
(ii) all accounts, accounts receivable, notes
and notes receivable existing on the Closing Date which are
payable to the Seller, including any security held by the Seller
for the payment thereof (the "Accounts Receivable");
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(iii) all prepaid expenses, deposits and other
similar assets of the Seller existing on the Closing Date;
(iv) all rights of the Seller under the
contracts, agreements, leases, licenses and other instruments set
forth on SCHEDULE 2.16 attached hereto, but not including such
rights under contracts, agreements, leases, licenses and other
instruments set forth on SCHEDULE 1.1 (collectively, the "Contract
Rights");
(v) copies of all books, records and
accounts, correspondence, manuals, customer lists, employment
records, studies, reports or summaries relating to or arising out
of the business of the Seller;
(vi) all rights of the Seller under express or
implied warranties from the suppliers of the Seller;
(vii) all of the machinery, equipment,
furniture, leasehold improvements and construction in progress
owned by the Seller on the Closing Date whether or not reflected
as capital assets in the accounting records of the Seller
(collectively, the "Fixed Assets");
(viii) all of the Seller's right, title and
interest in and to all intangible property rights, including but
not limited to inventions, discoveries, trade secrets, processes,
formulas, know-how, United States and foreign patents, patent
applications, trade names, including the trade names (if any)
identified on SCHEDULE I attached hereto or any derivation
thereof, trademarks, trademark registrations, applications for
trademark registrations, copyrights, copyright registrations,
owned or, where not owned, used by the Seller in its business and
all licenses and other agreements to which the Seller is a party
(as licensor or licensee) or by which the Seller is bound relating
to any of the foregoing kinds of property or rights to any "know-
how" or disclosure or use of ideas (collectively, the "Intangible
Property"); and
(ix) except as specifically provided in
Subsection 1.1(b) hereof, all other assets, properties, claims,
rights and interests of the Seller which exist on the Closing
Date, of every kind and nature and description, whether tangible
or intangible, real, personal or mixed.
(b) Notwithstanding the provisions of
paragraph (a) above, the assets to be transferred to the Buyer
under this Agreement shall not include those assets listed on
SCHEDULE 1.1 attached hereto (the "Excluded Assets").
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(c) The Inventory, Accounts Receivable, Contract
Rights, Fixed Assets, Intangible Property and other properties,
assets and business of the Seller with respect to each Store
described in paragraph (a) above, other than the Excluded Assets,
shall be referred to collectively as the "Assets."
1.2 FURTHER ASSURANCES. At any time and from time to
time after a Closing, at the Buyer's request and without further
consideration, the Seller promptly shall execute and deliver such
instruments of sale, transfer, conveyance, assignment and
confirmation, and take such other action, as the Buyer may
reasonably request to more effectively transfer, convey and assign
to the Buyer, and to confirm the Buyer's title to, all of the
Assets, to put the Buyer in actual possession and operating
control thereof, to assist the Buyer in exercising all rights with
respect thereto and to carry out the purpose and intent of this
Agreement.
1.3 Purchase Price.
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(a) The "Purchase Price" for the assets to be
acquired at each Closing shall be $425,000. The parties
acknowledge and agree that the sum of the Purchase Price payable
for the four Stores was determined as a multiple of the projected
Net Operating Cash Flow (as defined below). The Purchase Price
shall be subject to a post-Closing adjustment as provided in
Subsection 1.3(d) below. The Total Purchase Price for all four
Stores shall be $1,700,000.
(b) The Purchase Price at each Closing shall be
payable by (i) the payment to the Seller of a minimum $300,000 in
cash or by certified check or by wire transfer to an account
designated by the Seller and (ii) the issuance in the name of the
Seller of that number of shares of Common Stock, $.01 par value
per share, of the Buyer ("Common Stock") determined by dividing
the balance of the Purchase Price by the Market Value of a share
of Common Stock. The Buyer at its option may elect to pay up to
the total amount of the Purchase Price in cash or by certified
check or wire transfer. The "Market Value" of a share of Common
Stock shall equal the average of the closing price of a share of
Common Stock on the Nasdaq National Market for the 15 trading days
ending on the third business day prior to the Closing. The shares
of Common Stock issuable hereunder shall be registered under the
Securities Act of 1933, as amended, pursuant to a Registration
Statement filed with the Securities and Exchange Commission.
(c) For purposes hereof "Net Operating Cash Flow"
shall be equal to the pre-tax income from the Stores for the 12-
month period ending on September 30, 1997, plus all debt-related
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interest expense proportionately allocable to the Stores and
depreciation and amortization expenses proportionately allocable
to the Stores for such 12-month period, less all rental product
purchases proportionately allocable to the Stores during such 12-
month period (including revenue sharing expenses if not previously
expensed), less all earned income interest proportionately
allocable to the Stores for such 12-month period, plus all royalty
expenses attributable to such stores during such 12-month period
(if expensed), with such components of Net Operating Cash Flow
determined in accordance with generally accepted accounting
principles applied consistently with Seller's past practices.
(d) Promptly following September 30, 1997, the
Buyer shall cause independent certified public accountants for the
Buyer (the "Accountants") to review the books and records of the
acquired Stores for the 12 month period ending September 30, 1997.
On or before December 31, 1997, the Buyer shall cause the
Accountants to deliver a statement setting forth the Net Operating
Cash Flow for the Stores to each of the Buyer and the Seller (the
"Accountants' Report).
In the event that the Buyer or the Seller dispute the
calculation of the Net Operating Cash Flow, the disputing party
shall notify the other parties hereto in writing (the "Dispute
Notice") of the amount, nature and basis of such dispute, within
10 calendar days after delivery of the Accountants' Report. In
the event of such a dispute, the parties hereto shall first use
their best efforts to resolve such dispute among themselves. If
the parties are unable to resolve the dispute within 10 business
days after delivery of the Accountants' Report, the dispute shall
be submitted to the Accountants and ___________, independent
accountants for the Seller ("Seller's Accountants"), for
resolution. The Accountants and Seller's Accountants shall use
their best efforts to resolve the dispute within 10 business days
after submission to the Accountants and the Seller's Accountants.
If the Accountants and the Seller's Accountants are unable to
agree upon a resolution of the dispute within such 10-business day
period, the dispute shall be submitted to independent accountants
selected jointly by the Accountants and the Seller's Accountants
(the "Independent Accountants"). The Independent Accountants
shall resolve the dispute within 15 business days after submission
and such resolution shall be final and binding upon the parties,
may be entered in any court having jurisdiction and shall not be
appealable by either party in any court.
The fees and expenses of the Accountants in connection with
the preparation of the Accountants' Report and the resolution of
disputes pursuant to the preceding paragraph shall be borne by the
Buyer and the fees and expenses of Seller's Accountants in
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connection with the resolution of disputes pursuant to the
preceding paragraph shall be borne by the Seller. The fees and
expenses of the Independent Accountants shall be shared equally by
the Buyer and Seller.
Immediately upon the expiration of the 10-business day period
for giving the Dispute Notice, if no Dispute Notice is given, or
immediately upon the resolution of disputes, if any, as provided
above, the Cash Flow Adjustment shall be determined, as provided
below.
A Cash Flow Adjustment for Buyer shall occur only if the Net
Operating Cash Flow for the 12-month period ending September 30,
1997, as determined by the Accountants (the "1997 Cash Flow") is
less than $377,778. A Cash Flow Adjustment for Buyer shall result
in a reduction in the purchase price for the first Tranche of
Stores (as defined in the Retail Store Option Agreement described
below) to be acquired by Buyer from Seller pursuant to the Retail
Store Option Agreement between the Buyer and the Seller of even
date herewith by an amount determined as follows:
Total Purchase Price - Total Purchase Price x 1997 Cash Flow
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$377,778
A Cash Flow Adjustment for Seller shall occur only if the
1997 Cash Flow is more than $377,778. A Cash Flow Adjustment for
Seller shall result in an increase in the purchase price for the
first Tranche of Stores acquired by Buyer from Seller pursuant to
the Retail Store Option Agreement by an amount determined as
follows:
Total Purchase Price x 1997 Cash Flow - Total Purchase Price
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$377,778
1.4 Assumption of Liabilities; Etc.
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(a) At each Closing, the Buyer shall execute and
deliver an Instrument of Assumption of Liabilities (the
"Instrument of Assumption") substantially in the form attached
hereto as EXHIBIT A, pursuant to which it shall assume and agree
to perform, pay and discharge the liabilities, obligations and
commitments of the Seller related to the Store being acquired at
each such Closing (the "Assumed Liabilities") set forth on
SCHEDULE I.
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(b) The Buyer shall not at the Closing assume or
agree to perform, pay or discharge, and the Seller shall remain
unconditionally liable for, all obligations, liabilities and
commitments, fixed or contingent, of the Seller other than the
Assumed Liabilities.
1.5 ALLOCATION OF PURCHASE PRICE AND ASSUMED
LIABILITIES. The aggregate amount of the Purchase Price and the
Assumed Liabilities shall be allocated among the Assets using the
book value of the Assets, with the balance allocated to goodwill.
1.6 THE CLOSINGS. Each Closing shall take place at the
offices of Xxxx and Xxxx, 00 Xxxxx Xxxxxx, Xxxxxx, Xxxxxxxxxxxxx
00000, on the dates set forth on SCHEDULE I or on such other dates
mutually agreeable to the Buyer and Seller (each, a "Closing
Date"). The transfer by the Seller to the Buyer of the Assets
related to the Store being acquired at each such Closing (as set
forth on SCHEDULE I) shall be deemed to occur at 9:00 a.m., Boston
time, on the applicable Closing Date.
1.7 RESTRICTIONS ON TRANSFER OF COMMON STOCK. Each of
the Seller and the Principals hereby confirm, covenant and agree
that, without the prior written consent of the Buyer, it, she or
he will not, directly or indirectly, sell, offer to sell, contract
to sell, pledge, grant any option for the sale of, or otherwise
dispose of, any shares of Common Stock issued or issuable to
Seller or the Principals hereunder during the following periods:
(i) the six-month period following the first Closing with respect
to the shares of Common Stock issued at such Closing; (ii) the
three-month period following the second Closing with respect to
the shares of Common Stock issued at such Closing; (iii) the six-
month period following the third Closing with respect to the
shares of Common Stock issued at such Closing; and (iv) the
three-month period following the fourth Closing with respect to
the shares of Common Stock issued at such Closing.
2. Representations of the Seller
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The Seller represents and warrants to the Buyer as follows:
2.1 ORGANIZATION. The Seller is a corporation duly
organized, validly existing and in good standing under the laws of
the state of its incorporation, and has all requisite power and
authority (corporate and other) to own its properties, to carry on
its business as now being conducted, to execute and deliver this
Agreement and the agreements contemplated herein, and to
consummate the transactions contemplated hereby. SCHEDULE 2.2
attached hereto constitute a true, correct and complete list of
all corporate, partnership, joint venture and other entities in
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which the Seller holds, directly or indirectly, a 50% or greater
interest. Each of the Subsidiaries is a corporation or other
entity duly organized, validly existing and in good standing under
the laws of the state of its incorporation or organization and has
all requisite power and authority to own its properties and to
carry on its business as now being conducted. The Seller and the
Subsidiaries are each duly qualified to do business and in good
standing in all jurisdictions in which their ownership of property
or the character of their business requires such qualification.
Certified copies of the charter, bylaws and other governing
instruments of each of the Seller and the Subsidiaries, each as
amended to date, have been previously delivered to the Buyer, are
complete and correct, and no amendments have been made thereto or
have been authorized since the date thereof. The Seller does not
own any capital stock of or other equity interest in any
corporation, partnership or other entity, other than the
Subsidiaries. SCHEDULE 2.1 sets forth a list of each retail video
rental store (including the location of each such store and the
name and address of all owners (if not Seller) of each such store)
owned, operated or licensed directly or indirectly by the Seller.
2.2 CAPITALIZATION OF THE SELLER AND THE SUBSIDIARIES.
The Seller's authorized capital stock is as specified on
SCHEDULE I attached hereto. There are issued and outstanding the
number of shares of capital stock of the Seller as are specified
on SCHEDULE 2.2 attached hereto, which shares are held of record
and beneficially by the stockholders listed on SCHEDULE 2.2
attached hereto. All of such shares have been duly and validly
issued and are fully paid and nonassessable. The authorized
capital stock of the Subsidiaries is as set forth on SCHEDULE 2.2
attached hereto, and all of the issued and outstanding shares of
capital stock of each of the Subsidiaries is specified on SCHEDULE
2.2, and all of such issued and outstanding shares are owned
beneficially and of record by the Seller. All of such shares have
been duly and validly issued, and are fully paid and
nonassessable.
2.3 AUTHORIZATION. The execution and delivery of this
Agreement by the Seller, and the agreements provided for herein,
and the consummation by the Seller of all transactions
contemplated hereby, have been duly authorized by all requisite
corporate and shareholder action. This Agreement and all such
other agreements and obligations entered into and undertaken in
connection with the transactions contemplated hereby to which the
Seller is a party constitute the valid and legally binding
obligations of the Seller, enforceable against the Seller in
accordance with their respective terms. The execution, delivery
and performance by the Seller of this Agreement and the agreements
provided for herein, and the consummation by the Seller of the
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transactions contemplated hereby and thereby, will not, with or
without the giving of notice or the passage of time or both, (a)
violate the provisions of any law, rule or regulation applicable
to the Seller; (b) violate the provisions of the charter or Bylaws
of the Seller; (c) violate any judgment, decree, order or award of
any court, governmental body or arbitrator; or (d) conflict with
or result in the breach or termination of any term or provision
of, or constitute a default under, or cause any acceleration
under, or cause the creation of any lien, charge or encumbrance
upon the properties or assets of the Seller pursuant to, any
indenture, mortgage, deed of trust or other instrument or
agreement to which the Seller is a party or by which the Seller or
any of its properties is or may be bound. SCHEDULE 2.3 attached
hereto sets forth a true, correct and complete list of all
consents and approvals of third parties that are required in
connection with the consummation by the Seller of the transactions
contemplated by this Agreement.
2.4 OWNERSHIP OF THE ASSETS. SCHEDULE 2.4(i) attached
hereto sets forth a true, correct and complete list of all claims,
liabilities, liens, pledges, charges, encumbrances and equities of
any kind affecting the Assets (collectively, the "Encumbrances").
The Seller is, and at each Closing will be, the true and lawful
owner of the Assets, and will have the right to sell and transfer
to the Buyer good, clear, record and marketable title to the
Assets with respect to the Store being acquired by the Buyer at
such Closing, free and clear of all Encumbrances of any kind,
except as set forth on SCHEDULE 2.4(ii) attached hereto (the
"Permitted Encumbrances"). The delivery to the Buyer of the
instruments of transfer of ownership contemplated by this
Agreement will vest good and marketable title to such Assets in
the Buyer, free and clear of all liens, mortgages, pledges,
security interests, restrictions, prior assignments, encumbrances
and claims of any kind or nature whatsoever, except for the
Permitted Encumbrances.
2.5 Financial Statements.
--------------------
[(a) Except as otherwise set forth on SCHEDULE 2.5,
the Seller has previously delivered to the Buyer its combined
unaudited balance sheet as of August 31, 1996 (the "Unaudited
Balance Sheet") and the related statements of income,
shareholders' equity, retained earnings and changes in financial
condition of the Seller for the period from incorporation of the
Seller until August 31, 1996 (collectively, including the
Unaudited Balance Sheets, the "Unaudited Financial Statements").
The Unaudited Financial Statements and the interim financial
statements (the "Interim Financial Statements") to be delivered
pursuant to Subsection 5.4 hereof (collectively, the "Financial
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Statements") have been, or will be, prepared in accordance with
generally accepted accounting principles applied consistently with
past practice and have been, or will be, certified by the Seller's
independent public accountants.
(b) The Financial Statements fairly present, as of
their respective dates, the financial condition, retained
earnings, assets and liabilities of the Seller and the results of
operations of the Seller's business for the periods indicated;
with respect to the contracts and commitments for the sale of
goods or the provision of services by the Seller, the Financial
Statements contain and reflect adequate reserves, which are
consistent with previous reserves taken, for all reasonably
anticipated material losses and costs and expenses; and the
amounts shown as accrued for current and deferred income and other
taxes in the Financial Statements are sufficient for the payment
of all accrued and unpaid federal, state and local income taxes,
interest, penalties, assessments or deficiencies applicable to the
Seller, whether disputed or not, for the applicable period then
ended and periods prior thereto.
2.6 ABSENCE OF UNDISCLOSED LIABILITIES. Except as and
to the extent set forth on SCHEDULE 2.6 attached hereto, either
individually or in the aggregate, the Seller does not have any
material liability or obligation, secured or unsecured, affecting
the Assets, whether accrued, absolute, contingent, or, to Seller's
best knowledge, unasserted or otherwise. Notwithstanding the
above, to the best of the Seller's knowledge, the Seller does not
have any liability or obligation arising out of the violation of
any environmental laws, rules or regulations or the storage or
disposal of hazardous waste. For purposes of this Subsection 2.6,
"material" means any amount in excess of $10,000.
2.7 LITIGATION. Except as set forth on SCHEDULE 2.7
attached hereto, the Seller is not a party to, or to the Seller's
best knowledge threatened with, and none of the Assets are subject
to, any litigation, suit, action, investigation, proceeding or
controversy before any court, administrative agency or other
governmental authority relating to or affecting the Assets or the
business or condition (financial or otherwise) of the Seller. The
Seller is not in violation of or in default with respect to any
judgment, order, writ or injunction of any court, administrative
agency or governmental authority or any regulation of any
administrative agency or governmental authority.
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2.8 INSURANCE. SCHEDULE 2.8 attached hereto sets forth
a true, correct and complete list of all fire, theft, casualty,
general liability, workers compensation, business interruption,
environmental impairment, product liability, automobile and other
insurance policies insuring the Assets or business of the Seller
and of all life insurance policies maintained for any of its
employees, specifying the type of coverage, the amount of
coverage, the premium, the insurer and the expiration date of each
such policy (collectively, the "Insurance Policies") and all
claims made under such Insurance Policies. True, correct and
complete copies of all of the Insurance Policies have been
previously delivered by the Seller to the Buyer. The Insurance
Policies are in full force and effect and are in amounts and of a
nature which are adequate and customary for the Seller's business.
All premiums due on the Insurance Policies or renewals thereof
have been paid and there is no default under any of the Insurance
Policies.
2.9 INVENTORY. SCHEDULE 2.9 attached hereto sets forth
a true, correct and complete list of the Inventory as of the date
hereof, including a description and the book value thereof.
SCHEDULE 2.9, as updated pursuant to Subsection 7.9 hereof, shall
set forth a true, correct and complete list of the Inventory as of
the Closing Date, including a description and valuation thereof.
Such Inventory consists of items of a quality and quantity which
are usable or saleable without discount in the ordinary course of
the business conducted by the Seller. The value of all items of
obsolete materials and of materials of below standard quality has
been written down to realizable market value, and the values at
which such Inventory is carried reflect the normal inventory
valuation policy of the Seller of stating the Inventory at the
lower of cost or market value in accordance with generally
accepted accounting principles.
2.10 FIXED ASSETS. SCHEDULE 2.10 attached hereto sets
forth a true, correct and complete list of all Fixed Assets as of
the date hereof, including a description and the book value
thereof. SCHEDULE 2.10, as updated pursuant to Subsection 7.9
hereof, shall set forth a true, correct and complete list of all
Fixed Assets as of the Closing Date, including a description and
valuation thereof. All of the Fixed Assets are in good operating
condition and repair, normal wear and tear excepted, are currently
used by the Seller in the ordinary course of business and in the
production of products of the Seller and normal maintenance has
been consistently performed with respect to such Fixed Assets.
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2.11 LEASES. SCHEDULE 2.11 attached hereto sets forth a
true, correct and complete list as of the date hereof of all
leases of real property, identifying separately each ground lease
for a Store, to which the Seller is a party (the "Leases"). True,
correct and complete copies of the Leases, and all amendments,
modifications and supplemental agreements thereto, have previously
been delivered by the Seller to the Buyer. The Leases for the
Stores are in full force and effect, are binding and enforceable
against each of the parties thereto in accordance with their
respective terms and, except as set forth on SCHEDULE 2.11, have
not been modified or amended since the date of delivery to the
Buyer. No party to any Lease for a Store has sent written notice
to the other claiming that such party is in default thereunder,
which remains uncured. Except as set forth on SCHEDULE 2.11
attached hereto, there has not occurred any event which would
constitute a breach of or default in the performance of any
material covenant, agreement or condition contained in any Lease
for a Store, nor has there occurred any event which with the
passage of time or the giving of notice or both would constitute
such a breach or material default. The Seller is not obligated to
pay any leasing or brokerage commission relating to any Lease for
a Store and, except as set forth on SCHEDULE 2.11 attached hereto,
will not have any enforceable obligation to pay any leasing or
brokerage commission upon the renewal of any Lease for a Store.
No material construction, alteration or other leasehold
improvement work with respect to any of the Leases for the Stores
remains to be paid for or to be performed by the Seller. The
Financial Statements contain adequate reserves to provide for the
restoration of the properties subject to the Leases for the Stores
at the end of the respective Lease terms, to the extent required
by such Leases.
2.12 CHANGE IN FINANCIAL CONDITION AND ASSETS. Except
as set forth on SCHEDULE 2.12 attached hereto, since August 31,
1996 (the "Balance Sheet Date"), there has been no change which
materially and adversely affects the business, properties, assets,
condition (financial or otherwise) or prospects of the Seller.
The Seller has no knowledge of any existing or threatened
occurrence, event or development which, as far as can be
reasonably foreseen, could have a material adverse effect on the
Seller or its business, properties, assets, condition (financial
or otherwise) or prospects.
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2.13 Tax Matters.
-----------
(a) Except as set forth on SCHEDULE 2.13 to this
Agreement:
(i) Within the times and in the manner
prescribed by law, the Seller has filed all Returns which are
required to be filed;
(ii) With respect to all amounts in respect of
Taxes imposed upon the Seller for which it could be liable,
whether to Taxing Authorities (as, for example, under law) or to
other persons or entities (as, for example, under Tax allocation
agreements), with respect to all taxable periods or portions of
taxable periods ending on or before the Closing Date, all
applicable tax laws and agreements have been fully complied with,
and all such amounts required to be paid by the Seller to Taxing
Authorities or others on or before the date hereof have been paid.
(iii) All Returns filed by the Seller
constitute complete and accurate representations of the respective
Tax liabilities of, or attributable to, the Seller for such years;
(iv) No examination of the Returns of the
Seller is currently in progress nor, to the best knowledge of the
Seller, threatened and no unresolved deficiencies have been
asserted or assessed against the Seller as a result of any audit
by any Taxing Authority and no such deficiency has been proposed
or threatened;
(v) There are no liens for Taxes (other than
for current Taxes not yet due and payable) upon the assets of the
Seller;
(vi) The Seller is not a person other than a
United States person within the meaning of the Code;
(b) For purposes of this Section 2.13: "Return"
means any return, declaration, report, statement or other document
required to be filed in respect of any Tax; "Tax" or "Taxes" means
any federal, state, local, foreign and other net income, gross
income, gross receipts, sales, use, ad valorem, transfer,
franchise, profits, license, lease, service, service use,
withholding, payroll, employment, excise, severance, stamp,
occupation, premium, property, windfall profits, customs duty or
other tax, fee, assessment or charge of any kind whatever,
together with interest and any penalty, addition to tax or ad-
ditional amount with respect thereto; "Taxing Authority" means any
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governmental authority responsible for the imposition of Taxes;
and "Code" means the Internal Revenue Code of 1986, as amended.
2.14 ACCOUNTS RECEIVABLE. SCHEDULE 2.14 attached hereto
sets forth the list of all Accounts Receivable, including an aging
thereof, as reasonably reflected in the records of the Seller as
of the Balance Sheet Date. SCHEDULE 2.14, as updated pursuant to
Subsection 7.9 hereof, shall set forth a list of the Accounts
Receivable as, or within five days, of the Closing Date, including
an aging thereof, as reflected in the records of the Seller. All
Accounts Receivable arose out of the sales or rentals of inventory
or services in the ordinary course of business.
2.15 BOOKS AND RECORDS. The general ledgers and books
of account of the Seller, all federal, state and local income,
franchise, property and other tax returns filed by the Seller,
with respect to the Assets, and all other books and records of the
Seller are in all material respects complete and correct and have
been maintained in accordance with good business practice and in
accordance with all applicable procedures required by laws and
regulations.
2.16 Contracts and Commitments.
-------------------------
(a) SCHEDULE 2.16 attached hereto contains a true,
complete and correct list and description of the following
contracts and agreements, whether written or oral (collectively,
the "Contracts"):
(i) all loan agreements, indentures,
mortgages and guaranties to which the Seller is a party or by
which the Seller or any of its property is bound;
(ii) all pledges, conditional sale or title
retention agreements, security agreements, equipment obligations,
personal property leases and lease purchase agreements relating to
any of the Assets to which the Seller is a party or by which the
Seller or any of its property is bound;
(iii) all contracts, agreements, commitments,
purchase orders or other understandings or arrangements to which
the Seller is a party or by which the Seller or any of its
property is bound which (A) involve payments or receipts by the
Seller of more than $2,000 in the case of any single contract,
agreement, commitment, understanding or arrangement under which
full performance (including payment) has not been rendered by all
parties thereto or (B) which may materially adversely affect the
condition (financial or otherwise) or the properties, assets,
business or prospects of the Seller;
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(iv) all collective bargaining agreements,
employment and consulting agreements, executive compensation
plans, bonus plans, deferred compensation agreements, pension
plans, retirement plans, employee stock option or stock purchase
plans and group life, health and accident insurance and other
employee benefit plans, agreements, arrangements or commitments to
which the Seller is a party or by which the Seller or any of its
property is bound;
(v) all agency, distributor, sales
representative and similar agreements to which the Seller is a
party;
(vi) all contracts, agreements or other
understandings or arrangements between the Seller any stockholder
or Affiliate of the Seller;
(vii) all leases, whether operating, capital or
otherwise, under which the Seller is lessor or lessee; and
(viii) any other material agreement or contract
entered into by the Seller.
(b) Except as set forth on SCHEDULE 2.16 attached
hereto:
(i) each Contract is a valid and binding
agreement of the Seller, enforceable against the Seller in
accordance with its terms, and the Seller does not have any
knowledge that any Contract is not a valid and binding agreement
of the other parties thereto;
(ii) the Seller has fulfilled all material
obligations required pursuant to the Contracts to have been
performed by the Seller on its part prior to the date hereof, and
the Seller has no reason to believe that it will not be able to
fulfill, when due, all of its obligations under the Contracts
which remain to be performed after the date hereof;
(iii) the Seller is not in breach of or default
under any Contract, and no event has occurred which with the
passage of time or giving of notice or both would constitute such
a default, result in a loss of rights or result in the creation of
any lien, charge or encumbrance, thereunder or pursuant thereto;
(iv) to the best knowledge of the Seller,
there is no existing breach or default by any other party to any
Contract, and no event has occurred which with the passage of time
or giving of notice or both would constitute a default by such
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other party, result in a loss of rights or result in the creation
of any lien, charge or encumbrance thereunder or pursuant thereto;
(v) the Seller is not restricted by any
Contract from carrying on its business anywhere in the world; and
(vi) the Seller has no written or oral
Contracts to sell products or perform services which are expected
to be performed at, or to result in, a loss.
(c) Except as set forth on SCHEDULE 2.3 or
SCHEDULE 2.16, the continuation, validity and effectiveness of
each Contract will not be affected by the transfer thereof to
Buyer under this Agreement and all such Contracts are assignable
to Buyer without a consent.
(d) True, correct and complete copies of all
Contracts have previously been delivered by the Seller to the
Buyer.
2.17 COMPLIANCE WITH AGREEMENTS AND LAWS. The Seller
has all requisite licenses, permits and certificates, including
environmental, health and safety permits, from federal, state and
local authorities necessary to conduct its business and own and
operate its assets (collectively, the "Permits"). SCHEDULE 2.17
attached hereto sets forth a true, correct and complete list of
all such Permits, copies of which have previously been delivered
by the Seller to the Buyer. The Seller is not in violation of any
law, regulation or ordinance (including, without limitation, laws,
regulations or ordinances relating to building, zoning,
environmental, disposal of hazardous substances, land use or
similar matters) relating to its properties, the violation of
which could have a material adverse effect on the Seller or its
properties. The business of the Seller does not violate, in any
material respect, any federal, state, local or foreign laws,
regulations or orders (including, but not limited to, any of the
foregoing relating to employment discrimination, occupational
safety, environmental protection, hazardous waste (as defined in
the Resource Conservation and Recovery Act, as amended, and the
regulations adopted pursuant thereto), conservation, or corrupt
practices, the enforcement of which would have a material and
adverse effect on the results of operations, condition (financial
or otherwise), assets, properties, business or prospects of the
Seller. Except as set forth on SCHEDULE 2.17 attached hereto, the
Seller has not since January 1, 1993 received any notice or
communication from any federal, state or local governmental or
regulatory authority or otherwise of any such violation or
noncompliance.
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2.18 Employee Relations.
------------------
(a) The Seller is in compliance with all federal,
state and municipal laws respecting employment and employment
practices, terms and conditions of employment, and wages and
hours, and is not engaged in any unfair labor practice, and there
are no arrears in the payment of wages or social security taxes.
(b) Except as set forth on SCHEDULE 2.18 attached
hereto:
(i) none of the employees of the Seller is
represented by any labor union;
(ii) there is no unfair labor practice
complaint against the Seller pending before the National Labor
Relations Board or any state or local agency;
(iii) there is no pending labor strike or other
material labor trouble affecting the Seller (including, without
limitation, any organizational drive);
(iv) there is no material labor grievance
pending against the Seller;
(v) there is no pending representation
question respecting the employees of the Seller; and
(vi) there are no pending arbitration
proceedings arising out of or under any collective bargaining
agreement to which the Seller is a party, or to the best knowledge
of the Seller, any basis for which a claim may be made under any
collective bargaining agreement to which the Seller is a party.
(c) SCHEDULE 2.18 attached hereto sets forth a
true, correct and complete list of (a) the employee benefits
provided by the Seller to its employees and all contracts or
agreements between the Seller and its employees, and (b) the
Seller's current payroll, including the job descriptions and
salary or wage rates of each of its employees, showing separately
for each such person who received an annual salary in excess of
$20,000 the amounts paid or payable as salary and bonus payments
for Seller's most recently completed full fiscal year.
(d) For purposes of this Subsection 2.18, the term
"employee" shall be construed to include sales agents and other
independent contractors who spend a majority of their working time
on the Seller's business.
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2.19 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as
set forth on SCHEDULE 2.19 attached hereto, since the Balance
Sheet Date, the Seller has not entered into any transaction
affecting the Stores which is not in the usual and ordinary course
of business, and, without limiting the generality of the
foregoing, the Seller has not:
(a) Incurred any material obligation or liability
for borrowed money;
(b) Discharged or satisfied any lien or
encumbrance or paid any obligation or liability other than current
liabilities reflected in the Unaudited Balance Sheet;
(c) Mortgaged, pledged or subjected to lien,
charge or other encumbrance any of the Assets;
(d) Sold or purchased, assigned or transferred any
of its tangible assets or cancelled any debts or claims, except
for inventory sold and raw materials purchased in the ordinary
course of business;
(e) Made any material amendment to or termination
of any Contract or done any act or omitted to do any act which
would cause the breach of any Contract;
(f) Suffered any losses, whether insured or
uninsured, and whether or not in the control of the Seller, in
excess of $5,000 in the aggregate, or waived any rights of any
value;
(g) Made any changes in compensation of its
officers, directors or employees other than hourly wage increases
made prior to the closing in the ordinary course of business;
(h) Received notice of any litigation, warranty
claim or products liability claims; or
(i) Made any material change in the terms, status
or funding condition of any Employee Plan, as defined in
Subsection 2.23 hereof.
2.20 SUPPLIERS. SCHEDULE 2.20 attached hereto sets
forth a true, correct and complete list of the names and addresses
of the six suppliers of the Seller which accounted for the largest
dollar volume of purchases by the Seller for its most recently
completed fiscal year. None of such suppliers has notified the
Seller that it intends to discontinue its relationship with the
Seller.
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2.21 PREPAYMENTS AND DEPOSITS. SCHEDULE 2.21 attached
hereto sets forth all prepayments or deposits from customers for
products to be shipped, or services to be performed, after the
Closing Date which have been received by the Seller as of the date
hereof.
2.22 Trade Names and Other Intangible Property.
-----------------------------------------
(a) SCHEDULE 2.22 attached hereto sets forth a
true, correct and complete list and, where appropriate, a
description of, all Intangible Property. True, correct and
complete copies of all licenses and other agreements relating to
the Intangible Property have been previously delivered by the
Seller to the Buyer.
(b) Except as otherwise disclosed in SCHEDULE 2.22
attached hereto, the Seller is the sole and exclusive owner of all
Intangible Property and all designs, permits, labels and packages
used on or in connection therewith. The Intangible Property owned
by the Seller is sufficient to conduct the Seller's business as
presently conducted and, when transferred to the Buyer pursuant to
this Agreement, will be sufficient to permit the Buyer to conduct
the business of the Seller as presently conducted by the Seller.
The Seller has received no notice of, and has no knowledge of any
basis for, a claim against it that any of its operations,
activities, products or publications infringes on any patent,
trademark, trade name, copyright or other property right of a
third party, or that it is illegally or otherwise using the trade
secrets, formulae or any property rights of others. The Seller
has no disputes with or claims against any third party for
infringement by such third party of any trade name or other
Intangible Property of the Seller. The Seller has taken all steps
reasonably necessary to protect its right, title and interest in
and to the Intangible Property.
2.23 Employee Benefit Plans.
----------------------
(a) Except as set forth on SCHEDULE 2.23, the
Seller does not now have or otherwise contribute to or participate
in, and has not in the past had or otherwise contributed to, any
employee benefit plan subject to the Employee Retirement Income
Security Act of 1974.
(b) The Buyer assumes no liabilities with respect
to any employee benefit plan which liability relates to any period
prior to the Closing Date, including, without limitation, any
taxes, accrued vacation or sick pay (whether or not vested),
accrued vacation, sick and personal leaves, employee policies,
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employee benefit claims or liability to the Pension Benefit
Guaranty Corporation.
(c) EMPLOYEE PLANS. SCHEDULE 2.23 attached hereto
contains a true, correct and complete list of all pension,
benefit, profit sharing, retirement, deferred compensation,
welfare, insurance, disability, bonus, vacation pay, severance pay
and other similar plans, programs and agreements, whether reduced
to writing or not, relating to the Seller's employees, or
maintained at any time since January 1, 1992 by the Seller or by
any other member of any controlled group of corporations, group of
trades or businesses under common control, or affiliated service
group (as defined for purposes of Section 414(b), (c) and (m),
respectively, of the Code) (the "Employee Plans") and, except as
set forth on SCHEDULE 2.23 attached hereto, the Seller has no
obligations, contingent or otherwise, past or present, under
applicable law or the terms of any Employee Plan.
2.24 REGULATORY APPROVALS. All consents, approvals,
authorizations and other requirements prescribed by any law, rule
or regulation which must be obtained or satisfied by the Seller
and which are necessary for the execution and delivery by the
Seller of this Agreement and the documents to be executed and
delivered by the Seller in connection herewith are set forth on
SCHEDULE 2.24 attached hereto and have been, or will be prior to
the Closing Date, obtained and satisfied.
2.25 INDEBTEDNESS TO AND FROM OFFICERS, DIRECTORS AND
SHAREHOLDERS. Except as set forth on SCHEDULE 2.25 attached
hereto, the Seller is not indebted, directly or indirectly, to any
person who is an officer, director or shareholder of the Seller or
any affiliate of any such person in any amount whatsoever other
than for salaries for services rendered or reimbursable business
expenses, all of which have been reflected on the Current
Financial Statements, and no such officer, director, shareholder
or affiliate is indebted to the Seller, except for advances made
to employees of the Seller in the ordinary course of business to
meet reimbursable business expenses anticipated to be incurred by
such obligor.
2.26 POWERS OF ATTORNEY AND SURETYSHIPS. Except as set
forth on SCHEDULE 2.26 attached hereto, the Seller has no general
or special powers of attorney outstanding (whether as grantor or
grantee thereof) and has no obligation or liability (whether
actual, accrued, accruing, contingent or otherwise) as guarantor,
surety, co-xxxxxx, endorser, co-maker, indemnitor or otherwise in
respect of the obligation of any person, corporation, partnership,
joint venture, association, organization or other entity, except
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as endorser or maker of checks or letters of credit, respectively,
endorsed or made in the ordinary course of business.
2.27 DISCLOSURE. No representation or warranty by the
Seller in this Agreement or in any Exhibit hereto, or in any list,
statement, document or information set forth in or attached to any
Schedule delivered or to be delivered pursuant to this Agreement,
contains or will contain any untrue statement of a material fact
or omits or will omit any material fact necessary in order to make
the statements contained therein not misleading. The Seller has
disclosed to the Buyer all material facts pertaining to the
transactions contemplated by this Agreement.
3. Representations of the Buyer
----------------------------
The Buyer represents and warrants to the Seller as follows:
3.1 ORGANIZATION AND AUTHORITY. The Buyer is a
corporation duly organized, validly existing and in good standing
under the laws of the state of Delaware, and has requisite power
and authority (corporate and other) to own its properties and to
carry on its business as now being conducted. The Buyer has full
power to execute and deliver this Agreement and the Instrument of
Assumption of Liabilities and to consummate the transactions
contemplated hereby and thereby. Certified copies of the
Certificate of Incorporation and the Bylaws of the Buyer, as
amended to date, have been previously delivered to the Seller, are
complete and correct, and no amendments have been made thereto or
have been authorized since the date thereof.
3.2 CAPITALIZATION OF THE BUYER. On the date hereof,
the Buyer's authorized capital stock consists of 35,000,000 shares
of Common Stock, $.01 par value ("Common Stock"), and 2,000,000
shares of Preferred Stock, $.01 par value per share, none of which
shares of Preferred Stock are issued or outstanding. As of
September 9, 1996, there were issued and outstanding 12,070,239
shares of Common Stock of the Buyer. All of the outstanding
shares of capital stock of the Buyer have been and on the Closing
Date will be duly and validly issued and are, or will be, fully
paid and nonassessable.
3.3 AUTHORIZATION. The execution and delivery of this
Agreement by the Buyer, and the agreements provided for herein,
and the consummation by the Buyer of all transactions contemplated
hereby, have been duly authorized by all requisite corporate
action. This Agreement and all such other agreements and written
obligations entered into and undertaken in connection with the
transactions contemplated hereby constitute the valid and legally
binding obligations of the Buyer, enforceable against the Buyer in
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accordance with their respective terms. The execution, delivery
and performance of this Agreement and the agreements provided for
herein, and the consummation by the Buyer of the transactions
contemplated hereby and thereby, will not, with or without the
giving of notice or the passage of time or both, (a) violate the
provisions of any law, rule or regulation applicable to the Buyer;
(b) violate the provisions of the Buyer's Certificate of
Incorporation or Bylaws; (c) violate any judgment, decree, order
or award of any court, governmental body or arbitrator; or (d)
conflict with or result in the breach or termination of any term
or provision of, or constitute a default under, or cause any
acceleration under, or cause the creation of any lien, charge or
encumbrance upon the properties or assets of the Buyer pursuant
to, any indenture, mortgage, deed of trust or other agreement or
instrument to which it or its properties is a party or by which
the Buyer is or may be bound. SCHEDULE 3.3 attached hereto sets
forth a true, correct and complete list of all consents and
approvals of third parties that are required in connection with
the consummation by the Buyer of the transactions contemplated by
this Agreement.
3.4 REGULATORY APPROVALS. All consents, approvals,
authorizations and other requirements prescribed by any law, rule
or regulation which must be obtained or satisfied by the Buyer and
which are necessary for the consummation of the transactions
contemplated by this Agreement have been, or will be prior to the
Closing Date, obtained and satisfied.
3.5 DISCLOSURE. No representation or warranty by the
Buyer in this Agreement or in any Exhibit hereto, or in any list,
statement, document or information set forth in or attached to any
Schedule delivered or to be delivered pursuant hereto, contains or
will contain any untrue statement of a material fact or omits or
will omit any material fact necessary in order to make the
statements contained therein not misleading.
3.6 BUYER FINANCIAL STATEMENTS. The audited financial
statements included in registration statements and reports filed
by the Buyer with the Securities and Exchange Commission or
delivered to the Seller were prepared in accordance with generally
accepted accounting principles applied on a consistent basis and
fairly present the financial position of the Buyer as at the dates
thereof and the results of operations and cash flow for the
periods then ended.
3.7 ISSUANCE OF SHARES. The shares of Common Stock of
Buyer issuable hereunder shall be registered under the Securities
Act of 1933, as amended, pursuant to a Registration Statement
filed with the Securities and Exchange Commission.
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4. Access to Information; Public Announcements
-------------------------------------------
4.1 Access to Management, Properties and Records.
--------------------------------------------
(a) From the date of this Agreement until the
final Closing Date, the Seller shall afford the officers,
attorneys, accountants and other authorized representatives of the
Buyer free and full access upon reasonable notice and during
normal business hours to all management personnel, offices,
properties, books and records of the Seller related to the Stores,
so that the Buyer may have full opportunity to make such
investigation as it shall desire to make of the management,
business, properties and affairs of the Seller with respect to the
Stores, and the Buyer shall be permitted to make abstracts from,
or copies of, all such books and records. The Seller shall
furnish to the Buyer such financial and operating data and other
information as to the Assets of the Seller as the Buyer shall
reasonably request.
(b) If the Buyer, at its option and expense, prior
to the final Closing Date, elects to have a report or reports
prepared by an engineer or other professional selected by the
Buyer, certifying that the real property associated with the
Assets (i) complies with all applicable federal, state and local
environmental and wetlands laws, rules and regulations and that
there is not now, and never has been, manufacture, storage, or
disposal of hazardous wastes at the real estate in violation of
said laws, rules and regulations, (ii) complies with all
applicable building, health and fire codes, and subdivision
control laws, rules and regulations, the Seller shall cooperate
with such engineer or professional to the extent necessary to
prepare such reports, including, without limitation, providing
such engineer or professional access to such real property and
necessary records, and arranging interviews with employees of the
Seller.
(c) The Seller shall authorize the release to the
Buyer of all files pertaining to the Seller with respect to the
Stores, the Assets or the business or operations of the Seller
held by any federal, state, county or local authorities, agencies
or instrumentalities.
4.2 CONFIDENTIALITY. All information not previously
disclosed to the public or generally known to persons engaged in
the respective businesses of the Seller or the Buyer which shall
have been furnished by the Buyer or the Seller to the other party
in connection with the transactions contemplated hereby or as
provided pursuant to this Section 4 shall not be disclosed to any
person other than their respective employees, directors,
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attorneys, accountants or financial advisors or other than as
contemplated herein. In the event that the transactions
contemplated by this Agreement shall not be consummated, all such
information which shall be in writing shall be returned to the
party furnishing the same, including, to the extent reasonably
practicable, all copies or reproductions thereof which may have
been prepared, and neither party shall at any time thereafter
disclose to third parties, or use, directly or indirectly, for its
own benefit, any such information, written or oral, about the
business of the other party hereto. Notwithstanding the above,
the parties acknowledge that it is likely that the terms hereof
shall be publicly available as an exhibit to the Buyer's
Registration Statement on Form S-1 or other periodic filing made
with the Securities and Exchange Commission and the Buyer shall
include in its Registration Statement on Form S-1 and in the
prospectus included therewith information regarding the Seller,
the business of the Seller and the financial condition of the
Seller.
5. Pre-Closing Covenants of the Seller
-----------------------------------
From and after the date hereof and until the final
Closing Date:
5.1 CONDUCT OF BUSINESS. The Seller shall carry on the
business of the Stores not yet acquired by the Buyer diligently
and substantially in the same manner as heretofore and shall not
make or institute any unusual or new methods of purchase, sale,
shipment or delivery, lease, management, accounting or operation,
except as agreed to in writing by the Buyer. All of the property
of the Seller relating to the Stores shall be used, operated,
renewed, repaired and maintained in a normal business manner
consistent with past practice.
5.2 ABSENCE OF MATERIAL CHANGES. Without the prior
written consent of the Buyer (which consent shall not be
unreasonably withheld and which consent shall not be required with
respect to any action set forth below in this Section 5.2 if such
action could not adversely impact the Seller's ability to
consummate the transactions contemplated hereby or increase the
post-Closing liability or obligations of the Buyer), the Seller
shall not:
(a) Take any action to amend its charter or
Bylaws;
(b) Incur any obligation or liability (absolute or
contingent), except current liabilities incurred and obligations
under contracts entered into in the ordinary course of business;
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(c) Mortgage, pledge, or subject to any lien,
charge or any other encumbrance any of the Assets;
(d) Sell, assign, or transfer any of the Assets,
except for inventory sold in the ordinary course of business, at a
normal profit margin, and for not less than replacement cost;
(e) Cancel any debts or claims, except in the
ordinary course of business;
(f) Merge or consolidate with or into any
corporation or other entity;
(g) Make, accrue or become liable for any bonus,
profit sharing or incentive payment, except for accruals under
existing plans, if any, or increase the rate of compensation
payable or to become payable by it to any of its officers,
directors or employees, other than increases in the ordinary
course of business consistent with past practice;
(h) Make any election or give any consent under
the Code or the tax statutes of any state or other jurisdiction or
make any termination, revocation or cancellation of any such
election or any consent or compromise or settle any claim for past
or present tax due;
(i) Modify, amend, alter or terminate any of its
executory contracts of a material value or which are material in
amount;
(j) Take or permit any act or omission
constituting a breach or default under any contract, indenture or
agreement by which it or its properties are bound;
(k) Fail to (i) preserve the possession and
control of its assets and business, (ii) keep in faithful service
its present officers and key employees, (iii) preserve the
goodwill of its customers, suppliers, agents, brokers and others
having business relations with it, and (iv) keep and preserve its
business existing on the date hereof until after the Closing Date;
(l) Fail to operate its business and maintain its
books, accounts and records in the customary manner and in the
ordinary or regular course of business and maintain in good repair
its business premises, fixtures, furniture and equipment;
(m) Engage any employee to work in a Store for a
salary in excess of $25,000 per annum;
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(n) Materially alter the terms, status or funding
condition of any Employee Plan, except for any such alterations
that would create no current or future obligations on the part of
the Buyer; or
(o) Commit or agree to do any of the foregoing in
the future.
5.3 TAXES. The Seller will, on a timely basis, file
all tax returns for and pay any and all taxes which shall become
due or shall have accrued (a) on account of the operation of the
business of the Seller or the ownership of the Assets on or prior
to the Closing Date or (b) on account of the sale of the Assets
(including a pro-rata portion of all personal property, excise and
other taxes payable with respect to the Assets on an annual basis
by the Seller).
5.4 DELIVERY OF INTERIM FINANCIAL STATEMENTS. As
promptly as possible following the last day of each month after
the date hereof, and in any event within 15 days after the end of
each such month, the Seller shall deliver to the Buyer its balance
sheet and related statements of income, shareholders' equity,
retained earnings and changes in financial condition (all with
respect to the Stores not yet acquired by Buyer) for the one-month
period then ended, all certified by the Seller's independent
public accountants or Seller's chief financial officer
(collectively, the "Interim Financial Statements").
5.5 COMPLIANCE WITH LAWS. The Seller will comply with
all laws and regulations which are applicable to it, its ownership
of the Assets or to the conduct of its business and will perform
and comply with all contracts, commitments and obligations by
which it is bound.
5.6 CONTINUED TRUTH OF REPRESENTATIONS AND WARRANTIES
OF THE SELLER. The Seller will not take any actions which would
result in any of the representations or warranties set forth in
Section 2 hereof being untrue.
5.7 CONTINUING OBLIGATION TO INFORM. From time to time
prior to the final Closing, the Seller will deliver or cause to be
delivered to the Buyer supplemental information concerning events
subsequent to the date hereof which would render any statement,
representation or warranty in this Agreement or any information
contained in any Schedule inaccurate or incomplete in any material
respect at any time after the date hereof until the Closing Date.
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5.8 EXCLUSIVE DEALING. The Seller will not, directly
or indirectly, through any officer, director, agent or otherwise,
(a) solicit, initiate or encourage submission of proposals or
offers from any person relating to any acquisition or purchase of
all or a material portion of the Assets, or any equity interest
in, the Seller or any equity investment, merger, consolidation or
business combination with the Seller, or (b) participate in any
discussions or negotiations regarding, or furnish to any other
person, any non-public information with respect to, or otherwise
cooperate in any way with, or assist or participate in, facilitate
or encourage, any effort or attempt by any other person to do or
seek any of the foregoing. The Seller shall promptly notify the
Buyer if any such proposal or offer, or any inquiry or contact
with any person with respect thereto, is made.
5.9 NO PUBLICITY. The Seller shall make no public
announcement with respect to this Agreement or the transactions
contemplated hereby without the express prior written consent of
the Buyer. The Seller shall hold in confidence, and use its best
efforts to have all of its officers, directors and personnel hold
in confidence, the terms of this Agreement and the transactions
contemplated hereby.
6. SATISFACTION OF CONDITIONS. The Seller and the Buyer
covenant and agree to use their commercially reasonable efforts to
obtain the satisfaction of the conditions specified in this
Agreement.
7. Conditions to Obligations of the Buyer
--------------------------------------
The obligations of the Buyer under this Agreement are
subject to the fulfillment, at each Closing Date, of the following
conditions precedent, each of which may be waived in writing in
the sole discretion of the Buyer:
7.1 CONTINUED TRUTH OF REPRESENTATIONS AND WARRANTIES
OF THE SELLER; COMPLIANCE WITH COVENANTS AND OBLIGATIONS. The
representations and warranties of the Seller (as updated on each
Closing Date) shall be true on and as of each Closing Date as
though such representations and warranties were made on and as of
such date, except for any changes permitted by the terms hereof or
consented to in writing by the Buyer. The Seller shall have
performed and complied with all terms, conditions, covenants,
obligations, agreements and restrictions required by this
Agreement to be performed or complied with by it prior to or at
each Closing Date.
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7.2 CORPORATE PROCEEDINGS. All corporate and other
proceedings required to be taken on the part of the Seller to
authorize or carry out this Agreement and to convey, assign,
transfer and deliver the Assets shall have been taken.
7.3 GOVERNMENTAL APPROVALS. All governmental agencies,
departments, bureaus, commissions and similar bodies, the consent,
authorization or approval of which is necessary under any
applicable law, rule, order or regulation for the consummation by
the Seller of the transactions contemplated by this Agreement and
the operation of the Seller's business by the Buyer shall have
consented to, authorized, permitted or approved such transactions.
7.4 CONSENTS OF LENDERS, LESSORS AND OTHER THIRD
PARTIES. The Seller shall have received all requisite consents
and approvals of all lenders, lessors and other third parties
whose consent or approval is required in order for the Seller to
consummate the transactions contemplated by this Agreement,
including, without limitation, those set forth on SCHEDULE 2.3
attached hereto.
7.5 ADVERSE PROCEEDINGS. No action or proceeding by or
before any court or other governmental body shall have been
instituted or threatened by any governmental body or person
whatsoever which shall seek to restrain, prohibit or invalidate
the transactions contemplated by this Agreement or which might
affect the right of the Buyer to own or use the Assets after each
Closing.
7.6 OPINION OF COUNSEL. The Buyer shall have received
an opinion of counsel to the Seller, dated as of the first Closing
Date, in substantially the form attached hereto as EXHIBIT B.
7.7 BOARD OF DIRECTORS AND SHAREHOLDER APPROVAL. The
shareholders of the Seller shall have duly authorized the
transactions contemplated by this Agreement.
7.8 THE ASSETS. Except for the Permitted Encumbrances,
at each Closing the Buyer shall receive good, clear, record and
marketable title to the Assets related to the Store being acquired
at such Closing, free and clear of all liens, liabilities,
security interests and encumbrances of any nature whatsoever.
7.9 UPDATE. The Seller shall have provided the Buyer
with a true, correct and complete list and amount, as of each
Closing Date, of (a) the Inventory; (b) the Fixed Assets; and (c)
the trade accounts payable and accrued liabilities of the Seller
with respect to the Stores not yet acquired by the Buyer. The
Seller shall have provided the Buyer with a list of the Accounts
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Receivable, as of, or within five days prior to, the Closing Date,
including an aging thereof, as reflected in the records of the
Seller.
7.10 CASH AVAILABLE FOR WORKING CAPITAL PURPOSES. On
each Closing Date, the Seller will have available cash for working
capital purposes of not less than $700 for the Store being
acquired on such Closing Date, which cash will be transferred to
the Buyer pursuant to the terms of this Agreement.
7.11 Payables.
--------
(a) On each Closing Date, with respect to the
Stores not yet acquired by the Buyer, the Seller will have no
obligations to suppliers and vendors of goods and services and
other trade creditors which are past due in accordance with their
terms and in no event shall the Seller have any of such
obligations outstanding for more than 60 days as of the Closing.
(b) On each Closing Date, the Seller will have no
liabilities to employees working in the Store being acquired by
the Buyer of such Closing for accrued vacation or sick pay,
employee benefit claims or liabilities to the Pension Benefit
Guaranty Corporation.
7.12 ENGINEER'S REPORT. On or prior to each Closing
Date, the Buyer shall have received the engineer's report, if any,
referred to in Subsection 4.1(b) hereof.
7.13 TAX LIEN WAIVERS. On or prior to each Closing
Date, the Seller shall have obtained and delivered to the Buyer
tax lien waivers from all jurisdictions in which Assets of the
Store being acquired by the Buyer at such Closing are located and
which provide such tax lien waivers.
7.14 CLOSING DELIVERIES. The Buyer shall have received
at or prior to each Closing each of the following documents:
(a) a xxxx of sale substantially in the form
attached hereto as EXHIBIT C;
(b) such instruments of conveyance, assignment and
transfer, in form and substance satisfactory to the Buyer, as
shall be appropriate to convey, transfer and assign to, and to
vest in, the Buyer, good, clear, record and marketable title to
the Assets being acquired;
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(c) such contracts, files and other data and
documents pertaining to the Assets or the Seller's business as the
Buyer may reasonably request;
(d) such certificates of the Seller's officers and
such other documents evidencing satisfaction of the conditions
specified in Section 7 (including without limitation, this
Section 7.14) as the Buyer shall reasonably request;
(e) a certificate of the Secretary of State (or
comparable issuing authority) of the state in which the Seller is
incorporated as to the legal existence and good standing
(including tax) of the Seller in such state, and a certificate of
the Secretary of State (or comparable issuing authority) of each
state or jurisdiction in which the Seller is qualified to transact
business, as to Seller's qualification to do business in such
state or jurisdiction;
(f) certificates of the Clerk or Secretary of the
Seller attesting to the incumbency of the Seller's officers,
respectively, the authenticity of the resolutions authorizing the
transactions contemplated by the Agreement, and the authenticity
and continuing validity of the charter documents delivered
pursuant to Subsection 2.1;
(g) estoppel certificates from the lessor of the
Store being acquired by the Buyer consenting to the assumption of
such lease by the Buyer and representing that there are no
outstanding claims against the Seller under any such lease;
(h) the schedules listed in Subsection 7.9;
(i) cross receipt executed by the Buyer and the
Seller;
(j) such other documents, instruments or
certificates as the Buyer may reasonably request.
7.15 RETAIL STORE OPTION AGREEMENT. On or prior to the
first Closing Date the Seller shall have executed and delivered
the Retail Store Option Agreement substantially in the form
attached hereto as SCHEDULE 7.15.
8. Conditions to Obligations of the Seller
---------------------------------------
The obligations of the Seller under this Agreement are
subject to the fulfillment, at the Closing Date, of the following
conditions precedent, each of which may be waived in writing at
the sole discretion of the Seller:
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8.1 CONTINUED TRUTH OF REPRESENTATIONS AND WARRANTIES
OF THE BUYER; COMPLIANCE WITH COVENANTS AND OBLIGATIONS. The
representations and warranties of the Buyer (as updated prior to
each Closing) in this Agreement shall be true on and as of each
Closing Date as though such representations and warranties were
made on and as of such date, except for any changes consented to
in writing by the Seller. The Buyer shall have performed and
complied with all terms, conditions, obligations, agreements and
restrictions required by this Agreement to be performed or
complied with by it prior to or at the Closing Date.
8.2 CORPORATE PROCEEDINGS. All corporate and other
proceedings required to be taken on the part of the Buyer to
authorize or carry out this Agreement shall have been taken.
8.3 GOVERNMENTAL APPROVALS. All governmental agencies,
departments, bureaus, commissions and similar bodies, the consent,
authorization or approval of which is necessary under any
applicable law, rule, order or regulation for the consummation by
the Buyer of the transactions contemplated by this Agreement shall
have consented to, authorized, permitted or approved such
transactions.
8.4 CONSENTS OF LENDERS, LESSORS AND OTHER THIRD
PARTIES. The Buyer shall have received all requisite consents and
approvals of all lenders, lessors and other third parties whose
consent or approval is required in order for the Buyer to
consummate the transactions contemplated by this Agreement at each
such Closing, including, without limitation, those set forth on
SCHEDULE 3.3 attached hereto, or in the event the lessor has not
consented to an assignment to the Buyer of the lease of the Store
being acquired by the Buyer, the Buyer has agreed to include under
such Lease obligations arising after the Closing Date as Assumed
Liabilities on SCHEDULE 1.4.
8.5 ADVERSE PROCEEDINGS. No action or proceeding by or
before any court or other governmental body shall have been
instituted or threatened by any governmental body or person
whatsoever which shall seek to restrain, prohibit or invalidate
the transactions contemplated by this Agreement or which might
affect the right of the Seller to transfer the Assets.
8.6 OPINION OF COUNSEL. The Seller shall have received
an opinion of Xxxx and Xxxx, counsel to the Buyer, dated as of the
first Closing Date, in substantially the form attached hereto as
EXHIBIT D.
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8.7 CLOSING DELIVERIES. The Seller shall have received
at or prior to the Closing each of the following documents:
(a) such certificates of the Buyer's officers and
such other documents evidencing satisfaction of the conditions
specified in this Section 8 as the Seller shall reasonably
request;
(b) a certificate of the Secretary of State of the
State of Delaware as to the legal existence and good standing
(including tax) of the Buyer in Delaware;
(c) a certificate of the Secretary of the Buyer
attesting to the incumbency of the Buyer's officers, the
authenticity of the resolutions authorizing the transactions
contemplated by this Agreement, and the authenticity and
continuing validity of the charter documents delivered pursuant to
Subsection 3.1;
(d) Instrument of Assumption of Liabilities
executed by the Buyer and accepted by the Seller; and
(e) such other documents, instruments or
certificates as the Seller may reasonably request.
8.8 RETAIL STORE OPTION AGREEMENT. On or prior to the
first Closing Date the Buyer shall have executed and delivered the
Retail Store Option Agreement substantially in the form attached
hereto as SCHEDULE 8.8.
9. Indemnification
---------------
9.1 BY THE BUYER AND THE SELLER. The Buyer and the
Seller each hereby agrees to indemnify and hold harmless the other
against all claims, damages, losses, liabilities, costs and
expenses (including, without limitation, settlement costs and any
legal, accounting or other expenses for investigating or defending
any actions or threatened actions) reasonably incurred by the
Buyer or the Seller in connection with each and all of the
following:
(a) Any breach by the indemnifying party of any
representation or warranty in this Agreement;
(b) Any breach of any covenant, agreement or
obligation of the indemnifying party contained in this Agreement
or any other agreement, instrument or document contemplated by
this Agreement; and
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(c) Any misrepresentation contained in any
statement, certificate or schedule furnished by the indemnifying
party pursuant to this Agreement or in connection with the
transactions contemplated by this Agreement.
9.2 BY THE SELLER. The Seller further agrees to
indemnify and hold harmless the Buyer from any and all claims,
damages, losses, liabilities, costs and expenses (including,
without limitation, settlement costs and any legal, accounting or
other expenses for investigating or defending any actions or
threatened actions) reasonably incurred by the Buyer, in
connection with each and all of the following:
(a) Any claims against, or liabilities or
obligations of, the Seller or against the Assets not specifically
assumed by the Buyer pursuant this Agreement, including without
limitation, any liabilities or obligations of the Seller for
accrued vacation or sick pay and employee benefit claims under any
Employee Benefit Plan;
(b) The failure of the Buyer to obtain the
protections afforded by compliance with the notification and other
requirements of the bulk sales laws in force in the jurisdictions
in which such laws may be applicable to either the Seller or the
transactions contemplated by this Agreement;
(c) Any violation by the Seller of, or any failure
by the Seller to comply with, any law, ruling, order, decree,
regulation or zoning, environmental or permit requirement
applicable to the Seller, the Assets or its business, whether or
not any such violation or failure to comply has been disclosed to
the Buyer, including any costs incurred by the Buyer (i) in order
to bring the Assets into compliance with environmental laws as a
consequence of noncompliance with such laws on the Closing Date or
(ii) in connection with the transfer of the Assets;
(d) Any warranty claim or product liability claim
relating to the operation of each Store prior to the acquisition
by the Buyer;
(e) Any tax liabilities or obligations of the
Seller; and
(f) Any claims against, or liabilities or
obligations of, the Seller with respect to obligations under
Employee Plans not specifically assumed by the Buyer pursuant to
this Agreement.
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9.3 CLAIMS FOR INDEMNIFICATION. Whenever any claim
shall arise for indemnification hereunder the party seeking
indemnification (the "Indemnified Party"), shall promptly notify
the party from whom indemnification is sought (the "Indemnifying
Party") of the claim and, when known, the facts constituting the
basis for such claim. In the event of any such claim for
indemnification hereunder resulting from or in connection with any
claim or legal proceedings by a third-party, the notice to the
Indemnifying Party shall specify, if known, the amount or an
estimate of the amount of the liability arising therefrom. The
Indemnified Party shall not settle or compromise any claim by a
third party for which it is entitled to indemnification hereunder
without the prior written consent of the Indemnifying Party, which
shall not be unreasonably withheld, unless suit shall have been
instituted against it and the Indemnifying Party shall not have
taken control of such suit after notification thereof as provided
in Subsection 9.4 of this Agreement.
9.4 DEFENSE BY INDEMNIFYING PARTY. In connection with
any claim giving rise to indemnity hereunder resulting from or
arising out of any claim or legal proceeding by a person who is
not a party to this Agreement, the Indemnifying Party at its sole
cost and expense may, upon written notice to the Indemnified
Party, assume the defense of any such claim or legal proceeding if
it acknowledges to the Indemnified Party in writing its
obligations to indemnify the Indemnified Party with respect to all
elements of such claim. The Indemnified Party shall be entitled
to participate in (but not control) the defense of any such
action, with its counsel and at its own expense. If the
Indemnifying Party does not assume the defense of any such claim
or litigation resulting therefrom within 30 days after the date
such claim is made, (a) the Indemnified Party may defend against
such claim or litigation, in such manner as it may deem
appropriate, including, but not limited to, settling such claim or
litigation, after giving notice of the same to the Indemnifying
Party, on such terms as the Indemnified Party may deem
appropriate, and (b) the Indemnifying Party shall be entitled to
participate in (but not control) the defense of such action, with
its counsel and at its own expense. If the Indemnifying Party
thereafter seeks to question the manner in which the Indemnified
Party defended such third party claim or the amount or nature of
any such settlement, the Indemnifying Party shall have the burden
to prove by a preponderance of the evidence that the Indemnified
Party did not defend or settle such third party claim in a
reasonably prudent manner.
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9.5 PAYMENT OF INDEMNIFICATION OBLIGATION. All
indemnification by the Buyer and the Seller hereunder shall be
effected by payment of cash or delivery of a cashier's or
certified check in the amount of the indemnification liability.
Notwithstanding anything herein to the contrary, the maximum
aggregate liability of the Seller under Section 9 hereof shall not
exceed an amount equal to the Purchase Price. Notwithstanding
anything to the contrary in this Section 9, Buyer shall not be
entitled to receive, and the Seller shall not be obligated to pay,
the first $10,000 in the aggregate of indemnity obligations
otherwise payable by Seller to Buyer pursuant to this Section 9
and Seller shall not be entitled to receive, and the Buyer shall
not be obligated to pay, the first $10,000 in the aggregate of
indemnity obligations otherwise payable by Buyer to Seller
pursuant to this Section 9. All indemnification liability payable
hereunder shall be reduced by the net present value (using a
discount rate equal to the then prime rate as set forth in THE
WALL STREET JOURNAL) of any noncontingent tax benefits to the
indemnified party resulting therefrom.
9.6 SURVIVAL OF REPRESENTATIONS; CLAIMS FOR
INDEMNIFICATION. All representations and warranties made by the
parties herein or in any instrument or document furnished in
connection herewith shall survive the Closing and any
investigation at any time made by or on behalf of the parties
hereto. All such representations and warranties shall expire on
the second anniversary of the final Closing Date, except for
claims, if any, asserted in writing prior to such second
anniversary, which shall survive until finally resolved and
satisfied in full. All claims and actions for indemnity pursuant
to this Section 9 for breach of any representation or warranty
shall be asserted or maintained in writing by a party hereto on or
prior to the expiration of such two-year period. Notwithstanding
the above claims resulting from the failure by the Seller to pay
when due any tax or claims relating to Seller's employee benefit
plans shall expire one year after any applicable statute of
limitations.
10. Post-Closing Agreements
-----------------------
The Seller agrees that from and after the Closing Date:
10.1 Proprietary Information.
-----------------------
(a) The Seller shall hold in confidence, and use
its best efforts to have all of its officers, directors and
personnel hold in confidence, all knowledge and information of a
secret or confidential nature with respect to the business of the
Seller and shall not disclose, publish or make use of the same
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without the consent of the Buyer, except to the extent that such
information shall have become public knowledge other than by
breach of this Agreement by the Seller.
(b) The Seller agrees that the remedy at law for
any breach of this Subsection 10.1 would be inadequate and that
the Buyer shall be entitled to injunctive relief in addition to
any other remedy it may have upon breach of any provision of this
Subsection 10.1.
10.2 NO SOLICITATION OR HIRING OF FORMER EMPLOYEES.
Except as provided by law, for a period of three years after the
final Closing Date, neither the Seller nor any Affiliate thereof
(including the Principals) shall solicit any person who was an
employee of the Seller on the Closing Date to terminate his
employment with the Buyer or to become an employee of the Seller
or hire any person who was such an employee on the date hereof or
on the Closing Date.
10.3 Non-Competition Agreement.
-------------------------
(a) Except as otherwise set forth on
SCHEDULE 10.3, for a period of five years after the final Closing
Date, neither the Seller nor any Affiliate (including the
Principals) thereof shall (i) market, rent or sell at the retail
level any product which has the same or substantially the same
form, function and primary application as any existing or proposed
videotape, game or movie product marketed, rented or sold by the
Seller on or prior to the Closing Date or (ii) engage in any
business involving directly or indirectly the marketing, sale or
rental at the retail level of any videotape, game or movie product
competitive with the business of the Seller as conducted on the
date hereof or on the Closing Date, in the United States or any
other country in which the Seller conducted its business during
the two years prior to the Closing Date. Notwithstanding any
provision to the contrary herein, in the State of Louisiana the
noncompete period referred to above shall terminate two years
after the date of termination of the restrictions on transfer of
Common Stock included in Section 1.7 above.
(b) The parties hereto agree that the duration
and geographic scope of the non-competition provision set forth in
this Subsection 10.3 are reasonable. In the event that any court
determines that the duration or the geographic scope, or both, are
unreasonable and that such provision is to that extent
unenforceable, the parties hereto agree that the provision shall
remain in full force and effect for the greatest time period and
in the greatest area that would not render it unenforceable. The
parties intend that this non-competition provision shall be deemed
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to be a series of separate covenants, one for each and every
county of each and every state of the United States of America and
each and every political subdivision of each and every country
outside the United States of America where this provision is
intended to be effective. The Seller agrees that damages are an
inadequate remedy for any breach of this provision and that the
Buyer shall, whether or not it is pursuing any potential remedies
at law, be entitled to equitable relief in the form of preliminary
and permanent injunctions without bond or other security upon any
actual or threatened breach of this non-competition provision.
10.4 Sharing of Data.
---------------
(a) The Seller shall have the right for a period
of three years following the final Closing Date to have reasonable
access to such books, records and accounts, including financial
and tax information, correspondence, production records,
employment records and other similar information as are
transferred to the Buyer pursuant to the terms of this Agreement
for the limited purposes of concluding its involvement in the
business of the Seller prior to the Closing Date and for complying
with its obligations under applicable securities, tax,
environmental, employment or other laws and regulations. The
Buyer shall have the right for a period of three years following
the Closing Date to have reasonable access to those books, records
and accounts, including financial and tax information,
correspondence, employment records and other records which are
retained by the Seller pursuant to the terms of this Agreement to
the extent that any of the foregoing relates to the business of
the Seller transferred to the Buyer hereunder or is otherwise
needed by the Buyer in order to comply with its obligations under
applicable securities, tax, environmental, employment or other
laws and regulations.
(b) The Seller and the Buyer agree that from and
after the Closing Date they shall cooperate fully with each other
to facilitate the transfer of the Assets from the Seller to the
Buyer and the operation thereof by the Buyer.
10.5 USE OF NAME. Except as set forth in Section 10.7
below, without Buyer's prior written consent, the Seller and each
of the Principals each agrees not to use the trade names
identified on SCHEDULE I or any derivation thereof after the final
Closing Date in connection with any business.
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10.6 COOPERATION IN LITIGATION. Each party hereto will
fully cooperate with the other in the defense or prosecution of
any litigation or proceeding already instituted or which may be
instituted hereafter against or by such party relating to or
arising out of the conduct of the business of the Seller prior to
or after the Closing Date (other than litigation arising out the
transactions contemplated by this Agreement). The party
requesting such cooperation shall pay the out-of-pocket expenses
(including legal fees and disbursements) of the party providing
such cooperation and of its officers, directors, employees and
agents reasonably incurred in connection with providing such
cooperation, but shall not be responsible to reimburse the party
providing such cooperation for such party's time spent in such
cooperation or the salaries or costs of fringe benefits or similar
expenses paid by the party providing such cooperation to its
officers, directors, employees and agents while assisting in the
defense or prosecution of any such litigation or proceeding.
10.7 LICENSE TO REEL VIDEO. Effective from and after
the first Closing, Buyer hereby grants to Seller a non-exclusive,
royalty-free right and license to use the tradename "Reel Video"
solely in connection with the operation of the Stores not yet
acquired by the Buyer.
10.8 CONDUCT OF BUSINESS. Until September 30, 1997,
the Buyer shall carry on the Business of the Stores acquired by it
hereunder in a reasonably diligent and prudent manner and
consistent with the manner in which the Buyer carries on the
Business of the other stores owned and operated by it.
10.9 NON-COMPETE AGREEMENT WITH XXXXXXX XXXXX. From
and after the first Closing Date, the Seller will take all
commercially reasonable measures to enforce its rights under the
Non-Compete Agreement between the Seller (then known as "Box
Office Entertainment, Inc.") and Xxxxxxx Xxxxx, dated April 4,
1996.
10.10 CONFIDENTIALITY AGREEMENTS. Within one week of
the first Closing Date, the Seller will use its best efforts to
cause Xxxxxxx Xxxxx and Xxxxxxx Xxxxxxx to execute and deliver
Confidentiality Agreements to the Buyer which are in form and
substance reasonably satisfactory to the Buyer.
11. Termination of Agreement
------------------------
11.1 TERMINATION BY AGREEMENT OF THE PARTIES. This
Agreement may be terminated by the mutual written agreement of the
parties hereto.
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11.2 TERMINATION BY REASON OF BREACH. The obligations
hereunder to purchase and sell any Stores not yet acquired by the
Buyer may be terminated by the Seller, if at any time prior to a
Closing there shall occur a material breach of any of the
representations, warranties or covenants of the Buyer or the
failure by the Buyer to perform any material condition or
obligation hereunder, and may be terminated by the Buyer, if at
any time prior to the Closing there shall occur a material breach
of any of the representations, warranties or covenants of the
Seller or the failure of the Seller to perform any material
condition or obligation hereunder.
12. Transfer and Sales Tax
----------------------
Notwithstanding any provisions of law imposing the
burden of such taxes on the Seller or the Buyer, as the case may
be, the Seller shall be responsible for and shall pay (a) all
sales, use and transfer taxes, and (b) all governmental charges,
if any, upon the sale or transfer of any of the Assets hereunder.
If the Seller shall fail to pay such amounts on a timely basis,
the Buyer may pay such amounts to the appropriate governmental
authority or authorities, and the Seller shall promptly reimburse
the Buyer for any amounts so paid by the Buyer.
13. Brokers
-------
13.1 FOR THE SELLER. The Seller represents and
warrants that it has not engaged any broker or finder or incurred
any liability for brokerage fees, commissions or finder's fees in
connection with the transactions contemplated by this Agreement.
The Seller agrees to indemnify and hold harmless the Buyer against
any claims or liabilities asserted against it by any person acting
or claiming to act as a broker or finder on behalf of the Seller.
13.2 FOR THE BUYER. The Buyer agrees to pay all fees,
expenses and compensation owed to any person, firm or corporation
who has acted in the capacity of broker or finder on its behalf in
connection with the transactions contemplated by this Agreement.
The Buyer agrees to indemnify and hold harmless the Seller against
any claims or liabilities asserted against it by any person acting
or claiming to act as a broker or finder on behalf of the Buyer.
14. Notices
-------
Except to the extent otherwise provided herein, any
notices or other communications required or permitted hereunder
shall be sufficiently given if delivered personally or sent by
telex, federal express, registered or certified mail, postage
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prepaid, addressed as follows or to such other address of which
the parties may have given notice:
To the Seller
or any Principal: At the address specified for
this purpose on SCHEDULE I
To the Buyer: West Coast Entertainment Corporation
0000 Xxxxxx Xxxx
Xxxxxxxxxxxx, XX 00000
With a copy to: Xxxx and Xxxx
00 Xxxxx Xxxxxx
Xxxxxx, XX 00000
Attn: Xxxx X. Xxxxx, Esq.
Unless otherwise specified herein, such notices or other
communications shall be deemed received (a) on the date delivered,
if delivered personally; (b) three business days after being sent,
if sent by registered or certified mail; or (c) on the date of
actual receipt, if delivered by any other method.
15. Arbitration
-----------
(a) Any dispute, controversy or claim between the
parties arising out of or relating to this Agreement, a breach
hereof or the transactions contemplated hereby, shall be settled
by arbitration in accordance with the provisions of this
Section 15. Any arbitration pursuant to this Section 15 shall be
conducted by a single arbitrator appointed by the Philadelphia,
Pennsylvania office of the American Arbitration Association upon
the request of either party. The arbitrator shall have a minimum
of five years of experience in the area of business relevant to
the particular dispute. Each party shall be permitted to submit
only one proposal to the arbitrator, and the arbitrator shall be
required to choose one of such two proposals as the resolution of
the dispute. The arbitrator may proceed to a resolution notwith-
standing the failure of a party to participate in the proceedings.
Each of the parties shall pay its own costs and expenses in
connection with any such arbitration, and the parties shall share
equally in the fees and expenses of the arbitrator.
(b) The parties agree that any such arbitration will
occur in Philadelphia, Pennsylvania, any such arbitration award
shall be final and binding upon the parties, may be entered in any
court having jurisdiction and shall not be appealable by either
party in any court.
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16. Successors and Assigns
----------------------
This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and
assigns, except that the Buyer, the Seller and the Principals may
not assign their respective obligations hereunder without the
prior written consent of the Seller in the case of an assignment
by the Buyer or the Buyer in the case of an assignment by the
Seller or a Principal; provided, however, that the Buyer may
assign this Agreement, and its rights and obligations hereunder,
to a subsidiary or affiliate. Any assignment in contravention of
this provision shall be void.
17. Entire Agreement; Amendments; Attachments
-----------------------------------------
(a) This Agreement, all Schedules and Exhibits hereto,
and all agreements and instruments to be delivered by the parties
pursuant hereto represent the entire understanding and agreement
between the parties hereto with respect to the subject matter
hereof and supersede all prior oral and written and all
contemporaneous oral negotiations, commitments and understandings
between such parties. The Buyer, the Seller and the Principals
may amend or modify this Agreement, in such manner as may be
agreed upon, by a written instrument executed by the Buyer and the
Seller.
(b) If the provisions of any Schedule or Exhibit to
this Agreement are inconsistent with the provisions of this
Agreement, the provision of the Agreement shall prevail. The
Exhibits and Schedules attached hereto or to be attached hereafter
are hereby incorporated as integral parts of this Agreement.
18. Expenses
--------
Except as otherwise expressly provided herein, the Buyer
and the Seller shall each pay their own expenses in connection
with this Agreement and the transactions contemplated hereby.
19. Legal Fees
----------
In the event that legal proceedings are commenced by the
Buyer against the Seller, or by the Seller against the Buyer, in
connection with this Agreement or the transactions contemplated
hereby, the party or parties which do not prevail in such
proceedings shall pay the reasonable attorneys' fees and other
costs and expenses, including investigation costs, incurred by the
prevailing party in such proceedings.
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20. Governing Law
-------------
This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware.
21. Section Headings
----------------
The section headings are for the convenience of the
parties and in no way alter, modify, amend, limit, or restrict the
contractual obligations of the parties.
22. Severability
------------
The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement.
23. Counterparts
------------
This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original, but
all of which shall be one and the same document.
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IN WITNESS WHEREOF, this Agreement has been duly executed by
the parties hereto as of and on the date first above written.
(Corporate Seal) WEST COAST ENTERTAINMENT CORPORATION
ATTEST:
By: /s/ T. Xxxx Xxxxxxxx
--------------------------------
Title: CEO/President
------------------------- -----------------------------
SELLER:
REEL ENTERTAINMENT, INC.
By: /s/ T. Xxxxxx Xxxxxxx, Jr.
--------------------------------
Title: President
-----------------------------
PRINCIPALS:
/s/ T. Xxxxxx Xxxxxxx, Jr.
-----------------------------------
T. Xxxxxx Xxxxxxx, Jr.
BANK ONE EQUITY INVESTORS, INC.
By: /s/ Xxxxxx Xxxxxx
--------------------------------
Title: President
-----------------------------
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Schedule I
----------
to Asset Purchase Agreement
between West Coast Entertainment Corporation and
Seller
Section of Agreement
in Which Term, Item or
Information is Referenced Term or Item
------------------------- ------------
Recital Seller: Reel Entertainment, Inc., a Louisiana
corporation.
Recital Address of Principal Office: 000 X'Xxxxx Xxxxxx,
Xxx Xxxxxxx, Xxxxxxxxx 00000
Recital Principals: T. Xxxxxx Xxxxxxx, Jr.
Bank One Equity Investors, Inc.
Preliminary
Statement: Stores by Location:
0000 Xxxxx Xxxxx Xxxx
Xxxxx Xxxxx, XX 00000 (the "Woodlawn Store")
0000 Xxxxxx Xxxx
Xxxxx Xxxxx, XX 00000 (the "Siegen Store")
0000-X Xxxxxxx Xxxxxx
Xxxxxxxxx, XX 00000 (the "Time Plaza Store")
0000 Xxxx Xxxxxx
Xxxx Xxxxxxx, XX 00000 (the "Lake Xxxxxxx Store")
1.1(a)(viii) Trade Names: Reel Entertainment, Inc.
1.4 Assumed Liabilities:
All obligations of the Seller continuing after
each Closing under the Lease specified on SCHEDULE
2.11 for the Store acquired at such Closing.
Accounts Payable for new release rental and sell-
through videotapes and interactive electronic
games relating to the Stores that have been
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outstanding for 60 days or less at the Closing and
that have been incurred in the ordinary course of
business.
1.6 Closing Dates:
First Closing: October 1, 1996 - Woodlawn Store
Second Closing: December 2, 1996 - Store to be
determined
Third Closing: March 3, 1997 - Store to be
determined
Fourth Closing: May 1, 1997 - Store to be
determined
2.2 The Seller's authorized capital stock consists of
100,000 shares of Common Stock, no par value per
share, of which 50,000 shares are issued and
outstanding, 23,333 shares of Series A Preferred
Stock, $100 par value per share, of which 10,000
shares are issued and outstanding, and 11,667
shares of Series B Preferred Stock, $100 par value
per share, of which 5,000 shares are issued and
outstanding.
14 Address for notices for purposes of Section 14:
If to the Seller or
to any Principal: Reel Entertainment, Inc.
000 X'Xxxxx Xxxxxx
Xxx Xxxxxxx, XX 00000
With a copy to: B. Xxxx Xxxxx, Esq.
Xxxxx and Xxxxx, L.L.P.
000 Xxxxxxx Xxxxxx
00xx Xxxxx, Xxxxx Xxxxx
Xxxxx Xxxxx, XX 00000
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